Godrej Consumer Products Ltd

NSE:GODREJCP

Earnings Call Transcript 2021-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to Godrej Consumer Products Limited Q4 FY '21 Earnings Conference Call hosted by Kotak Securities Limited. [Operator Instructions] I now hand the conference over to Mr. Jay Doshi from Kotak Securities Limited. Thank you, and over to you, sir.

[Jaykumar Doshi, Vice President]

Thank you, Ayesha. Good afternoon, everyone. On behalf of Kotak Institutional Equities, I welcome you all to Godrej Consumer Products 4Q FY '21 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. Good afternoon, everyone. We hope that you are staying safe and healthy. We will be covering this afternoon the results for the quarter and financial year ended 31st March 2021. On the call from GCPL, we have Ms. Nisaba Godrej, Chairperson and Managing Director; Mr. V. Srinivasan, CFO and Company Secretary; and Mr. Sameer Shah, Head, Investor Relations. As is customary, we will start with Nisa sharing her perspective on the business and overview on how we are navigating the current environment.

[Nisaba Adi Godrej, Executive Chairperson & MD]

Thank you, Pratik. Good afternoon, everyone. I hope you and your families are safe and healthy during these very difficult times as possible. And thank you so much for taking the time to be with us on this call today. Let me start with sharing an update on the CEO succession plan, which we announced yesterday, effective October 18, 2021, Sudhir Sitapati will join GCPL as Managing Director and Chief Executive Officer. I will continue to serve our company as Executive Chairperson. Sudhir's significant experience and passion for building sustainable and profitable businesses aligns very strongly with our purpose at GCPL. His value-based leadership style also makes him a great fit with Godrej culture. I look forward to his partnership in unlocking the amazing potential of our company and leading its next phase of growth. Moving on to the business performance update. Let me begin with GCPL's performance for the entire year. Financial year 2021 has been a challenging year for everyone. However, I'm extremely proud of our team members and the remarkable agility and resilience they have demonstrated through these difficult times. During the year, GCPL has grown in double digits at 11% and has delivered an EBITDA growth of 14%. We have been able to drive a resurgence in Household Insecticides and delivered a full year INR sales growth of 15%. Hygiene, including soaps, continued its strong momentum and delivered a 24% growth for the year. Value for money products have witnessed sequential recovery, both in India and Africa, U.S.A. and the Middle East, delivering a sales growth of 14% for the year. India also witnessed a double-digit sales growth of 14%, led by strong performance in home insecticides, which grew at 16%; and hygiene, including soaps, which grew at 15%. Performance in our Indonesian business was soft with a constant currency sales growth of 2%. This was backed by steady performance in Household Insecticides and significant scale-up of our Hygiene portfolio under the Saniter brand. Our Africa, U.S.A. and Middle East business saw recovery and delivered constant currency sales growth of 9%. Specifically in quarter 4, GCPL delivered a third consecutive quarter of double-digit sales growth. Our growth was broad-based. Overall, sales grew by 27%, EBITDA grew by 21% and PAT grew by 20%, excluding exceptional items. Hygiene continued its strong growth momentum, growing by 38%, and we look forward to strongly building on this category in the years ahead. Value for money products grew by 27%. Growth in Household Insecticides was at 28%. We also saw continued strong growth momentum in the Household Insecticides and hygiene categories and sequential recovery in value-for-money products. From a geography perspective, India recorded a sales growth of 35%, led by growth across the portfolio in Hygiene and Household Insecticides. Overall, rural grew at 1.4x of urban. The scale-up of the e-commerce channel continues. Indonesia witnessed gradual recovery with a 4% constant currency sales growth on a base quarter growth of mid-single digits. We had steady performance in Household Insecticides and a meaningful scale-up of Hygiene. We continue to see gradual recovery in air fresheners and are strategically addressing high competitive intensity in wet wipes. Our Africa, U.S. and Middle East businesses delivered profitable sales growth of 36% in constant currency terms. I continue to be pleased with the strategic focus and growth mindset of the team.Our consolidated EBITDA margins of 20% decreased by 110 basis points year-over-year due to a drop in the India and Latin America and SAARC margins. In India, margins decreased by 500 basis points year-on-year, driven by the lag between an increase in input costs and end consumer price increases, provisions of slow-moving inventory on a conservative basis and a onetime variable manpower remuneration reversal in quarter 4 of financial year 2020. We continue to have a healthy balance sheet. The return ratios continue to move up and the net debt-to-equity ratio came down. We are carefully navigating the challenges of the second wave of COVID-19 in India by ensuring seamless supply chain deliveries and closely tracking shifts in consumer behavior to respond to. We are leveraging our learnings from the first wave and are better prepared to respond to any supply chain disruptions given our ramp-up production capabilities. While localized lockdowns could impact frontline servicing and the replenishment of outlets in the very short term, the second wave is likely to be a tailwind for the hygiene category. Our teams too remain resilient and agile. As always, our values matter the most at this time. We are committed to enabling the safety and well-being of all Godrejis and serving our consumers and communities with our full hearts and minds. Thank you.

[Operator]

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

[Abneesh Roy, Senior Vice President]

My first question is on Hygiene segment in India. You launched multiple products in wave 1. And you also said wave 2 also tailwinds will be there. Could you tell us which are the products where you're getting more confidence and which are the lagging products where you may take a call? And second, we have also seen a lot of consolidation, a lot of the new players who entered are exiting or already exited. So do you see them coming back? And you, yourself are new in a lot of these segments. So is there a long term opportunity? Or is it more of a wave 2 or wave 3 opportunity?

[Nisaba Adi Godrej, Executive Chairperson & MD]

Abneesh, thank you for your question. I think I mentioned before also, what we're seeing is definitely consumers need to stay protected and clean and protect from viruses or other things has become much stronger. We've seen penetration also grow in Household Insecticides. What we've done in Hygiene over the year and as we go ahead, it's really doubled down in products where we feel we have very strategic advantages, whether it's soap, Magic handwash and some of the other categories we played in. Last year, we had played a few parts of the business like we launched masks and a few other products that we're actually not even relaunching in ways to are focusing in wave 2. So I think we have a lot of learnings also from the last year on which of these products in hygiene that we should focus on.

[Abneesh Roy, Senior Vice President]

And in terms of Soaps segment market, India said 2 rounds of price hike have happened, around 6% to 7%. In your case, last 1 year, how much is the price hike? And are you also planning one more hike? And views on palm oil for the year?

[Sameer Shah]

Yes, Abneesh, this is Sameer here. So I think we have taken 6% to 7% of price increase in soaps, as you can see in quarter 4 itself. I think sequentially, our price increase would be to the tune of 3% to 4%. The approach which we have taken is more of a calibrated price increase and which has worked very well for us because we have seen strong growth as well as strong market share gains. And that's the approach, we will continue also at least in medium term. This also will be a good opportunity for us to gain market share for a lot of small players because they normally sit on the fence in high inflationary environment. And we'll try to mitigate. I mean some of this kind of gap through structured costing programs as well as evaluating pricing opportunities in the rest of the portfolio in very short term. The vegetable oil prices are more or less at similar level over next couple of months, we expect, I mean, those levels to sort of continue. It will be one of the longest sort of [indiscernible] for vegetable oil prices, I should say, over the last kind of 12 to 15 months now. So let's see over the next 3, 4 months, eventually in which direction it kind of takes.

[Abneesh Roy, Senior Vice President]

Sure. That's very helpful. My last quick question on Africa. Any business or any region, you're evaluated where it doesn't make sense from a core synergy, core focus perspective long term, anything you can share at this stage?

[Sameer Shah]

Nothing Abneesh. I mean if you look at our play, I mean, it's sort of in some of the large markets and the so-called kind of Tier 2 markets. So I think geographically and even category-wise, the portfolio looks pretty complete. At this point in time, the entire thinking is in terms of getting those growth building blocks, whether it be marketing campaigns, whether it be seeding in new future growth category, as well as kind of driving GTM initiatives in most of the markets we are present in.

[Operator]

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

[Vivek Maheshwari, Equity Analyst]

Am I audible?

[Nisaba Adi Godrej, Executive Chairperson & MD]

Yes.

[Operator]

Yes, we can hear you.

[Vivek Maheshwari, Equity Analyst]

Okay, great. A couple of questions on this new appointment. So Nisaba, what are the areas that you think should be the priority for the new CEO after he takes over across, let's say, India, Indonesia and Africa? Are there any thoughts on that, that you can share at this stage?

[Nisaba Adi Godrej, Executive Chairperson & MD]

Sure. I think the main focus is you have to say, what are the top 3 focuses is probably growth, growth, growth. And then I think the underlying pieces of how you get to the -- how do you get to the growth. But I think, we've seen this year and last year, I talked a little bit about getting to double-digit growth, the resurgence in Household Insecticide. So I think we've made a good start to it. My expectation is that he comes in and now sort of takes this to the next level. I think we all know his background in sort of category management. He turned the soap portfolio around at HUL at one point. So really bringing that more category management thinking across the GCPL clusters and strengthening that piece is what we really look forward to.

[Vivek Maheshwari, Equity Analyst]

Got it. Got it. And second, on your role, you have been the MD for last few quarters. And before that, in the earlier regime as well, you played an important role on the product launches and the new initiatives. How do you think about how your role will evolve after Sudhir take charges this year?

[Nisaba Adi Godrej, Executive Chairperson & MD]

I think we'll have to wait to see how he -- once he comes in, but I'll continue to play the chairperson role and support him. Obviously, ultimate responsibility for governors asking the hard questions will still fall on me. But I'm hoping that I can continue to support him on all the knowledge I have of the company. And give him that support, but really let him have a very free hand in coming in and seeing what can be done differently. I'm also looking forward -- my history with GCPL also goes back many years, so over a decade. And I really felt at that time when I first came into GCPL, it was a wonderful opportunity to actually look at it with very outside-in eyes. And at the same time, my father was the chairperson at that time, I had a lot of backing from him to go ahead and sort of make bold changes. So I hope I can play that role for Sudhir where he can really come in, put a transformation agenda together and then I can really help enable it.

[Vivek Maheshwari, Equity Analyst]

Got it. Got it. And one last thing on -- since you mentioned about the transformation, so does that mean that in case if the thought process is to expand and get into newer categories, so let's say, you have had 3x3 strategy a while back, and then you obviously extended beyond that, be it the fresheners or the...

[Nisaba Adi Godrej, Executive Chairperson & MD]

I am not launching a food business. So that was not the point of getting along? No. I think, look, I think some of these things, in any case, we transitioned a little bit from -- recently, there has been some transition already. And I think with him coming out, he's probably put a -- start communicating a new strategic plan. But I still think it will be really sort of doubling down on growth in some of our core categories, right, Household Insecticides, hair care. This hygiene and air care and fabric care, all quite new categories with low penetration across some of the pieces. So I think he can really come and help ignite on those categories. So I don't think -- obviously, we potentially might get into new categories, there might be acquisitions that come up. But I think it's really -- what we're looking for is good, strong, double-digit organic growth.

[Vivek Maheshwari, Equity Analyst]

Very good to know, Nisaba, and good to know that you don't want to get into food. So that focus is great.

[Operator]

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

[Percy Panthaki, Vice President]

My first question again is on the management change here. So when Vivek left, I think, as a firm, we took a decision that we would not sort of hire anyone else in his place. And you would be stepping into his shoes. Now within such a short duration after this departure, what really was the thought process behind the change in that sort of decision that we had taken at that point of time?

[Nisaba Adi Godrej, Executive Chairperson & MD]

So Percy, I mean when we had taken the decision at that time, it was during the pandemic, and I did feel that it was not the right moment to bring in someone from outside at that point. And that I would run the company myself.We also, obviously, in these sort of situations do have some very good internal candidates who could have also done the role. We eventually decided to go with Sudhir. And I think the idea was that I would run it for a couple of years, and in April '22, when anyway, we're going to split, you have to legally also split the Chairperson and CEO role, we would have a successor appointed by then. Sometimes if seemingly good things are happening to you beforehand, you might as well go ahead and do them. So I think that's been the thinking behind this.

[Percy Panthaki, Vice President]

Right. And on a slightly related note, if I look at the 3 senior positions in your company right now that is the MD and CEO, which you recently filled as well as the Head of Indonesia and the Head of Africa, they are all outside hirees.

[Nisaba Adi Godrej, Executive Chairperson & MD]

Yes.

[Percy Panthaki, Vice President]

So I just wanted to understand, I mean, did you ever consider -- or do you think there's a concern in terms of what message that sends out internally and whether that is sort of a point that you could address in some way because we've been ranked as one of the best places to work, et cetera. So we do have a very strong internal bench. And in that context, 3 senior positions going to outside guys, how do you sort of look at that holistically?

[Nisaba Adi Godrej, Executive Chairperson & MD]

Sure. I'm happy to answer that. So I think Percy, if you look at those positions before we got the outside leadership, they were actually filled by internal positions. And we've actually taken a lot of bets on very good young people internally. I think if you -- Indonesia wasn't recent, it was 4 years ago. And obviously, the Africa piece was 1 year ago. I think what then happened is that we've become global as a company quite recently. So the thinking was then to get leadership because we had sent people from India to run these geographies and people who had a lot of experience in India. And then at some point, we sell when these businesses were not performing to the market. We obviously, as you all know, have put in a lot of money into these businesses that we wanted sort of very experienced people from those geographies to come and run old businesses. I think so far, those calls have been -- those calls have been right. And I think as long as people internally feel that we make the right decisions, that we equally give people internally a chance. But to the senior roles, we do tend to also benchmark from outside.

[Operator]

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

[Arnab Mitra, Research Analyst]

My first question was on HI. So I think last quarter, you had specifically mentioned that you have seen some return of the incense stick into the market, and that was pressurizing market share again. Any update on how incense stick shares are now doing? I remember pre pandemic, we used to have a low double-digit share in the industry. How has that kind of now settled down at? And a related question is, a lot of your innovation in HI still seems very focused on premiumization like Gold Flash or new segments like the Roach Bomb. Any thoughts on the penetration wherein, do you need a lot more there in terms of your efforts to drive penetration in the low-income segments?

[Nisaba Adi Godrej, Executive Chairperson & MD]

Sure. Let me answer that for you, Arnab. So I think incense sticks stay at the same level that they were basically during the year. I think what we saw in quarter 1 last year that the supply chain shock was so big that they went out. We continue to work very strongly on the sort of legal, government side. We've actually had a very senior person join us in Corporate Affairs in the group, too, and one of his key mandates is to help on this issue. So that -- as you know, about 80% of our portfolio, is in the premium segment or say, what 20% of our portfolio is what we call non-mosquito, where growth has been very high, penetration is very low. So even, say, something like LV or LMD penetration went up in the category this year, but it's still at about, I think, 26%, 27%. So the headroom in these -- and the margin profile in these segments obviously gives us a reason for [indiscernible]. That being said, obviously, the burning format is not something that we still continue to be the market leaders in coils by far. I think this year, I had mentioned it, I think in our previous call, we do have 2 products coming against fees and legal stakes that sort of compete directly against them. Our natural incense, and we were obviously waiting that registration cycle, which will happen this year. We had launched those natural sticks, but they didn't -- from an efficacy [indiscernible] perspective, we're not able to sort of effectively for consumers compete as these illegal incense sticks. But I think you'll see more from GCPL this year on the burning format front.

[Arnab Mitra, Research Analyst]

That's very helpful. And my second last question was on these 2 brands ProClean and Protekt, which, obviously, FY '21 was a big year of ramp-up in terms of products as well as new segments. So at the full year level, is there anything you can share with us, it can help us appreciate what you're doing here in terms of either exit market share that you have or distribution or absolute sales, which can help us just understand where you are in the past and how the first year has gone? And how we should think of the next 2, 3 years in these 2 specific brands which you're scaling up?

[Sameer Shah]

Yes. Arnab, this is Sameer here. We will kind of refrain from sharing. Yes. Sorry, Arnab, Nisa just kind of got logged out of the call. She's just joining in. Now what I was sharing is, we would refrain from using very specific kind of inputs, but what I can share with you is strategically, this play of hygiene and extended hygiene within cleansing format is extremely kind of critical for us. If you look at our hygiene portfolio, Arnab, in India itself, I mean, last year, in terms of saliency, it was close to around 4%. Also, the cleansing format was off to a great start. And we did say that we [indiscernible] had the sale sort of planned for in terms of our kind of launches, but we sort of preponed also during the first wave of kind of lockdown, right? And of course, we will also back it up with more interesting innovation over a period of time to make this play very, very kind of strategic and hopefully, big for us. So that's the thinking which we have. Again, these are the categories which are relatively underpenetrated category where we do feel that we have right to win, if we get the right product innovation and in parallel also leverage our distribution.

[Arnab Mitra, Research Analyst]

So does that 4% include ProClean and the sanitizers, I'm just trying to understand what all is counted in that Hygiene segment?

[Sameer Shah]

Yes, it does include. I think, yes, it does include, I mean, both ProClean as well as the entire basket of handwash and sanitizers, Arnab.

[Operator]

Next question is from the line of Avi Mehta from Macquarie.

[Avi Mehta]

I just wasn't clear on the last question on the Burnings category. So is this pickup in HI, or is the strength in HI largely on the back of categories kind of remaining strong? Or is it because of market share changes or the incense sticks segment market share changes, especially in the Burning side?

[Sameer Shah]

Avi...

[Nisaba Adi Godrej, Executive Chairperson & MD]

Avi, there are -- we've done well across all the categories. So we've had good growth even in the burning format. Like I said, we still are the biggest player in coils, which is still the biggest segment in burning format. So actually, across all segments, nonmosquito, electrics everything showed good growth this quarter and actually even across, if we look at it as a full year basis.

[Avi Mehta]

So, I just -- let me be a little more pointed on this. What I was trying to understand is, has there been any change in the competitive intensity from the incense stick manufacturers, illegal incense sticks or no? Is it...

[Nisaba Adi Godrej, Executive Chairperson & MD]

No, no.

[Avi Mehta]

Okay. And the second bit was on your comment on the second wave, the expectation, are you seeing that change on the ground on the hygiene and on the nondiscretion -- on the discretionary portfolio, any changes as yet?

[Nisaba Adi Godrej, Executive Chairperson & MD]

Not so strongly. I mean April was strong. It was a sort of continuation of quarter 4. So the expectation is that you will have a little bit of a takeoff with some of these categories, which are the health, the hygiene, Household Insecticides having some amount of tailwind and perhaps the discretionary having some amount in headwind. I mean given what the situation of the country is and what people are going through, it's pretty hard because I don't know. And I mean you normally don't say it, but I don't expect people to be very bothered right now about coloring their hair and things like that. We haven't seen it yet, but potentially in the first half. The other thing we've seen also is that these -- like the last wave, the wave hazed. Then people eventually did go back to some of their normal behavior. What we have seen in some of these categories is perhaps a penetration shift or a habit shift that would stay with last numbers. So I've given the example of say a handwash before, penetration might not stay at the highest absolute level because we were -- [indiscernible] went from 12% to 35%, but it's definitely now coming down to 12% again. So I think we see some of these trends play out.

[Avi Mehta]

Okay. Perfect. And last, just a clarification on the leadership change. If I hear you correctly in the start, the thought is that the focus would be to drive double-digit growth and the portfolio changes or any changes would be something that would be on the table with Sudhir's kind of expertise...

[Nisaba Adi Godrej, Executive Chairperson & MD]

No. I think what I said is that I don't see too many portfolio changes happening. That's not the mandate that he's coming in with, but obviously, not just because he's a new CEO, but he will take a relook at the portfolio, perhaps say, here is where we want to invest more double down, perhaps this is not an area we want to focus on. So I think I was just trying to clarify that, I would say most of the double-digit growth would come from our core categories and some of these new categories, like air care or even liquid wash, where there's a lot of opportunity because penetration is still low.

[Avi Mehta]

Okay. So existing categories, but -- okay, that will be first. Perfect. That's it. Congratulations.

[Nisaba Adi Godrej, Executive Chairperson & MD]

Thank you.

[Operator]

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

[Percy Panthaki, Vice President]

Sorry, Nisa, I'd put myself on mute last time around, so you guys couldn't hear me. A couple of questions on the performance. So I'll put them upfront. Indonesia, what really would it take for us to go back to double-digit kind of growth there? And secondly, in Africa, I know that apart from the top line growth, you're concentrating on margins there also. So could you give some guidance on what kind of margins you would like to achieve over the next couple of years kind of time frame? And also in the longer run, what's the stable state margin for the geographies that you foreseeing? I'm asking this question in the slightly shorter-term context where sequentially, we've seen a dip in the EBITDA margins in Africa between Q3 and Q4.

[Nisaba Adi Godrej, Executive Chairperson & MD]

So I'll answer the Indonesia question first and then I'll also ask Sameer to jump in on the Africa EBITDA because he's someone who's worked on that quite closely. I think in Indonesia, if I see it, there has been -- the growth has been disappointing this year. I think FMCG as a whole in Indonesia has not done particularly well this year. Let's put that aside. I think where we've done exceptionally well this year is building this sort of INR 100-crore-plus hygiene portfolio in 1 year. And it's been quite strategic. The products have been quite strategic in areas where we have competitive advantage. So I really feel that this is a nice new growth lever for the Indonesia business. HI was relatively good, but again, can we push [indiscernible] in HI, we have a new sort of, what we call long-lasting paper burning format launch, along with this big GP push, and we're also doing Magic handwash and bar soaps. So I think some interesting growth levers. I think these wet wipes, we totally dropped the ball on this year, given what happened with the competitive intensity. So we must really recover that business going forward. And even in air care, we sort of doubled down in sort of the growth pivots which we had planned, even before COVID. So I think if the recovery happens in some of these categories and we double-down in growth and some of the others, we should see a good recovery.

[Percy Panthaki, Vice President]

Okay. Okay.

[Sameer Shah]

Percy, I think your question on Africa margins, we had shared that over the next few years, we would want it to be sort of, I mean, mid-teens to high teens. I mean those levels is what we would kind of plan for. Of course, it's going to be a journey, and this will perhaps shape up over the next kind of 3 to 4 years. If you look at current year, I think we'll end the year close to around 10 percentage margins, but we need to also dissect current year into 2 halves. First is quarter 1, which was a washout because of COVID, and then quarter 2 to quarter 4, which was actually very strong, I mean, in terms of growth rates to begin with 20% plus and even in terms of the margins close to around 11.5%, up by, I think, 150 basis points. So that's the plan. I think it will be driven by scale, it will be driven by cost-saving programs, it will be driven by favorable category or format mix. These are going to be the larger drivers to that. In terms of sequential margins, what we have to understand is there is a big seasonality in Africa business, especially in quarter 3, which is a festive period. And hence, in quarter 3, there is significant scale leverage as a result of which margins historically and also going ahead will be higher compared to any other quarter. Quarter 4 tends to be seasonally weakest quarter. And hence, there is relative to quarter 3, a sales deleverage, and hence, the overall margins would be lower in quarter 4 compared to quarter 3. If you look at net margin and that is the other metric, which we track internally sequentially. In fact, in quarter 4, the net margin, which is gross margin produced by the trade and marketing investments were higher, I think, by around 100 basis points compared quarter 3. But the entire relative drop is completely driven by scale, which in turn is completely driven by this seasonal kind of portions attached to the categories over there. I hope this answers your question.

[Percy Panthaki, Vice President]

Understood, Sameer. Yes. And this mid-to-high teens versus your current levels of around 11% or whatever that is, so that's about a 600 basis kind -- 4-point kind of expansion over 3 to 4 years. Do you think that's going to be back-ended? Or should we, like, expect linear 200 basis points or 150 basis points every year?

[Sameer Shah]

Yes. I think no, definitely, it's not going to be back-ended, right, because you need to kind of demonstrate that right from the word go. And I think we will see it quite evenly spreaded out. And internally, the way we are thinking of it is honestly keeping it more front-ended than [indiscernible] to late in the day. But definitely, it's not going to be back-ended with any -- I mean, it will be more evenly spreaded out across the year.

[Operator]

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

[Harit Kapoor, Analyst]

I just had 2 questions. The first thing, you've mentioned in your presentation that the innovation rate is in high-teens for this year. So if you could just explain that and probably give a sense of either on a global level or India level, innovation rate as a percentage of business, how that's kind of tracked?

[Nisaba Adi Godrej, Executive Chairperson & MD]

Yes. I think the rate is very high. This is the 18% number, that's on India. And it's very high, specifically driven by this Gold Flash new machine that we have. I mean that is our biggest product category. And I think we mentioned before, what we did is that we actually replaced because we believe in this product so much and think it's so good, we moved all the other machines we were selling and has kept this as the sole machine in the market.

[Harit Kapoor, Analyst]

Okay. And as a proportion of business, you're saying that how much would the innovation rate be in terms of the last 1 or 2 years? Would that be low single digits, mid-single digits?

[Nisaba Adi Godrej, Executive Chairperson & MD]

Yes. It would be like mid-single digits. Depends one year-to-year, right? And we calculate it, innovation for 3 years. So it would depend year-to-year.

[Harit Kapoor, Analyst]

Great. The second question is on the India margins. This year has been a bit challenging in the second half also because you've seen a sharp inflation in vegetable oil. If you could just give a sense of what are the other categories facing in terms of an inflation in India? And how do you look at the medium-term margin, especially since you're talking about a calibrated approach?So specifically, '22 versus '21, are there enough levers for you to kind of hold the margin at these levels? Or just want to get a sense on how you're looking at it?

[Sameer Shah]

Harit, this is Sameer here. No, so I think the drop in gross margins, especially if you look at quarter 4 was because of, one, increase in vegetable oil prices and a lag between increase in input price and the consumer price. I was voicing out earlier than the strategy has worked very well for us in soaps, reflected in strong growth as well as market share gains. We'll continue with that strategy. We have seen relative increase in food prices also. It's an indirect derivative, but we'll be able to mitigate the increase in crude prices. We are also evaluating opportunities on pricing in rest of the portfolio beyond soaps. So let's see how that shapes up. In the interim, we will be also judicious and smart in terms of our spending, right, whether it be trade promotion, sales promotion or even marketing investments, to see how this overall kind of margin profile shapes up. And last but not the least, let's see, I mean, how the overall commodity inflation, especially in vegetable oil [indiscernible] kind of going to shape up. I mean at least over the next couple of months, we do feel that prices should remain at this elevated levels, but this has been, I mean, a good long time of last kind of 12 to 15 months, which is at least unusual compared to some of the previous cycles where the prices have been at such an elevated level for so long. So let's see how that eventually kind of moves ahead. Our sense is, I mean, at this point in time, of course, too many variables and moving parts, we should be able to sort of maintain our margins in India on similar basis.

[Operator]

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

[Latika Chopra, Senior Analyst]

I have 2 questions. The first is on the other businesses of -- in the India portfolio, which accounts for roughly 15%. And I believe this will include Protekt, ProClean and aer and Ezee, could you give us a sense on the distribution footprint for these brands today? And how do you see that filling up? And the second question was on Indonesia margins, which have seen a heavy improvement despite whatever is happening on the top line. So do you anticipate or see it go for further improvement here on these margins? Or would you choose to reinvest some of these gains back into driving the top line growth momentum?

[Sameer Shah]

Latika, this is Sameer here. So I think if you look at the entire basket of other categories, as you rightly pointed out, it's actually a mix of air fresheners and liquid air and the new age hygiene formats. These are categories, which are relatively underpenetrated and hence, a significant opportunity in terms of distribution. But it's not just distribution, it's also going to be kind of product innovation, which will kind of get new consumers recruited into this category. Today, we are at overall GCPL level, widely distributed: 6 million outlets; 1.3 million, 1.4 million outlets is the direct reach. So I think distribution is quite good. We can very easily sort of have kind of cross-sell of categories and brands within our portfolio. So it's going to be a combination of both, I mean, to answer your point, in terms of driving strong, sustainable kind of growth in some of the sort of these emerging baskets or categories moving ahead. In terms of Indonesia's margins, I think to begin with, 35% is what was the margin in Q4. My sense is for FY '21, our margins would be holding around 27%, 28% mark. Still, we feel there is opportunity in terms of expanding margins. If we track some of the listed FMCG companies, the margins will hover around 30%. So I think a combination of driving sustainable sales growth and continuing good local cost saving programs, getting favorable category mix will be the drivers in terms of scaling up Indonesia margins in the kind of for years to come.

[Latika Chopra, Senior Analyst]

Sure. Any sense on what would be the reach of Protekt brand today in terms of number of outlets?

[Sameer Shah]

Sorry, Latika, I mean we want to keep it a little inward at this point in time. We'll be very happy to share more details on some of these emerging baskets going ahead.

[Operator]

The next question is from the line of Shirish Pardeshi from Centrum Capital.

[Shirish Pardeshi, Senior Analyst]

Nisaba, hearty congratulations. At least the market has cheered the stock price performance today. I have a couple of questions. In my mind, I was thinking, I mean, though we -- you have said you have taken about 7% price increase on soaps, would you be able to share what is the weighted inflation we are seeing in HI in terms of cost inflation and also in soaps? And how much we have reflected the price change?

[Sameer Shah]

This is Sameer here. So I think in soaps, if you just look at vegetable oil prices and look at the replacement rates, I think it's up by anywhere between 40% to 50%. We have taken a price increase of around 7% to 8% in sale price, right? Theoretically, if we had to mitigate with our coverages at this point in time, the entire impact, if you would still call for 10% to 15% price change, Household Insecticides at this point in time, as I was calling out earlier, we are not too worried about inflation. Yes, there could be a crude impact over there. But I think it will get more than mitigated through driving salable format mix and taking selective price increases in some of the formats within the category.

[Shirish Pardeshi, Senior Analyst]

Okay. Just related question on the follow-up. These 2 categories, it would be helpful if you can give the annual number in terms of market share?

[Sameer Shah]

Well, we have said directionally that we are the second largest soap manufacturers in the country with kind of low-teens kind of market share and in Household Insecticide category, we are nearly half of the market in terms of our market share position.

[Shirish Pardeshi, Senior Analyst]

Okay. Okay, Sameer. My next question -- last question on the Indonesia business again. I think we have seen -- you have taken a lot of activations in terms of distribution. And you have also taken some product intervention, like you have taken Saniter soap last quarter. My broader question is that, again, where do we see Indonesia 3 years from now? I mean there are a lot of expectations, hopes, which were built, and there is some things which are changing, but is there any confident answer, if you can provide? Is it a product problem or is it a distribution problem or it's overall economy problem?

[Nisaba Adi Godrej, Executive Chairperson & MD]

I don't think -- firstly, I think Indonesia, we've been in the business for 10 years. So I think it's been a very successful acquisition. The categories are very highly overlapped with what we do. And we have very strong relative market position there and a lot of growth opportunity, whether it's through -- whether it's through GT or like this new Saniter brand. I think as an economy, Indonesia, ever since we've been invested, has also done quite well. I would say, in the past year, there has been a macro impact. If you look at all the peer sort of results that we get, they haven't been enthralling. That being said, we haven't -- we've been quite open, say on wipes, it's not been a great show. And something like air care, we've gained share, but we are, again, over 50% of the category. So we need to be actually driving category growth, although in air care, we've seen all over -- discretionary categories during COVID have been [Technical Difficulty] So I'm very positive about our Indonesia business. And again, if you look at the strategic position of the business, it's a scale business, high margins, good, relative market share, strong brand. So I think we have -- we can be confident about this business going forward.

[Shirish Pardeshi, Senior Analyst]

See, I completely agree with your thoughts on that business. I mean, my only worry is that 10 years we have seen, and we have seen at least many cycles of growth and downs. And I think that's one of the important piece when I go back 10 years before when we acquired Megasari.And I think it keeps on worrying that some or the other, we have some disappointment there. So is it that you guys are continue -- focusing on that business or we will divest at some point of time?

[Nisaba Adi Godrej, Executive Chairperson & MD]

No, we'll definitely not divest the Indonesia business. And I think let's see [Audio Gap] business. I mean you guys come here and ask us every quarter about what's happening, but there are business cycles, correct? Even the best companies sort of don't grow. I know how much you all hold HUL and Unilever, sort of, is the gold mark. But if you look at Unilever's results in Indonesia, they haven't been particularly strong this year. So I -- and I'm not -- and please don't get me wrong, I'm not trying to be defensive about our business. And I do think that perhaps there were things that we could have done better internally. But certainly, there's no question of divesting that business. And certainly in our eyes that's been a very successful, value-accretive and wonderful acquisition by any sort of measurement.

[Shirish Pardeshi, Senior Analyst]

Nisaba, don't take me wrong. I'm not trying to push you to sell the business. I'm only saying that do we have a complete handle on that business?

[Nisaba Adi Godrej, Executive Chairperson & MD]

Don't worry I don't think you can push me to sell the business. And I'm not -- I'm just -- I think -- and please feel free to ask your questions and all your questions actually make us much stronger as a company. I was just commenting on the fact that I actually think Indonesia is a strong business. And over the 3-year period that you spoke of, that I actually think it will do well, and no, we're not thinking of divesting it.

[Operator]

The next question is from the line of Manoj Menon from ICICI Securities.

[Manoj Menon, Research Analyst]

Just 1 question only from my side. On India insecticides business -- rather, I would say, the mosquito repellent business. Given that we are at somewhere in that 50s market share, also given the context of the competitive landscape, which has been around for the last 2 to 3 years, just curious to understand whether as a company, we have pushed the market share driver opportunity as much as you would have liked to do? In the context of the thought process that, is it just that the targeted margin approach or is there any other constraints? Because otherwise, given the competitive landscape, a logical assumption from outside would be that you should see a far higher share than where you are.

[Nisaba Adi Godrej, Executive Chairperson & MD]

Manoj, I'm not sure, I fully understood your question. And our shares defer -- if you break up Household Insecticides, correct, so if you look at things like electrics or aerosols, obviously, our shares would be much, much higher there than it is in the burning format. But as a market leader, I think we have to say all segments of the market. I think the opportunity as we've seen is that in the more premium -- like say, something like aerosols, penetration is less than 5%. Our nonmosquito penetration is about 8% or 9%, correct? And so I think the opportunity is to play all formats and probably have a blended approach to growth, correct? Like, I don't expect our burning format, even with these new innovations [Audio Gap] biggest hit ever, then that will change, but we'll see. But burning format should grow in sort of mid-single digits. And then you drive all the double-digit go through the other parts of the portfolio. I hope that answers your question.

[Manoj Menon, Research Analyst]

No. Understood that. No, [indiscernible] where I was coming from. Maybe I was probably wrong in framing my question actually appropriately. So what I was looking at was, when I look at HI as an overall category, I was just looking at it and saying that in the next, let's say, 2 to 3 years or even in the medium term, is there a market share gain better as there an added tailwind for you to grow. Given the context that you are being the only player out -- I mean that's an extreme honest statement to make. [indiscernible] You are probably the player who has always been the most innovative in the HI category, particularly the mosquito repellent. So to that extent, your shares appear to be a little under-indexed versus where it should be given the, let's say, awareness, higher than availability or find share higher than where it should be..

[Nisaba Adi Godrej, Executive Chairperson & MD]

Yes. No, I think our shares are quite high, Manoj, actually. And in some of the formats, they're very, very high, correct? So -- but I do think there's an opportunity for share gain. If you look at shares in Gold Flash in terms of product innovation and stuff, we should be in the sort of medium- to long-term gaining share in that product category. I think where our share is still very high, very, very high double digits is burning format. So obviously, if you have a Hit product coming against incense sticks that could work really well. We're also relooking at our -- some of our coil strategy. So there's products coming in there. So you could potentially see market share growth. But Manoj, my bigger focus on -- with the 50% market share would be really driving penetration, correct? I'm not -- because you want more people protecting themselves from insects. And I think that is really the opportunity, if you get it, right? Like I mentioned LMD LV is at 25% sort of penetration, how do you drive that up? Even I talk about the growth goals, I'll put that on Sudhir's thing, a very profitable category. It's one of our biggest -- how do you drive that 25% to 50% penetration.

[Manoj Menon, Research Analyst]

Just 1 follow-up, and that's the last question. The Magic gel launch couple of years back, which is essentially the thesis was to take advantage of the increased electrification in villages. Just the top-down thought process as well as the learnings from that, which I think we've discussed in the past, I think we can [Audio Gap] how do I think about...

[Nisaba Adi Godrej, Executive Chairperson & MD]

You're talking about the Magic or the Magic handwash?

[Manoj Menon, Research Analyst]

No, no, I was talking about the Magic gel, essentially, the cheaper electric format to take advantage of the electrification plate.

[Nisaba Adi Godrej, Executive Chairperson & MD]

The power gel.

[Manoj Menon, Research Analyst]

The power gel. Yes, yes, yes.

[Nisaba Adi Godrej, Executive Chairperson & MD]

The power gel. Yes. That launch actually failed, Manoj, because people were peeling the power chip off. We corrected it, but then since we had Gold Flash that came about, say, 18 months ago, we only wanted to focus on this piece one at a time. But that's something that you might see us bring back or again, look at pricing in the electrics category to drive penetration.

[Operator]

The next question is from the line of Binoy from Sunidhi Securities.

[Binoy Jariwala, Executive Officer]

This question is on the LAT AM business. Now this business has been challenging for us since the past 2 to 3 years. We've tried to correct it and then there are certain macro factors, which pulls it down. I understand that there are cross-pollination opportunities which this business has brought for us. But nonetheless, in our overall consolidated sales mix, it remains very, very small. So is there any thought to do away with this business?

[Nisaba Adi Godrej, Executive Chairperson & MD]

Thanks for your question. And as over the last 2 years, this business has performed very well. So if you look at both top line, where 17% in INR for this business and EBITDA was like 200-something percent growth. So I would disagree that it's not done well in the last couple of years. If I look at the last sort of 5 years, yes, I wouldn't say that it's done particularly well. I'd rather not comment on any sort of acquisitions and divestments on a call like this. So thank you for your question.

[Binoy Jariwala, Executive Officer]

Sure. And second quick question is on the debt repayment. Will that continue in FY '22 as well?

[Sameer Shah]

Binoy, this is Sameer here. Yes, that's the plan, I mean. We did see significant reduction in debt, and the net debt equity ratio coming down to 0.07. I think in very short term, the thinking needs to sort of continue with that strategy of repayment of debt, whatever is sort of less on the books at this point in time.

[Binoy Jariwala, Executive Officer]

So is there a target as to where we want to reach in terms of the gross debt level? Because right now, I mean, in terms of the ratio, we are in a very comfortable place, plus you are almost net debt free, so...

[Sameer Shah]

Correct. Yes, as I said, I mean, we would want to -- I mean, of course, I mean, for free cash flow, we have multiple avenues. One is to sort of kind of deploy it for doing organically through CapEx and even inorganically. The other would be kind of rewarding your shareholders and fourth would be repayment of your kind of debt and gross debt to sort of [indiscernible] it. But that's the plan. I mean, address the [indiscernible] the debt, I think, will keep on sort of coming down.

[Operator]

The next question is from the line of Prakash Kapadia from Anived Portfolio Managers.

[Prakash Kapadia]

Most of the questions are answered. Just 1 thing in the second wave if you could comment on the rural markets in India, what kind of challenges are we seeing? Because this time, COVID seems to be far more penetrated in rural as compared to the last wave. And what is the demand outlook for rural?

[Nisaba Adi Godrej, Executive Chairperson & MD]

I don't think -- I commented earlier, I think that April has sort of been a continuation of quarter 4. So we'll have to just wait and watch and see what happens in the situation. It's so dynamic on the ground and so different state by state. So it's very, very hard at this stage to comment on rural. Sameer, you have something to add?

[Sameer Shah]

Yes, absolutely. I think, Prakash, the other point is, I mean, why yes, I mean, kind of number of infections and cases have been relatively higher this time around in rural and small towns. But we also are expecting a good monsoon. And again, this mix -- reverse migration should perhaps offset any negative impact coming out of it. So as Nisa said, it's too dynamic and choppy, but I mean, in a way, you see tailwind as well as headwind side in terms of driving steady state growth. Our view is, I mean, let's see how at least next few weeks and months kind of shape up. But directionally, I think the recovery which we have seen in rural whole of last year should also continue going ahead.

[Operator]

The next question is from the line of Kiran Naik from Mody Fincap.

[Kiran Naik]

I have 2 questions. Firstly, do you have -- does the company have some SKUs in small packets, like to be sold in rural and urban areas? And what we -- any new products will be launched in the financial year '21-'22?

[Sameer Shah]

I'll answer your question. So we do have a strong product pipeline, and we will continue to see a lot of new launches coming in from our end. We were talking earlier on the innovation grade, which is a good metric to track kind of new sort of launches, and that will continue to be very robust. Going ahead, yes, we do have kind of very smart pack price/mix architecture strategy, and you also see a lot of sachet kind of offering from our end, whether it be in hair color portfolio or whether it be even in the handwash portfolio, the powder to liquid handwash sachet, which is as INR 15. So that helps us driving penetration in general and also lets us kind of consumer base in small towns and rural markets. So that strategy also will continue to be a strong growth vector for us in coming years.

[Operator]

The next question is from the line of Nillai Shah from Moon Capital.

[Nillai Shah]

Just 1 question for me on dividends. Just curious to understand what is the thought process of not giving out a dividend this year? And the context of this question is, there were some talks last year that going forward, the international business debt would probably be paid down from the international business cash flows. So given the strong positioning of the company in terms of cash and reasonable performance this year, what is the reason for not giving on a dividend?

[Sameer Shah]

Yes, I think the -- well, Nillai, this is Sameer here. I think the intent was to kind of, at least in the uncertain times that we were, I mean, at the start of the year, to see a mix of deployment towards repayment of debt as well as sort of funding organic growth for CapEx and then also evaluating in parallel any inorganic growth opportunity and alongside kind of revolve shareholders. I think the strategy which we chose was during the course of the year to sort of use the cash for repayment of sort of dividend. A lot of cash also from our international business is getting upstreamed. So that in a way sort of is getting used as we speak for repayment of debt, which was largely taken to kind of fund those international sort of businesses. And we'll continue with that approach, and we'll continue with that mix in terms of ensuring that the debt goes down. If there is any kind of interesting inorganic growth opportunity, I mean, it will be deployed towards that as well as in parallel ensuring that our shareholders continue to get rewarded. So it's going to be a cocktail of all of this 3, Nillai, in terms of deployment of free cash flows.

[Operator]

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

[Abneesh Roy, Senior Vice President]

Yes. Two quick follow-ups. So one is on chemist channel and e-commerce, how do you benchmark yourself against the market leader? Both are very important in the current context. So how do you shape up with -- versus the market leader?

[Sameer Shah]

So both of these channels are kind of growth channels for us. I think chemist was a big detail initiative, which the team took last year, and I think they have done a fantastic job. I think in the channel, we saw close to 20% growth in whole of last year. So I think that's shaping up very well. We will very soon get into the phase 2 of our project lead, which is the go-to-market initiatives in India in the current fiscal year. And again, chemist reach within that is the key kind of GTM initiative.In terms of e-commerce, we had a great year. Again, in terms of saliency, we are close to around 4% marginally ahead of that 4% mark. And it continues to sort of fire on all cylinders. So that also is going to be a very important channel for us, not just in current times, but also for many more years to sort of come ahead.

[Abneesh Roy, Senior Vice President]

And last question on direct reach for India, what would be the target next 1, 2 years? Any targets you can share with us?

[Sameer Shah]

I think it's going to be a mix of both, Abneesh, right? Because as of now, we reached close to around 1.3 million outlets. It continues to see an increase. Historically, we have seen anywhere between 6% to 8% increase in the direct reach. But trust me, it's also not just direct reach, but increase in the throughput, right, in the outlets in which you would sort of reach out. So it's going to be a mix of both increase in direct reach as well as how do we increase our throughput in the existing outlets. And that's going to kind of drive the overall kind of growths for us.

[Operator]

The next question is from the line of Binoy from Sunidhi Securities.

[Binoy Jariwala, Executive Officer]

This question is on the recent hire of Sudhir Sitapati. So Nisaba, you said in the opening remarks that the top priority is growth and doubling down on growth. Now when I look at GCPL as a franchise, we've done extremely well. The execution has been very well -- very good over the past 1 year. Second is that on the product innovation front, we've been an industry leader, we have -- our products also -- we have a portfolio which straddles the pricing pyramid. So where do you think Sudhir would really add value? And how -- just to get a better understanding on which are the areas where you're looking at him adding more value?

[Nisaba Adi Godrej, Executive Chairperson & MD]

So I think like I said in the beginning, and thank you for your question, I think what I said in the beginning, same category management. If we look at our Household Insecticides, it's 30% of our portfolio. It grew 15% this year. But if I look at the, say, last 5 years growth, is below what our aspirations would be for this category, correct? And it's now -- we had a very successful launch in Nigeria this year in Household Insecticides. So when you have these product capabilities, you have this know-how in this category, how do you really sort of build on that in country after country. So I'm looking for him to bring some of those category management marketing skills to really sort of build on that. And I know the market has responded very positively. I can't account for how the market responds to these things for new -- for something that's not even happened yet. But really, it's not like Sudhir -- and I have a very, very high respect for Sudhir. I have had wonderful interactions with them and got a wonderful feedback and frankly, today, what infused me was much less the sort of market reaction, worked with him in the past, who know me, who has sent a really strong messages of support. But what GCPL does is not only about Sudhir, correct? It's Sudhir coming in along with a great team we have, along with the strengths we have and really building on it. So I think he's a very -- what I look forward to him is he has very good experience, he's worked on categories, transformed categories. So to use his leadership skills, correct, to use his insights on consumers and come with our wonderful team and put us onto this sustainable growth path. That's how I'm thinking about it.

[Binoy Jariwala, Executive Officer]

Just 1 follow-up on this. So are you looking at any changes in the go-to-market or distribution with him also coming in?

[Nisaba Adi Godrej, Executive Chairperson & MD]

So look, see when someone comes from the outside, he will come with an outside-in sort of perspective, correct? And I think the best leader is the one who transform the best, who very clearly understand where are the strengths of the company, what must I not judge or what must I nurture really well and where are the things where I see more efficiency or productivity.And for a consumer products company, go-to-market is our lifeline. So I'm sure he comes and studies these different markets and have value to add in that area also. And also across the company, as a CEO, you can't be just adding value on category growth, you have to be looking at it from sort of all lenses.

[Operator]

That was the last question. I would now like to hand the conference over to Mr. Pratik Dantara for closing comments.

[Pratik Dantara]

I'd like to thank you all for joining the call today. With that, we would like to draw this call to a close. Stay safe, stay well. Thank you.

[Nisaba Adi Godrej, Executive Chairperson & MD]

Thank you so much, everyone. Take care.

[Sameer Shah]

Thank you.

[Operator]

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