Ladies and gentlemen, good day, and welcome to Bajaj Consumer Q2 FY 2022 earnings conference call hosted by ICICI Securities Limited. As a reminder, all participants' lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note this conference is being recorded. I now hand the conference over to Mr. Manoj Menon, Head of Research, ICICI Securities. Thank you, and over to you, sir. Hi, everyone. A wonderful good morning and good afternoon, depending on the part of the world you are joining from. At ICICI Securities, it's our absolute pleasure to host the 2Q FY 2022 results conference call of Bajaj Consumer Care Limited. Today, you know, from the management side, we have Mr. Jaideep Nandi, Managing Director, Mr. Dilip Kumar Maloo, Chief Financial Officer, Mr. Kushal Maheshwari, Head Treasury and Investor Relations, and Mr. Richard D'Souza, General Manager Finance. Jaideep, sir, over to you. Okay. Thank you, Manoj, for hosting this call, and good morning to everybody from India. My name is Jaideep Nandi, and I'm joined by, as Manoj said, Mr. D.K. Maloo, our CFO, Richard, who's our General Manager Finance, and Kushal, who's our Head of Treasury, as well as some of my colleagues from the management committee. Let me take you through the performance of the company for Q2 and first half of the FY 2022 before we open the floor for questions. The quarter was a challenging one in the face of category slowdown and rising input costs. After a robust sales in June and July, which witnessed high-teens growth for the company, we saw sharp decline in sales in the months of August and September. The company reported a sales turnover of INR 212.2 crores for the quarter, which is 4.3% lower over the corresponding quarter of the previous year. In hair oils, the sales decline for the quarter was 2.1% by value and volume decline of 0.7%. For the half- year, the sales turnover was at INR 424.2 crores, a growth of INR 2.6 crores over last year. In hair oils, the sales value and volume growths were 8% and 10.2% respectively. The gross margin for the company was at 59.1%, which is 40 basis points higher on a sequential basis, but lower by over 6% year-over-year to the corresponding quarter. We have taken calibrated pricing freezes of about 5% during the year and are working on about 20 cost-saving projects to partially offset the steep commodity price inflation. The drop in gross margin over last year was primarily due to sharp increases in LLP, RMO, as well as packing material prices in the year. We have taken another pricing freeze of approximately 2% with effect from November. We'll continue to keep a close watch on the commodity prices, demand conditions, competitor landscape, and decide on further pricing actions in the future accordingly. The EBITDA for the company was at for the quarter INR 50 crores with a margin of 23.6% for the quarter. PAT for the company was at INR 47.3 crores against INR 57.3 crores for the corresponding quarter last year. The top line of the company was negatively impacted mainly due to three factors in the quarter. Geographically, South and West did well as a region for overall hair oils. This is borne out both by the Nielsen data. The company also recorded double-digit growth in both these regions in this quarter. Unfortunately, these are under-indexed markets for us. On the other hand, our over-indexed markets of Bihar, UP, and parts of Central India, and restricted mainly to these markets, severely declined in the quarter, mainly in August and September for hair oils as a category, which had an adverse effect on the company. Secondly, as we have been witnessing for the past few quarters, the consumer down-trading continued in the quarter with the amla and coconut categories being the fastest growing oils. Although our presence in these categories are low currently, our direction to complete and balance the portfolio in hair oils should de-risk our top line in the mid to long term. Lastly, with many rural markets slowing down, key wholesale markets, again in the North and Central markets, central parts of the country, saw severely reduced footfalls in August and September. Our company had double-digit decline in wholesale, while both urban retail as well as direct rural saw near double-digit and flat growth in the quarter respectively. With the market showing slight signs of recovery in October, we expect the demand conditions to be normalizing in the coming months. While wholesale business has been a damper to the performance, most of the key initiatives taken at the beginning of the year have been doing well. Broad-basing the portfolio to reduce our overdependence on almond oils, improving distribution reach in West and South, as well as increasing the urban retail footprint in select cities in North, East, and Central, India have been yielding results. Both modern trade growth and e-commerce scale-up have been as per plans. Modern trade registered mid-teen growth on the back of better store executions, assortment optimization, as well as increase of distribution footprint. While August saw lower than expected footfall for big day events, improvements were seen towards the end of September and October for modern trade. The e-commerce business for our company continued to scale up well with doubling of business quarter-over-quarter and the business now contributing to nearly 4% of turnover. Listing expansion across key retailers, investments on brand visibility on key platforms, activation of the non-ADHO portfolio continued to yield results as per plans. More than one-third of the sales came from non-ADHO brands in B2C e-commerce, which is the highest ever till date. Almond Drops continued to get media support across TV, social media platforms, and print media support in key markets. Promotional support through consumer offers and select SKUs across key geographies continued during the quarter. Bajaj Amla Aloe Vera has been scaling up well in select markets of North and Central India, with over 50% growth in the quarter and over 70% on a YTD basis. Rural-focused TV campaign started in Q2. This was supported with print media in focus states. Bajaj Pure Coconut Oil, launched in select markets of west, east and south, has been getting good responses from the trade and customers. The product will be used to improve our distribution footprint in these under-indexed markets to leverage the next set of GT launches in GT that is planned in the next few quarters. Urban retail continued to do well with growth for the quarter, close to double- digits on the back of retail initiatives and outlet expansion in identified top urban cities. The thrust to increase our retail contribution will continue going forward. In rural, focus has been to improve efficiency through technology interventions, helping in van route optimization and rationalization. With expansion of portfolio, the focus has been to seed the newer brands in the rural markets, which are generating traction. The e-commerce business will remain a focus area for the company. We have just launched our new digital-first premium brand in haircare and personal care space, Native Soul. We'll be expanding our portfolio in the range in the coming quarters, supported by both digital as well as influencer marketing. This will be supplemented with renewed thrust of our traditional portfolio in the channel. The digital-first brand, Bajaj Zero Grey, continues to scale up and will become an integral part of the e-commerce strategy as we scale up product activations and support in the e-commerce space. In the international business, UAE and Africa had a sharp decline due to travel restrictions, while Nepal and Bangladesh came out of lockdown and performed well with double-digit growth. International business will be taken up as a thrust area from the next financial year. Various ESG initiatives are being taken to reduce carbon footprint and greenhouse gas emissions, especially in case of packaging materials. There has been a reduction in consumption of approximately 14% in glass bottles, cartons, laminates put together through optimization and rationalization of specifications. The process will continue in the future. Plans are also underway to ensure that bulk of our packaging material is of recyclable material. As part of our extended producer responsibility, we are on track with our target to effectively collect and co-process 100% of our post-consumer plastic waste with 48% achievement of target in H1. At this stage, while on one hand we will keep reacting to the market conditions tactically, on the other hand, we'll keep investing in building capability and strength to achieve our mid- to long-term aspiration of delivering sustainable growth through broad-basing our portfolio, both in the haircare and personal care space, with focus obviously on hair oils, making forays into the under-indexed markets of west and south, scaling up our international e-commerce business, as well as improving our execution excellence, process systems and focus on ESG initiatives. With that, I end my opening remarks and open the session for questions. Thank you very much, sir. Ladies and gentlemen, we will now begin the question- and- answer session. If anyone wishes to ask a question, you may press star and one on your touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking your question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask a question, please press star and one on your touch-tone phone now. We have a first question from the line of Manoj Menon from ICICI Securities. Please go ahead. Hi, team. You know, first of all, you know, good performance on the diversification, you know, efforts and some of the new products, you know, definitely looks great. Having said that, you know, in my mind, the biggest elephant in the room is actually the ADHO performance. Obviously, you did allude to, you know, and your presentation has been really disclosure friendly. My question is, you know, is it really a market growth issue, you know, or a seasonal issue, or is it really a sales issue? What I just wanted to, you know, quickly get to explain in whatever quantitative or qualitative, you know, data which you might have on the core category growth itself. You know, while you are doing a lot of efforts on diversification, the criticality of ADHO growth is very critical from adding resources, let's say, to fund a lot of these multiple ventures, et cetera. Also, given the fact that ADHO itself is expected to have a longer runway for growth, the performance over the last maybe few years, not sure whether it really is supporting that thesis. If you could just talk about the core characteristics of the category, maybe particular segment of the category, with any of the studies or any information which you may have other than Nielsen. Thank you, sir. I think that's absolutely a fair question. In fact, I mean, the overall if you look at the entire premium oils, et cetera, I mean, I think it's pretty clear in the last few quarters there has been a bit of downtrending. Having said that, ADHO being one of the largest brands in the hair oils category, I think it is, I mean, onto us as well to see how we can scale up ADHO's business itself. If you look at except for the last two months of August and September, if you look at across the last three, four quarters, ADHO's growth has been generally pretty going pretty good. In fact, what we wanted to expand, both in terms of urban retail, where we wanted to seed ADHO where our presence was low, as well as in terms of deep rural, I think the work had started off pretty well. Obviously, the setback of August and September, there has been, if you ask me, yes, we can improve our execution excellence as well, and this is exactly what we are looking at in certain markets. The markets have collapsed. I mean, there is no question that the wholesale market really had a big setback in most of the wholesale mandis in the north and the central parts of the country. Given our brand strength, I think there is some more play there. We have seen that some of the corrective actions and some of the sales plays that you are alluding to, we saw some positive impact in the month of October itself, and these are what we need to continue throughout the year. There is no question that ADHO will have to fund the growth, and hence ADHO needs to keep growing, notwithstanding what else happens in all the other portfolio. I think that consciousness across the entire marketing sales team is very much there, and I think we should see ADHO coming back strongly in the coming quarters. Sure. Thank you, sir. I'll just come back. I got a couple of follow-ups on this, if I could actually come back after the question. Thank you. Yeah, thank you. Thank you. We have next question from the line of Abneesh Roy from Edelweiss. Please go ahead. Yeah, thanks for the opportunity. My question is on the rural data, which Nielsen has given out. Even Unilever had called out the slowdown based on the Nielsen. How seriously are you taking this data? Because rural from 8.3% to -2.7%. Also, if you could comment on the urban growth also, because that's also no growth, right? On 12% base, which is not very high. Even urban is not growing as per Nielsen. Could you comment on both rural slowdown, how serious is it? And in urban, things don't seem to be remarkably different. If you look at rural, clearly we see the slowdowns that are happening. In fact, while our rural because last year we started the VAN initiative and direct rural for us has been still holding up. I think the slack that we see or the gap that we see in our wholesale clearly reflects that rural markets have clearly had a setback, and that is not really coming back in a big way. In urban, we see pockets which have been doing well. West South for us also, which are obviously much under indexed, have been doing well. We see signs of recovery in Delhi, some of the other markets. Urban is more of a mixed bag, but I think rural is mostly across the country, we see rural. We have to give it a fact that last year rural had a because of the impetus, rural actually grew much faster. On a two-year basis, rural and urban will be more or less similar. Rural this year, on a year-on-year basis, rural has gone down. That is not going to correct in the next one or two quarters, I don't see that correction happening as far as year or two years. Sure. Yes, sorry. My second question is on Amla. Your market share, you have done well from 1.6%-3%. Of course, at 3%, brands don't turn profitable in terms of market share. If you could tell us what is driving this market share gain, and when do you see this brand being profitable on its own? In fact, if you look at, as we had said, we look at Amla as a strategic investment for us, and we see that the brand coming to about INR 60 crores-INR 70 crores, it'll turn at a bit of neutral. As of now, our investments in the brand itself has been restricted. We have been also playing with the assortment so that we're the more profitable assortment is where we have played. The lower sized packs where the margins are far worse, we are very under indexed, and that's why we have only played in the markets where the larger packs are operating. So at this moment, we are really not too much EBITDA negative as far as Amla is concerned, and that is what we'll keep on calibrating. We'll keep the EBITDA at those levels. As we scale up the brand, we'll keep investing back into the brand itself. Not too much of drain on the EBITDA. We would like to keep it neutral so that at least we are able to balance the portfolio. That's what our approach towards Amla is. INR 60 crores-INR 70 crores is when we should be looking at a break-even kind of an Amla. Our target is to reach about INR 100 crores in the next two years or so. Sure. Last question on your coconut oil foray. Now almost three months have happened since the launch. Are you seeing some level of repeat purchase? Second, because copra raw material prices are coming down, have you also cut prices so that you continue to remain competitive versus the market leader? We have not cut prices in this thing. As you remember, when we had launched in July, we have kept our prices about 10% lower than the largest player. Our main objective as far as coconut was concerned was basically get some specific markets of South and Maharashtra as getting our distribution presence. It is more of a little bit of a mid- to long-term because of the kind of launches that we are planning as far as GT is concerned in the next two to three quarters. We wanted to get some foothold in the southern markets, where I would say that the response is still mixed. In the western markets, we clearly see good presence happening as far as coconut entry is concerned, getting some good foothold in these markets. That is something that we hope to exploit in the next two, three quarters. So far we have kept quite a tight leash on the primary sales of coconut because we don't want too much of the other thing. We are getting good encouraging response, so we'll see how that pans out. Initial response is very good, both from the consumer as well as from the trade. Yeah. Sure. That's all from my side. Thanks, and all the best. Thanks, Abneesh. Thank you. We have next question from the line of Percy Panthaki from IIFL. Please go ahead. Hi, sir. The first question on the Nielsen slowdown in rural. Just wanted to understand how much of this is because of the base effect, because I mean the slowdown might just be that last year people were sort of recovering from COVID first wave, and that is causing some kind of anomaly. Can you give me some information on what is the two-year growth rate as per Nielsen in rural and whether that has slowed down or not? If you look at two ways to look at. In terms of obviously, there is a bit of a base effect we are seeing compared to urban, because last year you see urban had absolutely collapsed in the first quarter, and there has been not too much of recovery as far as urban is concerned. In that sense, rural last year had a far higher growth, this year that growth has not got replicated. Some part of it is that. Even internally, if I look at our own data, I mean, for the first time we are seeing rural overtaking the business and rural contributing to about 55% of the business, while urban is just about 45% in terms of markets. If you look at. Let's see here. I'll just give you the two-year CAGR for. This is what we are looking at. Rural in terms of numbers for us is still higher, but in our case, as I said, because our wholesale had collapsed, the numbers are far stronger. If you look at half-year results, retail for us is about 23% growth, wholesale is at -15%, and rural markets is about a 4% growth. That is because of the rural that we are doing, which is with the Van sales, et cetera. That is what we are seeing as far as the market is concerned. Right. Even if I look at your, I mean, your own, reported growth on a two-year basis for the quarter, I'm not talking about rural or urban, but just the total growth on a two-year basis. Yeah. I mean, it's not a very great number. Just wanted to understand how much of this is a general FMCG sort of growth being lackluster issue, and how much of it has got to do with light hair oils underperforming the overall FMCG sector? If you look at the overall hair oil in two years CAGR, that means for rural is still better than urban on a overall basis. If that was the question that you were asking. That is as for Nielsen, sir, or for you? As for Nielsen. For us, rural has been doing better. Rural is on a higher growth than urban. Urban, this quarter, if you look at specifically, we had a double- digit decline as far as the wholesale is concerned. Wholesale really went down. It was over 20% decline in this particular quarter, and as I said, for the half year, about 15%. This is where our decline is coming, which is also part of it is from the rural market. Understood. Overall, it is flat. Yeah. Sir, second question is on the input cost inflation. Your gross margin is down almost 700 basis points year-over-year. Just wanted to understand what is the inflation trends, and if you have taken any pricing action to offset this, and just some understanding on the gross margins going ahead. Gross margins will, I think, remain under pressure because as far as Q3 is concerned, we don't see any softening of prices either in LLP or RMO, so neither packing material. The prices. That's why we have taken a 2% pricing increase as far as August to October is concerned. Now, we also, given the way the consumer trends are with so much downtrading happening, we also need to protect our brand and hence, we'll also look at how competitive action is and hence calibrate our pricing increases. Ideally, we would have liked to take much higher pricing increases, but given the market scenario and the economics, I don't think we'll be taking more than 2% at this stage. We'll keep monitoring the prices, and in case we need to take a further pricing increase, maybe in the next quarter, we'll look at another pricing increase if it is so required. At this stage, we'll take the hit on gross margin. How much is the inflation, cost inflation as it stands today versus what we've already seen in your Q2 results? Because even after whatever charge out is there in your Q2 P&L, the average cost of that versus the average input cost basket today, that itself would have gone up further, right? Versus? Sorry, can you repeat that question? Q2 versus what? As the input costs stand today versus what input costs were charged out in your Q2 PNL, there would be a further inflation, right? No, no. If I look at the spot prices today versus what you had in your Q2 P&L charge out, how much would that inflation be? Your question is consumption versus purchase, right? What consumption we have booked in Q2 versus what are the purchase and current prices and hence. What are current prices versus what has been charged out into Q2PML? I've got your point. Consumption charges as it will come in in Q3 material costs versus what it was in Q2 because it would have carried forward of Q1. That if you look at will not be too significantly different because while we see RMO prices hardening, we also see LLP prices softening. Overall, the impact even between Q1 and Q2, you did not see too much. The thing is that what we were expecting is with the RMO hoping to soften, it has not happened and LLP is also not really softening to the extent that we expected. Hence, as a result, we do not see too much of difference between even a Q2 and a Q3 versus it will be a 1% or 2%± year. Not really. Crude going up, sir, in the last two to three months, crude going up and LLP being a derivative of crude, don't you see an upside risk to the LLP prices? I mean, while obviously it's a derivative of crude and hence LLP prices, it will also be a supply and demand situation. Yes, LLP prices have hardened a bit, as I said, but at this moment we don't see it materially making any impact on our overall LLP prices itself. It's not a direct correlation that you see between crude and LLP if you were to plot the graph. Going forward, as I said, we will monitor in case we feel that the prices have really gone up so much, then maybe we'll take another pricing increase, which I alluded to in quarter four, we'll take it. As of now, we are well covered for Q3. Really speaking for Q3 consumption, there'll be not too much of difference whichever way LLP behaves. Okay. Understood. Thank you, sir. Thank you. A reminder to participants, if you wish to ask a question, please press star followed by one on your touchtone phone now. We have next question from the line of Deepan Sankara Narayanan from Trustline PMS. Please go ahead. Good morning, everyone, and thanks a lot for the opportunity. First we want to understand how has been this retail offtake growth, and when do we expect overall this wholesale start growing with the festive season coming up and also economy opening up? Well, okay, if you look at, in terms of October business itself, clearly we see some bit of recovery than that we had seen in October, August and September. Given that it is the festive season, et cetera, we don't see kind of that real uptick that we expected to happen. I don't think that has been seen across the markets in most categories that at least we have been operating in, or we have been monitoring. Having said that, there are certain markets where we see the recovery to be still a little slower, especially markets of Bihar, Madhya Pradesh, Uttar Pradesh. Other markets of the north, east, west, south, et cetera, we see markets becoming a little better than what these other markets are. In that case, this current ad and sales promotion run rate of 15%-16% will it continue for next two, three quarters or it will go back to 18% levels of last year? We'll keep it at between 15%-18%, and we'll operate tactically between that. 15%-18% is where we'll operate. As we launch our e-commerce brand, we might also look at a little bit of upside on that as well. We would like to invest for the future, so some bit of investment will also happen in that. Okay. Thanks a lot. Thank you. We have next question from the line of Tejas Shah from Spark Capital. Please go ahead. Hi. Thanks for the opportunity. My question pertains to gross margins. We are almost tracking at lower band of our historical margin band. I mean, you said that you made some interventions. Do you want to operate at this lower end of the margin and try to push growth or we will try to go back to our earlier margin with the intervention that you are planning to make in next three to six months? See, with this unprecedented price changes that has happened in our key raw materials, I don't think we are in a position. I don't think the market economics also would support a full-fledged passing of the pricing increases. We also see that most of these price trends will always be cyclical. Historically, you will see it is cyclical. If you were to take most of the pricing increases, one is we are not sure whether how priced you will be from the marketplace because the marketplace is also a competitive place. On the other side, if you were to take a pricing increase and the prices to drop, you would not be able to roll back the price drop. That's exactly why we are taking them in a calibrated manner. We have just taken the third pricing increase for the year and keeping it open for another pricing increase if and when necessary. At this moment, we will have to bear with this, but we expect that in the next two quarters or so the prices to start softening. I just take this opportunity to give the numbers for the two-year CAGR, which is basically that we saw for the urban. The two-year CAGR is -2.9%, while for the rural markets the CAGR is +2.9% with overall CAGR of -0.3%. These are the recent numbers that come. Thanks. Thanks for that. -3% or 3% for urban and rural respectively. Yeah. Second question pertains to our direct to consumer brand strategy. Two years back it used to be novelty. Now it is like everybody's doing the same thing. How do you stand out in that crowded market and what is our value proposition which will click versus all the brands which have been launched and then now right from startup to established companies, everybody is going that path. Yes, absolutely. I think there will be not too many choices left for most organizations if they have not already jumped on the bandwagon. Hence, I mean, we are already late in this e-commerce space. As you remember last year, about five quarters back, our contribution to e-commerce was about 0.5%, far more under indexed than most of our competitors. Now, we have bridged the gap a bit at 4%, and we think that we have enough within ourselves to push for this strategy. I mean, today, we are launching Natyv Soul. I will not be able to talk of some of the other launches that we are planning, which you'll see sometime about in Q3, and we'll be talking of another brand. I think for us, as far as our company is concerned, both with the traditional portfolio that we have as well as the new D2C brand that we are launching, we have enough and more to fight in this space. One of the things that we keep saying is that this is far more democratic space. Given the equity of Bajaj we can use in our traditional portfolio and any other hair oils that we launch, as well as some of the niche categories that we can get into where I think it is a function of how good we are in terms of our digital and influencer marketing skills. I think there is enough and more for us to be playing in this portfolio. I think in terms of skill set, infrastructure, we have built it up. I think like most of the other large players who are getting into, I think there is enough and more for us also to be playing in this space. Given that it's an absolute number that we are chasing as a percentage to our turnover, I think we have a better success rate possibility than most of the larger players who'll be looking at similar numbers in a similar time. Sir, in both our D2C brands, Natyv Soul launches, we are not leveraging Bajaj's name, at least that's what appears from what we checked on Amazon. How does it work then? This is in an absolutely nascent stage. I mean, this is just a pre-launch, if I were to use such a word. It's a soft launch maybe. That's the word. I mean, you will be seeing by about quarter four, a Native Soul having a full range of its own. We are looking at about 20-30 products under the Native Soul brand itself, which is basically in the hair care, personal care space, as well as we'll get into both digital and influencer marketing that we are talking about. Parallelly, we are also looking at another range which we think might be relevant for our Bajaj name itself, which we'll be parallelly putting it across along with the traditional portfolio that we have. With that, we feel that a comprehensive e-commerce strategy can be built up, which in fact in the other range that we are talking about, the Zero Grey will actually amalgamate into that space itself. As an overall strategy, I think this is what we would have enough and more to play with. Okay. That's all from my side. Happy Diwali to you and the team. Thanks. Happy Diwali. Yeah. Thank you. Thank you. To ask a question, ladies and gentlemen, please press star followed by one on your touchtone phone now. We have next question from the line of Shirish Pardeshi from Centrum Capital. Please go ahead. Hi, Jaideep. Maloo, sir. Good afternoon. Thanks for the opportunity. I on a slightly different note, if I put a report card, not exactly a report card, but since the time you have taken over and when I look at the journey, you started saying the wholesale dependence is very high, and then you were trying to improve our system. We did try to do van sales operation to improve our coverage. Then you focused on about two quarters before on from one brand Almond Drops to Coconut, and then in between, we also have Amla. Now we are also talking about D2C. Now you always, if I refer last four con calls, you have used the strategy, processes, people, senior management. I think my candid view is that you have all the ingredients to show a better performance. However, the market conditions are not supporting. Now, if I go back four years before, wholesale was a key component, and then we consciously cut the wholesale. Now we're coming back, wholesale is a key important channel. The question is around how we should look at this company being a single category from the hair oil, we had single brand, now we have three brands. Now how do you see this company growing next two to three years? I mean, that's the first question. Shirish, firstly, I don't think this attempt to come back to wholesale will be anything that we will be pursuing very aggressively. The overall strategy that we have stated upfront about six, seven quarters back and that it will absolutely continue. I don't think there is any shift in our strategy. In spite of this stupendous increase in raw material prices as well as the demand slowdown that we have. If we have to restructure some of these attempts to make a wholesale heavy single brand company into something which is a little more multi-faceted and with strength, it will take some time, and that journey is what we are monitoring ourselves also. The entire objective of retail initiative penetrating into rural, direct deep rural, broadening our portfolio, getting into e-commerce where we think the space is a little more democratized, getting into national, international business, which we'll take up next year. These are all exactly the way we wanted to plan out. Yes, obviously the financial numbers have not backed us given what we have seen, as I said, in both raw material prices as demand conditions. This is something that we, I think we'll continue with. I don't think we will change our journey or do any major reaction based on how the market conditions are. Having said that, I mean, wholesale has been one of our key pillars, et cetera. We are not going to just give up on wholesale. I mean, that is something that is all that I was alluding to. Wholesale, we will ensure that whatever decent work that has happened in wholesale over a long period of years, that is retained while we build strength. We will not give up on wholesale, one of the pillars and then start building other pillars. We are not demolishing the house to build another new house. It is something that we will continue to maintain while we scale up retail, rural, and all the other things I mentioned. This is how we would like to look at our business. Wonderful. You're sticking to the old strategy. One follow-up here. While discussing with the channel partners at wholesale, what we also have the hypothesis which has turned up over last two to three quarters is that wholesale is becoming very, very opportunistic. Traditionally they were selling top two or three SKUs. However, the cash and carry is also affecting. Somewhere the sense which I have gathered around last two, three quarters is that consciously wholesale is cutting the inventory, which at some point of time by giving maybe a percentage or two we could load the wholesale. But then consciously the wholesale is come down and because the retail channel is now getting more digitized or maybe cash and carry is affecting. Is it a part and parcel that the trade also having a structural inventory correction and which we don't know whether it will stop it at this stage or maybe going forward? It started from us because we try to split the channel like the pandemic the retail customers have moved from modern trade to e-commerce, maybe physical shopping will come back. Consciously the trade has cut the inventory. To what level you agree or you would have seen or because this phenomenon in the trade? Partly agreed. I think you have got it right. I mean, in terms of trade, reducing inventory, especially in the wholesale channel, clearly it's been seen. Having said that, some of the markets where wholesale is a predominant and a very obvious way to do the business, let's say the hinterlands of UP, Madhya Pradesh, Bihar, et cetera, I mean, you really cannot do away with wholesale, which is where we would reduce, try to retain our strength while we build direct rural as well as in terms of urban. Like most of the other competitors, we have been far more over-indexed in wholesale. That is something that we would like to reduce while maintaining the wholesale saliency in UP, Bihar, Delhi is more of a given and nothing else. Yes, inventories have gone down in the wholesale channel, and I think that is how the future will also pan out. I don't think there'll be too much change, structural changes. Okay. Just one last follow-up on this question. To what level we are drawing the wholesale contribution today and at what level you are comfortable? I'm sorry. Can you come again, please? What's the current contribution from wholesale for us? As of now, if you look at quarter two itself, the wholesale saliency has come down from the mid-30% to about 23%. If I have to give you exact numbers, it is about 22.5% each for retail and wholesale and about 55% as far as the sub-stockists are concerned, which is rural. This is how the numbers are panned out, which was typically about, if you remember last time we had discussed, we were talking of 30%, which was wholesale, 20% was retail, and 50% rural. That's how the numbers have changed. I mean, rural was a little more, but yeah. This is how it is. Okay. My second question is on the pricing increase what you mentioned. Just to complete, Shirish. Ideally, we would prefer a retail and a wholesale in urban trade split to be more or less similar, which is what it is today, but not this way, where wholesale has collapsed and retail has grown double- digits. Make it happen. We would like our retail growth to be much, much higher and the wholesale to remain about a single- digit or mid-single- digit or low- single- digit growth so that at least we are able to get this mix balance, not the way it has happened today. Okay. The point I said, we'd like to look at in the future. Sure. My second and last question. On the price increases, you mentioned that we have taken about 5% so far, and another 2% is going in the month of November. Cumulative, it would be 7%. That's correct. That is absolutely correct. In the year. Okay. Thank you. I have more questions. I'll come back in the queue. Thank you. Thank you. We have next question from the line of Rahul Ranade from Goldman Sachs Asset Management. Please go ahead. Yeah. Thank you for the opportunity. Just one quick question in terms of our value growth and volume growth. If I look at it, the value growth, you know, is even lower than the volume growth of, for Q2, whereas we said that we've taken a 5% kind of a price increase in the ADHO part of the business. Just trying to understand then why is the value growth lower than the volume growth for the quarter? Yeah, two simple reasons. One is obviously, as you have seen, that there is an inferior mix that has happened, which is where Amla and Coconut has been scaled up, and that is what will continue to happen where we will be pushing our volume growth a little higher. So as of now, for example, ADHO has a salience about 90%. Again, not the ideal way you would like to with ADHO going down as a business generator, but that's how it has turned out to be. ADHO is at 90% against the salience, which typically was about 92%. So this is one. The other part that has happened is that consciously we said we are taking. We are taking trade along with us. A lot of times we have under-indexing while we have over-indexed on the larger packs. That has also had a positive impact on the volume and a negative impact on the value. Sure, sure. Just in terms of gross margin, what would be, you know, kind of, sustainable level of gross margin? Obviously, if you look at it in the past, we have done, you know, significantly higher gross margin levels of 65%-67% also. Now with, let's say, Amla and Coconut being a meaningful part of the portfolio going forward, what would the gross margin look like on a sustainable basis? Let's say once, you know, the LLP and RMO prices cool- off to more desirable kind of levels. On a sustainable basis, how should we think of the gross margin? That's what we have been looking at. Originally stated, the way we had planned out is basically looking at a gross margin coming to about 20%-23%, which is actually what it is today because of the LLP and RMO. We were looking at the gross margin coming to about 20%-23% and then slowly scaling up. The other thing that will also get scaled up is the expenses. The other expenses, et cetera, will start flattening out as our top line keeps growing. We were looking at a gross margin coming to about 20%-23% and then slowly creeping back to 24%-25%. 24%-25% is the kind of gross margins we would like to be playing with, EBITDA margins that we would like to be playing with on an overall basis. Sorry, EBITDA margins, sorry. Because I would rather look at EBITDA rather than just pure gross margin play as such. Because if you look at even e-commerce brands that you have, you have very high gross margins, but then EBITDAs will be lower because the cost that you'll be putting in promotion and so and so. Really speaking, it's better to look at the EBITDA margins rather than just pure gross margins as such. Because if it is a single brand, single category, gross margins on a linear basis is easier to look at. The moment you are looking at a play and a portfolio, it is the EBITDA margin that we would rather be, you know, comfortable with. Sure, sure. Just for ADHO, what would have been the volume growth for the quarter? I think last we had a base of around 2%, if I am not wrong. Current numbers would be on that. I'm sorry, can you come again? What was that? You know, in terms of volume growth for ADHO, what would that number be? Because I think September 2020 quarter was a 2% kind of a growth rate annual. Yeah. It is actually, if you look at the overall numbers itself with -4%, ADHO is also nearly exactly the same because there is not too much of difference that happens. ADHO is just a little higher than that number. Not really material difference as far as ADHO growth versus overall company growth. Got it. Okay, thank you. Significantly, if I had to just add a little bit of flavor to that, I think what we are seeing is, all the larger packs, 100 ml and above as a group, has been doing pretty well. Those are all positive, while the smaller packs is where the stress is. That is also borne out by the fact that UP, Bihar, smaller pack markets, the Nepal markets as well as the wholesale having brought us down. The smaller packs is where we have lost out a bit, while the larger packs have still stood up well on a two-year CAGR as well as on a one-year growth basis as well, both on a quarter basis as well as on a YTD basis. Sure, sure. The price increase, like when we talk about the 5% as price increase through the year, it should be understood as a weighted price increase, right? It will be across the SKUs. It is a weighted price increase, unfortunately, where the price bands are fixed like a INR 1 sachet, et cetera, you can't really go down further on the packing of sachet. I mean, with a 2.5 ml, you can't really bring it down further. There we have not taken the price increase. In the larger packs the price increase is more, which weighs it back to the percentage that we talked about. Oh, sure. Thank you. Yeah. Thank you. To ask a question, participants may press star one. We have next question from the line of Shirish Pardeshi from Centrum Capital. Please go ahead. Hi, Jaideep. Thanks for the brief. I have two questions in brief terms. On the base of 5%, we have shown a decline of 6% last year. While I see that the next two quarters our base is also going to be very stronger. Not saying the guidance, but will you help me to understand how one should look at the performance? Because the three things which you have spoken is distribution expansion led by rural revival, sales operation, direct reach. Wholesale might come back after the festive season if there is a demand condition which is going to improve, which is external. While we also see that you have done from one brand to three brands and you know your expansion strategy in the West and in the South. Maybe if you can help us whether now already if you consider 7% pricing increase, which is there, if you indicate what will be the volume growth and what is your aspiration level and where we can see this year- end? I don't think I can give you guidance on that, but I can say that some of the strategies seem to be picking up. Am I audible? Is the. Yes, you are, sir. Yeah, sorry. Yeah. Perfectly fine. Yeah, thank you. Shirish, just so as I said, I would not be able to give you guidance, but, I think some of the strategies that we put up in the month of October itself seems to be bearing fruit, and we see a pretty decent jump from what we saw in August and September as far as our performance is concerned. I think more or less we also are clear how to be reacting to the marketplace in, the months of November, December as the season comes up. I think I'm pretty quietly confident that, wherever the gap has happened in terms of the deep decline as far as wholesale is concerned, that will get neutralized to quite an extent while all the other initiatives continue in their condition. I am expecting a far better Q3 in that. Okay. My second question is that you alluded saying that the Sri Lanka and even Africa we are seeing some pressure while Nepal and Bangladesh has done better. Could you spend a minute how one should look at the second half for the international market? I'm expecting that these lockdown issues and other things should be different from India. See, our base is so insignificant. Most of the businesses happens more by default rather than by design. There is no intervention as such that is there in the international market as of now. Just now in the last 1.5 months, we have started working in these markets, and that's why in my opening statement, I said that you'll see something of, for us, we are talking about as far as international markets in the next year or so. At this moment it is more groundwork that is happening. The reason for that is simple, because with a company which has been till now solely focused on one brand, as you are looking at expanding, we also need to be able to chew that we put on our plate. How much we take on our plate is something that we need to be completely conscious of, and ensure that those initiatives that we have taken up are actually starting to fructify. We have taken up Amla, we have taken up Coconut, we have taken up e-commerce, we have taken up urban and rural initiatives, as I said. I think with Coconut we are looking at even the west and south. This itself is something that we would like to stay on with for the next two, three quarters, have some positive signs that we are already seeing in some of these markets come back to us while that e-commerce also keeps showing traction, and then we will start looking at further more. We don't want to take too much on our plate, not only from the balance sheet and cash flow point of view, but also from our own bandwidth point of view. I think we need to be a little careful on that. We don't want to make too many changes too suddenly. Okay. My last question is on, again, Nielsen, and now we're sitting on in the month of November. I'm sure you would have some trended numbers with you. What is the Amla growth rate in terms of volume and value for the quarter, if you can help me to understand? And what is our growth rate for Amla? I mean, see, I've given you the our growth rate as well as the market shares. I mean, that should be giving us some of the numbers. We have grown by volume over 70%, and our market share has gone up from 1.7% to 3%. 3% market share. You can do the math backward. Amla has been growing. Amla has grown on a year-on-year basis, marginally grown, but better than some of the other brands which have declined. All right. Thank you and all the best, Jaideep and team. Thank you. Thank you. We have next question from the line of Rohan Samant from Multi-Act. Please go ahead. Yeah, thanks. Hi, Jaideep. On the margins, like, in the past, the commentary that you have given was basically focusing on improving the absolute EBITDA rather than focusing on the percentage margin. Do you still hold on to that guidance over the next two to three years, that your focus would be more on absolute EBITDA rather than the percentage? Absolutely. I think given the directional changes that we are trying to do and the initiatives that we are talking of, I think the overall play has to be where all the other cost elements of the company get neutralized. Like if you look at our company, one of the key discussion points that we always keep having is why is our employee cost so high? And that is mainly because while as a company you need to be able to fight and have strategic thinking capabilities the way some of the larger players have. In terms of our size, when you put that as a percentage to our sales, obviously we'll always look higher. Now, to neutralize, and along with that the manufacturing and the admin and everything else, if you have to neutralize, we'll have to look at a company being broad-basing the organization. Now, broad-basing the organization, if you have to develop brands which bring in gross margins of the kind that ADHO brings, that would mean about a decade of investment in these kind of a brands, because that is the kind of equity you have to build up so that you can pull in that. ADHO focus needs to remain. ADHO needs to be built. In fact, one of the first questions that was asked is when ADHO focus cannot go on. Now, that is something while there has been a bit of dropping of the ball in this quarter, ADHO focus will have to continue across all forums. I mean, for example, in this particular case, as I said, the low unit packs, the smaller packs have actually lost a bit, and that is something that we'll have to bring back very quickly, and that is what the focus has been. Other than that, I mean, the ADHO focus will have to remain where we get our EBITDA margins from. Overall, if you look at as a percentage, we would not want to keep at a margin which is at 28%-30% or 32% EBITDA, because then you will not be able to reinvest in anything else that you are looking to develop. Over the next three to five years, the EBITDA margin of 23%-25% is what we will target. It might be at 23%, but that is on a neutralized and a normalized LLP, RMO, as well as in decent market conditions. I'm not talking of very, very buoyant market conditions, but at decent market conditions where the market in hair oils is growing at mid-single- digits. Sure. Basically if we are looking at a 23% EBITDA margin, and in the past, the base that we started with was much higher. Essentially your top line growth has to be at you know at a very healthy clip as compared to what we have seen in the last two to three years. That is something that you are looking at, right, in terms of. If you will have to compare the bases a little more in a more normalized manner with the kind of unprecedented pricing increases that we have seen in LLP and RMO. The 23% is something that you are seeing today. If the bases were to be normalized, if the LLP and RMO were to be normalized back, this number of 23% itself would have looked 28%, 29%. That is because we have not really invested in some of the larger brands. Our own investment will also remain calibrated because of our pressures that we see in LLP and RMO. We will also calibrate our investment so that we don't have a big hit on our EBITDA margins. There will be some dilution, but yes, in a normalized situation, these are the kind of numbers you would have looked at a 23%-24% margin. Yeah, sure. Thank you. Thanks. Okay. Thank you. We have the last question from the line of Arvind Dutta, an investor. Please go ahead. Good day and thanks for the opportunity. My question is related to long-term strategy plan from a three to five-year perspective. Are there any plans to enter in other personal care segments, or you want to remain a single product company? The second part of it is that today we are an INR 1,000 crores company, and if we have to scale up to INR 2,000 crores or INR 3,000 crores over the next five to 10 years, we will need to have a portfolio of other personal care products. You have the distribution network, so why not leverage by launching other personal care products, especially on an Ayurvedic theme? This is my question. No, absolutely right question, and this is something that we have been anyway exploring and some work has already happened in this area. I mean, if you have been tuned into our commentary, we have been looking at some of the extensions of our using our Almond Drops portfolio itself. I'm not sure still whether Ayurveda is somewhere we will have the requisite strength to get in and whether our team would bring in that kind of an equity as some of the other larger well-known brands they do bring in. That is something that anyway we'll keep exploring. Yes, getting into some of the personal care, adjacent personal care spaces is something that we are looking at, along with some of the complement of our hair oils as well as closely adjacent hair care portfolio. In the next two, three quarters, you will see some of the more graded launches. Now, why we have not gone too aggressive in launches, et cetera, because we believe that we will have to invest in the brands rather than let just the distribution network take care of the brand itself. We have seen some of the large competitors launch a, you know, plethora of brands and I'm presuming that the expectation is the distribution itself will pick it up. I don't think we have the variables or the skill set to do that. We do it in a calibrated manner, and we would like to stay invested in some of the brands. We have launched our Amla, we have launched our coconut, we have launched our e-commerce range, and there'll be another few launches that you will see, and we'll like to remain there and keep grading ourselves based on what kind of money we make out of each one. Thank you, and all the best for the future. Thank you. Thank you. Ladies and gentlemen, that was the last question. I'd now like to hand the conference over to the management for closing comments. Over to you, sir. Yeah. Thank you so much for patiently bearing with us. I think as I said, this has been a challenging quarter, both from the demand conditions perspective as well as in terms of where the demand has been distributed in. We have seen some bit of recovery happening in October, and we have also now also reacting to the marketplace to see where the declines are and what can be done as far as we are concerned. In terms of execution excellence, our focus has been there. While on the long term, we are not going to really change any of our strategies going forward. Building of the team is already more or less in place, as well as in terms of the areas that we have talked about. I would not like to repeat them. Those three, four initiatives that we have put in for ourselves, those we'll keep monitoring because we think as a company we have to. If we have to de-risk ourselves with a single product on a predominant wholesale channel, we will have to build these strengths over the next two, three years. That is the direction we will continue to follow. I think we'll see results come in slowly as the quarters go by. Thank you so much for patiently bearing with us, and thank you for showing confidence in us. Thank you. Happy Diwali to all of you and your families, and a very, very great festive season to everyone. Thank you. Thank you very much, sir. Ladies and gentlemen. Thank you. Thank you, sir. Ladies and gentlemen. Thank you, sir. Thank you very much. Thank you, everybody. Thank you very much, sir. Thank you to the members of management. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.