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Godrej Consumer Products Ltd
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Ladies and gentlemen, good day, and welcome to the GCPL Limited Q2 FY '21 earnings conference call hosted by Kotak Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jaykumar Doshi from Kotak Securities Limited. Thank you, and over to you, sir.
Thank you, Faizan. Good evening, everyone. On behalf of Kotak Institutional Equities, I welcome you all to Godrej Consumer Products 2Q FY '21 Earnings Call. We have with us Ms. Nisaba Godrej, Chairperson and Managing Director; Mr. V. Srinivasan, CFO and Company Secretary; Mr. Sameer Shah, Head, Investor Relations; Pratik Dantara, AVP, M&A and Investor Relations. Over to you, Pratik.
Thanks, Jay. Good evening, everyone. We hope that you are staying safe and healthy. Given the exceptional circumstances created by COVID-19 outbreak, we are still presenting the results to you from our respective homes. So please bear with us if there is any technical glitch.We will start with Nisa sharing her perspective on the business performance. Over to you, Nisa.
Thank you so much, Pratik. Good evening, everyone. I hope you and you loved ones are safe and healthy during these difficult times that continue. And thank you so much for being with us on this call today.GCPL delivered a strong performance in quarter 2 with all our clusters recording positive sales growth. Our overall sales grew by 11%. EBITDA and PAT, excluding exceptional items, grew by 19%. 83% of our global portfolio is Household Insecticides, Hygiene and Value For Money products, and they grew by 17%. Hygiene had an excellent growth of 27%, followed by Value For Money products, which grew by 22%.Growth in Household Insecticides was steady at 6%, partly impacted by supply chain issues due to regional lockdowns in India. From a geography perspective, we have seen positive sales growth across all our clusters. India recorded a strong sales growth of 11% led by Hygiene, including soaps. Overall, rural grew much ahead of urban. Indonesia delivered a soft performance with a growth of 3%. This was impacted by large-scale social restrictions in the last fortnight of September and down stocking by select modern trade retailers.Our Africa, U.S.A. and Middle East business showed robust recovery with a growth of 10%. We continue to lay the building blocks with sustainable and profitable sales growth in the subcontinent.Household Insecticide has been one of our biggest growth pivots and grew steadily at 6%. This performance was partly impacted by supply chain issues due to regional lockdowns in India. We recorded much higher secondary sales growth in India. We continue to reap the benefits for very strong innovation pipeline and product portfolio serving consumers at all price points. We're also investing more behind educated consumers in disease prevention.We have been laser-focused on growth and innovation in our Hygiene portfolio, including soaps, which grew at 27%. We also showed strong recovery in Value For Money products with 22% sales growth. We continue to have a strong balance sheet and remain more watchful than ever on receivables management.Working capital days have reduced by 12 days, primarily driven by the reduction in receivables across clusters. Net debt-to-equity ratio also reduced 2.17.I'm pleased to share with you that our teams have been on top of their execution game. I believe we were agile in resolving the continuing supply chain challenges and serving our consumers. We are using this crisis as an opportunity to digitize more rapidly and grow more strongly in channels like e-commerce and chemists. As always, our values matter the most at this time. We're committed to enabling the safety and well-being of all Godrejites and serving our consumers and communities with our full hearts and minds. Thank you.
So should we start taking questions?
Yes, please.
[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.
My first question is on the Africa, U.S. and Middle East business. So very good recovery of a 10% sales growth. So I wanted to understand how much sustainable is this. Could we expect a double-digit growth going ahead in every quarter? And in spite of this, the EBITDA margin dipped 110 bps because of the higher salience of Braids. Could you explain why Braids has grown faster? Was it a conscious strategy? And when can we see margin expansion in this part of the business?
Abneesh, this is Sameer here. So I think to begin with, as we had shared last time around also that we are sort of laying down the building blocks, right, for a sustainable, steady sales growth. I think 10 percentage sales growth in last quarter was led by West and Southern African markets. We will want to continue with those investments, which have sort of driven growth over there and also sort of seed in go-to-market initiatives as well as new product launches and hence, drive innovation-led growth also over a period of time.One of the reasons why, I mean, the margins have been relatively down on a Y-o-Y basis has been higher saliency of Braids, and that's partly driven by consumers' preference, at least over the last 3, 4 months, in terms of shifts more towards kind of a value format within hair extensions. We are seeing that shift gradually changing as we, I mean, see the performance sequentially month-over-month. And hence, we don't expect, I mean, that at least to be the reason, if any, for any margin erosion at least going ahead.
My second question is on HI in India. So sales growth of 4% was below expectation. So wanted to understand this because this partial lockdown or regional lockdown as an issue has not been pointed out by other FMCG companies, and you must have seen the good growth, I think, delivered by most companies. And your own growth is decent in soap, for example. So why should the regional lockdown impact only this part of the business? It has not impacted -- for example, the other listed company grew in this category 20% plus. So could you explain that bit? And did you lose out on opportunity because of this?
This is Nisa here. Yes. So let me just start of by just qualifying that in HI, we were not particularly happy with our own performance. We were really expecting to do better, especially because this trend on health, stay safe, is quite strong. That being said -- and the stock issue is, I think, one issue, but what happens is that in HI, quarter 2 and quarter 3 tend to be the more salient months in the year. So as you can imagine, say, meeting demand in quarter 1 is actually easier than in quarter 2 and quarter 3 because your factories had more capacity for a less salient quarter. And what actually happened is -- and I don't know -- I can't comment on other seasonal, but we had a regional lockdown in Guwahati for 21 days, where a lot of our HI production happens. So that impacted us quite badly.That being said, we felt this pinch much more specifically in August. July is actually better than August, and then September and October, again, have been strong. Like Sameer said, secondary growth was also quite good. Our new innovations [ flag ] is doing very well. So some of the longer-term trends is incense sticks, illegal ones are definitely on a back foot, and we are doing more work there. And we're seeing things with cockroach and rat penetration, aerosol penetration also sort of drive. So in the lockdown, that factory did sort of impact us, and we are hoping to see a much better performance in quarter 3 on this category.
So if I just -- 2 follow-ups. So what percentage of our manufacturing takes place in Guwahati in HI? And would you have lost market share structurally because other players would have captured that? And any plans how you get that?
I can't give you the specific numbers of what percentage of manufacturing are from Guwahati. We would have, I think, overall -- okay, largely probably have gained in shares in electrics, but we might have lost, I think, shares in coils and aerosols because of this impact. But I don't think it's structural. And don't forget that like our shares in the aerosols are extremely, extremely high. And even in coils, our relative market share is huge. So I think this will -- we'll focus on sort of our product innovation serving the consumer, and I think quarter 3 should be better.
But just last follow-up here and then move on. So essentially, Guwahati, is it substantial even if you don't get it through numbers? And there is no price war in HI, right, nothing to really get worried on the pricing size war front?
So nothing to get -- there's no pricing war. I don't -- look, I don't think -- I could say that this is not the best performance actually after what we saw in consumer in quarter 1, also what we're seeing in consumer sentiment. I don't think the lockdown is -- this factory lockdown in supply is the only issue we face. But like I said, September and October have been much stronger, and we're quite focused on growth. And I think the consumer sentiment is a tailwind. This illegal incense stick being on a back foot is a tailwind. We're seeing other nonmosquito pests like cockroach and rat, and those sort of products are very, very sort of high demand. So I don't think we'll have any supply chain issues in quarter 3. So let's see what we're telling you in January or February when we speak.
Sure. And the last question, you have done well in overall sales from in India, 11% growth. So wanted to understand all these new products on the Health, Hygiene platform launched in the last 6, 7 months. I see very aggressive ads on the print media and other media. So could you give a sense on the numbers, percentage of revenue? Or what's the contribution? And which of those are looking promising in these initial stages early? But still, if you could give us some clarity, which ones are looking more promising.
Sorry, Abneesh, again, I think we will not be able to share the numbers for competitive reasons. Though what I may actually directionally share with you is handwash is doing quite [indiscernible].
No, new products in a general overall basket, right, last 6, 7 months or 1 year, whatever you...
So I may share any -- the nitty-gritty [ price ]...
No. It's a mixture, things like disinfectant sprays. We're also seeing things like the toilet cleaners, floor cleaners doing well. And those again, at least some of these categories, had quite low penetration even pre-COVID, and we're growing quite at a quite good clip.So I think some of those COVID has just sort of accelerated. So it's a good opportunity. We've obviously chosen particular categories and products that we want to -- and channels that we want to go after very aggressively. Obviously, we don't want to like, Sameer said, think about it because of competitive reasons.
The next question is from the line of Sameer Gupta from IIFL Securities.
I just wanted to -- a little more clarification on the HI performance in India. So if this is an issue with the manufacturing, then is it right to assume that there won't be -- there will not have been any sales lost at the consumer end because I guess the distributor plus retail channel itself would be around 20 days? And to that extent, in the third quarter, there will be some up stocking impact back in trade because of this issue in HI.
Sameer, so I think as we kind of shared earlier, we had a much better secondary sales growth, right, I mean as compared to primary sales growth in HI, and the reason for that was at least partly getting impacted by this lockdown-related kind of challenges. It depends. I mean if we feel that the stock levels with our channel partners are adequate, which I think so is the case and we should see a steady state growth, the point over here is to continue sort of building on some of the new launches, like say, Gold Flash or the good work on incense sticks or the cockroach solution kind of products to kind of drive steady and sustainable sales growth. So that's the way we are looking at it. The start has been good. In fact, last couple of months, as Nisa also mentioned earlier, has been good. So let's see how that kind of shapes up, I mean, over next kind of few months and perhaps for rest of the year also.
Okay. Great. So just to summarize, you are saying that secondary has been higher than primary this quarter. And that gap will not be bridged, it might continue in the same way going forward also.
Absolutely because sales has been much better. I mean growth have been much better than the primary sales growth in the last quarter, yes.
Okay. Just another question if I may. Again on Africa, the margin, so while there is a mix impact, but when we had acquired this business some 5, 7 years back, this business was already at around a 20% margin. And on top of that, we had a wet hair care portfolio, which was even a higher margin. So even despite the mix, what kind of stable state margin should we look at in Africa now given the competitive intensity where it is and given the demand trends where they are?
So I think we have shared this in the past that, strategically, I think we would want to see anywhere between 300 to 400 basis points of margin expansion in Africa at least over next 2 to 3 years, right, I mean even if you baseline it with, say, FY '20 margins. We do feel that we have the driver, I mean, in terms of thought process as well as we will get executed, whether it be cost saving projects, whether it be favorable category mix, whether it be the scale itself. So we remain quite confident, at least of that expansion of 300, 400 basis points over next 2 to 3 years in the overall Africa, U.S. Middle East structures.
And this 300, 400 basis points will be a mix of your leverage, your growth and your margin. Is that understanding correct?
Absolutely.
The next question is from the line of at Nishad Karkare from Bay Capital.
I just had one question on the investment side. So if we see the stand-alone cash flows, we see a INR 980 crore investment into subsidiaries and the consolidated cash flow shows a similar or larger -- or rather slightly larger debt repayment of about INR 1,200 crores. So firstly, I just wanted to understand which cluster or geography does that pertain to. And secondly, we've, in the past, never really used the domestic business cash flows on the international side, so I wanted to understand what led to the change in that.
So Nishad, Srini here. Yes. As we had mentioned earlier as well, we had prioritized repayment of loan as a good opportunity now [ to grow through COVID ]. And what we have done is the surplus cash that we have in India, we have used it to capitalize these subsidiaries for repayment of the loans. That is what you see as investments from in the stand-alone cash flows.And the change is just a little that we have the surplus cash. And today, the surplus cash locally earns only about 2, 3 percentage points if you have to put it in a safe investment. Whereas when you repay these loans, you are actually able to reduce your dollar cost by 2 to 3 percentage points. And in the long term, also, we'll have a good balance between repayment of loans and keeping enough surplus to ensure that we have adequate cash flow for the group.
Okay. Okay. So this is not driven by, let's say, lower-than-anticipated cash generation in one of the businesses and that required kind of some amount of agency in debt repayment, nothing of that sort.
No. In fact, we have actually prepaid some of our loans.
Understand. This will be mainly related to the African debt. Is that correct?
Yes. Largely, our debt right now is mostly for the African loans.
[Operator Instructions] The next question is from the line of Kiran Naik from Mody Fincap.
I would like to know what is our market share in our products, for different products we sell.
This is Sameer here. So again, for competitive reasons, we don't share what is our market share. So what I can share with you, what's our market kind of leadership position. So for example, in India, in household insecticides category, we are market leaders. We are market leaders in hair colors. We are the second largest player in bar soaps, and we are also market leaders in air fresheners. And in Indonesia, we would be market leaders both in household insecticides and air fresheners. So we are either #1 or #2, I mean, across categories in which we sort of play in.
[Operator Instructions] The next question is from the line of Chanchal Khandelwal from Birla Sun Life Insurance.
Congrats on good set of numbers. A couple of points. Firstly, the Indonesia growth. Indonesia constant currency growth is 3% is on the lower side. Is it because of the new social distancing norm in Indonesia and you lost some days in Indonesia? And what's the growth one can expect in Indonesia going forward? Secondly is on the Household Insecticides, you lost 21 days and refilling may happen in this quarter. But what's the category growth which happened in last quarter? And what is the growth you are looking forward in terms of the category growth going forward?
This is Sameer here. So I think let's start with Indonesia first. I think you see just -- kind of look at the overall, say, FMCG performance, category performance in Indonesia. I think over the last 6 months, we have seen close to sort of low double-digit decline, right? So in that context, we do think that our kind of growth is sort of lower than our own internal expectation but sort of at par given the overall sort of context.Secondly, we also did see the impact of kind of extreme social distancing norms version 2, if you want to call it, which was sort of executed mid-September and remained in sort of mid-October. Lastly, we also did see kind of down stocking by some of the modern retailers, and that's something which you've seen even in the past. I mean they sort of down stock, and then maybe at some point in time, they end up, up stocking.So these are the 3, 4 reasons why the performance has been kind of soft. I think at this point in time, I would say, we remain cautious in terms of how the overall Indonesia [ Godrej ] business performance will be at least in the very short term. But structurally, I mean, medium term, we remain extremely optimistic of Indonesia performance driven by multiple growth vectors, whether it be market share gains, penetration, new product launches or even scaling up new category like hygiene, which has happened over the last sort of 6 months.
Sure. On the Household Insecticides in India?
Yes. So I think on the Household Insecticides, as we shared earlier, Chanchal, our secondary growth rates were sort of better off than primary growth rates, right? And hence, to that extent, we do expect our overall performance should be relatively better. I mean it's difficult to sort of guesstimate a growth number at this point in time due to multiple [ factors ].
And so how has the category grown in this quarter?
I think, again, I mean the details, which have been coming in from tracking agencies, have been kind of for a very short period of time. I mean we had paused actually the overall category kind of data. But over last few months, we have seen kind of category kind of growth somewhere in sort of low to mid-single digit. But again, I think we need to take it with a pinch of salt in terms of how the overall category growth rates have been.
Sure. Sure. Just lastly, on the Africa business, which is coming from a low base and you have multiple new product launches planned, can Africa be the growth driver going forward with the new CEO in place and things panning out?
Yes. I think the thought process is to definitely get kind of profitable, sustainable kind of growth, right, I mean in Africa. It's not just about 1 or 2 quarters, right? I mean as I was sharing earlier, the plan is to kind of see kind of steadiness in the overall sales growth, the pivots, basically, which should we go to market or new product launches sort of getting executed, the margins profile sort of moving up, the costing programs getting ruled out. So it's something which will sort of pan out over a period of time, but, yes, there is no kind of short term without long term -- I mean there is no long term without shorter term in a way, right? So to that extent, we will see sort of gradually improving performance in African business also here and now going ahead.
[Operator Instructions] The next question is from the line of Jaykumar Doshi from Kotak Securities.
My first question is you had a fantastic growth in soaps category in the current quarter. So how -- what is your assessment of market share in the current quarter? And how do you see the trajectory going into October and November? And any trends that you may have seen in terms of down trading or any other trends in that category?
So I think we think our kind of source of growth definitely has been market share growth. Typically, what happens is when you get into high commodity inflation kind of environment as we are especially for palm oil, a lot of small local players, they sort of sit on the fence, right? And that gives opportunity to a lot of large players like us to gain market share. So definitely, that has worked well for us.And secondly, our micro marketing initiatives very much continue, something which has been a growth vector for us over past 12, 18 months. That has also sort of contributed. And last but not the least, the stress on kind of health, I mean, kind of within the new product launches also, I mean, in soap portfolio has kind of contributed to this growth. So we do expect, I mean, a good steady state kind of performance in soaps also going ahead.
Right. Any thoughts on price increases? Or how do you see overall inflationary -- given inflationary environment, how do you -- what are your plans to protect profitability for the portfolio?
Yes. I mean that's, honestly, not too much of an issue, I mean because we leverage our portfolio. We will also kind of set more on cost saving kind of initiatives. We would also want to be gradual and calibrated, right? I mean we have taken, I mean, some price increase at the flag end of quarter. That sort of already is [ a lock in ]. And we would be kind of striking balance between kind of price increase as well as kind of volumes growth in this category.
Right. And is the growth trajectory sort of likely to continue this in October, November? How is it trending?
I would not want to guess on that front. But as I said earlier, the intent would be to continue a steady state sustainable growth momentum even going ahead.
Right. And if I may ask one more question, hair colors, recovery has been fairly impressive from 1Q to 2Q. And how should we expect -- how is it trending? If you can give some color on what are the trends you're seeing. And how should we expect it in third quarter, fourth quarter?
I think in...
That sequential -- will that sequential improvement continue given that...
No, I think the sequential improvement should continue. We also had an extremely strong October in hair color. Think of Durga Puja, Diwali, sort of festive time, even though people are not fully going out. But I think hair color, we should see sequential improvement. So we're quite confident about it.
The next question is from the line of Rohit Dokania from DAM Capital.
Two quick ones from my side. Can you talk about what has been the secondary growth in HI in Q2? Is it possible to quantify that? And also, if you can talk about what kind of sort of exit growth will we see in HI, let's say, in the month of September.
I think, again, for competitive reasons, we would not want to share a monthly sort of growth, but on secondary growth, what we can share is it was, I mean, in double digits, low double digits, kind of thereabouts. The momentum in September and October was good. The top goal hence is to continue that momentum for rest of the year as we mentioned earlier.
That's fair enough. And the last question from my side is, so the difference between sort of value and volume, so 5% versus 9%, so is it a mix-led improvement? Or which segments are contributing that? Could you please highlight that?
Yes. I mean part of it is it's, one, broad-based, I mean, across most of the key sort of categories. And second is there is plain vanilla pricing impact. Also, there is sort of mix impact. There would be category mix because every category will have a different realization compared to the other categories and within categories, also kind of formats and brands. They should have a different realization. And hence, it will impact on the overall kind of value-volume equation.
So no one category is basically [indiscernible].
No, no, it's very broad-based. It's quite broad-based.
[Operator Instructions] The next question is from the line of Richard Liu from JM Financial.
One -- I got 3 questions. The first one is slightly philosophical. I just heard your comment regarding Africa has now done well, but Indo, you are a little tentative in the near term, et cetera. And if I look at the last many years, I think this has been really the story, right? I mean the good work in one country is offset by some of the other issues in some of the other countries.Nisa, this question is for you. I mean so you, like a lot of the other Indian-born FMCG companies, also have taken this call that you want some share of revenue coming from foreign geographies. Looking at -- and I guess the intent of that was for them to be growth accretive, right, to Indian growth. But then if you look at all the companies that have this international exposure, it didn't really pan out that way. I would say that international operations have actually taken away from the Indian growth rate. Given a choice, I mean, would you still be as gung ho about these foreign operations as the group has been when it started out on this journey? I'm just asking in the context of the kind of volatility of growth that we've been seeing of late.
Yes. So Richard, thank you. And I think it's nice, sometimes even on these quarterly calls, to be asked about something that we think about all the time. So I feel for your question.I think sort of you look at a country like Indonesia. I would say, by any sort of parameter, you look at it, it has been very successful sort of M&A, and I think it will give us growth for many years to come. I feel very strongly as we believe in this Africa story because I do think there is value for money products, good distribution, low-cost manufacturing, is something that transfers to there.I think in the last few years, definitely, the performance has really not been up to the mark. There are macro challenges. But if we're honest, there are macro challenges all over the world all the time, and COVID sort of adds to that.Well, I think we are committed to making this business work. We do feel that this has very, very strong long-term potential for GCPL. We also understand that there's no long-term without a short term. So we are working extremely hard to really acknowledge where we misstep and where we need to put the fixes. And I've, in the last few months with investors and all, talked about getting someone like Dharnesh Gordhon, who's a very experienced South African leader, who's very experienced in operating on the continent. So I'm feeling quite confident that we will turn this ship around.Look -- and 1 quarter, 10% growth, it's not like we're having a party, so I can assure you of that. Correct. But it does give us a bit of horsepower quarter 1 and as you know, in the Africa business was not good. It does give us some horsepower to say let's finish this year strong, let's put all the changes we need into place and tighten our belts and get it done.So I don't think the potential is there. I've spent time in these markets. There is a lot of opportunity similar to India, especially in the big markets like Nigeria and South Africa. So yes, I hope to be delivering consistent performance in Africa quarter-over-quarter going forward while increasing profitability.
Okay. My second question is that if I look at the LatAm margin, they seem to have structurally gone on the higher side. I mean sorry -- sorry, my definition of structurally, that's me just 2 quarters, the last quarter and this one. But we've been seeing very good margin from LatAm, something that we've not seen for a long, long time. I mean what are the reasons for this?
I think there are a couple of things, Richard, which teams have been working on. One is we structure sort of cost-saving initiatives, something which you've seen in India over the last 5, 6 years, is what got cross pollinated to the Latin American kind of business. And that is sort of resulting in significant margin expansion. The other is scale, right? I mean if you look at the sales growth over last kind of many quarters, it has been quite steady. And that is also kind of driving, I mean, scale leverage, which in turn is resulting in meaningful kind of margins. And again, I think we remain very confident of continuation of the strong, profitable kind of sales growth in Latin American business even going ahead because, as you very rightly said and that's the reality that it's more structural in nature and hence, sort of here to stay.
And what has changed in terms of that helping the growth profile in this country? Because I would think that, of the 3 geographies, this was probably the most volatile, and this seems to have really settled for the better.
Yes. I mean, directionally, I mean, what has worked for us is strong sort of volume growth and, of course, the pricing growth. But pricing, you have to be kind of clear as whether it's plain currency depreciation-led kind of pricing impact or it's kind of mix as well as kind of tactical pricing kind of growth. So that's, I think, one thing. But I mean, again, the route-to-market initiatives and new product launches have all sort of contributed to the growth, both in Argentina as well as in Chile.
Richard, I wish I could say there was a magic wand and we did something magical. Then it turned around. But it's just -- I think sometimes it's, also from a management perspective, getting your act together stronger, correct? So I think like Sameer mentioned, managing GPM, expanding it. We've done a lot more work in general trade there managing working capital and receivables much stronger. And actually, the CEO of Argentina has also become the LatAm head and is fixing a lot of these things in Chile also. So I think it's just also stronger operational management.
Okay. Last question if I may. Sameer, sorry -- I'm sorry, this is a little arithmetical. But the 83% of the portfolio that has grown 17%, does that basically mean that the balance, 13%, has like declined by 20% or something like that? I saw you write 9% on 1 of the slides, but I'm not sure that, that mathematically added up.
Yes. I mean the rest of the portfolio has declined of course. I mean in terms of math, I mean, we can pick it up offline, I mean, if you want.
Did we make a mistake in our slide?
I hope not.
I'll join offline [indiscernible].
We'll get back to you with some exact number.
The next question is from the line of Latika Chopra from JPMorgan.
I'm sorry I joined a little late. Not sure if this got discussed already. But just a quick one on the India HHI portfolio. Now you reported a 4% growth. We understand there were some production-related issues. If you could comment on how do you expect the category growth rates to really pan out going forward and how confident you are that this growth rates for you in this category could sustainably run at double-digit levels. And if so, what segments, subsegments will really drive that? That's my first question. And secondly, on Indonesia, do we expect a low single-digit kind of a growth to continue in the short run?
All right. We did get asked a lot of questions on HI but very happy to answer yours again. I think from a category perspective, like I mentioned earlier, we remain quite confident. I think a few things that are happening. And we also mentioned earlier that our secondary sales were strong. September and October were also stronger. But I think slightly -- looking slightly forward, I think this focus on sort of health is very important now. I think people are more conscious and paying more attention, want to protect themselves.We're seeing a big uptick also in nonmosquito formats like cockroach and rat. We've seen format increase in penetration and in demand for formats like aerosols where we have very large market shares. And I think we talked about it previously, this illegal -- the illegal incense sticks. Duties have changed from 10% to 25% on incense sticks. So I think that those players, and we are also reacting strongly to them, both from the supply chain side and the consumer side. Our new electrical liquid vaporizer, which is much more efficacious than the last generation one is doing well. The consumer feedback is extremely sort of positive.So we don't feel the -- enough of these tailwinds to be confident about. In terms of Indonesia, I mean, I can't give you guidance on the growth, but I think from a macro perspective, from a lot of the geographies we operate in, we have seen some of this COVID impact all playing out quite strongly there. The business has good plans, this growing out the new hygiene brands or doubling down on insecticides. But I think it will be a tough year for the business overall.
[Operator Instructions] The next question is from the line of Rohit Chordia from White Oak Capital.
Just couple of questions. One, if I could get comments on trends in some of your new categories, air fresheners, salon. Second, you seem to be, [ let's ] also, launching the few new variants in every year liquid detergent portfolio. That market during the pandemic, I think the category has seen some uptick. So are you really more serious about that portfolio as a all-season portfolio and it's not just being a winter one?And the second one is on the balance sheet side. You've seen receivable numbers come down for most FMCG companies in this quarter. Is this to do with lower salience of modern trade and GST right now? And does this normalize as these 2 channels recover? Those would be my 2 questions.
Sure. Rohit, first of all, congratulations to you on your new role. I think to begin with, I mean, air freshener category per se has been sequentially improving as we can see, I mean, from the overall category kind of growth from us. Of course, I think the overall performance for us also has been largely impacted by the overall kind of slow category growth, but that's including sequentially. So we remain kind of hopeful that the gradual improvement sort of will continue even going ahead, though at a slower pace than perhaps a recovery at least, which you saw hair color for us.And liquid dets for us, I mean, historically, has been more of a winter cat portfolio. The attempt, I mean, with this new launches is to make it more of a 365-day play. And that's where these new product launches and the related inputs and investments are sort of going in the market at this point in time.On the balance sheet front, actually, if you draw through the balance sheet metrics, which we have shared, we have seen close to 12 days of working capital reduction. And a big part of that reduction is coming driven by receivables. And again, for us, it's quite broad-based. I mean it's coming from the [ middle ] most of our countries, whether it be Africa continent, whether it be Indonesia as well as sort of India, right? I don't think so, at least for us, it has been only driven by kind of slow modern retail channel kind of sales because part of that has actually got offset by online, which also is relatively higher credit.
Understood. Could you talk about your e-commerce salience and how much does it grow?
I'm sorry, I didn't get your question, Rohit.
The e-commerce salience in India and how has that channel has grown on a Y-o-Y basis?
So for us, I mean our salience, I mean, in India for e-commerce holds around 4 to 4.5 percentage, and the business is more than sort of doubled for us.
The next question is from the line of Percy Panthaki from IIFL Securities.
I joined a bit late, so I'm sorry if these questions have been asked earlier. And if they have, then I'm okay to look at the con call transcript.
Ask your question, Percy. Go ahead.
Yes. So my first question was on the Africa margins. I think they have compressed Y-o-Y this quarter, so just wanted to understand what is the reason for that compression. And how do you see it going ahead? What's the outlook for margins going ahead?
This is Sameer here. So I think the major reason for compression in Africa's margin was higher growth in braids. Braids has a relatively lower gross margins as compared to the other formats. I think going ahead, for rest of the year, we remain quite confident of margin expansion in Africa given the multiple pivots. One is we are seeing gradual shift in the format saliency, and some of our cost-saving projects are now -- these are kind of reaping us sort of rich dividends and expect it to have a meaningful contribution in the rest of the year. So at least at this point in time, we remain quite confident of margin expansion for both the quarters in Africa.
And just a sub question here. So if the increase in braid salience has got to do with the poor economic situation, then that is not going to reverse so soon, right?
We are seeing those trends, Percy . It's not like it continues for throughout the quarter. It started, I mean, that way. And it's not just kind of poor economic situation but also salons kind of opening and were sort of closed in, in the lockdown because other formats also has its own kind of inter linkages, right? And we have seen that shift, I mean, almost every month over last 3, 4 months and expect also, I mean, that shift, I mean, to continue. So at least that reason, which was one of the major reasons for kind of downtick in margins, will no longer be as prevalent as it was at least over last 5, 6 months.
Understood. And on wet hair care, I just wanted to understand, in Africa, firstly, whether it's a similar impact of COVID-related economic disruption in wet and dry hair care. Or are they impacted slightly differently? And also the wet hair care portion in U.S., is that impacted or there, you don't see any significant impact?
No. I mean it's a very complementary category, right? So the impact is there very much. It's difficult to decipher whether the impact on dry hair was different from sort of on wet hair. Because it's complementary category, I'm assuming both of it would have got impacted more of the same. In U.S., we have seen sort of much improved performance. I mean the performance was extremely soft in the early part of the year, but over last 2, 3 months, we have seen good, steady, relatively strong sort of performance, and we expect that also to kind of beef up going ahead.We were also kind of constrained with some of the back-end supply chain challenges in U.S. market, and those are also largely sort of behind us. We do expect, I mean, the wet hair performance generally and in U.S. also to be better, I mean, going ahead.
Okay. And lastly, this household insecticide launch in Africa, can you give me any updates on that? I mean which countries have you done it? What is the initial feed? What is the future rollout plan?
Well, I think it's a big category, right? We have talked about it in the past, and we have started our journey with kind of aerosols launch in Nigeria. We would want to sort of continue to invest, have the learnings. As you are aware, I mean, this is a category which also needs 2, 3 years of kind of background work in terms of registration and product launches readiness, right, I mean in the different markets you want to get in, which is sort of happening as we speak. I'm sure we will talk more about it in the coming quarters and years once it sort of reaches to a scale.
Okay. And these initial learnings, et cetera, anything that you would be able to share at this juncture?
Too early, Percy.
The next question is from the line of Prasad Deshmukh from Bank of America.
So I have only one question actually. So there is a sharp rise in e-commerce as you mentioned. And if I have to look at the advertising per se, advertising industry per se, print media also seems to be struggling because of lack of leadership. I was wondering how your advertising spends now are adjusted versus pre-COVID versus post-COVID in terms of mix, say, TV, print and digital. And how do you think this will trend hereon?
I think directionally, I mean, our spend on digital has been kind of moving up, right? Not just, I mean, in current kind of environment. Even, I mean, whole of last year, right? I mean it also is dependent on the category. It's not like all the categories can be digitally sort of advertised because you have to also look at the target audience, right, I mean which you want to sort of connect with. But yes, directionally, for us, I can share that our digital spends have actually moved up, continued to move up over the last kind of couple of years, and that trend, I think, will continue also going ahead.
So if you were to quantify how much percentage would be digital, how much would be, say, TV now versus, say, a year back?
Well, again, I think we would want to keep some of this kind of details, I mean...
Okay. No problem. Just one comment then. As far as the ROI is concerned, on digital spend versus, say, print media spend, how much would be the difference? At the industry level also should be fine.
Well, I think, again, to be honest, Prasad, also the market is too grappled with the ROI investments, whether it'll be on traditional media or whether it be on kind of digital. There are different metrics in terms of kind of clicks and click conversions and so on and so forth. But to be very honest with you, at even industry level, the ROIs on different marketing mediums are still not very good.
The next question is from the line of Vivek Maheshwari from Jefferies.
Just one question. If I just look at the performance in December, leaving aside the impact of pandemic, I mean the last 8 quarters, if I look at, let's say, HI, the lowest number is minus 6. The highest is plus 17. Soap is minus 4, plus 26; and Dettol is minus 4, plus 33. I mean, in general, by design, FMCG businesses are more stable and more predictable.And so over the medium term, what will it take for growth in a tighter range because the last 8 quarters were not really marked by any of those one-offs. I mean, [ demand ], GST was [ flat ] before that. And pandemic is only from March of this year. So what will it take to have more predictable and a tighter range from a growth perspective?
Well, one, it would be good not to be dealing with COVID because you said GST and all are not part of this range that you've described, but COVID has definitely been there. So I think that has some impact. I think, that being said, I would agree with you that FMCG needs to be a more steady business. So I think, as we go ahead this year, we do feel that we will have more steady growth and focus on keeping growth in the double digits. But I do think in the past -- and we talked about this, that the sort of past couple of years have not been the strongest for GCPL. We have been putting fixes in place. We have seen sort of market share gains. And we are dealing with COVID right now, I think, pretty successfully. So hopefully, we will see more steady growth going ahead.
Sure. Some of the context also is because the numbers that I just read out are actually in December of last year, so that's why I left March number because those were also impacted by COVID. But again, just a follow-up to that. Let's say, if you look at the first and the second quarter, I don't know if you have covered this already on the call since I joined late. But let's say, first quarter, I did not get an impression that HI will go down all the way from 27% to 4%. At that time, the feeling was that, that 27% is more like there is no one-off. There is no channel restocking, et cetera, et cetera. Conversely, soap, you did indicate that there will be a pickup and things are getting better. But from minus 2% to plus 18%, again, those volatility actually is something which worries me the most. So any thoughts on that?
We're all complaining about the minus 2% to plus 18%. Definitely, I think -- I don't know when you joined this call because it seems people are joining at different times. But we did sort of talk over the HI piece that we were also expecting to be in double digits in this quarter on HI. And there were some supply chain issues. There were some other issues that sort of impacted us. Our secondary growths were better, September and October were better, and we're looking towards sort of better growth in HI going forward.
The next question is from the line of Amit Sinha from HDFC AMC.
I have just one question on the Indonesia business. And if I heard you correctly, you have -- basically what you pointed out is that this year is going to be a tough year for the business overall. While I understand and I have been listening to the commentary -- and clearly, there have been extreme social distancing norms, which have been implemented in the country. Until last quarter, your commentary on the country's business overall, given that you have been doing extremely well on the HI portfolio there, was sort of kind of positive, if not, very positive. So I wanted to understand, is there anything more from a business fundamental perspective, which is changing from the portfolio point of view and from the country overall macro point of view because...
I don't think anything is changing. Our growth in quarter 1 in Indonesia was 105. In this quarter, it's 103. We were obviously very pleased within quarter 1 with both India and Indonesia being at this 105 growth considering most companies were in degrowth in quarter 1. If you look at Indonesian companies, even in FMCG, they are in degrowth in quarter 2 also. So relatively 103 is good. You all are asking how the market -- the conditions are. It looks quite tough is what I said. So I'm still, given what's happening in Indonesia, still pleased. There is some -- we have a big hair care business there. We are seeing the pressure in hair care, both in India and in Indonesia. It is not one of those categories that has sales wins in these emerging markets. So they are pieces that we're working through, correct, by making it fresh and sanitized and things like that together.So I don't think my optimism on Indonesia changes or has changed at all. But it's not -- it's a tough year, meaning I don't necessarily see us jumping to double-digit growth next quarter is what I meant.
Understood. Understood. Okay. It was more of a general commentary on the macro, not exactly for your...
In [ Indonesia ], I think the business there is very strong. It is a resilient business. But I don't think -- it's a tough year for all businesses, but the macro has been quite -- and I think if you look at other Indonesian companies, you see that also.So India is actually -- the surprise has been that India has -- in consumer product has actually recovered quicker and faster than expected. Then I would have expected Indonesia also as the economy would have recovered in a stronger way in quarter 2, but that hasn't happened.
The next question is from the line of Avi Mehta from Macquarie.
Sorry, I was on mute. I had just a question on the margin front. Do you have any target or any target that you can share on cost savings that you have planned? And any plans around that? How are you kind of going about it given the current macro environment? And not just on cost but also on the SKUs, any rationalization, any thoughts on that front would be useful.
This is Sameer here. No, I think the cost saving programs, I mean as I was sharing earlier, have also been cross pollinated to African markets as well as Latin American markets. On an average, we do see savings anywhere between 4 to 5 percentage of sales coming in. Of course, part of it gets reinvested back for growth and part perhaps kind of goes to the bottom line. So that's the way we are looking at it. I mean in India, we are perhaps in the 6th or 7th year of this program, whereas in Africa, we have just started this early, this fiscal year. So that's, I mean, the way we want it to be more of sort of continuous excellence program, right, which carries on for many, many years to sort of come in. SKU rationalization is important. I mean we have sort of done that, I mean, in a couple of African kind of businesses at this point in time. Not just from a cost savings perspective or simplifying your back end, but, trust me, it also has kind of immediate impact on the kind of driving sales from your other SKUS, I mean, because it free up kind of time and bandwidth of your frontline team members. So we have done that in India. Also we do that, I mean, at regular intervals, any key point sort of revisiting this kind of at scale, including the rationalization part of it.
Okay. And Sameer, just on -- given the current palm oil prices, any -- how is that kind of trending? And is there any pressure that you're witnessing over there? Or how are you kind of looking at it?
So I mean, honestly, I am no expert on palm oil pricing trends, but the PSD price is so far, at this point in time, around [ 750-ish ] level. It is 35, 40 percentage up. I mean we have taken some pricing action at the flag end of the quarter. We are not too worried about its impact on gross margin. We think that it's a good balance between driving volumes growth, having competitive advantage as well as ensuring that there is not much innovation on gross margin front. So that's the way we are looking at it. So I think we are comfortably placed in terms of our covers as well as the pricing cost, which we have taken.
The next question is from the line of Harit Kapoor from Investec.
I just had one question on the new product launches. So if you could just help me understand in India, what would be the proportion of growth coming from NPD? And the follow-up on that is now you're about 3, 4 months from the state of launches that you've done. In your early opinion, what's -- which ones do you think are more here to stay? And which do you think are more tactical just from the -- just to take advantage of the macro?
So our innovation, rest assured, is very high in the very high double digits, but that's also because we have this new Flash, the new liquid vaporizer machine in India. So this is probably our highest innovation rate. I don't think we've ever been this high. So that would be on the innovation rate.Again for, I think, competitive reason, I don't think we can share which are the sort of new products that are going to be -- I don't think too many of them are tactical. I think some of them you might -- we're seeing like hand sanitizer, if you play it just without a differentiation, is becoming a very commoditized and very local-driven market. But I think this -- and it's not just new, I think, products. It's already products that were there, but if you can bring differentiation there, good pricing and good distribution, a lot of opportunities. But unfortunately, I can't share exactly which ones.
Got it. If I can just ask one more. For the India business, again, if you could just give me a sense of what the kind of recovery trend of the Hair Colour business as you've already seen -- see -- you did see a negative 5% for the quarter. But through the quarter, as exit rates go, how are you kind of seeing that now?
Yes. I think we're seeing sort of a positive, and October was very positive in Hair Colour. So we are seeing that category come back into growth.
The next question is from the line of Manoj Menon from ICICI Securities.
Like what Percy mentioned a little earlier, sorry, I mean, I also joined a little late on the call. I'm actually recording it if I wanted to listen to this after. So I have 2, 3 questions actually. The first is, if you covered it earlier, I'm sorry for that. Could you just comment about the primary and the secondary sales on insecticides and soaps? So that's the first question.
The secondary sales growth in Household Insecticides, as we shared earlier, has been much higher than the primary sales growth. And in soaps, it has been marginally higher than the primary sales growth.
Okay. That's great actually from a soaps point of view. HI, is it double digits? Sorry, sorry, I'm -- again, apologies if I missed that number. Is it better? Is it significantly better? Or is it closer to the reported 4%?
It is low double digit.
Low double digit. Okay. Understood. That's very, very clear. Point #2, some qualitative commentary on the new category entries, whether it is the home care, whether it is baby care, all will be helpful. What's the consumer feedback and kind of where are you at this point in time?
Again, I think it's too early to call out. We had kind of slew of launches, right, whether it be in hygiene and again, within hygiene into disinfectants and [ resi ] wash and even into bathrooms cleaner and floor cleaners and toilet cleaners, but it's too early to call out at this point in time.The start has been good is what I can share over the last kind of 3 to 6 months. We continue to kind of invest because the point is obviously not just tactically, but make it more structural as a key growth vector for us over a period of time. So maybe at the right point in time, once we get sufficient scale, we'll be very happy to share more details from the same, Manoj.
Understood. Point #3, and that's the last question, any material changes in the market on the trade margins, consumer discounts essentially more on the BTL side, not really the ATL part of it.
Right, continues to remain on the lower end, though I think it has gradually moved up compared to the first quarter level. It's still significantly lower on a year-over-year basis. I mean you can see that from our disclosures also, right? I mean in terms of -- it has added sort of 2 percentage to our overall pricing, I mean, for the last quarter. So yes, I mean that's where are. I mean a little higher than first quarter but we are still lower on a Y-o-Y basis. And maybe the trend also continues, at least for rest of the year is my view.
The next question is from the line of Ayaz Motiwala from Nivalis Partners.
Before the question on Hair Colour was asked, I was almost wondering if you're in the business because no one for the last 45 minutes asked this question on it. So thank you for clarifying that. The related question on Hair Colour is will you take some of the Indian businesses like you're taking HI to Africa into other parts where you operate principally being in Indonesia, focus on sort of hair color or related such businesses of India into that geography? That's my first question, please.
Yes. We have a brand called New, which is fashion hair color similar to Expert creme in Indonesia. We also have quite a significant hair color business in Africa. Focus is mostly in South Africa but has been sort of expanding. So hair color is definitely a global category for us. And obviously, the Latin American businesses is heavily skewed towards hair color.
Sure. And just as a learning on the Indian context, I mean, we've been in this business for a while. So do you see this business evolving into a much larger sort of business from a category point of view and you being the big leader there? Are you seeing other elements in the business?
I think there's been a launch that I've been actually very excited about this quarter, which is not in Hygiene or in Household Insecticides actually but in fashion hair color. So globally, the market, there's a big -- there's obviously a gray coverage market, and then there's a fashion hair color market. While in India, it's mostly been a gray coverage market, we think the time is extremely right for fashion hair color. And I think COVID actually sort of -- that trend, COVID will push it forward because with people wearing masks and not doing lipstick and some of the expression from the lower half of the face, the upper half becomes very important, and fashion hair color can play a strong part in it.We have an extremely good low-ammonia innovation in fashion colors. It's quite hard to get that sort of bright vibrancy without ammonia. So the formulation is fantastic. And again, it's sort of value for money. It's INR 40, so above the main SKU, significantly above, but still really value for money for that category. So we're quite encouraged by the early results, and we think this could be something very interesting for the market. One of the things, obviously, [ other than Expert ] definitely building fashion and not just gray coverage is an interesting opportunity in India.
That's very helpful. And as you brought it out, sort of fashion element to color, and I guess is there a natural sort of overlap on that? Is there a trend there? And is that going to work in favor or against you on the color -- hair color side of the business?
On the what, sorry?
On the hair color side of the business, is there also a natural sort of tailwind building up? And is that going to affect your business positively or negatively?
I don't think it -- so I think the way -- we have a lot of natural ingredients in the hair colors. And also, we have the biggest natural hair color brand, which is our Nupur Mehendi brand. So you'll see more things from that brand being launched. But I don't see any negative impact on hair color. Fashion is a equally important trend as naturals. Let me put it that way.
Sure. And just a small quick question to the point that, Sameer, you answered to an earlier question. You said retail has actually added 2 percentage points to your top line. Is that what I heard correct?
That's right.
As there are no further questions from the participants, I now hand the conference over to Mr. Pratik Dantara for closing comments.
Thank you, everyone. With that, we would like to draw this call to a close. Thank you, everyone, for your participation, and have a great evening. Stay safe and stay well.
Thank you so much.
Thank you.
Bye.
Thank you. Ladies and gentlemen, on behalf of Kotak Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.