Godrej Consumer Products Ltd

NSE:GODREJCP

Earnings Call Transcript 2022-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Q2 FY 2022 Earnings Conference Call of Godrej Consumer Products Limited, 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. Thank you, and over to you, Mr. Doshi.

[Jaykumar Doshi, Vice President]

Thank you. Good evening, everyone. On behalf of Kotak Institutional Equities, I welcome you all to Godrej Consumer Products 2Q FY 2022 Earnings Call.I'll now hand over the call to Pratik Dantara, AVP, M&A and Investor Relations for initial introductions. Over to you, Pratik.

[Pratik Dantara]

Thanks, Jay. Hi, everyone. Good evening. We hope you are staying safe and healthy. We have on the call, Nisaba Godrej, Executive Chairperson; Sudhir Sitapati, Managing Director and Chief Executive Officer; and Sameer Shah, CFO and Head Investor Relations. We will start with Nisaba sharing her perspective on the business performance.

[Nisaba Adi Godrej, Executive Chairperson]

Thank you, Pratik. Good evening, everyone. I hope you and your families are safe and healthy. Thank you so much for joining us on this call today. I am delighted that Sudhir is here with me today. I have found his initial thoughts and strategy and operations excellence, and we look forward to having him share them more broadly with you next quarter.I would start with our performance. In quarter 2, our overall sales grew by 9% with a 2-year CAGR of 10%. EBITDA de-grew by 1% with a 2-year CAGR of 9%, and PAT grew by 5%, excluding exceptional items. Home Care delivered a growth of 5%, led by steady performance in household insecticides and a gradual recovery in air fresheners. Our portfolio in home hygiene is scaling up well. Personal Care continued its strong growth momentum, growing at 10%, led by personal wash and hygiene and a robust growth in our hair care portfolio in Africa, the U.S.A. and Middle East. From a geography perspective, India grew at 10% with a 2-year CAGR of 10% led by broad-based growth within the home care and personal care categories. In home care, household insecticides delivered single-digit sales growth. Air fresheners and fabric care witnessed double-digit growth. In personal care, personal wash and hygiene continued its double-digit sales growth momentum with the 2-year CAGR also in double digits. Hair colors also witnessed growth in double digits. Our innovation rate was in the early 20s. We continue to strengthen our e-commerce business, which contributes approximately 4% of our branded sales. Overall, we remain cautiously optimistic on demand recovery in the near term.Indonesia delivered a weak performance with a constant currency sales decline of 2%. This is impacted by challenging macroeconomic variables, a gradual recovery in the air freshener category and high competitive intensity in the wet wipes category. We continue to put building blocks in place to ensure gradual recovery during the course of the year and drive sustainable, profitable sales growth in the medium term. Our Africa, U.S.A. and Middle East business continued its strong growth momentum and delivered a profitable double-digit sales growth of 16% in constant currency terms. Our 2-year CAGR was also in double digits. I'm pleased with the strategic focus and growth mindset of the team as we continue our focus on driving sustainable, profitable sales growth. Our consolidated EBITDA margins at 21.6% decreased by 210 basis points year-over-year, driven by a decline in India and Latin America and soft margins. Our overall margins expanded sequentially by 30 basis points. In India, margins decreased by 330 basis points year-on-year on a high base and driven by the lag between an increase in input costs and end consumer price increases. This was partly mitigated through scale leverage and continuous cost-saving initiatives. We continue to have a healthy balance sheet. Our return ratios continue to improve sequentially, while the net debt-to-equity ratio continues to come down.We remain confident of leveraging growth opportunities to drive sustainable growth across our portfolio in fiscal year 2022. I'm very proud of the exceptional agility and resilience demonstrated by our teams. We also continue to adopt a safety-first principle across that ecosystem, supporting our team members, their families and business partners across to get fully vaccinated. In India and Indonesia, 90% of our people are fully vaccinated. Last time we achieved a 75% vaccination rate. Unfortunately our vaccination numbers in Africa are much lower due to the paucity of vaccines with 50% of white collar and 35% of blue collar, fully vaccinated. As always, our values matter the most at this time. We remain committed to doing our best, to truly live the Godrej way and serving our people and communities. Thank you.

[Operator]

Thank you, should we open the call for Q&A session?

[Jaykumar Doshi, Vice President]

Yes.

[Operator]

[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.

[Abneesh Roy, Senior Vice President]

My first question is on India HI. So I understand Q2 muted growth. My question is on the outlook. We are seeing very high dengue cases in many parts of the country. I see your Hit advertisement in fact mentioned the dengue word also. Second in this is, Dabur has entered in-home HI. So if you could discuss, do see a big, impact of that longer term and essentially if you could discuss the margins, how are the margins in HI India?

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

This is Sameer here. So I think the overall HI performance so far has been steady for -- of course, we don't disclose specifically HI, but I'm very happy to share that for first half of the year, the overall HI growth has been around double digit mark. We continue to get building blocks in place in terms of either driving penetration in the category, as well as driving premiumization, taking the category beyond mosquitos, as well as taking this category out of home. I would say the season has been mixed for us. We did see dengue breakouts in some of the cities where we had very strong growth. However, we also saw rain deficit in August as well as excessive rains in September, which did impact the growth. So let's see how the overall performance in medium towns shape up, but so far so good. We do feel that we should structurally remain in that zone of high single digits, double digit growth, something which we have called out, as our ambition on HI in India over a period of time.

[Abneesh Roy, Senior Vice President]

Could you discuss the new competitor and margins, some sense on the margin?

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

I will take the margin question first Abneesh. So I think the margins are largely intact. Thankfully, HI is one of those categories, which does not have any major commodity inflation, bearings, metals, which does impact, aerosols, and a bit of LPG and solvent, but the inflationary impact is relatively lower as compared to the rest of the portfolio so the margins are up there, and we have been also taking calibrated price increases in HI to mitigate some of the inflationary impact.

[Abneesh Roy, Senior Vice President]

And the new player?

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

I think it's too early to call out. We have always mentioned in the past that in a very consolidated category like HI, every player will expand its overall market, right, more of wait and watch at this point in time. We are very-very dominant in terms of our play. We have a very strong brand equity, so we are not too overly worried at this point in time.

[Abneesh Roy, Senior Vice President]

Just one follow-up on HI Jumbo Fast Card. Now pan India full launch has already happened?

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

It's just getting nationally rolled out, Abneesh, so this was more of a West Maharashtra roll out over the last 2, 3 months and this is just now getting rolled out including media wake nationally since last 2-3 weeks.

[Abneesh Roy, Senior Vice President]

My last question is again on the India business. You have seen good growth in air freshener, person wash, hair color, on YOY basis, I understand that, but when I compare say 2 years back to pre-COVID, if you could give some sense where are the volume numbers in air freshener, person wash, and hair color?

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

I would give you directional input to appreciate the quality of growth, Abneesh, I think the overall growth in personal wash, YOY as well as on a 2-year CAGR basis has been robust. There is also pricing-led growth over there so we need to also keep that at the back of our mind. Hair color growth also has been good on YOY basis as well as on a 2-year CAGR. Air Freshener on a 2-year CAGR is still, I would say, relatively on lower end, which means that it's gradually recovering as we come out of the COVID environment.

[Abneesh Roy, Senior Vice President]

So air freshener, hair color are back to 2-year level, is that what you are saying?

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

No, not air fresheners. I would say hair color is largely there.

[Operator]

The next question is from the line of Percy Panthaki from IIFL Securities.

[Percy Panthaki, Vice President]

Just wanted to understand on the inflationary scenario in soaps. Your standalone gross margins are down very significantly. So firstly, what is the extent of price increases that you have taken and how much more do you think you're required to offset or manage the cost inflation and this is in the context of the fact that there is a cut in the ads and also employee cost due to very easy calculations, that I understand, but this ad cut, would not sustain for long, right? You would need to advertise. So if you were to maintain this kind of EBITDA margin, how much more price increase do you think would be required?

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

If we look at India's gross margins, there has been contraction of around more than 800 basis points. And if we double click into that, I think around 3/4 is led by palm, which has impacted soaps, and the rest is driven by a bucket of chemicals and metals as well as crude-linked inputs. What we've done is in soaps, we have taken price increases. They have been calibrated. Also what we've done now actually is taken price increases further round in soaps as well as non-soap portfolio. The reason being that over the last couple of months, we have seen generally inflation moving up sequentially and hence to combat that, we have taken price increases. They will be effective, my sense, is somewhere late December, so there are high inflationary challenges, especially on over-operating margins, will remain for the next couple of months, but our census come kind of quarter fourth. We will see overall I mean, overall operating margins parity. To take your question of employee cost and ad spend, I would say employee cost is driven by genuine affords to kind of reduced down overall employee cost, partly driven by the performance variable remuneration which is in turn driven by part EVA and part sales. And EVA because profitability is relatively on the lower side. A&P spend sequentially move up I think from around 5%, 5.5% in 1Q, we are at 7%, 7.5%. Though we will see ad spends also moving up in rest of the year and that's also one of the major reasons why we are taking some of this price increases and honestly I would say they are little bolder ones at this point in time which will be seen effective in the market somewhere late December. Lastly, in a category like soap, I would say it's a basket of taking calibrated price increases, consumer offers, trade offers and ad spends, right, so we need to fine-balance all these 4 types of investments together. You cannot go ahead with all the 4 investments at one go. There will be some prioritization, but the thinking is very clear, for non-soap portfolio, especially where we are seeing good solid growth, we will continue to invest ahead.

[Percy Panthaki, Vice President]

Secondly, on household insecticides, I believe for this quarter, the 2-year CAGR would be somewhere around 6%. So that's a pretty lackluster growth considering that household insecticides is at least partially a COVID tailwind kind of a category. So any comments you have there?

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

So as I shared earlier with Abneesh, right, this has been a mixed quarter for us in a way because we did see dengue breakout in cities. These are very tall growth, Percy, but we also saw rain deficits and excessive rains, which you know is not very good for mosquito building. We have called this out also in the past, Percy, that the best way to appreciate this category's performance is actually over a 3-4 quarter period, right? And if you look at H1, we are there in terms of double digit growth rate. A quarter can always be very deceptive, whether it is exceptionally high growth or exceptionally low growth, but the building block are very much in place in terms of driving a sustainable growth in this category over a period of time.

[Percy Panthaki, Vice President]

Lastly, since Sudhir is there on the call, Sudhir, any thoughts that you'd like to share in terms of diversifying the product portfolio in India so that the dependence on HI as a category is reduced, or it's too early for such questions for you?

[Sudhir Sitapati, CEO & MD]

It is a bit early for that specific question, Percy, but I think I can say this from the brief time that I have looked at the business is that all the categories and countries that GCPL is present in, they offer terrific opportunities for growth, including HI. So while HI is a business that as Sameer said varies by quarter because of a variety of reasons, penetration for example, of the liquid vaporizer or aerosols are low. So I would say that while there will always be opportunities outside, I think there is a lot of opportunity for us to grow in the businesses we are in today.

[Operator]

The next question is from the line of Arnab Mitra from Credit Suisse.

[Arnab Mitra, Research Analyst]

My question was again on the input cost side. I know we are in pretty unprecedented times of commodity inflation, but we have not seen this kind of a gross margin hit vis-a-vis in any other company or even in GCPL in the past so is the reason, there is a constraint in pricing because the market leader hasn't taken enough pricing or is it just a timing issue that commodity ran up too fast and therefore a pace on the cap. And where I am coming from is that if we assume that farmers actually don't correct from here, is there a challenge of managing margin for the rest of year also?

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

Hey, Arnab, This is Sameer here. I think it is more of the latter to answer your point because we have been pretty competitive and honestly a little ahead of COG. As you are aware, we have this micro-marketing strategies which on one side pricing approach which we take on a category like soap and also when we look at relative pricing index, we are perhaps little higher than what historically we have been. The gap is huge, especially in a category like soap between increase in input cost and the end-consumer price and there is also a cap, right, at the end of the day how much consumer can take that inflation. So as I was sharing earlier with Percy, we have taken price increases in soap and also in non-soap category which will help mitigating the inflationary pressures which are largely in soaps at this point in time, but because of our strong market timing, as well as brand equity in the rest of the portfolio, we feel that it should sale through without any impact on the consumption and also pushing the overall operating margins in medium term.

[Arnab Mitra, Research Analyst]

So basically what you are saying is that you have been a little ahead of the curve, which means that the overall market pricing growth is still lagging a little bit. There is a bit of reluctance in taking the full pricing by most of the other players also?

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

The gap is too huge. To give you some data, Arnab, I mean the overall pan inflation is around 50%-55% on YOY basis. Now, we cannot pass-on, as an industry, the entire increase, to the end-consumers, right, because the consumption may just fall flat. So it has to be calibrated in nature, yes, sometimes it could be little more bolder which is what we have gone ahead with on soaps and then we are leveraging our rest of the portfolio to drive pricing like growth in the non-soap portfolio which will mitigate some of the inflationary impact in soap portfolio.

[Arnab Mitra, Research Analyst]

My second question was on the demand scenario, second half last year, we had seen our hair care business recover and even HIA after a soft 2Q had actually recovered in 3Q, 4Q so you actually have a relatively tougher competitor. Overall, how do you see the demand environment, we have heard mixed feedback from companies on potential rural slowdown and other things, so general sense on how -- about the outlook you're looking at from a growth point of view?

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

I think as Nisaba called out earlier, we remain cautiously optimistic in medium term. It is mixed to be very honest with you and it also defers from month to month in terms of what's happening, not just with channels, but more importantly with consumers also. So we remain at least at this point in time, reasonably well placed to be close to that double digit growth ambition which we had called out in India Business. There will be some play between value and volume, right, UBG and UPG, at least in very short-term, but from overall demand perspective, we feel, largely it is more of the same. There have been no major changes, especially at consumer's end, which gives us a view to change our own point of view in terms of high demand or low demand.

[Operator]

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

[Avi Mehta, Analyst]

Sameer, just wanted to continue with what you said last while you're clearly confident or looking at least to the double digit growth ambition in India. Would we find it difficult to make the margin flattish kind of margin expectations given the sharp inflation in input costs, would that be a fair understanding?

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

Yes, Avi, it is very difficult to give guidance on margin honestly, because there are just too many wing parts, there could be a scale play, there could be, generally how the demand is shaping up in either of the directions, but as I mentioned earlier, in very short-term, maybe for the next month or 2, our sense is there will be a bit of operating margins contraction, but again, equally we remain confident that maybe from January or so, with all this price increases, getting into the market, we will see at least margin maintenance. See, also we need to look at margins on a relatively longer period so while in this quarter, overall margins have contracted. If you look at first half, the margin contraction is only by around 60 or 70 basis points so till the time the overall double digit growth momentum continues, we don't mind in fact investing little ahead of curve to kind of get sustainable sales growth even if it comes at the cost of very short-term margin.

[Avi Mehta, Analyst]

Got it. Fairly clear. And the second bit on Indonesia, I mean, in the earlier, you know, when we had to call with Indonesia, what we understand is there is a recovery that is kind of panning out. Could you give us a sense on how is that coming through, especially because the understanding that we had is even the competitive intensity on the wipes is now getting managed. So any update on that, if you could please share?

[Sudhir Sitapati, CEO & MD]

This is Sudhir here. Can you hear me?

[Avi Mehta, Analyst]

Yes, yes, Sudhir.

[Sudhir Sitapati, CEO & MD]

I will take that question if Sameer doesn't mind. I think Indonesia, there are set of, 2 or 3 issues there in Indonesia. First is that the macroeconomic situation does seem to be very, very tough in Indonesia in the short term. Many companies have posted weak results. GDP growth is contracting, etc., having said that, again, this is a very early read of the situation. I do feel that there are some things that we could have also done better in Indonesia. And I hope we will do them in the near future and we will see a recovery in the medium term, both because of the economy and both because of some actions that we take.

[Avi Mehta, Analyst]

And Sudhir just last one for you. I mean, you obviously have settled in now. It would take some time to get to know the business well. When can we hear a roadmap from you on how do you want to look at growth rates from medium term point of view, any timelines, would you be willing to share?

[Sudhir Sitapati, CEO & MD]

That's in a few months' time. I'm still just getting to understand the big picture. I think in a few months' time, perhaps we can talk in more detail.

[Operator]

[Operator Instructions] The next question is from the line of Vivek Maheshwari from Jefferies.

[Vivek Maheshwari, Equity Analyst]

A couple of questions, first on the gross margins again in India business. So do you think that second quarter marks the crux of, on margins or is it going to be the third quarter in your view, assuming that input stays where it is?

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

Vivek, this is Sameer here. Again, I think it's difficult to call out at this point in time in terms of what could be the quantum of margin contraction. There are too many moving parts, Vivek, right? There is going to be implemented pricing-led growth in Q3, compared to Q2. There is going to be also shift in category, mix. We have a big season, especially on liquid debts, which is relatively high gross margins, but to say the least, there will be gross margin pressures. Hopefully, it flows in what we have seen in Q2, especially on a YOY contraction and with some of this price increases, getting into the market, we should see, southward trend in terms of contraction of gross margins in the coming months and quarter.

[Vivek Maheshwari, Equity Analyst]

Right. That is given. I understand, but I'm saying if you just eliminate the category mix part and just look at soaps, can you just give your views or basically the other way of asking this is, when we look at second quarter numbers, the consumption of input versus let's say exit gross margins. Is there a big difference between the 2?

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

To answer your question, my sense is the soap gross margins will continue to move up from here on.

[Vivek Maheshwari, Equity Analyst]

Okay. That's good to know. The other thing, Sameer, on price hike, when you say, soaps have affected the price, the next round, are you following the market leader over here or for that matter in the past, I am guessing you would have, but this one, when you say that have been bold, so does that mean that you have taken prices ahead of what the market leader has done?

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

I don't know what the answer you got from market leaders, but, as I mentioned to you, we continue to take calibrated price Increases. The approach, which we have adopted, Vivek, over the last many years is, what we call as capturing micro-market in terms of taking those calls in specific states in specific bunch of districts rather than taking a pan India, one size fits all pricing approach and that has gone very well for us. And we realize that in so many markets and districts, we compete with too many different players, right and hence there is no question of one-on-one comparison for a lot of our brands as well as FTUs. So it is kind of not say to a specific player, but yes, we have been little bit more bolder is what I can share in terms of our soap pricing generally, over the last 2 weeks, because the commodity inflation has been relatively on the higher side.

[Vivek Maheshwari, Equity Analyst]

Okay. Got it. Got it. And one question for Sudhir, so Sudhir, can you just give your initial thoughts on how do you contrast, let's say GCPL with HUL, both a few points which let's say are on the positive side and a few points where you think GCPL can do better, the wind which you mentioned about Indonesia, for example?

[Nisaba Adi Godrej, Executive Chairperson]

Why don't you wait for Sudhir to give you his full strategy in a couple of months. I don't think this is a comparison between HUL and GPCL. Sorry Sudhir, but you might want to do it.

[Sudhir Sitapati, CEO & MD]

I think the interesting thing, Vivek, is not -- I think that some things are common to the 2 companies. They're both great places to work. They've got a great value system. They've been around for a long time, very strong brands. I think there are some things for GCPL does really well and there are some things where it could probably do better, but maybe I'll answer that question in a few months.

[Vivek Maheshwari, Equity Analyst]

All right. Looking forward to that, Sudhir, and all the best to all of you.

[Operator]

The next question is from the line of Harit Kapoor from Investec.

[Harit Kapoor, Lead Analyst of Consumer Sector]

This is regarding India innovation pipelines, you mentioned in your outlook as well that there are a lot more exciting product innovations, etc., I just wanted to understand that does the timing of some of these launches that you are planning from a medium-term perspective get pushed out given the unprecedented inflation that you're seeing, or is one of the reasons that you have taken the price increases to keep the launch time line consistent.

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

We are not going to compromise in terms of our launches, timing also is a factor of readiness and readiness even from an end consumer perspective, honestly in medium-term, there are no big bang sort of launches planed at this point in time, but strategically in the direction we will continue. To drive innovation led growth and not compromising in terms of pausing on innovations for a long time, because there is short-term margin pressure.

[Harit Kapoor, Lead Analyst of Consumer Sector]

Just a follow up on that. Do you also believe that this is given that you are cautiously optimistic on the demand environment, this may also be a time for you to just keep focusing on what you've already done and, may not look at something more big bang, does the market warrant that kind of an outlook right now?

[Nisaba Adi Godrej, Executive Chairperson]

I think we already had some big bang innovations in place. And I think like what Sudhir said, or even say in HI, there is no whole penetration whether you look at electrics or even say something like [indiscernible] very big innovations for us in India, so I think we will focus in terms of what we've already launched at least for the next quarter to 2 quarters.

[Harit Kapoor, Lead Analyst of Consumer Sector]

The second question was on the hygiene portfolio, both on personal and home. Now that these strategies seemed to have normalized a little bit more in terms of demand and consumer penetration, etc., is there something more than others in terms of what you're willing to invest in, regarding say for example, what you launched in the last 12-15 months, are there 2-3 focused sub-sections that you're going to look at slightly, closer or investment more behind, on both the home hygiene and the personal hygiene side in terms of new launches?

[Sudhir Sitapati, CEO & MD]

No, I think they're going to be -- Sudhir here. I think I shouldn't -- it will be giving away too much to say what our strategy in terms of investments are. I think that during COVID both in India and Indonesia, we got a lot of new launches in the home and hygiene space and many of them have done well. Since you've got this tailwind of the pandemic, we will continue to build on the gains that we've got during the pandemic. I have a suspicion that many of these products may or may not do as well this year as they will do last year because of the pandemic, but I think the equity is strong and these are long-term plays, both Saniter in Indonesia and Magic in India, both of them are extremely well. And these are long-term bets for the company I would suspect.

[Operator]

The next question is from the line of Richard Liu from JM Financial.

[Richard Liu, Head of Research]

Just wanted to check if you can hear me clearly.

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

Yes, we can.

[Richard Liu, Head of Research]

My question is on Africa. Can we talk a little about that region because that's definitely one of the bright spots here. Would you say that, now that you have reached a higher level steady state that you wanted after all the actions taken by Dharmesh and team in recent months, any perspectives of what actions are in store and what should we look forward to from the region going forward?

[Nisaba Adi Godrej, Executive Chairperson]

I think with Africa, with Dharmesh coming in, and now with Sudhir also, we had put a strong turnaround plan to that business. And I think what we're seeing is that, it is playing through and we'd actually put a 5-year plan in place. And I think both on top line growth and EBITDA margin moving sequentially, we've been quite happy with what's happening in that business and as we voice over before, there's quite a lot of back to basics there in terms of driving distribution and focus on forecast categories and also in Nigeria, we talked about building out categories like HI.

[Operator]

[Operator Instructions] The next question is from the line of Shirish Pardeshi from Centrum Capital.

[Shirish Pardeshi, Senior Analyst]

I have 2 questions. The first question is broadly on the rural part. I think there's an incremental noise has happened over the last 45 days. And company has been saying that [indiscernible] one of the data points out that there will be a slowdown. But in your lens, how do you see this is a challenge because what I see that last 4 to 5 quarters, COVID has given you a strong and better than you will have grown to rural. So my question is a 2 parts, what is our rural contribution today and how do you see this as a challenge or as an opportunity, or you really see that rural slowdown is visible in the last 45 days?

[Sudhir Sitapati, CEO & MD]

I will pass on the question on rural contribution to Sameer, but the honest answer is, when I looked at the data, I am not able to in real term see a rural slowdown. See, there are a lot of optics in data, both externally and internally because of COVID basis, right, like for example, during the COVID lock-down, the first COVID lock-down urban cities were closed but business in rural continued. So you have different competitors and so on. So when I look at this data these quarterly and annual newcomers, I don't see a specific rural slowdown, even though optically the rural numbers are lower. So you know, both in Nielsen and our own numbers, rural is now not going as fast as urban, but I don't see this when I adjust, for a 2-year period or I don't see it very obviously in any case, Shirish, so I'm not able to read the data clearly, but I'm going to pass on to Sameer on what our rural contribution is for our business.

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

The direction is, Shirish, rural is going to be a growth sector for us, because a couple of our categories are under-penetrated in rural, especially hair colors as well as household insecticides. Contribution is a shade below 30% for us, which is lower than generally what the contribution is in overall FMCG so it is definitely going to be actually a big growth space for us in medium to long-term.

[Shirish Pardeshi, Senior Analyst]

I agree with Sudhir, and the specific question is that in your roster and organization, even the guys who really push the categorization of Glaxo portfolio, and you've done a wonderful job there. And in that understanding, I wanted to have your opinion, but from the Godrej perspective, do you really see that the product profile, which we have customized, as per the rural requirement is there is a penetration-led growth, which we can expect the next 4-5 quarters?

[Sudhir Sitapati, CEO & MD]

100%, certainly in household insecticide, which is electrics and in hair color, these 2 core categories, they are very, very under-penetrated. Soaps is well penetrated in rural, perhaps hair care is a little, is a bridge too far right now for rural, but these 2 large categories, I would say a bulk of the growth have already been coming actually, when I look over the numbers of the last few years and it will continue to come from rural.

[Shirish Pardeshi, Senior Analyst]

My second and last question, again on Indonesia, since I've been tracking this for a long time, I think last 5-6 quarters, this business has always been volatile, either in terms of top line or bottom line or something. So I just wanted to have a candid answer. Is there a real problem in this business in terms of marketing, in terms of phase, in terms of channel, in terms of mix or in terms of category, what is the real problem in Indonesia business?

[Nisaba Adi Godrej, Executive Chairperson]

I think we've voiced over this, obviously. If you look at the macroeconomic, it is not supporting the business, but if we look at under the hood of the business, what Sudhir also mentioned, I think there have been mis-steps by us also, which we are very conscious of and focused on correcting in over the next few quarters. But I think fundamentally the business is a strong one, which we have said this always, strong relative market shares and categories that we are strong in, good margins and again both from penetration and distribution, lots of opportunities. I don't think we've been executing as well as we should have been. Saniter has been a big success there, but definitely on the core, we need to be doing much better.

[Shirish Pardeshi, Senior Analyst]

I agree, Nisaba, the last call which we did on the Indonesia business, I was pretty excited, but I think, again we are, after seeing the quarter number, again the worry is that whether it would definitely show some momentum in the next quarter, that's the worry.

[Nisaba Adi Godrej, Executive Chairperson]

I appreciate your worries but you know, I think we are quite focused on that. We're not happy with the numbers, so, you know, we are focused on now on turning the ship there. I think, you know, I think one thing that you probably acknowledge about GCPL is that we are not going to just put this on just macroeconomic and say that's the only reason. It's definitely there. I mean, if you see the other company's performance there, but it is something that we're focused on, bringing it back to good growth as soon as possible.

[Operator]

The next question is from the line of Latika Chopra from JPMorgan.

[Latika Chopra, Senior Analyst]

Two questions from my side, first one was on the HI side. With the markets opening up, how do you see the fragrance of incense sticks as a format, is this category shaping up now and your own play here, jumbo Fast Card is something that you're rolling out across the country. How has been the response so far, and do you anticipate, or do you see a need to introduce more, HI formats in the economy end to tap into the whole rural plate and the second question again on the new launches that you've done on ProClean and Ezee 2-in-1 for regular approach, what is the update on distribution scale-up for both these products.

[Nisaba Adi Godrej, Executive Chairperson]

Latika, the experience of incense stick has remained stable over the last year or so. So we don't see it growing or, it's not gaining that much, that being said, as we've said before, it has a big job to be done for the consumer. And our real response to that has been this Good Knight Jumbo Fast Card which is an excellent product. It is a bit early to comment on this Good Knight Jumbo Fast Card as in like Sameer said, media has just started in October. The all-India launches really just happened in September and October. So I think we will be able to voice over more on that over the next 6 months. And any other sort of jobs to be done also is to drive electric penetration, which is at about 25%. I think that's going to be a really big, strong focus of Sudhir and the team going forward. I don't think it's a one pronged approach. In terms of new launches and innovation, I think while we have things in the pipeline, I think between Gold Flash and this, Good Knight Jumbo Fast Card, we already have quite a lot in the pipeline. And I think one of Sudhir, which he will probably talk more about in February also, is really focusing, less is more, type of strategy because there are these big penetration gains for us to have with what we already have in hand. Other question was on ProClean and I think the Ezee 2-in-1, I think that is doing decently well.

[Operator]

[Operator Instructions] The next question is from the line of Anand Shah from Axis Capital.

[Anand Kumar Shah, Senior Vice President of Consumer]

Just had a couple of questions. So firstly, on the hygiene part, I mean you have done a lot of launches over the last 15-18 months. Can you give some update on what are the salients of these new launches to overall India revenues and particularly which ones would you continue to focus on or may continue to surge or sort of discontinue because the COVID stabilized.

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

Anand, so I think the overall hero format I would say, within the hygiene has been hand wash and within that actually power to liquid hand wash which has been consistent growth factor for us. Some of the formats like mask and sanitizers have either normalized or moved away. So that is how the hygiene portfolio is shaping up at this point in time. I think we are the second largest market players in terms of volume. So when it comes to hand wash, thanks to the powder to liquid hand wash format, so that is great news for us. We need to drive penetration as well as drive consume awareness and the way we are looking at this space is not just hand wash, but it's actually soaps, right. So that's where we are looking at, getting share within the overall hand wash space.

[Sudhir Sitapati, CEO & MD]

I think the other big thing that has worked well for us is Saniter in Indonesia, which is a disinfectant aerosol in the hygiene space. So both of them have worked very well. Saniter has been a blockbuster success for Indonesia, and so these are the 2 big, since you asked the questions, what we will continue with, this is it.

[Anand Kumar Shah, Senior Vice President of Consumer]

My last question is on hair colors. If I am correct, they are now back to pre-COVID right?

[Sameer Shah, CFO, CFO of India & SAARC and Head of IR]

Largely that, Anand, in terms of sales, what it used to be pre-COVID levels, the growth rate as well as 2-year CAGR are very much on track and trends in the shampoo, hair colors are firing on all cylinders.

[Operator]

As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

[Sudhir Sitapati, CEO & MD]

Thanks to everyone, thanks for joining. Stay safe, stay healthy.

[Operator]

Thank you. On behalf of Kotak Securities that concludes this conference. Thank you for joining us and you may now disconnect your lines.