Godrej Consumer Products Ltd

NSE:GODREJCP

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Godrej Consumer Products Limited FY '20 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Manoj Menon from ICICI Securities. Thank you, and over to you, sir.

[Manoj Menon, Research Analyst]

It's our absolute pleasure to host Godrej Consumer's 4Q FY '20 and fiscal 2020 conference call. The company is represented by Ms. Nisaba Godrej, Executive Chairperson; Mr. Vivek Gambhir, MD and CEO; Mr. V. Srinivasan, CFO and Company Secretary; and Mr. Sameer Shah, Head of Finance, India and SAARC and Investor Relations. At ISEC, we are long-term believers of the Godrej Consumer story for a very long period of time. We continue to recommend the Godrej Consumer story, the stock to investors with an outperformance basis.Now over to Mr. Pratik Dantara for further the call.

[Pratik Dantara;Associate VP, Mergers & Acquisitions]

Thanks for joining us today to discuss the quarterly performance and the current business environment. We will have Vivek share his thoughts on our performance, and then we can open up for Q&A.Over to you, Vivek.

[Vivek Gambhir, Whole]

Thank you very much, Manoj, and thank you, Pratik. It's a pleasure to speak to all of you. Good evening. I hope all of you are safe and healthy. What I'll try and do is spend a few minutes just talking about our overall performance and then turn it over to Q&A.I think, whichever way you look at it, it has been a weak performance overall in quarter 4. The details are there in the presentation that has been shared. So rather than review what has already happened, we want to spend more time on discussing how we are preparing to deal with the evolving situation and share our perspectives on why we believe we are well positioned to emerge stronger.As we all know, this quarter was an unprecedented period due to the spread of the corona -- COVID-19 epidemic (sic) [ pandemic ] across the globe, impacting all the geographies of our operations. At GCPL, we worked on a safety-first principle, ensuring that our employees and business partners are safe and taking all the necessary precautions to control the spread of COVID-19. The Godrej group in solidarity with people and government efforts, earmarked an initial outlay of INR 50 crores for community support and relief initiatives in India. We ensured adherence to the lockdown and in parallel, worked with government authorities to revive supply chain operations for essential items.During this quarter, we witnessed steady demand in our categories until mid-March 2020. Until that time, the teams were actually quite optimistic and hopeful of a decent quarter. However, the spread of the virus and the eventual lockdown in many geographies of our operations resulted in virtually no sales in the later part of March 2020, significantly impacting our sales performance in the quarter. This resulted in a weak performance in our India and GUAM businesses, which got impacted the most due to the lockdown.In India, the impact was substantial as we typically have very high sales in the last 2 weeks of March, since it is the onset of the summer season for soaps. For HI as well, we also saw a significant adverse impact on sales in the later part of March 2020, which marks the onset of higher mosquito infestation in North India. In our international businesses, Indonesia, which did not see a full lockdown, continued its growth momentum with mid-single-digit profitable constant currency growth in spite of the COVID-19 crisis, driven by consistent performance across categories and several go-to-market initiatives. In GUAM, Godrej Africa, U.S. and Middle East, we witnessed a weak performance amidst destructions caused by COVID-19 in all our countries of operation.During this unprecedented quarter, what is encouraging is that we gained share across most categories. In fact, we gained share in almost 70% of our portfolio. What we are doing now is approaching the situation through 3 lenses: restart; recover; and retool our business. So as part of restarting, we are safeguarding lives and livelihoods. We are starting operations wherever possible, given the necessary clearances and permissions. We're also supporting our partners a lot. We are one of the first FMCG companies to provide a COVID insurance scheme to our entire extended team, additional allowances, safety kits, documentation to our vendors so that they can operate as essential good manufacturers, giving advance payments to a few vendors who supply critical materials, et cetera. Supporting our partners with this was extremely important.At the same time, we have been doing what we are calling smart cost management with a closer look at pruning our overheads. And we have been supporting our communities, as I mentioned to you. We know that this is a health and humanitarian crisis. And we as -- with people working from homes, we're stepping up connect and engagement with a lot of care and compassion and communication with our teams.The second part of our approach has been the recover or the bounce-back phase, where as markets are opening up, as lockdowns are easing, we are ramping up operations in both production and distribution. We are also looking at third parties to augment production. We are trying to make it easier for our GT partners to order through retail ordering processes enabled remotely through web enabled their ordering applications. We are partnering with other companies such as Udaan, Swiggy, Zomato, ShopKirana, Zoomcar, et cetera. The idea is to keep on ramping our operations. What is important right now is improving availability, and so we are working very hard to ensure that the products are now getting more and more available. This is also a good opportunity to drive market share.As I mentioned to you, in spite of a tough environment, our market shares have been increasing, and we do believe there are opportunities to further drive market share. We are also fast-tracking priority innovations. I think you will see a lot more innovations that will be launched by us over the next few weeks.The channel dynamics are quite different right now. So there are different channels for us that we're employing, with each channel requiring a different playbook, whether it's the kirana stores, modern trade, e-commerce, chemists. So a very differentiated approach is being employed at the channel level. And then we are planning for different scenarios to prepare for life post lockdown.As part of the retool phase, we recognize that we need to prepare for a new normal. So we are understanding and analyzing new consumer needs and behavior, understanding channel shifts, looking at a much more flexible and adaptive supply chain, trying to forge a much more agile culture and also embracing digitization in a very big way. The idea is to be able to use this turbulence and this volatility to create more opportunities and definitely emerge stronger.So there are 3 big areas of focus for us: One is around getting back growth because we recognize growth has been a challenge for us; second is to relentlessly execute; and then the third is to sustain a very high performance and winning culture. So as part of getting back growth, we're looking at sustaining and improving our market share in our key core categories. We're also accelerating some of our new categories, and we'll talk a little bit more about that. We've built additional growth vectors. The focus on innovation has worked well for us. We're going to dive on more on disruptive innovation. And we do see, given the channel shift, some very important opportunities to transfer our route to market and go-to-market model.In terms of relentlessly executing, we do have a very unique multi-local model for us, which has worked in the past for us. The need is to drive much more agility and entrepreneurialism on the ground. We also want to tighten cost controls and preserve our strong capital structure. The idea is to engage in smart cost management. We want to take a balanced view, where we want to be prudent, invest in the right areas, but also cut overheads.The third is around supply chain, flexibility and resilience where we are focusing a lot on automation, visibility and planning. The final area of focus for us is to sustain a high-performance and winning culture, where the most important part for us is to live the Godrej way, which is our values and purpose. We recognize that this the work through home, new -- there will be new ways of working that will emerge, so we'll accelerate that. And finally, this is a great time to bring new capabilities such as digital, e-commerce and analytics.The situation will remain challenging. There is no way to accurately predict the coming year. So we will have to plan for different scenarios, be adaptive and resilient. However, we believe that we're relatively well positioned and have several strengths that will hold us in good stead during this time.First of all, it is our portfolio. A substantial portion of our portfolio in India and Indonesia, in particular, consists of essentials or basic value for money products. Even within our Africa business, the portfolio is skewed towards value products. During this time, we do expect a flight to value, given potential job losses and incomes coming down. Our value portfolio should provide significant advantages. And in over 80% of our portfolio, we have a top 3 position. The experience from past downturns indicate that once the downturn is over, the gap between leaders and followers widens. So we do intend to capitalize on this downturn to be able to emerge stronger.The second reason is that we believe this is an opportune time to drive a resurgence in HI. This is something that we have been working on for the last 12 to 18 months. During the COVID crisis, there will be a larger focus and awareness on disease prevention in general as consumers look towards protecting themselves more from all diseases. We have a great opportunity to play and win the full HI portfolio in the burning, electrics, personal, naturals and non-mosquito portfolio. We have in our arsenal now the strongest ever portfolio in HI. This is also a good time to intensify our pushback on illegal incense sticks as a lot of those players are going to be in trouble. So we definitely believe that this is the year for a resurgence in HI.The third very important aspect is the plans we have defined for the hygiene category. This is an area that fits in very well with the Godrej company ethos. It's all about trust, good quality and affordability. Increasingly, consumers will give a lot more thought to cleanliness and purity. This will be true for your home, objects and surfaces, but equally so for your body.The health and well-being trend will continue to accelerate. And we have moved very quickly over the last month. Hygiene products have been launched in India, Indonesia, Bangladesh, Sri Lanka, Kenya, South Africa, U.S.A., Argentina and Chile, and there has been a range of different products. This week, for instance, we are launching a health plus soap in India and reusable masks. More product launches are expected over the next 45 days.We recognize that a lot of players will be pursuing opportunities in hygiene. So we are planning for some very disruptive products as we've done in other categories. In fact, we are targeting for almost 5% of our revenue in quarter 1 to come from hygiene.The fourth and final reason is that we are well positioned to -- we are very well positioned, and we're determined to not waste this crisis. We recognize that our performance has been below expectations even prior to the COVID outbreak. COVID just exacerbated it. And we had begun putting corrective actions in place even before COVID. And several of our leading metrics, such as improvement in market shares and the initial feedback from our launches gives us a lot of comfort that the business has been turning the corner. We have the humility to recognize that we performed below our expectations and have diagnosed what went wrong. And we have the conviction, the commitment and the ability to get back to delivering market-leading returns.There is a huge fighting spirit in the organization, and the team is charged up to prove that we can do much better. We are seeing daily examples of extraordinary agility, tremendous collaboration and great creativity in the organization. We recognize that a long drawn battle lies ahead, but we are fully gearing up and believe that we are well positioned to win.So 1 final word before we turn to Q&A. In April, we had positive growth in India. And the momentum in growth continued in Indonesia as well. GUAM saw a degrowth, but the performance was above our initial forecast. So while it's early days, the momentum in April is encouraging, and we are hoping to continue to build on this in the months and quarters ahead.I'll now take a pause, and we will be happy to take your feedback and answer your questions.

[Operator]

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

[Percy Panthaki, Vice President]

My first question is on basically the path forward for recovery. Obviously, March quarter, the reason for the poor numbers was mainly the supply chain disruptions. We wouldn't have seen any COVID related demand impact in March, obviously. But going ahead, we will see a mixture of supply and demand effects. Sir, my question is, even if we assume that supply bottlenecks are resolved completely, how much would you say would be the demand tapering? And -- I mean, versus your earlier guidance -- or not guidance, but earlier sort of conversations that you've had with the investor community, how much would you say would be the tapering down due to the demand impact of COVID?

[Vivek Gambhir, Whole]

Percy, I think at this stage it is quite difficult to have a very accurate picture of what the demand scenario would look like because there are so many unknown variables right now. One is how long do the lockdowns continue for. How big is the stimulus package. Are there resurgence of COVID in certain parts of India? So I think until we get a better picture of what the overall implication as far as consumer incomes and job losses is concerned, the demand picture is a little bit difficult to have a clear sense of. Having said that, though, I think in the categories that we are in, particularly in a category like HI, as I was mentioning, the entire focus on disease prevention should lead to growth in HI. Similarly in soaps and hygiene, we should start seeing growth. And even in discretionary categories like hair colors, we've been able to now start seeing initial demand. Both in hair color and air freshness, we've done some consumer research, and those are now coming up as categories where consumers are now looking to be able to go and buy in the market.Nisa, would you want to add there?

[Nisaba Adi Godrej, Executive Chairperson & MD]

Yes. I think, Percy, thank you for your question. Right now, as far as we're seeing on April and even May to date, there is quite decent -- good growth ahead of what we were sort of expecting in both India and Indonesia. And I think the way we're really thinking, again, I don't think we can have exact answers. But what is our portfolio, correct? And if you look at our portfolio, about 70% is this sort of essentials, very sort of high-value for money. I mean if I call out something like mr. magic handwash, which is $0.20 or INR 15 powder to liquid handwash, these are products that we already have that are in extremely, extremely high demand. We're also seeing a resurgence in HI from a health point of view. People don't want to land up in the hospitals for malaria and dengue at this time. That's 30% of GCPL's portfolio, correct? 20% of our -- I'm talking about our global portfolio is soap. So I think one is, I think I'm looking at it in terms of that we have a portfolio where the consumer demand is fully there, correct? We're also building -- we're also pivoting both in HI, in soaps, and we're thinking of hygiene very aggressively. So obviously, every company in the world has launched sanitizer right now, but we're seeing consumer habits change very rapidly. And we've launched -- already launched a slew of products, and we see more coming. And to these products, we won't just bring me too, but we will bring our value for money, disruptive innovation. So I think from a portfolio point of view, we find the demand quite strong, at least for the 70% of the portfolio.

[Unknown Executive]

And I think just to add to that, Percy, one of the trends perhaps which will get played out over a period of time is search for value for money offerings, right, I mean, or if you want to call it down trading, but I think value for money offerings from consumer sense, we think our consumer is quite well poised across clusters or across key countries where we claim to meet that kind of need from consumers to kind of also eventually service the demand. So that's the other thing to kind of just keep a note of.

[Percy Panthaki, Vice President]

Right. Second question is on Indonesia. Until now, we have not seen any effect of COVID in terms of business and sales. But I mean, on the ground you have a presence so you would have a better idea. What is the situation there? Is it sort of improving? Or is it deteriorating? And therefore, do you think there will be some sort of lockdown or something of that sort there also? Any thoughts that you might have since you have a presence on the ground there?

[Nisaba Adi Godrej, Executive Chairperson & MD]

Sure. So Percy, I think our view is, again, obviously, we cannot tell 100% what will happen. We've seen countries recycle through this. And in Singapore being an example. But it seems Indonesia has taken a very good point of view on its context of who it is as a country and how it must handle it. It's not gone and copied the West sort of blindly. And there is a lot of social distancing going on. So your malls are closed, your schools are closed, but they've actually let the economy sort of run. They stopped people from going home for the Ramadan holidays and stuff. So it's been quite strict that way. But they've made sure that the economy is running, and we hope that they continue to do that.

[Unknown Executive]

I think, Percy, the watchout there in Indonesia is, as Nisa was saying, is that they've enforced large-scale social distancing rather than shutdowns. I think the watchout there is that there are obviously some concerns about COVID spreading to some of the smaller cities. And I think -- which is why mudik, which is the exodus around Lebaran has been -- where almost 20 million people go back to their homes has been banned now. So I think we'll have to wait and watch. But so far, I think they've managed to, I think, not fully shut down the country, but enforced large-scale social distancing.

[Percy Panthaki, Vice President]

Right. Lastly on Africa cluster, basically, you're into hair care there. Now I know it's a very ingrained habit to use hair extensions, et cetera. But do you think because of whatever economic disruptions, loss of income, et cetera, there could be an impact in that category, which is more long lasting. When I say long lasting, 3 to 4 quarters, not that people stop using extensions, but instead of let's say changing it every 4 weeks, they change it every 5 or 6 weeks, that also would have a material impact on your sales. So any thoughts on that?

[Nisaba Adi Godrej, Executive Chairperson & MD]

Yes. I think, Percy, I think one of the big things that will happen is down trading, and the biggest part of our portfolios is braid there, which is sort of the most value for money. But we definitely see some impact happening there because the salons and all are closed. But we have a good do-it-yourself portfolio also, which you can do by yourself at home. So we are sort of pivoting on some of those fronts. Also I think because we have the full portfolio of products between dry and wet at these value price points, you do have to take care of your hair in some sort of way. So I think we're just going to have to be really agile in terms of depending on what consumer demand is, putting the right products in front of them. We're also making sure that at this time we're also looking at increasing distribution into the smaller retail stores that are closer to consumer's houses. Also, you might have seen the building society effect in India where now our building societies are coming together to buy products. Those consumer buying groups have existed for a long time in Africa. So doing more work there. But I would definitely say, I wouldn't say that portfolio is as strong as our HI or soaps portfolio at this time. I just wanted to make another comment. In Africa, we also have a product that used to be coming in from Chinese import. We see those sales channels quite impacted. So there's also that opportunity to get market share, and we are the sort of biggest player in Africa, so we also see the market share opportunity. So I think one is obviously your portfolio opportunity, but where will you gain market share, so we see some of those opportunities also.

[Unknown Executive]

And just to add, Percy, lot of African countries are still in lockdown and in different phases of lockdown, right? So there is a lag actually in many of the African countries compared to what we are seeing, say, in India at this point in time. So to that extent, we do expect performance to be soft in very, very sort of near term, but definitely a big opportunity in terms of gaining market share from lot of kind of cheap importers. And also as Nisa and Vivek were sharing earlier, we're also scaling up our hygiene portfolio in multiple countries in Africa, so that also should be a big growth factor during the course of the year.

[Nisaba Adi Godrej, Executive Chairperson & MD]

Yes. And I don't know -- we also have new leadership in Africa. We have someone called Dharnesh Gordhon, who's just taken over in April, and he was in -- he's South African, 30 years of experience on the continent. His last role in Africa was CEO of Nestlé's Nigeria business, which is -- Nestlé is like what HUL is in India. So I think having someone who's very experienced with the continent, we feel will give us advantage at this time.

[Operator]

The next question is from the line of Abneesh Roy from Edelweiss.

[Abneesh Roy, Senior Vice President]

My first question is on the 2 data points that you mentioned. That 70% of the portfolio, there's a gain in market share. Similarly, 70% of the portfolio is either essential or it's value for money. So my question is on the balance 30% in both the segments. So if you could define what is nonessential/not value for money, which products, and similarly, which are the segments or products which have lost market share?

[Unknown Executive]

So Abneesh, we would shy away at this point in time from sharing very micro details country by country and category by category. But definitely, even within just for example and better understanding, category like hair colors, which is kind of very close to discretionary or at least sounds very close to discretionary, there are formats and those price points, which do qualify in value for money sort of offering. Even in category like, say, hair extensions in multiple countries in Africa, braid is something which is very much at bottom of the pyramid, and we are seeing that in fact for example in markets like Kenya, which are relatively open as compared to some of the other African markets. So that's the way we have kind of called out this essentials plus kind of VFM space. So it's a cut not actually only across categories, but even within categories, formats and price points and things like that.

[Abneesh Roy, Senior Vice President]

Right. My second question is to Vivek. Vivek, you mentioned, pre-COVID also there were some issues. So if I see the data point Godrej Consumer in the first 3 quarters was in the higher tier -- in the top tier in terms of volume growth in India. This quarter, if you see, even hair oil companies have seen a better growth than your overall growth in India. So if you could elaborate what is the reason -- pre-COVID what was the issue. And surprisingly, in April, when almost every FMCG company has seen below par factory utilization, you seem to have grown, you said you have grown. So could you explain both of these?

[Vivek Gambhir, Whole]

Yes. I think, Abneesh, if you were to look at our performance until February, our year to date volume growth was about 5% or so. And if I look at the plans that the team has put into place, say, in India, I think, we would have likely ended the year at about a 5% volume growth, which would have been good in these circumstances. So what ended up happening was in the last couple of weeks of March, we probably lost about INR 250 crores of sale in India. And that's really what ended up dampening our performance, which from a volume growth perspective at least was looking quite healthy until then.

[Unknown Executive]

To add also, Abneesh, we have shared this in our performance update that we did see a secondary sales decline of around 10, 11 percentage. I think one of the other reasons also for decline in reported/primary numbers, was that we were walking into the season for category like soap as well as for household insecticides in North. So after chaos of around 2 to 3 weeks on supply chain front end as well as back end, we more than got our act back in place to sort of ensure that we are able to at least partially if not fully kind of get into the season for key categories like soaps as well as household insecticide category in North. And that's the reason why, I mean, April is a growth for us.

[Abneesh Roy, Senior Vice President]

No, but April, factories were not -- nowhere near even 60%, 70% capacity utilization for most case first 20 days. And second, pre-COVID, I still couldn't understand, you had made an opening statement wherein you said pre-COVID also the growth was slower. So that I still didn't get.

[Unknown Executive]

So just on the latter part first, Abneesh. It's not just factories, but also the stocks which were lying in kind of plant warehouses, and divisional warehouses and carrying and forwarding agents, which was completely at standstill for a period of 2 to 3 weeks. So a lot of those stocks have also sort of gone out eventually in the hands of consumers. And once the factory started its operations gradually, which I think started in a way from first or second week of April and has beefed up with every passing day, we were able to produce in the back end as well as sort of fill in kind of channel partners' inventories and eventually, I mean, get the product in the hands of end consumers.Just to quantify this, as of today, we would be close to around 70, 75 percentage of kind of capacity utilization across our factories in India.

[Vivek Gambhir, Whole]

And Abneesh, my comment around pre-COVID was a reflection of the last couple of quarters, right, where our volume growths have been very strong, but we recognize that our value growth has been below some of our expectations.

[Abneesh Roy, Senior Vice President]

But is there any deterioration in the soaps? You were gaining market share for 3 quarters of this year and when I see the #1 player, which reported just a 7% overall, they don't give obviously soap separately. Is there any deterioration there? And now are you coming back. Some color? I know these are very sensitive things, but some color if you can give that will be useful.

[Unknown Executive]

No, no, Abneesh, I think we can share what we have shared actually in our performance update, which is we have gained share, I mean, for not just in last quarter, but consistently over the last couple of years with our initiatives and micro marketing initiatives, which has been one of the key pivot for us in driving growth in soap category. We remain very confident of share gains even going ahead. And something like this helps, so which Vivek was just talking earlier, will definitely give a boost, I mean, to the overall soaps performance, hopefully.

[Abneesh Roy, Senior Vice President]

One follow-on question on Indian business, hygiene. You said is the next HI. So what does it mean? Second is hygiene is 5%. I think you mentioned in Q1 likely. So what products come in hygiene? Obviously, soaps is not there. Now if you see, you yourself said that almost every company is entering there. We have seen liquor company enter, paint company enter. So currently, it's dominated by 1 unlisted player and then we've got Hindustan Unilever also very aggressive. So who will win here out of the new players apart from the top 2?

[Nisaba Adi Godrej, Executive Chairperson & MD]

So your guess is as good as anyone. But I think the way we're seeing it, definitely everyone launched a sanitizer and right now, I think it's much more a supply-side issue than a demand issue because the demand seems pretty much limitless. But I think we are looking -- I don't think COVID is here and then gone in 2 months. And we feel like something like handwash, which is supposed to do for every disease will have finally been built forever. So I think what we're looking at is both on the personal care and the home care front, what are the products that consumers need to keep clean, correct? Some of these we are already extremely good at, which is wipes because we have one of the lowest-cost manufacturing models in Indonesia. The other things are things like spray, disinfectant, aerosols, we have a big, very big aerosol business, so we have big cost advantages there. So I think in hygiene, we're looking -- like Vivek said, we've launched now. So we're looking at close to -- and it's a big portfolio. And I think we're thinking something like handwash also we're holding out in our Hygiene portfolio. So like I said, having a value for money, product like mr. magic at INR 15, this is the year for these products. So we see this really -- and I think we know how to do these health products. We definitely -- you have Dettol, you have Lifebuoy. They're the really sort of big boys in these categories already. But especially in India, Godrej, our brand name, our distribution, so we do feel that more than other players, we will have that opportunity if we are agile and we innovate and distribute well. So we're quite excited about the opportunity, but we do realize that there are a number of people who are equally excited. We're just going to be focused on serving the consumer well during this time.

[Abneesh Roy, Senior Vice President]

And last question on Africa. So Africa, this quarter also much slower than Indonesia. So what will be the brief for the Nestlé Nigeria head who has joined? Why I'm asking this is Africa saw COVID much later than even India, and we know that here lockdown is not really there, at least in Q4. So what is required to be done here? We have seen the Chinese imports, et cetera. But still, we are not seeing consistent good numbers like Indonesia, we are not seeing there.

[Nisaba Adi Godrej, Executive Chairperson & MD]

So I think -- he's just come. So I think there are 2 things here that we are asking from him is 1 is to obviously step back and fundamentally look at the business and see where are our basics, good or bad, in terms of priorities, in terms of portfolio, where do we sort of push on and stuff. So that's slightly longer-term work. I think the other work is [indiscernible] still running a month-to-month, quarter-to-quarter business. And I think some of the things we very quickly focused on 1 is GTM, correct? He was -- he had many sales roles in -- on the African continent. So he's using his thinking, his contacts to just push that right now as hard as possible. And don't forget, even in Africa, things like this hygiene portfolio and stuff becomes pretty important. So these numbers of this 5%, 6% we're talking about, we've also launched products in the U.S. and in other countries on the continent.So I think there is -- I don't think our portfolio in Africa is as resilient as our India and Indonesia portfolio, but there are still opportunities there. So he has 2 tasks, one is the short term, and obviously, the longer-term [indiscernible].

[Sameer Shah]

And I think Abneesh to build on what Nisa was saying, along with go-to-market, I think his second big mandate will be complexity reduction. I think there are going to be lots of opportunities for simplification, looking at our manufacturing footprint and trying to see how we can optimize it further because I think the margins in that business are below what we would like to. So definitely, there will be a stronger focus on margin improvement there.

[Operator]

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

[Latika Chopra, Senior Analyst]

My first question was on the resurgence of HI that you talked about and just stepping away a little bit from COVID. The launch of Gold Flash, we have not seen it for few quarters, at least in South India. How are you feeling now about the acceptance of the product? How is the consumer feedback now? What's the status on the national distribution reach? And you've talked about flight to value. So should we expect more launches in the affordable categories here?

[Nisaba Adi Godrej, Executive Chairperson & MD]

So let me answer on Gold Flash. I think Gold Flash, I think, in terms of our distribution norms, in terms of our consumer sort of acceptance norms and stuff, have been very good. We first launched in the South, and then we moved the launch sort of nationally. We're very pleased that actually, our HI portfolio right now from whether it's price points, whether it's consumer job to be done, and in burning format, we have incense stick, we have Fast Card, INR 1 sort of price point products, our coils have been doing extremely well. We have this new LV, which is highly efficacious that we've put in. We've launched a new Goodknight fully natural range.So we feel very confident that our portfolio is full. We also feel that this is really the year to play our advantage as very large sort of market share leader. And we have been gaining market share in HI, whether it's against illegal incense sticks or the other players. And look, we're coming off the back foot, so we do realize, the way on this call, not having performed up to the mark. But I think this is -- we're just using it to say like this is an opportunity because there is really strong demand for these products, and we have to give it our all. And the give it our all is also just to serve, make sure we are serving our consumers. Your second question was -- sorry, Latika, what was the second question on?

[Latika Chopra, Senior Analyst]

It was more to do with do we expect more launches in affordable categories? And if I may just add to your comments, even you did say that April, May, year-to-date, you have seen growth. I believe this is more about your sales from your basically channels are stocking up. But any color on specific to HI at the retail and particularly North India, where this -- our mosquito infestation season was about to start. How the feedback -- initial feedback has been if any concrete color that you have?

[Nisaba Adi Godrej, Executive Chairperson & MD]

Latika, that is strong. It's been very strong. People are spending more time at home and no one wants to take a chance on their health. We're also pivoting a lot of our advertising and communication also to talk, to focus more on the health issues right now. Sameer, you want to add something?

[Sameer Shah]

Yes. And just to add to that, Latika, I think the secondary growth especially for HI has been very close to the primary growth. So that answers your question of the reported sales growth, whether just filling in the channel pipeline. I think the other reference over here is also what we are seeing in Indonesia and actually seeing over last kind of 6 to 7 weeks. I mean, there is significant higher consumption demand for household insecticide products in Indonesia because of its disease prevention sort of platform or association because consumers do not want to sort of take a chance of getting infected by malaria, dengue and having to sort of visit hospitals as there is a high possibility of any other infection.So definitely, we are seeing that trend in Indonesia. We want to definitely take up that positioning of kind of disease prevention in otherwise also an environment which is very cautious on health and hygiene at this point in time in India, and sort of scale up the overall growth over a period of time in India. So that's the thought process actually.

[Nisaba Adi Godrej, Executive Chairperson & MD]

Latika, if you see something like, say, the cockroach, the roach business, which is still a small percentage of our business, I think the focus that cockroaches cause respiratory diseases and asthma and all. Actually, I think all that just becomes very, very heightened in this environment. We're in a very heightened demand for protection and safety not just against COVID, but other diseases because you don't want to risk your family members at this time.

[Latika Chopra, Senior Analyst]

This is helpful. And just the second aspect I wanted to get some thoughts was distribution channels. You definitely talked about -- some comments there. But just, we're hearing or picking up from a lot of companies that it seems semi-urban, rural has been relatively less affected. It seems a lot of government initiatives are also going to be aligned towards that segment. In your view, should we expect a more accelerated push towards expanding rural reach? And that will be coupled with probably more value for money products also being launched in your portfolio. Any initial thoughts there?

[Vivek Gambhir, Whole]

Latika, I don't think it will be a question of either/or. I think what we'll require in a situation like this is a far higher level of dynamism. Because what you'll find over the next 12 months is lock-ins and lockouts and lockdowns are going to be a fact of life, right? The key will be is what we call micro cracks. Can you actually find small opportunities? Some of them will be in urban, some of them will be rural. They'll spread across kirana channels, I think online, across chemists, across rural. So the playbook gets far more like micro and far more nuanced. The good news is we have put the technology backbone to be able to actually go down to the micro level to be able to try and see where the demand pockets are.We have a project called GTM 3.0, which we had kick-started a few months ago. A lot of those pilots are being run. I think rural will be a very important part of our strategy. As Nisa was saying, affordable flight to value will again be part of it. But we do see opportunities in urban as well. We just don't know in what parts of India, the opportunities will come again depending on how -- what it takes to actually control the pandemic.

[Nisaba Adi Godrej, Executive Chairperson & MD]

Sure. And I think Latika, you had a question on the sort of value for money in new products. But just quickly, if you go through our portfolio, like I was saying in HI, you have Fast Card at INR 1, you have your incense sticks at that sort of price point, you have your coils; hair color, we have a INR 10 sort of herbal powder. We have our shampoo hair color, which has been doing amazingly well. Expert Creme, which we had done a relaunch with has hit its highest ever market share, INR 30 [indiscernble] the relaunch has gone very successfully. And then obviously, our big brands like No. 1 and stuff are sort of value players. So I think that's what Sameer was trying to say sort of earlier is one is the portfolio we play in, and then where in that portfolio do we sort of play in. And if you're saying even something like aer, correct? If you look at actually something like aer pocket, which is the biggest sort of bathroom freshener actually has germ protection properties, we've actually gone and put that on front of pack in sort of our air sprays. We're doubling them up. We've looked at some -- we looked at some of the formulations and making them sort of freshener plus spray. So we're doing a lot of that, but we do actually feel that we play in the categories and already have the value for money price point. But then when you see a lot of the innovation happening, and that will be a cross price point is on hygiene. And again, I keep mentioning mr. magic at INR 15, you all have to count how many times I've said it on the call, but I'll try and not do it again.

[Operator]

The next question is from the line of Aditya Soman from Goldman Sachs.

[Aditya Soman, Equity Analyst]

Two questions for me. Firstly, we see a very sharp reduction in the ad spend and employee costs. And the employee cost, in particular, were quite surprising. Any perspective on why we've seen such sharp reduction in both Q-o-Q and Y-o-Y?

[Sameer Shah]

Yes. Hi, this is -- Aditya, Sameer here. So I think the reasons for drop in employee cost is because of the performance-linked variable remuneration, which in turn is driven by delta EVA. A good surrogate for the delta EVA could be the EBITDA in absolute terms, which we have had in quarter 4 of FY '20 versus quarter 4 of FY '19. So the entire drop in manpower cost is completely driven by the lower performance-linked variable remuneration driven by the delta EVA.I think in terms of advertisement spend. Yes, I mean, if you look at on a Y-o-Y basis, we did see a drop, but there is also a little bit of phasing, right? We had most of our launches during the course of the year, whether it was Gold Flash in South or shampoo hair color or even Creme kind of relaunch. So to that extent, in quarter 4, there were not many launches as such, and hence, heavy marketing investment. And some part of marketing investments in very late March were also sort of held back just because of the uncertainty around COVID-19.

[Aditya Soman, Equity Analyst]

Understand. Sir, just following up on the employee cost question. Sir, is this just a function of basically the fourth quarter seeing the entire variable comp, and which is why that is lower or is it just the comp for the fourth quarter that was [ down ]

[Sameer Shah]

Absolutely. Absolutely.

[Aditya Soman, Equity Analyst]

All right. And second question, just in terms of your gross margins or input costs, we saw that sort of reduction in input cost was much lower than or was flattish compared with sort of a significant reduction in your top line? Any reason why that happened?

[Sameer Shah]

Yes. So I think if you look at gross margins in India, if I'm getting numbers right, we dropped around 50 basis points that, I think, was largely to do with the unfavorable category mix, right? We saw a decline of 23 percentage in hair colors, and that's the highest gross margin on a category for us. Internationally, also, there was a little bit of drop in gross margins. My sense is around 100 to 150 sort of basis points. That was [indiscernible] sort of category mix, country mix. However, [indiscernible] we do expect, at least at this point in time, a benign sort of commodity environment, whether it be kind of palm oil derivatives or whether it be even crude oil.So definitely, there would be, I mean, more kind of in the kitty to sort of drive growth. Of course, alongside being very prudent on many controllable costs, especially in this uncertain time. So we are not too worried about the commodity environment at least in which we are in and we expect it also to be the same, especially in kind of medium term.

[Aditya Soman, Equity Analyst]

And sir, what you're essentially saying is majority of this is just mix and not so much to do with any specific input cost?

[Sameer Shah]

Absolutely.

[Aditya Soman, Equity Analyst]

Understand. Fair enough. And lastly, just to comment on the dividend statement that you made on sort of the skipping the dividend for conserving cash. Anything we need to read into this? Or it's just as that statement says that you're maybe seeing [ underlying ] potential opportunity?

[Sameer Shah]

Yes, I think there's nothing much to read into it in a way, I mean, right, because this is more of a timing issue than anything else. At this point in time, the management and the Board importantly felt that let's be conservative. There could be opportunities of growth organically [Technical Difficulty] cash and kind of deployed basically for growth sectors. So for us, it's more of postponement as we see. Also, there are, I mean, multiple ways of rewarding investors, which also, over a period of time we would be kind of closely evaluating. So for us, at this point in time at least, it's more of a postponement than anything else.

[Aditya Soman, Equity Analyst]

Fair enough. So no cash flow issues in that [indiscernible]?

[Sameer Shah]

Absolutely, no. We have shared the details, Aditya, in terms of our cash balances as well as other balance sheet metrics. So absolutely, no cash flow issues at all.

[Operator]

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

[Arnab Mitra, Research Analyst]

My first question was on soaps. That the 1 gap in your portfolio is the germ protection soap, which is where Lifebuoy and Dettol are the market leaders. So is there a risk that -- and are you seeing that play out in the last couple of months that there is a net shift in the category towards these kind of soaps. And Protekt being a very new product in the market, will it be able to take some share here in a very short span of time?

[Nisaba Adi Godrej, Executive Chairperson & MD]

So 2 points here. I think 1 is if you look at our Cinthol portfolio, it's actually always been a germ protection portfolio. We never sort of really called it out front of pack and stuff, we've quickly done that. So if you -- I don't know -- I think the pictures were shared in the presentation. So I think that's 1 lever. And we do think while Protekt is a relatively new brand, Godrej is definitely one of the most powerful brands in soap, so we do see our advantage there. I think we'll see how soaps play out, but we don't feel that we will lose share. And whatever we've been doing, we will continue to do and we continue to be agile on our sort of district-level marketing initiatives that have played out really well for us in soaps.

[Arnab Mitra, Research Analyst]

Okay. And my second question was on HI incense sticks. So I think in theory, I think, Vivek touched upon it and you maybe made some comments that the smaller players who rely on indirect distribution may have a problem. So in theory, I think that sounds fine. On the ground, are you seeing actually that HI incense sticks availability from these players have dropped in the last couple of months? How is your own supply of your incense sticks which had been launched? How do you see that whole 12%, 13% of the industry kind of going in this period?

[Nisaba Adi Godrej, Executive Chairperson & MD]

Yes. So we do see supplies having been affected. And I -- don't forget these are very illegal outfits also. So this is again legally a good time even once things settle down to continue to go after them on that. One interesting trend we've seen is very high sales of Fast Card in the last -- so obviously, that's replacing some of that. Our supply of incense sticks is good. And don't forget, consumers, it's not just incense sticks or LV or aerosol, a lot of the usage that's happening is dual usage. So if actually, I don't have an incense stick, and now I have this very efficacious LV, I'm just going to put it earlier on the night. I think right now, I think we'll have to almost see what happens on a month-to-month basis.I think the other very powerful thing right now, which we are going to up our messaging and our investment on, which we were already doing was the -- you don't know what sort of pesticides and stuff you are inhaling in these illegal incense sticks. There are cocktail of anything. I think consumers, again, are much more sensitive to that message of what they're using in terms of protecting their health. So I think this is -- we're not going to lose this opportunity to push them back.Obviously, the initial signs are good. This is our initial thinking. It's going to sort of depend on how we execute now.

[Arnab Mitra, Research Analyst]

Sir, and my last question is on Africa. So if the revenue growth -- revenue declines continue there, is there anything on the cost side you can do to avoid this extremely low level of margin? Or is it kind of a derivative that if revenue declines are at this level, margins in Africa for that period of time will remain so low?

[Sameer Shah]

Yes. So I think, Arnab, this is Sameer here. So yes, there are controllable costs even in Africa, U.S. cluster, but the quantum is relatively on the lower side as compared to India and Indonesia. And hence, the scale deleverage could have a relatively higher impact on the margin. Having said that, I mean even on normative basis, Africa's operating profits, I mean, have been around 15% [ share ] to the overall GCPL's kind of consolidated operating profits, while the revenue contribution is close to around 23, 25 percentage. So it should not move the needle too dramatically. But yes, I mean, I would concur with you that there will be margin drop at least in short term or very near term because of scale deleverage, which is largely happening because of extended lockdown, more than anything else. But as I mentioned, in some parts of African countries, the lockdown is getting relaxed. It's not completely lifted, but it's getting relaxed in a gradual way.

[Operator]

The next question is from the line of Amit Sinha from Macquarie.

[Amit Sinha, Analyst]

Ma'am, my question is again on India HI business. And you have touched upon some of these arguments, especially on illegal incense sticks. So just wanted to understand when you say that the HI this year can be a year of resurgence for the business, is it fair to assume that the decimation of incense sticks at least in near term -- I mean, at least in the near term can be the biggest growth driver for the business?

[Nisaba Adi Godrej, Executive Chairperson & MD]

I don't think -- it could be a big one if they're not able to resurge, and we can push them back. But I think the biggest one is actually going to be demand. See, our focus on health has totally changed, correct? Whether it's washing our hands, being careful, protecting ourselves. One of the worries people are now talking about is that kids are not getting vaccinated because in this situation no one wants to go to the sort of doctor and things like that. So I think this heightened -- I was mentioning about how we're thinking of cockroach marketing differently and stuff. So I think that this heightened need to protect myself and protect my family, and it's not just on the germ hygiene, but it's on all parts of sort of lifestyle, correct? I think you all have been on other calls where we're seeing immunity products, also things like chyawanprash and all growing. So I think you will see a broad base health trend, correct? And then if you think about something like HI, it very clearly protects you from disease, correct? Obviously, it gives you a good night sleep, but it also protects you from disease. So I think we're seeing both the demand side and this is an opportunity in this environment to really push back on these illegal incense sticks. And that if you see our portfolio, our guns are fully loaded up with all the products that we could need. So I think that's -- it would be around those 3 things.

[Amit Sinha, Analyst]

Sure. And is there any market share gain within the organized [ shares ] also?

[Nisaba Adi Godrej, Executive Chairperson & MD]

Yes. I think that we voiced over -- look, we focused on volume growth, we focused on market share gain, and I think that will continue. So in soaps, hair color, HI, March exits were all gain.

[Sameer Shah]

Yes. And the market shares in detail, Amit, which we have shared in the presentation, I think it's close to around 90 basis points is including the illegal incense sticks in the category, right? So it's not just on organized players, but baking in the illegal incense sticks players in the category, we have been gaining share, not just last quarter, but I think at least over last couple of quarters now. And hence, if we strip out for the moment, illegal incense sticks, the share gains even would be much bigger than the 90 basis share -- points of share gains, which we had in the last quarter.

[Nisaba Adi Godrej, Executive Chairperson & MD]

Yes. And I just wanted to add 1 thing because someone might not ask me the question, and I'm sort of dying to bloat it out because we've been asked about India and GUAM and then we talk about India and the international business, but our Indonesia business is coming off a couple of strong years. And there again, this portfolio is very large, HI portfolio, very large sort of wide portfolio, value for money, air freshers. Again, very suited to this environment. And again, it's a highly profitable business. So we feel that, that business can also -- the same health trend that we're seeing in India will really take off there. We launched a full range of hygiene products under the brand [indiscernible] sort of very quickly. So I think that no one's asked it, but I just wanted to put that out there, that we see that also as part of the story of a stronger portfolio at value for money pricing.

[Amit Sinha, Analyst]

Sure. My second question was on the sales versus volume trends last year in FY '20. The sales growth was significantly behind volume. How should we expect that to play out in the next year and this year?

[Sameer Shah]

So Amit, we had shared this that our desire was to sort of bridge this value volume gap starting quarter 4 itself. But for the right reasons, we actually paused on the second round of price increases in category like soap. However, my sense is for FY '21, the value and volume growth would be very close to each other. Maybe on a full year basis, if all goes well, we could even see a little bit of pricing led growth. But at this point in time, for FY '21, the while volume growth should mirror each other.

[Amit Sinha, Analyst]

Sure. And lastly, on the cost management side. So I mean, you were already under -- basically, if I look at the focus on the cost management and the cost cutting, it was already there in the business since last 2 years. Incrementally, which are the areas you think you can squeeze further savings, especially in India and Indonesia business?

[Vivek Gambhir, Whole]

I think for us, the focus will be far more on overheads. There are always opportunities to be able to look at how to better utilize the overheads. I think, Amit, we'll be more balanced here, recognize that this is a need to also invest in new growth and innovations. And so we would shy away from significant reductions in advertising, but there will be opportunities to optimize advertising spend more. So we'll focus far more on optimizing, improving productivity, reducing unproductivity spend. But I think our EBITDA margins are quite high. The focus still will be again on getting back growth. At the same time, I think it is prudent for us to do what we say is smart cost management.

[Operator]

We have the next question from the line of Vivek Maheshwari from Jefferies.

[Vivek Maheshwari, Equity Analyst]

Two questions. First, your presentation talks about new categories and disruptive innovation. If I look at your FY '20, you have done quite a bit on new launches across your portfolio. And at this point of time, while all -- pretty much most companies are talking about consolidating and -- except for, let's say, hygiene segment, I mean, nobody is talking about launches as much. So why a different -- what is giving you the confidence that it's the right time to launch? [indiscernible] being, for example, you're giving a range, which has just [indiscernible] So do you not think it's -- given that you've already done so much in [indiscernible] just it makes sense to build on that rather than doing more disruptive innovations and focusing on your categories?

[Nisaba Adi Godrej, Executive Chairperson & MD]

Yes. So I think, look, the baby range was being launched anyway, so it was already in the CFAs, and we also see e-commerce as a big growth vector. We saw after SARS what that did to China and Alibaba taking off. So that was something that was already in the pipeline and the stock was there, so we decided to sort of go ahead with it. I think I mentioned earlier on that our guns are sort of loaded when it comes to things like HI and stuff, so we don't necessarily see new launches happening since we've done so many, so we're just going to focus on the current portfolio, and even new launches will just be across hygiene. So that will be the major -- sort of major focus.

[Vivek Maheshwari, Equity Analyst]

I see. I see. Okay. And sorry for asking you the same question again. But on the April growth number, can you -- because when we talk to other companies, everybody is talking about April, perhaps being the trough, whereas it looks like that fourth quarter F '20 will be the trough for you. And when I look at first quarter FY '21, I think most companies will have a trough there. Does it have to be something with the base because of which the growth is looking -- because last year, I think for the first few months you have had a bit of challenges. So how do you explain that, given that there were serious challenges from a manufacturing perspective? Or was it that channel -- your inventory at the warehouse level was or C&F level was higher? I mean -- because managing that kind of production, I'm guessing, would be far more difficult, right? So how do you explain that normally between you and almost any of your other competitors?

[Sameer Shah]

Vivek, this is Sameer here. I think 1 of the reasons for our growth in April and also to some extent in May, what we were sharing earlier is household insecticide category. We have seen, I mean, very kind of smart growth in household insecticide category over the last sort of 40 days. Yes, we have seen also adverse impact in some of our other categories. But household insecticide category with close to around 40, 45 percentage weightage has more than sort of offset that impact. So let's see how the momentum, I mean, goes ahead on household insecticide category, and hopefully, with passing time even in this quarter, the non-HI portfolio also should sort of -- kind of -- if not completely come back on track, but be close to kind of track.

[Nisaba Adi Godrej, Executive Chairperson & MD]

Yes. And Sameer, don't forget, we have a big soaps portfolio.

[Sameer Shah]

Yes, yes.

[Nisaba Adi Godrej, Executive Chairperson & MD]

And it's not like our hygiene portfolio. We have handwash, we have sanitizer. So obviously, that's also adding significantly to growth at this time.

[Vivek Maheshwari, Equity Analyst]

Sure. Sure. And the other bit is on F '21 margins. Any -- I mean, given the fact that input prices are down quite a bit, how are you thinking about, let's say, operating margins in F '21?

[Sameer Shah]

Vivek, this is Sameer here, again. I think it's too early to call out, right? I mean, as to what would be the margins, I mean, for F '21. Definitely, we would want to kind of drive growth, but also in parallel be even more judicious as compared to what we have been over past many years on cost, right? We definitely -- we want to be ruthless actually on lot of controllable costs, but also in parallel, ensure that cost, which is very important and needed for driving growth continues, right, I mean, and we increase the productivity over there. We are also in benign commodity environment, right, whether it be crude or whether it be palm oil derivatives. So let's see, I think, how the margins kind of shape up during FY '21, but at this point in time, we are not too worried about the margins part of it because the entire focus is on kind of driving growth on a full year basis as well as here and now coming out of what Vivek shared earlier, the retool part of the much stronger playbook.

[Vivek Gambhir, Whole]

And Vivek, we will have to wait and watch because ultimately, what we still don't have a good sense of is the increased cost of social distancing, right? What does it mean for productivity in factories, what's the cost of -- and this is something no one actually knows because no one's dealt with this before. But I think there are enough opportunities as Sameer was saying for us to be ruthless about cost control in the right areas. But the margin situation, I think, will evolve over the next couple of quarters as we understand better what it takes to actually deal with this pandemic in a post lockdown scenario.

[Vivek Maheshwari, Equity Analyst]

Got it. And the last question, Sameer, is this INR 400 crore increase in the goodwill, March '19 versus '20, that is just because of currency movement?

[Sameer Shah]

Absolutely. Absolutely.

[Operator]

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

[Aman Rathi;Morgan Stanley]

I kind of have a similar question. So my first question is basically not only margin, but what is -- based on the revised business plan that the company would have developed to tackle COVID, what is the growth that the company is targeting in terms of volume or in terms of value for FY '21?

[Vivek Gambhir, Whole]

Honestly, we don't know. I wish we had a crystal ball to be able to -- the situation is so dynamic. The situation is dependent on so many variables. I think what we are focusing on is ensuring we can gain market share. We are working on ensuring that we can provide the consumers with good innovations and good products. We are ensuring on availability, ensuring that our distribution gets improved. But ultimately, I think the actual growth will depend on so many things beyond our control. The key for us is to actually focus on the leading metrics that will allow us to actually outperform the market. But I think beyond that at this stage, very difficult to give you a specific number as far as the target for the year is concerned.

[Nisaba Adi Godrej, Executive Chairperson & MD]

Yes, I think we're hopingly -- hopefully conveying our attitude at this time. And in this sort of situation, there's always a choice on attitude. I think our attitude comes a little bit from the portfolio we have. But I must compliment you all, while everything in the world has changed, you guys are still holding on to the same question. So you give us hope that things will maybe remain the same in some ways.

[Aman Rathi;Morgan Stanley]

So are you still seeing opportunity for growth given the lost sales in April and May, or a flattish demand for the whole year as compared to the previous year?

[Sameer Shah]

I think, again, it's too early to call out at this point in time. Definitely, our hope would be and more than hope, the initiatives, I mean, would be here and now to gain market share, scale up new categories, capitalize on the opportunities in household insecticide, and definitely build on that platform for rest of the year. But it's too early to call out.

[Nisaba Adi Godrej, Executive Chairperson & MD]

Yes. And I -- it's really a situation guys where we could take best guess estimates and stuff, but it is really a situation where I think companies that navigate point-to-point. And point-to-point literally means week-to-week right now to navigate the situation, correct? Because we're not dealt with something this chaotic both from the supply and the demand side. Right now, we're seeing more of the supply side than the demand side. But I really think it's a week-to-week basis. I think we've given you a broad thinking on portfolio and advantage that we feel that we have, and we're constantly looking for more advantage and to build that out.

[Vivek Gambhir, Whole]

And I think our learning has been here to focus on inputs. Honestly, we don't know what the output would be. But as long as you focus on the right inputs and you can out execute, that's what we're trying to focus on here, and then let's see what the output is.

[Aman Rathi;Morgan Stanley]

And my second question is related to transportation and logistics. So have you faced any issues or foresee any issues related to transportation of materials to the retailers' point and the rural market?

[Vivek Gambhir, Whole]

It is -- yes, we've definitely seen lots of issues, but the issues are getting better by the day. I think we've certainly also seen about a 1% increase in terms of our freight expenses over the last couple of months, again, given the shortage in trucks, et cetera. It is getting better. We are collaborating more with some of our partners to try and see how to best address this. But yes, this has definitely been a challenge, but the government issued more clarifications now. But because of also some labor availability on the ground, things are gradually getting back on track, but this is still a challenge.

[Aman Rathi;Morgan Stanley]

Okay. So there is still a labor and maybe drivers availability issue as of now on the ground?

[Vivek Gambhir, Whole]

Yes, absolutely. I think it's taking some time for things to get back to normal.

[Operator]

The next question is from the line of Kunal Vora from BNP Paribas.

[Kunal Vora, Analyst]

First question on Africa. In the Africa cluster, growth has slowed down for the last few quarters, and not just this quarter. Can you share the top 2, 3 problems which you're facing in the Africa cluster? And how do you see the Africa opportunity going forward considering that some of the markets are commodity-driven and they might see some structural weakness?

[Vivek Gambhir, Whole]

Yes. I think, clearly, the biggest challenge has been macroeconomic, but we don't want to externalize that. But clearly, if you look at the growth rates, the growth rates have been a significant challenge across all of Africa. And when we compare our market shares in the categories that we are in, I think we've be doing reasonably well. Our innovations are working, but certainly, we've seen a huge amount of macroeconomic volatility.The second piece, I think, is on the scale-up of our wet portfolio. I think the scale-up of our wet portfolio has gone slower than expected. We still believe that there is a tremendous potential in that business. But the second big reason for our shortfall actually has been the scale-up of the wet hair business. I think having said that, we have new leadership in place. We still remain extremely excited about the long-term potential of Africa. As Sameer was mentioning, I think this year could be challenging, at least in the first couple of quarters given that COVID hit Africa a little bit later, and most countries are still in some stages of a lockdown. And also given the nature of the category and dependence on salon, it will certainly go through its sets of challenges. But I think this is also a good opportunity with a new leader to be able to better diagnose where the issues are, really figure out how to drive a go-to-market in a very different manner altogether and also see if we can pivot our portfolio to do-it-yourself products, et cetera. So we do -- we still feel confident about the Africa potential, but recognize that over the near term, we could still see some challenges there.

[Kunal Vora, Analyst]

Yes. Would it be fair to say that you are more excited about India compared to Africa? Like not only, let's say, in the immediate, but even in the medium term, the Africa opportunity seems to have weakened compared to what you have thought...

[Vivek Gambhir, Whole]

You're asking us to choose, which child we love more, right? So as parents, honestly, it's very difficult to say that we prefer -- each country has different stages of evolution, different growth dynamics and different stages of growth. I think Africa is clearly a longer-term bet. India is a much bigger business for us, so it's our oldest child. But certainly, I think Africa needs an equal amount of love and attention.

[Nisaba Adi Godrej, Executive Chairperson & MD]

Yes. [indiscernible] we love all our businesses passionately, but we can still look at them with critical eyes. I think the idea that we got Dharnesh on board for Africa, he is an extremely senior leader. I can tell you we hustled a lot to pull that one on -- off. And I think the idea is that Africa is -- we're doing the same things in Africa, slightly different categories, which is probably why we've had some of the problems we've had in the past. But this value for money, well-distributed, well-grounded, low-cost manufacturing, I think the long-term play is there. And look, the African continent, these countries are not easy to do business, correct? So you need resiliency. I'm not taking anyway -- there's no long term without a short term also, but we are fully committed to getting it right. And then I think there are lots of advantages to have on the continent.

[Kunal Vora, Analyst]

Best wishes for that. Second question on HI. How is the mix of sales between Gold Flash and Active Plus now? Is it mostly the new product selling now? Or like the old one also is doing good numbers. And as a part of the overall base, how large will Gold Flash be now?

[Nisaba Adi Godrej, Executive Chairperson & MD]

I don't think we can give those numbers out to you exactly. But as you know, we stopped feeding in Active Plus machines. Obviously, we're still supplying the refill. So all the new machines that are going in are sort of Gold Flash machines. So it's literally, we are just fully upgrading the consumer to the better technology. But if they have old machines we're obviously supplying those refills to them.

[Operator]

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

[Harit Kapoor, Analyst]

Just had 2 short questions. One was on the India business. So if you could just tell me as of date, how much of our distribution has been reactivated? You spoke about manufacturing capacity utilization. If you could give us similar color on distribution as well?

[Vivek Gambhir, Whole]

So about almost 80% of our distributors are up and running, Harit. But the challenge still is actually them visiting the market. So a lot of them are still doing counter sales, doing tele-ordering. We have put in applications in what -- ordering applications for them to work on the phone. So the number of actually people visiting the market are still on the lower side, but we do expect that to keep on improving as time goes on. But by and large, all our CFAs and almost all our distributors are actually now operational.

[Nisaba Adi Godrej, Executive Chairperson & MD]

Yes. One of the interesting things about the last few months is that all our longer-term digitization plans all got implemented in a couple of months, correct? So our NPD cycles went from months to weeks. So we are also, I think -- and I'm sure a lot of companies are talking about this, the ability to do with less, faster and quicker. So we actually are a joke internally, then maybe we should just shut Godrej One forever, so that we can keep working like this.

[Sameer Shah]

Nisa, you forgot the ad creation.

[Nisaba Adi Godrej, Executive Chairperson & MD]

Yes. And then we've been making advertising on-point advertising for the health and hygiene products and what consumers are facing right now in the lakhs versus in the crores. So a lot of more -- do more with less right now.

[Harit Kapoor, Analyst]

My second question was on the international business. If you look at Indonesia, Africa and Latin America over the last, say, 2 months or so, you have seen a bit of a currency depreciation vis-à-vis the rupee. Is there a way to mitigate this in terms of price increases? I would assume in the current environment that would be difficult, but just wanted to kind of -- I know it's not in your control in terms of the translation, but just wanted to hear your thoughts on that.

[Sameer Shah]

Yes. I think it's a balance, Kunal, between currency depreciation and inputs cost, right? So we have seen benign commodity environment, let's say, crude, which is one of the major input for, say, Indonesian business. The drop in crude is much bigger than actually the currency depreciation, say, in Indonesian rupiah over last 2 to 3 months. It's going to be a balanced cost in markets where we do see opportunity of driving pricing increases, like, for example, in Nigeria, we have rolled out recently kind of pricing increases, we have sort of executed it. So it will be a very balanced call, keeping an eye on growth because the last thing which you would want is taking price increases, which comes at the cost of growth eventually. But again, I think kind of cocktailing in commodities and currency depreciation, we feel we are still quite comfortably placed in terms of overall net kind of input cost.

[Operator]

The next question is from the line of Rohit Dokania from IDFC Securities.

[Rohit Dokania, Senior Vice President of Research]

I hope all of you are doing well. Just 2 quick ones from my side. One is on the LV portfolio, I believe there was a 10% odd kind of price, and we were to sort of kind of remove that over a period of time. Have you already started doing that?

[Sameer Shah]

Yes. So that basically was the price of which was run in a few select markets across the country on Active Plus. It was a natural premiumization strategy with launch of Gold Flash because Gold Flash was at kind of premium to otherwise Active Plus full price as well as discounted Active Plus. So with passing time, the premiumization will get played out and the discounted kind of liquid vaporizer, especially the Active Plus also will keep on kind of fading out.

[Rohit Dokania, Senior Vice President of Research]

Sure. Okay. And the last and quick one. Can you talk about what kind of inventory do we have, rather, we had at the end of March in terms of finished goods as there was a total of INR 1,700 crores inventory at a consol level end of March. What would be it in terms of finished goods?

[Sameer Shah]

So at this point in time, we would shy away from sharing very specific details because all of those details will come out eventually over a period of time. But yes, I mean directionally, the inventory levels, whether it be RM/PM or whether it be finished products were on the higher side because over the last 12, 15 days, there was hardly any movement. And all the plants, whether it be an input as well as finished product, was to sort of kind of ship it out and reduce down the inventory. So yes, inventory would be on the higher side, which in a way also sort of helps us at this point in time to kind of get, I mean, our products to channel partners and eventually to consumers. And please don't forget, in markets or many countries in Africa are having inventory at a relatively lower cost, especially read with currency depreciation, again, becomes a big competitive advantage.

[Operator]

As that was the last question for the day, I now hand the conference over to the management for closing comments.

[Vivek Gambhir, Whole]

Thank you very much for your feedback and suggestions. I think, clearly, this is a very challenging situation. But as Nisa was mentioning, we are fighting point-to-point. And I think we are putting in all the right efforts in place, along with really making sure that our portfolio can deliver. This is a year for resurgence for HI. We do want to make a strong play in the hygiene segment as well, intensify our go-to-market efforts so that we can learn from this crisis and emerge stronger. Thank you very much for your feedback.

[Sameer Shah]

Thank you.

[Nisaba Adi Godrej, Executive Chairperson & MD]

Thank you so much, everyone, for your time. Stay safe and be well.

[Vivek Gambhir, Whole]

Thank you. Bye-bye.

[Operator]

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