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Godrej Consumer Products Ltd
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Ladies and gentlemen, -- and welcome to the Q4 FY '22 Earnings Conference Call of Godrej Consumer Products Limited, hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Aniket Sethi from ICICI Securities Limited. Thank you, and over to you, sir.
Thanks, Steven. Hi, good evening, everyone. Thank you for joining. I think it's our pleasure to host the senior management team of Godrej Consumer Products Limited for their 4Q FY '22 earnings call.
I will hand it over to Mr. Pratik Dantara for the future proceedings. Thank you, and over to you, Pratik.
Thank you. Good evening, and welcome to the conference call. We will be covering this evening the results for the quarter ended 31st March 2022. On the call with me from GCPL is Ms. Nisaba Godrej, Executive Chairperson; Sudhir Sitapati, Managing Director and CEO; and Sameer Shah, CFO. We'll start with Sudhir talking about our performance.
Over to you, sir.
Thanks, Pratik. Good evening, everyone. I hope you and your families are safe and healthy, and thank you for joining us on the call today. I'll first start with an update of our quarterly performance. We had a weak quarter in Q4 FY '22 with a few silver linings. While our overall sales grew by 7%, and we achieved double-digit sales growth for the year, the growth within the quarter was driven entirely by pricing. Our overall EBITDA without an inventory theft in South Africa degrew by 9%, driven by unprecedented global commodity inflation and scale deleverage in Indonesia. PAT without exceptions declined by 4%.
Our core geography of India grew top line at 9% with a 2-year CAGR of 21%. While the sales was largely driven by pricing and UVG was down by 3%, on a 2-year CAGR basis, UVG grew by 12%. And on a 3-year basis, it grew by about 2%. The silver lining in India, however, has been that EBITDA grew by 14%, with EBITDA margins expanding by 100 bps. This points to our ability to take measured price hikes to counter inflation. However, the recent inflation brought about by the Ukraine crisis will hit our P&L majorly only in Q1, and we again expect a relatively sharp drop for this quarter.
Indonesia delivered a particularly weak performance with sales declining at 15% and operating EBITDA at minus 48%. This has been driven by tough market conditions, the sharp fall in COVID-19 related categories and a big reduction in our inventory in modern trade and distributors. Poor sales compounded by the cost inflation and a 200 bps investment in ATL, which we continue despite the gross margin fall has meant that the EBITDA drop has been precipitous. The silver lining here is that there are early signs of the Indonesian market recovery. For instance, our offtake growth without Saniter, our COVID portfolio and accounts when we get data is much better than primaries and has started to grow.
With our strong market position, media increases resulting in recent share gains and our determination to reduce our trade pipelines, we expect things to start improving from Q3 FY '23. Both LatAm and Africa witnessed strong growths with LatAm growing upwards of 30% and Africa growing in the mid-teens. Africa, however, had very poor margins due to an unfortunate theft of inventory in South Africa. The growth [ slightly ] in Africa has started to move, but we need to simplify our business and significantly strengthen governance and controls to prevent a recurrence of this unfortunate event. LatAm has performed extremely well on both top line and bottom line. Our pre-hyperinflation EBITDA has now crossed 20%, and we generate close to INR 80 crores of cash in this business in FY '22.
In terms of categories, while market growth continues under pressure, market shares are broadly good and there's nothing new to report. Our prognosis for FY '23 remains broadly unchanged from what I spoke to you last quarter. We anticipate double-digit top line growth with low single-digit volume growth. Bottom line is hard to predict, but it costs moderate to 6,000 MYR for palm oil, about 7% to 8% lower than where they are today and $100 of crude, we should see some margin expansion, especially in the second half of the year. Our personal view, however, is that palm oil may moderate even further, and that is generally good news for us.
Our game plan is to grow category development, driven by relevance, access and marketing investments and funded by a digitally enabled simplification of our organization. We have a slew of category developments in Q1, which we believe will dramatically build relevance of our categories. A few that we've launched in April and May are that in hair color, we are the market leaders with more than 1/4 of the market. In India, more than half the category operates between INR 10 and INR 15. In April, we've launched Godrej Expert rich creme at INR 15 to drive penetration of the creme format by recruiting the early grade consumer living in middle and rural India and accelerating new trials with first-time users. We are backing this with increased media investment, large-scale visibility and leveraging our distribution reach.
Another big initiative that we have taken is in household insecticide where we have dropped the price of Jumbo Fast Card from INR 15 to INR 10 to drive recruitment in the category as nearly 1/3 of new triers are entering the category through incense sticks. Again, we are matching this with media investments and on-ground activations. We will be happy to share more of our category development initiatives in Q1 because some of them will only happen in June and July in our next meeting. Our journey on simplification is another silver lining and is making good progress and a category that we created in Q3 FY '22 is yielding early results.
Our cost to serve, which is a measure that we look at, which is total costs minus material costs minus working media, in which material costs and working media are what we serve, everything else is the cost to serve is down by 250 bps in Q4. When costs stabilize, this will give us significant fuel for growth and digital transformation.
Our investments are only part of the story in digital transformation. People and culture are more important. And to us that we are making 2 senior appointments of people with significant experience in digital transformation. Akhil Chandra, our business head for Indonesia and Asia has decided to pursue an opportunity outside Godrej. Rajesh Sethuraman, who will be joining us to take over from Akhil as the CEO of ASEAN from July 1. Rajesh has spent 21 years at HUL and Unilever, leading teams across categories and divisions in South Asia and Africa to deliver significant value for the business. In his previous role, he led Unilever's execution of its largest digital transformation program across Asia, Africa and the Middle East.
We are also appointing Vijay Kannan as the Head of Business Transformation and Digital for GCPL. Vijay will report to me and serve on the global management committee. He is currently the Global Chief Information and Digital Officer of Shell's $20 billion lubricants business and has had past experience with HUL IT head and prior to that in Asian Paints. Vijay's brief is simple. If we were a digital-first company, how would we dramatically look at reducing our cost to serve.
Thank you very much. I'm very happy to take questions.
[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.
My first question is on hair dye pricing in India. So we have seen the creme hair color pricing in India remain in that INR 25 to INR 30 for many years in India. And now we have come out with a disruptive pricing at INR 15. So 2, 3 questions here. One is, how do you drive average revenue per user for [indiscernible] here? Last 5 years, I have not seen much movement here. Second is, how do you take care of cannibalization from the INR 15 product? And third is competitive intensity and partner presence remains a key work in progress. So if you could discuss that also.
Yes, Abneesh, thanks for that question. I think there are 2, 3 things. One is the penetration of hair creme category is sub-20% in India. And as I said in the last 2 meetings, one of our jobs is to drive market development and category after category, you will see that access has been a key driver of category penetration. So I would say that generally, what we observe when we bring access into a category is penetration goes up to the exponentially and frequency of use also goes up in general. So I'm anticipating both of these happening. There is a pretty clear use case that we discovered for this, which is we are communicating it, which is the first silver hair or touch up. There are lot of consumers who have just got early silver hair or a short crop of hair like men for whom we were anyway noticing that the INR 30 pack had -- has been used 2 times. So we feel that there is a unique case.
In general, then I don't know if there will -- there might be some cannibalization, Abneesh. But these are fast-growing markets. And I anticipate that the INR 30 product will continue to grow, albeit at a slightly slower pace. And we hope that the access that we create into the category will drive a lot of growth. I mean to your point, on salons and so on and so forth, we have an excellent professional business that is growing really well, and we target salons in B and C. So we are covering our base and that's one of our fastest-growing parts of our business. It's a small part but growing really fast. But the opportunity in India is enormous for a category like this to go for many years, and I hope this move will reignite growth in the category.
Sure. That's useful. My second and last question is on the Africa business margins. If you could quantify the impact from inventory pilferage and what are the steps and balances you are ensuring that in present say recur in South Africa or any other international geography. And how do you see Africa margins in the near term and medium term? Because my sense is this item will not recover -- recur. It's a one-off. But how do you see in the next 2, 3 quarters timeline?
Abneesh, this is Sameer here. Yes, I think couple of things. One is we have put in -- reason, I mean, kind of put in stronger checks in balances, including say something like third-party physical verification happening in every quarter as well as work on strengthening both our business processes as well as internal control to avoid this recurrence in future, so that something like this doesn't recur again. In terms of margins, just to give you a bridge. I mean if you look at the overall margins, including this pilferage, the drop is actually close to around 900 basis points. 300 bps is because of pilferage -- maybe seeing 58 bps because of pilferage. 250 bps is because of upper end marketing and route to market initiatives in some of the countries where growth has been, I would say, quite strong. And that's something which we remain extremely confident of even in the coming quarters and years. The rest, I would say, 300, 350 basis points would be because of lag between increase in input prices and then consumer prices, which we will mitigate through price increase.
And sir, your question, I think there should not be a margin deterioration in Africa at least on a full year basis in FY '23, if any, I mean, we should continue to be on the trajectory of gradual margin expansion on a Y-o-Y basis even in FY '23.
I mean, Abneesh, despite this, we have kind of improved our margins in FY '22 and a combination, I mean, it's a difficult time even there because of input prices, but a combination of the increasing salience of FMCG and the growth leverage that we are getting on our businesses because we're growing fast, we expect broadly kind of moderate margin improvement to continue in the medium to long term.
The next question is from the line of Percy Panthaki from IIFL.
Sir, just wanted to understand some of your initiatives. So this creme, which is launched at INR 15, what is the difference between that and the basic product you have at 30, 35? Is it just lesser quantity of creme or is the product itself different?
No, it's just a sachet. I mean, it's the same brand. So it's just the principle of a sachet, which makes it more accessible for a certain cohort of consumers in small town rural India with a short crop of hair. So it's just...
It's just basically a lesser grammage of the same product. You still have inside 2 separate sachets, which have to be mixed and so on, right?
Yes. Yes.
Okay. Okay. And I also wanted to understand this launch of Goodknight Activ Plus at INR 80. Again, here also, is it a different product from your base product? Or is it just a smaller or lesser grammage product compared to the original one?
No. I think Goodknight Activ Plus, we always had a flanker brand on Goodknight in some markets. And Goodknight Activ is just a flanker brand in a few markets that we operate, which we think are sight sensitive. So it is not a smaller part or anything like that. It is, in fact, we were always telling Goodknight Activ Plus and in the refill [ we get ]. And we've just brought back the machine in a few markets where there was demand and where we slightly need a flanker.
Okay. But is there any difference in the product itself or it's just basically that those markets cannot sustain the normal price point, and therefore, you want to sell at a lower price point, but you don't want to ruin the brand and therefore, you are a launching a flanker?
No, the Gold Flash is a value-added product compared to the Activ Plus.
Right, right. Understood. So there is a difference in the product itself?
Yes.
Okay. So just a quick one on the HI strategy. It seems that the -- I mean, while you said you will announce more initiatives, still now, whatever initiatives you've done is just basically trying to lower the price points and therefore, make the product more accessible. So in your opinion, do you think the major roadblock for growth in this category is that -- I mean, affordability, is that the major thing because we have products like coils, for example, available in a single piece at very, very low price points and still the penetration is where it is. So do you think that the reason is something else and not affordability or a price point?
No. Firstly, I think that price point is only one part of it. I don't think the reason is something else. But I think in the interest of confidentiality, perhaps we can discuss this in the next analyst meeting. We will do something quite soon here. But I'm only talking about things that we've already done, which is in the public domain. You will understand that it's not proper for me to publicly talk about what we will do. But we are -- we're not running away from the issue that we are the market leaders of household insecticide. My own hypothesis is that the category needs development. And often in order to speak in general terms, Percy, the 3 things that drives category development are relevance, access and sampling. So in the case of [indiscernible], that is an example of access.
But across these 3 dimensions in all the categories, let me give you an example of relevance on something that we have just launched. Again, I can feel free to talk about it. On air, which is our air fashion of business in India and Indonesia, we have recently relaunched air with the proposition of when guests come home. That's an example of relevance building. We are not just saying that the air freshener smells good. We are seeing why you should enter the category, which is when guests come home. So that's an example of relevance. And there'll be plenty of examples of other things that I'll be able to talk to you as and when. We launched it in the market.
Right. But at this point of time, are you at liberty to discuss which of these 3 is the most sort of -- the one which you need to address the most in HI or it's too premature to talk about that as well.
I think once we do it, we'll talk about it because why talk about something that isn't there, right? I think, in general, all these 3 are important for category development. And all of them, we will work at. Even in hair, there's a relevance there, which is the first silver hair. That is what we're communicating. There is access and on sampling and then when we do it. So we'll maybe discuss -- maybe we'll discuss HI in a little bit more detail in the next quarter on what are their plan is. And maybe we can talk more comprehensively what we are doing once we've done it in the market.
Sure. And last question from my side, the illegal incense sticks, which was a huge problem earlier and then as COVID came, supplies were disrupted, et cetera. Now where does that product stand in terms of market share? Is it at pre-COVID levels? And I mean, if you can give some data on that in terms of market share, what it was pre-COVID, how much did it fall to at the trough and what it stands at today.
So yes, it's roughly where it was pre-COVID. It's not growing at the rapid pace that it was growing pre-COVID at least in the post-COVID phase, but it's still there and it's still growing. And it's still frankly something that consumers shouldn't do. And one of the reasons that what we have done, which is to drop the price of Fast Card from INR 15 to INR 10 is so that people in the same price point of incense stick get a safer legal solution.
Right. Understood. So it's about 12%, if memory serves the market share?
Yes. I mean, as Sudhir mentioned, Percy, it's close to pre-COVID levels, but yes, it's hovering around, I think, 13%, 14% percentage mark.
The next question is from the line of Priyum Daga from VT Capital.
My question was regarding the raw material side of the insecticides business. So I wanted to understand what kind of raw materials are used in this business.
We use active -- we use chemicals -- yes, indirect link is crude, but yes.
All right. All right. And my second question was regarding the HI strategy. [ There is no answer ] -- so here, what are we doing? So I understand that we cannot disclose [indiscernible] right now. But I wanted to understand how -- like how are you trying to penetrate deeper into the rural areas? And how is the demand in the rural [indiscernible]?
Yes. I mean, again, it's the same answer that I guess, firstly, which is I can tell you what -- I can tell you how we are thinking about it, which is relevance, access and sampling. And an example of access is bringing our price of Jumbo Fast Card from INR 15 to INR 10 of which we are seeing very good results since we've done it 1.5 months ago. And we'll come back to you specifically with what we are doing in these dimensions in the next few months because what we've done in April and May is we've acted on hair color. We made a big intervention in air care, largely in the area of relevance and kind of just increasing the media salience. I hope you see some of our advertising, both on pocket, which is we use for bathroom, but we're also very excited with the living room format, which in our Indonesian market is our second biggest SKU. So we believe that, that has terrific potential in India. Without doing any kind of marketing, it was anyway growing very fast. And now we anticipate with marketing, it will grow even faster.
All right. And one more question I have regarding the Indonesia business. So what have we done to turn down the business? As you have mentioned in the call, what changes are we having there that the business is turning around?
See, the business -- the big change that we made from about November onwards or December onwards was to increase our media support. See, that is a business which has very high gross margins and high EBITDA but relatively low ATL. And our strategy there is to increase our ATL, which we have done. And as a combination, both I think on the Indonesian markets also, the sense I get is that I don't think it's out of the woods, but certainly a lot of positive news is coming out of Indonesia in terms of categories starting to grow again. But also in terms of our own market shares, we are seeing some movements. Unfortunately, it's going to take another 2 quarters, which is this quarter and the next quarter to show in terms of sales because the truth is over the last 2, 3 years, the markets also shrunk, and we built up inventory through our pipelines.
[Operator Instructions] The next question is from the line of Alok Shah from AMBIT Capital.
Sudhir, my first question is essentially what Percy also asked. So one is on the -- one is what you mentioned on the relevance, access, et cetera, on the HI. I also wanted to check with you that are you also working on the efficacy? Because while relevance and penetration to my mind, [ I'm a ] consumer which fairly aware of Goodknight as a brand, but maybe there is a incremental [indiscernible] may need some kind of tweaks in terms of the efficacy of the product. So wanted to get your views on the same, if possible now.
Well, I just prefer to answer. If you don't mind, I'm not ducking it or anything. But why don't we discuss the HI strategy? I'm happy to talk about air and hair care because it's in the market now. I mean HI also because season starts in June really with the monsoon coming in. So a lot of our actions will is that some time away. So perhaps that's a better time to talk rather than as a disciplined as a...
Any efficacy is an ongoing -- efficacy is something that we're always working on, right, from the active -- what actives can we register news and what products. So I think that's a strength of GCPL. So that's -- and we are always upgrading our products also.
Okay. Okay. My second question was that the presentation mentions about getting share in 85% of the categories in domestic business. So just wanted to check that are there pockets of oil and hair color where we could be losing or these are small categories where we may not be gaining share?
No, I don't think that is it. I think in liquid detergent, the market is, we have Ezee, which is a specialist wash and we define the market as liquid detergents and lot of main wash is entering liquid detergents. So I think it's more mathematical than anything else. So actually [indiscernible] period is 100%.
Okay. Got it. And lastly, just a clarification to the explanation on the EBITDA margin for Africa. So what I understand is while the reported EBITDA margin is down from 600, 650 odd basis points, overall, it is 900, but the 200 or 300 of [ inventory ] theft would not get factor in because it would be exceptional. Is that understanding correct?
Correct.
[Operator Instructions] The next question is from the line of Abhijeet Kundu from Antique Stockbroking.
My question was on , we have seen very intense summers this time around. So which are our categories will get, I mean, benefited? And how has been the initial response? I mean, how has been the initial -- what you call it, response to the intent some of [indiscernible].
You are talking of quick commerce? I'm sorry. Yes. No. I mean it benefits soap. It's generally very, very hot period. I'm not in favor of household insecticides, but it's anyway, May is not peak season for us, but soap, it will benefit.
Okay. And have you seen any benefit of that in your ER as well? Or it has been more of the initiatives taken by you that is driving demand because as per our channel [ just even ] ER has done very well, I mean, during April and May.
Yes. No, I mean I think that look, a lot of the initiatives that we -- I spoke about, which is basically on hair color and air, we've rolled out in April. And I can just say that the 3 initial results are as per expectation. Again, we can talk about results next quarter. But certainly, these are powerful category development initiatives, and we are very bullish about how they work for us.
[Operator Instructions] The next question is from the line of [ Trilok ] from Dymon Asia.
I wanted to ask, when the initial comment that you highlighted that even the Q1 seems to be a little constrained in terms of margins, are you referring to further sort of pressure beyond what we have already seen? Or what -- if you can call it into -- comment on that, that will be helpful.
See, the Ukraine crisis started about 3 months ago, right, which is in the middle of last quarter. And at that time, last quarter, we were still sitting on older price stock. So we have kind of managed the EBITDA. Now this new inflation will take us a little bit of time to adjust to. So I mean, I'm not overly worried about it, but certainly, palm today is floating at 65,000 MYR, which has gone to close to 75,000. Pre-Ukraine, it was 55,000. So it's somewhere in between its peak and what it was pre-Ukraine. 55,000 itself is a high price. So the new stock that comes in is coming in at higher costs. We will, of course, judiciously do. And I think that -- I think you should have enough confidence given our India margin performance last quarter despite all the difficulties we faced everywhere else that that we are able to kind of over a period of time do.
Yes. But -- and obviously, today, only that ban has been lifted. So probably that could also bring some relief hopefully. And what kind of pricing actions we have taken at the portfolio level to mitigate this inflation so far?
No, that you'll give -- I mean...
If you just look at Q4, Trilok, I think the UPG is close to around 12%, right, so...
Even I'm talking about in the month of this quarter we are talking about because what has already been done is done, right?
Yes. So I think incrementally, we keep on taking price increases, especially in [ person ] about portfolio. It's difficult to aggregate and call out as somewhat it's a new result. Some has got executed, some will get executed as we speak. On the direction I can sense, the UPGs will go up in Q1 as compared to what it was in Q4 at overall portfolio level.
Sharing in pricing, we can't -- I think like all companies, frankly, we have to take judicious price increase. One is we can't shop consumers, so we got to do it. And 2 is, for speculative cost, we can't price. So we say the speculative cost like, for example, palm like, [ I don't know, ] if 1,000 and all, you always knew and now we're forecasting. I didn't know that Indonesia ban has been lifted today. But it will be good news for us. But in the short term, these things are -- we can't react to them in pricing in the short term for very speculative, and business continuity, when we have to buy, we have to buy. So I think you just have a look at it in that context.
Sure. Understood. And just last note, from a new kind of pricing accessibility in both the categories that you alluded to. Is there -- is it fair to assume that those will not be, I mean, gross margin dilutive or something of that sort because obviously, penetration is important, yes, wanted to hear the thoughts on that.
So, I mean, I think the important thing in this business is, as I said, is to drive volume growth. I think we have very healthy EBITDA in this business. And we will -- I mean, our objective is not to drop that. But our objective is primarily to get category volume growth in first. And you must remember that some of these categories like hair color and all operated anyway, very high gross margins. So if they are -- actually if they are dilutive to the category, they are accretive to the company very often. But I would still say that gross margin is super important, but volume growth for us in category development is more important.
The next question is from the line of Krishnan Sambamoorthy from Motilal Oswal Institutional Equities.
Yes. Sudhir, as part of your strategy discussion in December, you had highlighted 2 things, both are related, so I'll take both of them. One was the relative inability to drive category development, which -- for which initiatives have been taken as you've highlighted. The other thing that you had highlighted was high complexity with too many SKUs. Anything that you want to highlight on that front? And was that has been done so far?
Yes. No. I mean, listen, complexity is there in the -- I mean, I have said that one of the strengths of the organization is innovation and R&D and our ability to drive new products. And I hope I can speak about a few of them next quarter. And one of our weaknesses is complexity and complexity is in SKUs, but in many other areas. I mean, let me give you an example of air, right, which is the -- the communication that we have done, which is when guests come home, you should have air and maybe at some point, we can say it across to all of you the communication. We've done exactly the same communication with no changes in Indonesia, India in Bahasa.
That's a reduction in complexity, right? Because 2 people who are working on it, 2 advertising agencies who are working on it, 2 people who are producing the film. I mean it's just an illustrative example of reduction of complexity. So SKU complexity reduction is on, and it's an ongoing process and a pretty sharp one at that. But there are many areas of complexity like this one where when the same advertising works across the world, why spend money and complicate life by having different things. So there's very much a war on complexity and simplification that is going on across for us.
The next question is from the line of Avi Mehta from Macquarie.
I just wanted to clarify just on the near-term margin bit. And if I heard you correctly, on FY '23, you're essentially -- would it be fair to argue for a pickup in the second half at the EBITDA level? But that would mean that the earlier comments of sequential EBITDA margin expansion is no longer valid. Was that the correct read through from your statement?
No, I think what I said in -- I think Sameer will clarify is that if cost, even if we are conservative with costs, we expect some slight margin improvement in FY '23 over FY '22. And if we -- if costs go to where we hope or where we think they will go to, it may even be better than that. But that is what I thought read out. Sameer, do you want to add anything to that?
No, I think that's the clarification, Avi. So there will be a [ slight ] thought. And in the very short term, I mean, just because of severe commodity inflation, there will be kind of margins pressure. And by the way, we'll continue to invest for growth. So what -- I mean we will also see is upfront marketing investments, so lot of category development initiatives. But at this point in time, with all the assumptions, even including on commodity, we do believe that FY '23 should see margins expansion. But again, as Sudhir mentioned, the entire focus will be on sustainable UVG during the course of the year. But yes, I mean, at this point in time, we do believe that there should be margin expansion in FY '23.
Perfect. And just the other with on Indonesia. Would it be also correct to argue that the margin trajectory would mirror the sales trajectory highly, when the sales growth comes back in third quarter, margins should also move back to the pre-COVID levels?
I think so. I think that's what will happen. As I told you, it may take 2 quarters because that economy, I mean, CPG did contract for 2 years and then there are consequences in contraction. But yes, I anticipate they are 2 -- both because of judicious price increases there as well and because when growth comes back, we'll get back our leverage.
Leverage point. Okay. Perfect. Okay. And look forward to hearing on the [indiscernible] in the next quarter.
The next question is from the line of Jaykumar Doshi from Kotak.
In the opening remarks, you mentioned that you expect palm oil prices to correct by 7%, 8% and maybe further also. Can you elaborate on it? Do you have visibility on the output of supply that will come starting June from Indonesia? And if Russia, Ukraine conflict continues for a longer period, and then the supplies from those market of other edible oils. If there is a -- if that situation continues, do you still feel that palm oil prices will correct by June or September?
See, in the palm oil case, there have been 3 underlying drivers of price hike. One, is even pre-Ukraine, there was a supply-demand mismatch, which I think will correct and I think is correct thing. Two, is that there has been the Ukraine crisis and sunflower oil from Ukraine. And three, is that the Indonesian ban has further exacerbated the situation. Of the 3, we are hoping 2 will correct. The third one, if it corrects at some point in time, we will get a further upside. But at least 2 of the -- 1 of the 3 seems to have been corrected already somewhat. I didn't know this, but someone just mentioned that Indonesia has lifted it. So some slight relief will come there.
And I think in May, June, we are anticipating crop and all. So of course, the soy -- the sunflower pressure continues to be there on Ukraine. If that happens, then we will -- it will go down to levels we hope for, but we're not planning for that. We think that even somewhere in between that, we'll still be able to eat through.
At this point of time, do you have visibility of the crop that will -- from Indonesia, Malaysia starting June of the new crop?
No, no. We -- no, at this point in time. But I think all the early indicators are that this should not be, I mean, supply side kind of issue, at least from crop plantation front.
So essentially, the demand-supply mismatch that we saw for 2 consecutive years, hopefully should not continue in the following year?
That's the thinking at this point in time. But I mean, it's not just in isolation, the palm oil. It's also -- I mean, the sunflower oil, right. There are a lot of [ linkages ] towards the -- yes, let's see how it goes ahead. But I mean, if this Ukraine conflict gets resolved, then definitely, there will be further fall in palm oil prices is the hypothesis which we have. Let's see.
The next question is from the line of Gaurang Kakkad from Haitong Securities.
So couple of questions. Firstly, on the India business, if you can share some color between rural and urban growth as to how it is currently panning out?
Yes. So I think if you look at urban including alternate channels, the growth has been nearly 1.5x and in [indiscernible] for us. But direction is we have seen, I mean, because we are relatively under-indexed in rural, our rural growth have been on the higher side. I mean, in terms of demand trends, it feels like more of the same. I mean, we had to called it out last quarter also that even if you look at 2-year CAGRs and those trends, nothing much has changed, I mean, between both the markets.
Okay. Yes. And secondly, in terms of the Africa business margin, so you've called out the reasons for the margin fall. So leaving aside the one-offs, the 2 factors largely RM inflation as well as upfront marketing spends impacting margins by around 600 bps. So largely, for the Africa margins, we had an earlier guidance of margins given in FY '21 going to around, say, 17%, 18% in the next 4 to 5 years. So largely, if you look at margins, say, this year also margins are likely to remain in this 11-odd percent kind of a range. So then do we stick to that guidance of 500, 600 basis points improvement in the next 2, 3 years? And what gives us the confidence for that?
Yes. I mean that's the game plan, and nothing must have changed on the thinking. There could be a year plus/minus in that journey. As we have called out earlier, I mean, better favorable category mix, scale play. I mean, even I mean, a very sharp kind of control on wasted cost is on what we think should aggregate to this margin expansion or better kind of ROCE in Africa over a period of time.
No, I think this year also, while this quarter has been exceptional, both because of the onetime loss and because of commodity Africa business also, by the way, is very crude linked because our dry hair business is plastic. This year, we have had margin expansion of about 100 bps?
On a full year basis, yes.
On a full year basis. So you know that journey of 100, 150 bps a year, even this year, despite the last quarter, we are on. And I mean, this quarter was exceptional both for the pilferage and for the cost increase. So that kind of margin improvement, 100 to 150 bps a year for the next 4, 5 years, we anticipate it will continue like it has in FY '22.
Right. So all those like strategy in terms of the 4, 5-year guidance of, say, premiumization, product mix improvement, cost efficiency, largely, those are on track. And do you think you can achieve those margins in FY '26 - '27? Largely a year or miss is fine. But largely, we are on track in terms of the guidance?
I think so. I think it was the quarter midst of Q4. I think we were on track to kind of steadily increase margins in the business to achieve the kind of numbers we are talking about.
The next question is from the line of Abneesh Roy from Edelweiss.
Sudhir, a few follow-up questions. So first is on e-commerce in India. So we have seen HUL now, for example, get 20% of business digitally and from e-commerce, 7% to 8%. And many companies are getting back. So where did you find GCPL in this? And could you also talk about big e-commerce, how are you placed there? Are you getting some benefits from there? And how do you expect GCPL's presence in quick commerce versus some of your larger players companies?
Yes. I think on e-commerce, the right way to look at it is not just about salience of our -- in e-commerce and what is e-commerce salience. I think there are 2 or 3 measures that we look at. One is I shared within e-commerce, which we are happy with. Two is our findability on -- when people search for our categories and we're quite happy with that. And three is that it must be accretive in terms of margins to our portfolio, which we think that will -- work to be done on. That's how I would look at e-commerce. So I think rather than just worry about salience as a number and just under all circumstance increasing it, I think -- like in any other channel, one has to -- we had to take a balanced view of e-commerce. And of course, it's a rapidly growing channel, and we are participating and our shares are good there. So we are quite happy with where we are. But that's how we look at it.
Quick commerce is doing really well. I mean, in the recent past and in general, quick commerce definitely benefits short tail because people -- quick commerce inventory is -- to be limited to the winners in the category. And in all the categories that we have operated, we are the #1 and #2. So we are certainly from a consumer point of view, what I've heard from consumers is that they are very happy with quick commerce. So we'll have to wait and watch, Abneesh. I think the way we'll have to look at any channel is as and when a channel emerges, we have to resource for it and make sure that we get fair share within that channel and at the right profitability, right? And I think that -- and resource for it and then let the channel emerge. After all, we don't play a role really in the development of the channel.
Right. Right. My second question is on the changes which has happened at the senior leadership level. In the last 3 years, if I see Africa business, business that came from Nestle, we saw remarkable improvement once they came. Now in Indonesia, Unilever actual guys joining. Sudhir himself obviously from HUL. And now the tech head also from good MNC experience. So my question is, is there any cultural issue which arises from all these very senior appointments because all these appointments are from laterals. So how are you addressing if any cultural issue is there? And are most of the senior level appointments done? Or you think in the next 1 to 2 years, I'm not asking for any guidance, but just wanted to understand, is the team now in place?
I think -- thank you for that question. So I think if we -- there's also been a lot of promotions from people internally also, so I just want to put that out. Sameer recently taken over as CFO. There's a number of senior people who are doing bigger roles after Sudhir came in. I think our philosophy has been that as much as possible that we'll have people internally take role. But where we do not have someone or we want particular expertise say like the digital transformation, we will go outside. I think when we select people, we do select them for a cultural and value fit because otherwise at senior levels, it's very hard for them to come in and operate. So I know you do see Sudhir as from HUL or Dharnesh from Nestle, but we do see them as the individual they are and how will they not just fit into Godrej's culture, but improve it and make it stronger. So I don't think this cultural fit will be an issue.
And I think one strong thing that I always tell about Godrej is that we are relatively humble people and always willing to change and changes get better. So I think this new talents coming in will be a good refresh. I think we went through this a decade ago. At that time also we had very good high growth and company did well. And I think it's time now to strengthen the leadership team. But there's equally a number of people who are from within the company also.
Sure. Just one last follow-up on the Indonesia leadership. So when Africa business head change had happened, within very short time, we saw a remarkable improvement in the margins and sales growth both. And obviously, he took lot of corrective action in the marketing campaigns, more effective. Similarly, in terms of distribution, he did a lot of changes, more deeper distribution and lot of analytics usage, et cetera. So in Indonesia, when you're getting this person from Unilever HUL background, is a similar potential available here or already most of these things are well run in Indonesia, so that opportunity is not available? I'm not asking on margins or numbers. I'm just asking on the business side, is there a lot of headroom to improve immediately?
No. Abneesh, I think both Dharnesh and now Rajesh are both top class professionals and contribute, but very often, these have their own dynamics going on in the market, which are ups and downs. I think what -- suffice it to say that these things have been looked at in the medium term, Abneesh. Short term is not the right way to look at it. Somebody comes and put things right and it starts growing immediately, that rarely happens actually. So I would definitely say that I'm anticipating and hoping that the Indonesian business in the medium term does really well under Rajesh's leadership just as GUAM has done under Dharnesh.
The next question is from the line of Aniket Sethi from ICICI Securities.
Sudhir, if you can discuss the thought process on divestment of BBLUNT. If I recollect, the company always had ambition in fashion and premium hair color. Is it part of the business simplification process? And what are the current ambitions for [indiscernible] premium hair colors going forward?
Yes. No. I mean, look, BBLUNT is a great brand and it's got a great consumer franchise. I think we have -- as we articulated, a drive towards simplification and the core of our business and getting -- and most of that is market development of some of the categories, right? So in that, we felt that the home for BBLUNT was probably better somewhere else. So it's just a set of choices that we make. And if you were to ask me, while, of course, there are examples of premiumization like in Africa, in general, I would say that GCPL over the next few years should focus on category development. That's where the biggest bang for the buck is, and that's really where our focus is, and I'm not sure BBLUNT was a driver of category development of hair color or hair.
And will be focus on the premium part in India, let's say, in the next 2 to 3 years?
I mean, look, we have some premium brands like Cinthol in soaps is a premium brand. But I would still feel [indiscernible]
I think it's -- we have premium products in [indiscernible]
We do have premium products, but I would still say that some companies -- and it's difficult for me to simplify this into like one word, but some companies have the primary task of premiumization. I think our primary task is category development.
Yes.
Understood. That's helpful. Second, a small clarification. In the presentation, it's mentioned that you are gaining shares in about 85% of the categories for the India business. So which exactly were the areas where you have lost some share?
I think I mentioned that liquid detergent mainly because of the depreciation of liquid detergents because we are Ezee as -- it's basically a specialist liquid detergent and it's classified in all of liquid detergents. That is going to continue because there's a big movement in main wash to move from powders to liquid and Ezee doesn't really participate in main wash in detergents.
The next question is from the line of Jitendra Arora from ICICI Prudential.
Just a couple of questions from my side. One, as you alluded to, Africa margins improving on a yearly basis and not being worried about the quarter. Assuming the crude stays where we are, we expect EBITDA margins -- margin in Africa to continue to improve for FY '23? That's first. Second, on the palm oil, you alluded to 3 reasons why there has been a spike. So obviously, second and third is something which is event-based and temporary, which is essentially your Ukraine situation or what happened in Indonesia in terms of ban. So I wouldn't worry about that, honestly, because there is very little we can do or take it into consideration over a longer period of time. How was the first one, which is essentially the demand supply? There is a increasing blend of palm oil in Indonesia with the crude or for their domestic fuel requirement, which has affected the demand-supply equation in the market over last few years, and that has led to the tightness. How do you see that resolving? Do you see incremental supply from Indonesia to cater to that? Or are you seeing in other geographic regions which will be stepping up supply, given that this new source of demand has been there?
See, I mean, we are always working on [ blendflex ] and various oils and so on and so forth. But I think the pre-Ukraine pre kind of Indonesia export ban, if you look at our India margins in Q4, they give you a good sense that we were on our way towards solving that. And by next quarter, we would -- or this quarter, we would have sorted that out. So even if there is a long-term supply-demand gap in palm oil, our brands and -- generally, soaps is a category which is a relatively small user of palm oil in larger scheme of things. It should be able to manage. I don't think this category is not going to be the one that gets massively affected by it. It will be able to price up for it.
And about Africa?
I mean on Africa, yes, as I said before, I think we've seen, actually, despite I mean, at Q4, which was a one-off, I mean, both in terms of cost and in terms of the pilferage, we've seen margin improvements even in 2022. And we anticipate that to continue because, again, we are at the peak of oil prices. Already oil has fallen and so on and so forth in crude also. So there also, we can -- it's a bit like our soaps business. We can gradually take up prices and cover it up. So I do anticipate some kind of moderate margin improvements in Africa as well, if the commodity plays out the way we think it will play out. If there's a further shock and all -- none of us know in the volatile world we're living in. What I would say other things being equal, we will continue the journey that we've actually started in FY '22.
So essentially, what we are saying is that there are enough price actions in place, which will ensure that the current commodity costs are passed on?
I mean, certainly, it is our intention to improve our margins in Africa and we are going to work towards that. It is not our intention to go to the numbers that I think we alluded to in the next few years, which is '17 - '18 EBITDA kind of thing. That's certainly our objective. And I think we've been -- with this exception of the previous quarter, we've generally been quite successful also at it.
The next question is from the line of Priyum Daga from VT Capital.
I needed some clarification on the market share side of it. So on an industry-wide basis, some countries have lost degrowth -- have had degrowing in the utility and [indiscernible] segment. And we have had a strong personal care growth this quarter. So is it fair to assume that this kind of gained some market share from some of the atmosphere?
So I mean 85% of our business is gaining on a match basis. We have gained -- we have certainly gained. I mean, certainly, in soaps are doing very well in terms of market share.
As there are no further questions, I now hand the conference over to Mr. Pratik for his closing comments. Over to you, sir.
Thanks, everyone, for joining the call. If you have any further questions, do reach out to the IR team. Thank you.
Thank you. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.