Godrej Consumer Products Ltd

NSE:GODREJCP

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Godrej Consumer Products Limited Q1 FY '24 Earnings Conference Call. [Operator Instructions] I now hand the conference to the management. Thank you and over to you.

[Tapan Joshi, executive]

Thank you, Aman. Good evening, everyone, and thank you for joining us today this evening to discuss the performance of Quarter 1 FY '24. We have with us Nisa Godrej, Executive Chairperson, Sudhir Sitapati, Managing Director and CEO, and Sameer Shah, CFO from GCPL Management Team. Without taking much time, I will hand it over to Sudhir for his opening remarks. And then we'll be happy to take any questions.

[Sudhir Sitapati, executive]

Thanks, thanks, Tapan. Good evening to all of you. despite the tough market conditions, our performance in Q1 FY '24 was ahead of our expectations on both volume and profit growth. At a consolidated level, including inorganic UVG was 10%. Constant currency sales growth was 15%. INR sales growth was 10%, EBITDA was 28% up and PAT with our exceptional was 19%. Operating cash flow was up 4.9x, albeit on a weak comparator. Organically, UVG was 8%. Constant currency sales growth was 13%. INR growth was 9%. Working media was up 68% and EBITDA was up around 36%. Our USG was impacted due to price deflation in soaps and the currency translation impact in Nigeria. PAT was behind EBITDA due to higher ForEx losses and MAT credit utilization. This is a noncash item as our growth in operating cash flow shows. Our working capital reduction across the board continues to be significant, resulting in exceptional operating cash flow. If one compare these numbers with Q1 FY '20, pre-COVID quarter our reported EBITDA is roughly the same, but with a very different shape of P&L. Our GMs are down 350 bps and our AGM is up 100 bps.

Both these are investments into things that consumers see. But our BTL and overheads are down by a corresponding 450 bps. We think our underlying volume trajectory, while not yet double digits has significantly improved because of the shape of P&L. Organically, India had a strong quarter with 10% UVG, 6% USG and around 32% EBITDA growth. Market conditions in India are tough and our good performance has been due to a soft comparator and soap volumes, a good HI season in the North and our market development investments.

Indonesia had a strong quarter despite another round of down stocking in modern trade, volume was up 12%, 15% constant currency growth, 20% sales growth 53% EBITDA growth. Stocks in modern trade are now down from a peak of 95 days to around 58 days. This, along with generally strong macros augurs well for the future of the business. Guam also had a good quarter with 3% volume, 16% currency growth, 9% sales growth and 55% EBITDA growth. These numbers have been affected marginally by the devaluation in Nigeria in the last fortnight of June.

The impact of the Nigeria devaluation will be significant optically over the next few quarters, so it merits some understanding. In May '23, the official market rate was INR 450 to $1. While the parallel market rate was INR 750 to $1. We were buying dollars at a weighted average cost of INR 650 to $1.

The delta between official rate and Avera market rate was reflected in a ForEx loss line. This accounting translation was happening at an official rate of INR 450 to the $1. With the free float, the INR is now around INR 750 per $1, and it may depreciate further. But what we will do is to pass on price increase to end consumers for INR 650 to $1 to INR 750 to $1 such that our profits are intact. However, we will have to read EBITDA plus ForEx loss line item together for the next 4 quarters as the ForEx loss will move to material costs from Q2 onwards.

The earlier guidance on profitability remains intact. Secondly, there will be accounting translation impact from INR 450 to INR 750, which will get partly offset by the INR 650 to INR 750 in INR increase. However, the balance will affect INR sales grows by about 200 bps at a consolidated level. Please note that there will be no impact on volumes or constant currency growth here. So between INR 450 and INR 650, you will not price and it will be an accounting hit, INR 650 onwards we will price for. This, while in the short term, has made reading our results a little bit more difficult.

In the long term, we believe that it strengthens our competitiveness as all players will have to now buy at the free-floating rate of INR 750 to $1. And hence, we think there will be an opportunity to gain market share. LatAm also had a good quarter with 12% volume growth. Let me now share the progress we have made on our strategy, which I had detailed out in our annual analyst meet a few months back. We remain committed to our strategy of category development, simplifcation and sustainability.

On strategy development, we have been consistently investing in our brands with our media investments in India increasing by 125% year-on-year. We have launched an innovative membrane-based air fractional called Aero in the car segment. Lastly, we are also planning to invest around INR 900 crores in organic manufacturing CapEx in India over the next 18 to 36 months, largely for volume growth but also for logistic reasons.

On simplification, our partnership with the national distribution in Nigeria is progressing well, and we expect to see the benefits of this as the year progresses. In Indonesia, we reduced stocks in modern trade from, as I mentioned before, 95 days to around 58 days.

Lastly, on People and Planet, alongside profit front, we have recently pilot launched Magic Floor Cleaner, which is an environment-friendly powder to liquid-based format playing in the large and fast-growing floor cleaning space. The understanding of the financial performance of GCPL in FY '24 is complex due to several factors: The optical devaluation of the Nigeria, the inorganic impact of the RCCL acquisition and the MAT credit we will avail in FY '24 and '25. We, therefore, believe that the four primary metrics to look at while evaluating our performance, our organic UVG, organic constant currency growth, EBITDA, including ForEx and operating cash flow, which are largely unaffected by the above. Despite market conditions, especially in India being tough, we remain optimistic on our full year ambitions, including on Park Avenue and Kamasutra. Thank you.

[Operator]

Should we open the line for Q&A?

[Sudhir Sitapati, executive]

Yes.

[Operator]

[Operator Instructions]. The first question is from the line of Abneesh Roy from Nuvama Institutional Equities.

[Abneesh Roy, analyst]

Thanks and congrats on a good set of numbers. My first question is on the INR 900 crores CapEx. We are seeing food companies do a lot of in-sourcing versus outsourcing. On the other hand, HPC companies like [indiscernible] have been gradually outsourcing. So I wanted to understand why we did not think outsourcing in this? And what will be the long-term ratio we are looking at in terms of in-sourcing versus outsource?

[Sudhir Sitapati, executive]

Thanks, Abneesh. Look, while evaluating in-sourcing and outsourcing there are three criteria. One is the scale within the industry. And in most of the categories that we operate in, we have a pretty good and high scale within the industry. So when you have high scale -- when you have lower scale, it makes sense to take the benefit of the scale of the third-party supplier when you have high scale, it makes sense to do it yourself. The second is really how commoditize or differentiated the categories are. Many of our categories we see that differentiated with enough secret sauce and high margins that make us doing it ourselves. Our soaps maybe an exception here, but it's not an exception to the rule of scale and most people manufacture soap with scale by themselves.

The third thing is capabilities, you have capability like we do in India, one should do it oneself. And finally, how automated or labor-intensive the process is, the more labor intensive, sometimes it's better to outsource. But the way we see a lot of our businesses is that the production will be pretty automated. So for combination of these 4 reasons, we feel that a lot of our growth in logistics-related savings needs to come from in-sourcing. Of course, this doesn't mean that we will completely stop outsourcing. For instance, our coil business in household insecticide doesn't really meet any of these criteria or doesn't mean most of these criteria. And so we will continue to outsource it. I suspect I don't know the exact number Abneesh, and what it will be, but I suspect that the majority of our business will be in-sourced.

[Abneesh Roy, analyst]

My second question is on the massive simplification, SKU rationalization and inventory reduction you have done, especially in India and Indonesia. My question is, why was GCPL not doing it earlier. So how does this impact your business in terms of consumers getting more choice because now lesser SKU, lesser inventory. So in terms of customer choice, obviously, it will be lower. Does it impact in terms of, say, market share overall? I understand this could be a lot of pain, but wanted to get clarity why it was not done earlier.

[Sudhir Sitapati, executive]

No, I think the defined focus of our business has been on category development and category development needs a few [indiscernible] because you're convincing consumers to enter categories. So the moment our focus becomes category or market development, you realize a very few SKUs are required to catalyze the category development. So the SKU reduction and simplification has been because of a reemphasis on category development, which has certainly been -- I won't say it's a new strategy. I think we already have -- always had it. But certainly, it has been reemphasized. It does not have an impact on market share, Abneesh. If anything, the market share in general products are very good both in India and Indonesia. And when we simplify our SKU what tends to happen is who are SKUs tend to have better availability in shelf, because the tail SKUs don't block retailer capital and market shares tend to go up as have been happening for us.

[Abneesh Roy, analyst]

Sir, last quick question. We have seen in segments where commodity deflation has happened. The regional players have come back, so biscuits, detergents, et cetera, even in soaps. So how are you retaliating to this because your growth rate, of course, the base was a bit soft. But going ahead, do you see that regional players are coming back, so you need to pass it on to the customer. So because overall, you did say many times that demand scenario in India remains reasonably challenging. So from that context, how do you see that?

[Sudhir Sitapati, executive]

There are 2 things Abneesh, the soaps category compared to, let's say, 10 or 15 years ago, doesn't have the same salience of local players with some other categories do or indeed soaps did a decade or 2 decades ago, It's become a pretty consolidated category. Not that there are no local players, but that is not the major salience in the soaps category.

Our general principal on pricing is, in inflationary times to absorb the inflation to the extent that we can and protect consumer. And when prices fall not to kind of make excess profit from those margins, so our margins in soaps at the gross margin levels have not crossed our historic levels. And we have been quick off the block in [indiscernible] . So we are less or -- we've been speaking, Abneesh. Our real goal is volume growth. And we are not that fast as long as volume growth is good and cash -- operating cash flow is good, we are not really worrying all that much about sales growth. And we have been -- certainly, we have passed on prices commensurate with the margins we think we should earn in this category.

[Operator]

The next question is from the line of Avi Mehta from Macquarie.

[Avi Mehta, analyst]

I want to kind of just focus you on the agreements portfolio. Now this quarter, we have seen almost a INR 45 crore EBITDA loss in this business. A, I wanted to understand what drove that sharp because the sales is almost similar to that. And B, could you give your thoughts because you've retained the guidance of single-digit EBITDA margin for the year. So how do you see this changing as we move into the quarters of FY '24.

[Sudhir Sitapati, executive]

So, I think our Raymond's acquisition so far has been quite good. It has been on plan, and we are quite happy with the progress and the integration. The reason for the GST gross sales value number in the 1.5 months that we bought it has roughly been the average despite down stocking at the primary point, which is a distributor. We have had two reasons for a lower NSV sales and low profits.

One is take back of slow-moving inventory, which we had planned to do so that we can get distributed capital to move faster. And secondly, from the day we have taken over the business, we have started investing in ATL because we believe that this is a category where ATL will drive business. So these are the two reasons that we have reported the loss that we have and reported a sales growth, which is significantly lower than the gross sales value growth. We've maintained broadly what we said we will do for the year, which was not single-digit UVG. It was roughly be away of single digit...

[Avi Mehta, analyst]

I was looking at the EBITDA margin.

[Sudhir Sitapati, executive]

Yes. So I think we remain committed to doing what we've done in year 1 because we want to just clean up a lot of stuff and by the end of this year and certainly next year, our goal is to get to be EPS positive. And there's nothing that has happened so far in the business that leaves us to believe that our strategy is -- there has been no surprises in the business so far.

[Sameer Shah, executive]

And Avi, just as in quarter 1, we didn't have overhead synergies, we should start getting paid out from quarter 3 onwards. And hence we remain still confident of getting close to the ambition of high single-digit EBITDA margin on a full year basis.

[Avi Mehta, analyst]

So the way it should be this loss should no longer kind of I mean, it should kind of improve, which will become a profit and then we kind of reach towards that trajectory for the full year. That's the way I should -- the hard work is more or less behind us in 1Q and the impact is largely...

[Sudhir Sitapati, executive]

I mean Q2 will still be a quarter that we will see in Q2, there will still be things that we are doing to synergize. So I mean, it may not be like Q1, but it will still not be life as normal. We hope Q3 and then Q4, we hope things improve. We are currently quite confident of that. So we have -- and our general thing has been the investments upfront, take the pain early and be patient in the results. And we've seen in category after category that's played out, and we see no reason why it's so there out here.

[Avi Mehta, analyst]

Perfect. That clarifies. And just a bookkeeping or just a simple clarification on the palm oil prices. And it's been -- I would love to hear your outlook on how you see that kind of trending and whether there is, as of now, any reason to revisit pricing?

[Sudhir Sitapati, executive]

Yes. I mean, farm oil prices in the recent past has again sort of strengthened a little bit. But nothing out of the extraordinary. I think we will -- in normal times, we will prudently pass on kind of reasonable cost to the consumer. If it's hyperinflationary, then things are there, but that's not what palm oil is looking like right now. It's looking slightly inflationary compared to where it is today, but still significantly lower than what it was last year.

[Operator]

The next question is from the line of Vivek M. from Jefferies.

[Vivek Maheshwari, analyst]

A few questions. First, on the CapEx bit, again, Sudhir, so this CapEx, INR 900 crores, I don't know when did we last see this kind of bunched up CapEx. Just to clarify, when you say that it adds 20% to your capacity, that's really the -- that's the theoretical capacity or the real capacity. What I mean by that is basically, is it because of you want to augment capacity or some of this is actually replacing the existing ones let's say, because of technology reasons or let's say, better logistics?

[Sudhir Sitapati, executive]

See, the three things we want to do Vivek. Number one is we are bullish on volume growth. We're seeing it, and we have to now plan for volume growth. Number two is, we believe that significantly, we had mentioned this in our strategy that we have to move money from working capital to automation. So we believe that our supply chain needs better automation. Our higher belief of automation in order to increase productivity. That's number two. Number three is that we think that the logistics footprint of our manufacturing needs to change.

A lot of our business is down south, and we feel that we need some manufacturing closer to the big markets to start. So these are the three reasons. See, it's INR 900 crores over 3 years, which is about INR 300 crores a year in India. We would normally have put INR 140 crores, INR 150 crores in our, let's say, roughly INR 150 crores a year in any case for augmenting capacity for this line that line. So it is an increase of about INR 450 crores over the next 3 years. We are more than recovering for all this through growth and working capital and our view on savings and our view on ROCE is very good for this CapEx.

[Vivek Maheshwari, analyst]

Okay. Okay. Got it. The second bit -- sorry, Sudhir, you explained this entire Nigerian thing. Can you just explain it again in terms of which all line item is going to hit over the next few quarters?

[Sameer Shah, executive]

Vivek, this is Sameer here. So I think as Sudhir called out earlier, is around May 23, official rate of INR to dollar was around INR 450, okay? an entire calculation was happening at INR 450 to $1 and then the dollar to rupee. Now what has happened is INR 450 to a $1 as the value to say around INR 750 to a $1 which means the entire accounting translation line-by-line kind of translation of each of the P&L line items will happen at INR 750.

So that's sort of cash impact. It's more of a accounting translation impact, which will get reflected in say, the overall INR sales growth. So that's one accounting translation impact. The second impact is on inflation. So earlier what was happening is we used to buy part of our dollar needs at INR 450 to $1 and part was that whatever you want to call [ family ]market or new market rate say around INR 700 to $1. The blended rate was around INR 630 to INR 650 to $1. So that INR 650 will move to say INR 750, which a rate at this point in time, which means the cost of purchase will increase from INR 650 to INR 750, which we will pass it on to the end consumer.

Part of it has already got passed on and part will again get passed on over the next couple of months. So that we will take care of it, the passing on the prices to end consumers. It may come with a lag of a few months, but it will directionally get passed on. So that's an inflationary impact, but it will get mitigated. Recoveries again more in terms of grouping regrouping. What was happening technically earlier is the ForEx line item in the P&L was the delta between purchase at the open market which INR 700 to $1 reduced by INR 450 to $1.

So that will start sitting in the materials cost and gross margins. And hence, we should be looking at EBITDA, including ForEx line item for a better comparability in terms of how the trends are sequentially, but more importantly on a Y-o-Y basis. So these are the three different impacts to it, which is that reevaluation will have eventually on the P&L.

[Sudhir Sitapati, executive]

So I think basically Vivek, the USD will get affected because INR 450 to INR 650, we won't price for because that's just an optical change. INR 650 to INR 750, we will price on, albeit over the next 2, 3 months, so there might be some short-term impact. The second thing is the ForEx plus EBITDA is what we should look at. So we anticipate about 200 bps of USD reduction on purely with optics because INR 650 to INR 450 is a 30% OpEx in terms of USD on a business that is 7%, 8% of our revenue. There's about 200 bps on the optics of USD but that's an optical change. It's not a real change. I don't know if that's clear Vivek?

[Vivek Maheshwari, analyst]

Yes, yes. That is helpful, although I'm sure we will have some challenge on the modeling, but this is useful. The other point was, Sudhir, on the A&P spend, can you talk about where do you think India and consolidated settle in FY '24. It's good to see a push up in the spend, but where does it settle for both India and international?

[Sudhir Sitapati, executive]

I think the India organic business is not very fast from our competitors, peers, et cetera. The Raymond's business is still low. So there on a weighted average basis, that may go up, but that's because [indiscernible] frankly not spending anything on media at all.

I think Indonesia probably should go up more. I think it's still low at what is it, overall percent now?

[Sameer Shah, executive]

4%.

[Sudhir Sitapati, executive]

That's in a bit low. Africa has to be disaggregated a little bit and the requirements of hair extension are different from FMCG, but I would probably say that is also a bit lower. So India organic is kind of roughly where it is, but the other three parts of our portfolio, RCCL Guam and Indonesia. I think -- and I think the confidence in the things about investment in ATL is it's not just an ideology, right? It's got to -- we've got to invest. We've got to see it like in India, we're is seeing it. And then we've got to do it. But broadly, that's how it will go Vivek.

[Vivek Maheshwari, analyst]

Okay. And really, two very small points. One is on Magic floor cleaner. Sudhir, it doesn't dilute the brand magic because from a shampoo to -- sorry, from a hand wash, body wash to a floor cleaner, doesn't that dilute the brand?.

[Sudhir Sitapati, executive]

I think Vivek. I'll send you the advertisement for Magic hand wash maybe just send it to everybody. I think, see, at the end of the day, Magic is positioned as good for the planet. And basically, this idea of reconstitution that you take one small sachet and reconstitute it into a product. So our thinking has been that is the core of Magic. And what we have seen is that across the world, many brands have positioned themselves pretty strongly on the environment and planet are able to straddle a few categories in Home & Personal Care.

I mean, e-commerce is a good example of that in the U.K. And therefore, we felt that it was probably better for us to have a single brand in home care and personal care, and Magic is not, frankly, a skin cream. It's a hand wash there and it's a floor cleaner here versus getting into different brands and because the mode of communication and to understand all of you, the new Magic communication, which is an air, we like quite a large what we do. But maybe I'll send the hand wash as well just send the hand wash and floor cleaner ad, we think that it makes a reasonably coherent. It's obviously something you thought about, but sometimes you've got to just take a call and this is the call we took Vivek.

[Vivek Maheshwari, analyst]

Interesting. And lastly, Sudhir, how big is shampoo hair color as a percentage of overall category right now?

[Sudhir Sitapati, executive]

Shampoo hair color is a fast-growing segment. I don't think it will be proper for me to give you the exact numbers. It's a fast-growing segment within the hair color market, and we are also growing fast. One of the things that we did last quarter was to launch a INR 15 shampoo hair color in the south of India, and that has been doing extremely well for us. So just as we launched INR 15 creme in last year. This quarter, we launched a INR 15 shampoo hair color, which we were the pioneers in the market to do so.

[Vivek Maheshwari, analyst]

But no comments on how big it is as a percentage of overall hair color category.

[Sudhir Sitapati, executive]

Not specifically, but it's a fast-growing segment Vivek. It is material and fast growing, but you'll be able to find out and it's not proper for us to tell you what it is.

[Operator]

[Operator Instructions] The next question is from the line of Percy Panthaki from IIFL.

[Percy Panthaki, analyst]

My question is on household insecticides for India. I'm assuming that the Home Care is, I think, 13% growth. So household insecticides will be like somewhere between 8% to 10% at least, if not more. So what I wanted to understand is that what are the drivers for this growth? Of course, you have launched 2 new products, the spray and the vaporizer both in the small units. So is that the main driver? And now it's been some time. So can you give us some idea on whether you consider these two products as successful products internally based on repeat purchases, et cetera?

[Sudhir Sitapati, executive]

Yes, in fact, the performance has been driven by two factors. One is that it has been relatively sort of weaker summer and therefore, the season extended. So that has been definitely a good contributor to household insecticide. There has been some impact on market development. It's still too early to say how much of it is due to the smaller packs. We are quite encouraged by those results. But in confidence with heavy advertising. Our non-mosquito format has done particularly well. So there's been, I would say, market development investments plus a good season. I mean I still would say that this is not a category where in all honesty, we can say that this is really at the potential that it should be. It still requires more effort. This has been a good quarter, but I don't think we can call [indiscernible] at this category.

[Percy Panthaki, analyst]

Right. Secondly, on the Raymond's portfolio, just correct me if I'm wrong, but this has been consolidated for 1.5 months only and not the full quarter. Is that right?

[Sudhir Sitapati, executive]

That's right. We took over on May 10. So really from that day onwards. So 1.5 months roughly is what is consolidated for.

[Percy Panthaki, analyst]

But still like a INR 45 crore sales isn't that too less considering that this will be the biggest quarter out of the 4 quarter and the overall annual sales is like INR 620 crores. So on a run rate basis, also, it's not even meeting last year's sales, right?

[Sudhir Sitapati, executive]

Yes. I told you right, there are two key reasons for this. One is you're right about the fact that the run rate for this business is about INR 150 crores a quarter or half a quarter would have been INR 75 crores or INR 80 crores. We downstocked the distributors wherever sitting and we're going to have to further do it. The distributors in this business were sitting at 80 to 90 days of stock. We have -- our distributors and GCPL sit on 10 days of stock. While we didn't come on the way to 10, we had to come up pretty large distance in terms of down stocking. The second thing that we have done is we have taken returns, which is negative sales to pretty large tune. So our GST is lower than it should have been by a little bit because of the down stocking at the distributor point. Our NSV has been lower than GST because of stock returns. You must remember that we have done nothing to this business in the last 1.5 months, except to clean up.

Now as and when we see synergies, et cetera, et cetera, we will see these numbers go up. So we remain quite confident that what we are doing because we are investing in media right now, sooner than later, we will start investing in distribution once we are able to bring the might of GCPL onto this business. So we don't think that in the context of that, of the down stocking and the returns, INR 50 crores of NSC for 1.5 months on...

[Percy Panthaki, analyst]

So this down stocking and returns, are they now behind us? Or this will continue into the next few quarters?

[Sudhir Sitapati, executive]

I think returns are probably more or less behind that. Down stocking will have to continue because for 90 days, we are determined to bring this down to 10 days which is 80 days in general trade, not in modern trade, which is you can calculate and that we will do because we see a lot of cost that gets trapped because of holding this kind of inventory which we want to release. So that will continue in Q2 but I don't think it will continue in Q3 and Q4.

[Percy Panthaki, analyst]

And on a full year basis, at a net sales level, you stick to your guidance of having a flat Y-o-Y?

[Sudhir Sitapati, executive]

Yes.

[Operator]

The next question is from the line of Jay Doshi from Kotak.

[Jaykumar Doshi, analyst]

Just a quick follow-up on the previous question on HI. Now two consecutive quarters of double-digit growth in HI on a weak base, how should we think about the next two quarters? Because if I remember correctly, September last year and December last year were a reasonably good quarter for HI with some shifting season. Do you expect this to continue or will be...

[Sudhir Sitapati, executive]

It's hard to predict. I mean, I don't think you're sitting on a weak base, by the way, of HI. I think last year was sitting on an extremely strong core base of HI. So when we look at whole year numbers, CAGR, which is how we look at numbers. We still think the quarter was good, but it's not on a weak base or anything like that. It is a seasonal category, the seasons have moved. So it moves -- I mean, it moves in what I've not seen in 2 years and it moves in steps of 2 months. So it isn't -- we shouldn't get too excited with 1 or 2 quarters of good results.

So evaluation get too affected by 1 or 2 quarters of not so good results. I would say, however, just to repeat this, that we made some progress on HI, but unlike many of the other categories like Indonesia, many of the categories in India where we feel we are really kind of absolutely there. I think HI, it is still early to declare it free nature. I still remain by the way, really confident that in the medium term this will be a growth -- accretive growth driver for GCPL. But the last two quarters' results shouldn't be read as a premature sign of declaring the [indiscernible] .

[Jaykumar Doshi, analyst]

That's helpful. One more on capacity, if I may. So 15% to 20% increase in net capacity, does this sort of also factor in that you will be moving some of your outsourced capacity or production to in-house and over and above that, your total capacity outsourced that in house will also increase by 15%, 20%?

[Sudhir Sitapati, executive]

Yes, it factors in the fact that as we increase our capacity. In many of the categories we are realizing that we outsource it because of some seasonal demand et cetera. Many of -- we find our manufacturing is more effective. So this includes the volume growth and the in-sourcing of capacity is currently outsourced.

[Operator]

The next question is from the line of Sheela Rathi from Morgan Stanley.

[Sheela Rathi, analyst]

Just one question from my side, Sudhir. This is in respect to the ad spends again. We are at about 12.5% of ad spends for the India business and about 9.4% consolidated. Probably, we would be the highest in the FMCG space this quarter from a percentage of sales perspective. And on an absolute basis, also significantly higher, almost doubling on a year-on-year basis. Do we think we can sustain this? And what is it where we see that these kind of spends will be going into, if you could elaborate? And just a follow-up on that question itself is that does that incorporate the high-teens EBITDA growth, which we have called out during the strategy meetings last quarter?

[Sudhir Sitapati, executive]

There are two, three questions here. So let me answer it. I think it's not -- there's no right number and also for advertising numbers. I mean I mentioned it earlier that we certainly are on organic India business found about what the business of our profile and our growth profile should have. But look, if there is a good return on investment to be had on media, we're not going to stop at a number because 12.5% and similarly, if we find some of our business over a few quarters, not giving return on investment and we have to scale back and get it back, we won't do it. I mean, we won't hesitate from doing it. So it's not a specific number.

I think an important point Sheela is to look at what I read in my note, which is compared to 3 years ago, same quarter or 4 years ago same quarter, which is a pre-COVID quarter, our GMs are down and our ATL is up but our EBITDA is actually greater or equal to what it was, which means there's a fundamental -- and volume growth traject while I think 10% does have this element of good HI season is higher than our volume growth trajectory in the past. So this model is broadly working. We will now keep calibrating it as we go along. I mean ultimately, we're investing in ATL to drive volume growth. We will keep calibrating it up and down. But in India, I would -- as I answered, I think Vivek, the number broadly -- roughly seems in the vicinity, but it's not from any other parts of our business.

[Sheela Rathi, analyst]

And on the EBITDA growth number. I think that it is helpful.

[Sudhir Sitapati, executive]

No, I think we will continue -- I think volume growth come, we're efficient on cost. And we're simplifying our business. Volume growth always leads to good EBITDA growth. So will -- I mean, and there's no such thing is again the right EBITDA. There is gross margin is important because gross margin is value to consumers. Sometimes it cross the value some kind of threshold on gross margin on existing category if it comes because the mix is great, it can have impact, but we'll continue growing EBITDA as long as we know volume growth are coming.

[Operator]

The next question is from the line of Jitendra Arora from ICICI Prudential.

[Jitendra Arora, analyst]

Just a curiosity that whenever, let's say, we are launching the new SKU at a lower price like you did in the hair color and shampoo and also in the aerosol. How do we calibrate the volumes for the existing SKUs given that some of the users may shift to this new SKU?

[Sudhir Sitapati, executive]

Coming to point, our general view on this in India is an under penetrated categories. I think there's a question of how penetrated the category with under penetrated categories, when you launch an access pack, the upgradation that you get is far in excess of whatever downgradation you have A. B, the downgradation that you have tends to be in the first 12 months of the launch, whereas the observation that you get tends to be for a much longer period. That's because those consumers who are value-seeking and want to downgrade, downgrade off in the first year. But there are a lot of consumers who don't want a small pack. I mean, you think of most of us, we don't necessarily buy the smallest part, which is the best value for MS. We buy what's convenient. So these are the two trends that we see in India.

[Operator]

The next question is from the line of Abneesh Roy from Nuvama Institutional Equities.

[Abneesh Roy, analyst]

Basically, my question is again on HI. You have done the LUP also and you said that still a bit early to celebrate. And what exactly is needed here because earlier you have done very disruptive products at INR 15 in the hair dye or say in HI also you have done and in terms of the powder to liquid, et cetera. So here, what is the missing link? Will it be much more efficacious products at much lower price point because currently, the INR 35 or the INR 50 LUP in HI is more of a smaller version of the existing product. It is not more efficacious. Is that the missing link.

[Sudhir Sitapati, executive]

Yes. That's probably right, Abneesh. I mean if you look at some of the molecules that are available in China and which are illegally coming into India to incentive to really the carrier of it. These are much cheaper, high efficacy molecules. So there is a lot of -- they have not been registered in India, but that is definitely a dimension to the issue.

[Abneesh Roy, analyst]

Second question is on the India business. E-commerce plus modern trade broadly, if I see the FMCG pack most companies are in the 20% to 30% range. Of course, FY '23, '22, there has been a big growth. So what is the number for you? And in Q1, how has been the growth rate in these two trade channels?

[Sudhir Sitapati, executive]

Well, these two trade channels have, like for most companies, outgrown general trade, we don't measure -- we don't track savings of these. We track availability of our products in modern trade, visibility and ease of search and e-commerce. But we are very, very particular about maintaining price parity across channels. So we have realized that getting too worried about salience of channels is not very productive in the medium term. So these channels are growing faster. E-commerce is growing faster. Modern trade is growing faster than general trade. But we don't -- in fact, we kind of move away from having target for salience of these.

[Abneesh Roy, analyst]

And last quick question. Your earlier company has been doing innovation in the manufacturing in terms of manufactories. I understand that's much more relevant for small that size Personal Care. In your own personal care, is it relevant? Or because you're doing a big CapEx of INR 900 crores CapEx over 3 years. But from a manufactories perspective, what's your thought process?

[Sudhir Sitapati, executive]

I mean, look, definitely, the need of GCPL's CapEx has to be more automated, larger lines, Internet-enabled lines more productive factories. I mean, our strategy has been to simplify SKUs, growing categories with larger SKUs. And I don't know what other companies and it's not necessarily true about all categories and all companies. But our game is category development through a fewer SKUs. So we really want to get scale production at the lowest variable cost. That's what our manufacturing strategy is. It will have to be tech-enabled and pretty high tech. So I think that is true of all new CapEx, but we are not in the business of having many small SKUs.

[Abneesh Roy, analyst]

The one follow-up I had on Indonesia business. So new leadership in place, you have done huge simplification there. The modern trade distribution also a lot of work in progress. So here, are you confident that most of the issues are now resolved. And next 1 to 2 years, this could be growth accretive on a consol basis?

[Sudhir Sitapati, executive]

Yes, I think so. I mean, look, I don't know the answer to that. I know that our business is now running really well. I know that we are gaining market share, how Indonesia will therefore grow is anybody's guess. But from what we see, both in terms of macros and what we hear on Indonesia, the nickel boom, et cetera, it does look like this is an economy that is going to be a fast-growing economy. So if we have the right capabilities in Indonesia, I would bet that this would be certainly a value accretive business to us, probably a growth accretive business as well. I don't know about growth actually, but certainly value accretive over the next few years.

[Abneesh Roy, analyst]

Sir, my question was on capabilities of [indiscernible]. Are most of the issues are resolved?

[Sudhir Sitapati, executive]

Yes.

[Operator]

Next question is from the line of Kaustubh Pawaskar from Sherkan by BNP Paribas.

[Kaustubh Pawaskar, analyst]

Sir, my question is on the consolidated basis. So what is the date on our books now?

[Sameer Shah, executive]

This is Sameer here. So I think if you look at net cash, basically, there will be I mean largely net cash as of June end, I think during a remain acquisition we had called out that with the remain acquisition debt on books, we would be net cash somewhere mid of the year, but I think that has come 2, 3 months beforehand. So to answer your question, we are already in net cash position. It's marginal number, but still net cash as of June end.

[Kaustubh Pawaskar, analyst]

Okay. Okay. And the CapEx which we are planning to do of INR 900 crores, will it be largely funded through internal approvals or you are plan to take base?

[Sameer Shah, executive]

I think it will be a mix of both internal approvals and that depending upon what's commercially more viable for us. Also, please remember we have a very strong cash from operations, right, demonstrated over the last couple of years, and we expect that momentum also to continue over the next 2, 3 years. So funding this CapEx over the next 3 years should not be an issue as such.

[Operator]

Ladies and gentlemen, that would be our last question for today. Thank you. On behalf of Godrej Consumer Products Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.