Ladies and gentlemen, good day, and welcome to the Q1 FY 2022 Earnings Conference Call of Godrej Consumer Products Limited, hosted by Axis Capital Limited. As a reminder, all participant lines will be in the 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 touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anand Shah from Axis Capital. Thank you, and over to you, sir. Thanks. Good morning, everyone. On behalf of Axis Capital, I welcome you all to the Godrej Consumer Products' Q1 FY 2022 Earnings Conference Call. Without further ado, I will just hand it over to Mr. Pratik Dantara, AVP, M&A and Investor Relations, to do the introductions and take the call forward. Thanks. Over to you, Pratik. Thanks, Anand. Good morning, everyone. We hope that you're staying safe and healthy. We will be covering today the results for the quarter ended 30th June 2021. On the call from GCPL, we have Ms. Nisaba Godrej, Mr. V. Srinivasan, and Mr. Sameer Shah. As is customary, we will start with Nisa sharing her perspective on the business and overview on how we are navigating the current environment. Thank you, Pratik. Good afternoon, everyone. I hope you and your families are safe and healthy during these times. Thank you so much for being with us on this call today. We've had a strong start to the year, delivering double-digit profitable sales growth. Specifically, in quarter one, we saw broad-based double-digit growth within the home care and personal care categories. Our overall sales grew by 24%, with a two-year CAGR of 11%. EBITDA grew by 29%, with a two-year CAGR of 15%. PAT grew by 38%, excluding exceptional items. Home care delivered a strong growth of 14%, led by household insecticides. Air fresheners continued to witness sequential recovery, though the overall category continues to face headwinds due to its discretionary nature. Our portfolio in home hygiene is scaling up well. Personal care continued its strong growth momentum, growing by 29%, led by personal wash and hygiene and robust growth in our hair care portfolio in Africa, USA, and the Middle East. We look forward to building on these categories in the years ahead. From a geography perspective India grew at 19% with the two-year CAGR of 12%, led by broad-based growth within the home care and personal care categories. In home care, household insecticides delivered strong double-digit growth, with the two-year CAGR also in double digits. Home hygiene witnessed strong demand amidst the second wave of COVID-19. Air fresheners and fabric care witnessed growth on a low base. In personal care, personal wash and hygiene continued momentum with strong double-digit sales growth. two-year CAGRs were also in double digits. Hair color also witnessed very high growth, but on a low base. Our innovation rate was in the high teens. The scale of our e-commerce business continued as well. Indonesia delivered a weak performance with flat constant currency sales growth on a base growth quarter of mid-single digits. Recovery has also been impacted by the second wave of COVID-19 and adverse macroeconomic factors. Our Africa, USA, and Middle East business continued its strong growth momentum and delivered a profitable double-digit sales growth of 60% in constant currency terms. I'm pleased with the strategic focus and growth mindset of the team. Our consolidated EBITDA margins at 21.3% increased by 90 basis points year-over-year, driven by an improvement in Africa, USA and the Middle East, and Latin America and SAARC margins. In India, margins decreased by 110 basis points year-on-year, driven by the lag between an increase in input costs and end consumer price increases. This was partly mitigated through scale leverage in employee benefit expenses and other expenses. We continue to have a very healthy balance sheet. Our return ratios continue to move up year-on-year, while the net debt to equity ratio continues to come down. We remain confident of leveraging growth opportunities to drive sustainable, profitable sales growth across our portfolio in fiscal year 2022. I'm very proud of the exceptional agility and resilience with which our team is navigating the challenges of COVID-19 across geographies, ensuring seamless supply chain deliveries, and responding to shifts in consumer behavior. We also continue to adopt a safety-first principle across our ecosystem, supporting our team members, their families, and business partners across to get fully vaccinated. As always, our values matter the most at this time. We remain committed to doing our best to truly live the Godrej Way and serving our people and communities. Thank you. Ma'am, should we open for Q&A? Yes, please. Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone 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 a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abneesh from Edelweiss. Please go ahead. Thanks for the opportunity and congrats on numbers. My first question is on HI, there are two parts to this. One is, you got good benefit of the pandemic in India, now Indonesia in some parameters is even ahead of what India saw in May in terms of the pandemic. Any benefit you are getting either in Q1 or Q2? Second is on Maharashtra, what you have done in terms of the Jumbo Fast Card. Earlier there was an efficacy issue versus illegal HI. What is different this time? Any timelines you can share on the disruptive products which are going to come against incense sticks? Sure. Let me answer that, Abneesh. Hope you and your family are well. I think in Indonesia, because of the second wave, we've definitely seen very high sort of pickup in hygiene categories, especially in sanitizer. In HI, we didn't see as much of a pickup in Indonesia like we saw in India. There's also some amount of destocking going on in mini mart. We'll watch to see what happens in quarter two. July was a bit better in Indonesia starting off. We'll wait to see that. On your question on Jumbo Fast Card. Why do we believe this is an effective product against illegal incense sticks? Fast Card burns for three minutes. It works like a economic aerosol, so it gives you a lot of actives immediately. What we found was that what consumers like about the illegal incense sticks is that it burns for about 30 to 45 minutes, and then there's some residual effect. The Jumbo Fast Card actually also burns for 45 minutes to an hour, and then you have residual effect for about four hours. It is directly against illegal incense stick in terms of the job to be done for the consumer. Just one follow-up on this. Weaker HI in Indonesia versus India, that's because of the weaker FMCG sector performance there because of the GDP? In India, the new products are doing well? The base is favorable in India, that's why India is growing faster? No, in India, Abneesh, the base was very high in India, correct? I'm saying four years base. The 2016. I think Indonesia does have a sort of level of these, the macro impact. I don't think you can directly compare to India, in terms of what exactly is happening. The portfolio is also relatively different between India and Indonesia. Sure. My second question is, in the annual report you have mentioned FY 2021 was the busiest year in terms of digitization and digital native brands launch, etc. Two questions here. One, some of the FMCG companies are doing their own e-commerce site, and second, they are also investing in digital startups. FMCG D2C kind of startups. What would be your thinking on this from a medium long-term perspective? I think we have a dedicated sort of e-commerce P&L. We've also got an entrepreneur in residence. We launched goodnessme, which is a digital-first brand. We have other brands also like BBLUNT, which are very sort of digitally first. We really feel like this is an opportunity. Priority number one is to double down in your core on this, but also to build sort of new consumer franchises through this. Sure. That's all from my side. This is very helpful. Thank you. Thanks, Abneesh. Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead. Hi, team. Thanks a lot for this opportunity. I wanted to understand the gross margin comment. You pointed towards a lag between input cost pressures and price hikes. Could you help give some sense on the inflation levels and what price hikes are still required to be taken? A linked question, if you could help us understand from a cost control, because that's been one of our traditional specialty. You've kind of been able to offset these pressures. How would you look at EBITDA margin, operating margin on a YoY basis? Hi, Avi, this is Sameer here. I think the input inflation is largely coming in from palm oil prices as well as crude prices, which are up on a YoY basis. We continue to take calibrated price increases. If you look at last quarter, the overall price increases in India was close to around 45%. If you double-click across some of the subcategories, in categories like personal wash and hygiene, the price increases would be in high single digits to even double digits. We would continue this approach of taking calibrated price increases. It has worked very well for us. You look at our personal wash and hygiene growth over past two years, they have been very strong. Market shares also have been very robust in terms of gaining market share in this category. We would, in parallel, kind of evaluate pricing opportunities in rest of the portfolio, as well as work more hard on cost-saving projects. To answer your question on cost-saving projects, historically, they have contributed anywhere between 2%-3% as a percentage point of sales. Part of that has got reinvested back for growth, and part of it sort of flows to the bottom line. That's the approach which we have. Expect inflationary pressures to continue. Okay. Second was essentially on the HI side. Would it be fair to look at Jumbo Fast Card now as the key warrior for incense stick, hence the active ingredient based incense stick kind of takes a back seat. Is that a correct read-through or no? If you could kind of on that as well. I think that's a bit hard to comment on. Obviously, we have a slew of strategies, but I don't think we want to give out our cards exactly on what we're planning on that. It's definitely one part of the toolkit to sort of fulfill consumer needs. Okay. Lastly, if I may, on the Indonesia side, could you give us an update on how the situation has been on ground as of now? Have you seen some recovery? Could kind of give a comment. We've definitely seen a better July, although it is on a low base last year in Q2. If you see those FMCG s ort of numbers there, and the macroeconomic situation haven't been particularly strong. We definitely feel Saniter has been a big success, which is a hygiene brand there, and continues to do well. We are really focused on sort of deep diving because our categories are strong categories even during a pandemic in terms of really focusing on growth there. I think as Sudhir comes in also, it will be a big focus area for the rest of the year in terms of getting Indonesia to stronger growth. Okay, perfect. Thanks a lot. Thanks for this initial update. Thanks, Avi. Thank you. The next question is from the line of Harit from Investec. Please go ahead. Yeah. Hi, good morning. The first question is on the Africa portfolio. Obviously we've seen an improvement on a year-on-year basis. If you look at sequential margins at the EBIT level, we've not seen a material improvement there for this quarter. I just wanted to understand on the Africa side, we are still obviously much lower than what we were in Q1 2020. Is there a gross margin led pressure here because your international gross margins are a bit lower? Just wanted to understand what's happening or is it higher spends on brand investments that's kind of impacting the overall margin improvement? Hi, Harit, this is Sunil here. I think sequentially, the major reason for a drop in, I think close to 100 basis points kind of margins in Africa is because of upfront marketing investments, and that's the only reason. Also, we have to note that our Africa business has a strong seasonality in and around quarter three coinciding with the festive season. There is significant scale which comes to play in terms of driving stronger margins. We are very much on track in terms of our Africa cluster, which will get played out over the next three, four years in terms of us reaching to kind of mid to high teens margins. There is, I mean, kind of inflation pressure over there, but we are mitigating it through pricing. We are also mitigating it through cost-saving programs. We are very much on track in terms of our desired margin, which will be also higher on a YoY basis on a full year basis, Harit. Sunil, if I understood you correctly, the two key reasons for this quarter would be higher inflation and the upfront investment, right? Just for this quarter specifically. Yeah. If you are baselining it with Q4, I would attribute it more to the higher upfront marketing investment and little less to inflation because we had inflationary pressures even in Q4. It's not that inflationary pressures kickstarted only in Q1. Got it. The second question was on the India business. From a home care perspective, I know you have big plans in home and hygiene. We've seen some of the competitors who got in this segment about six to nine, 12 months, anywhere between 6-12 months back, have kind of retraced a little bit in certain categories. Just wanted to understand how are you looking at that space, especially on the home care side, your commitment to this space, et c. Does it differ in terms of product categories that you're going to look at, focus on some, not focus on others? Just wanted to know, given your start in the launch versus now, how are you thinking about it? Thanks. Harit. Go ahead, Sunil. No, Sunil, go ahead. Harit, this continues to be very strategic portfolio for us, right? The entire kind of hygiene space. One of our most innovative product, powder to liquid handwash, has been a big success over the last 15 to 18 months, and we continue to invest in terms of creating awareness for the product as well as creating a stronger brand equity. The rest of the portfolio beyond hand washes also are kind of steady. I'm sure you are aware we also launched somewhere during the middle of last year, the home cleansing range under brand ProClean, and that is also off to a good start. We will see a lot more from our end in this space. It's not just a tactical kind of strategy from our end to get into this category, but more structural in nature, and which in turn is part of our larger expanding the total addressable market strategy over a period of next four to five years in India. Sorry. Last thing, if I may, was on the sequential movement in working capital days. Anything to read into that, the increase or just not much? Yeah, I think we need to kind of dissect working capital into two components. One is the reported working capital, which is what we have shared, and then there is core net working capital. The difference between both of them being the structured vendor financing. Two things. One is directionally, we are taking call to kind of reduce down our structured vendor financing because it's no longer EPS accretive, especially in this low interest rate kind of regime. We are going to pull down and that's going to be the big reason for drop in our overall net working capital. The core net working capital continues to be extremely robust. In fact, even in Q1 on a YoY basis, our core net working capital has come down by five to six days. The other piece also which got played out from net working capital perspective in Q1 was a higher buildup of inventory because of the second wave and lot of related uncertainties. We were very upfront in terms of ensuring that we have adequate inventory right from raw materials, packaging materials, to even finished products. Directionally, the inventory values also moved up. It was kind of driven by both lower structured vendor financing as well as upfront buildup of inventory. Perfect. Those are my three questions. Thank you. Thanks, Harit. Thank you. The next question is from the line of Vivek Maheshwari from Jefferies. Please go ahead. Hi morning, everyone. Two things. First, on the A&P spends, what is your outlook on the A&P spends, which have come down quite a bit? Vivek. Hi, this is Sameer here. I think if you look at A&P spends in India as a percentage of sales in Q1, they are hovering around 5%-5.5% now, right? Which is relatively lower as compared to our average percentage to sales. Couple of things. One is, in the month of May, we had taken a pause because of second wave and lot of uncertainties. That has resulted in a relatively lower A&P spend. The other piece is to look at A&P spends aggregated with trade investments, especially with customers and more so with the pricing investments. We are also taking calibrated price increases at this point in time and not passing on the full input inflation to the end consumer. When you look at basket of all three put together, which is advertisement spends, trade promotion spends, as well as pricing investments, the aggregate basket has gone up as a percentage of sales, and the increase has been much beyond overall sales increase. It's more of balancing also at this point in time, and maybe in medium term because we are in high input inflation environment is something which we'll keep on kind of working towards. Okay, got it. Second, Sameer, can you give exact growth numbers for soaps, hair colors and HI in India? Vivek, we had shared in our disclosure changes last time around that we would be sharing kind of directional growth and I think the directional growths are sort of baked i n. To give you an idea, I think household insecticides had very strong double-digit growth and even the two-year CAGR was in double digits. Ditto was the case for personal wash and hygiene, in which actually, bar soap is bigger contributor. Even hair colors had a very strong kind of growth, although on a low base, and two-year CAGRs were kind of also relatively lower. We are seeing sharp recovery in hair colors in June and July. Largely all the three categories, subcategories have been in kind of strong double digits and pretty well placed at least on a two-year CAGR basis, especially when it comes to household insecticides and personal wash and hygiene. Okay, got it. Sameer, one suggestion. Look, if you yourself analyze the last 12 quarters performance, the disparity between the three categories has been, or three key segments have been very high. It will be useful if you keep the disclosure at the same level. I think it will help allow us to appreciate your performance much better because when you say double digit, if everything is double digit, that doesn't really help because a 12% is also double digit and a 25% is also double digit. My request is if you can continue with the same disclosure level, at least in the presentation. You have a new segment, that's fine. If you can give precise numbers that will really help because the volatility in your performance has been very high, and that will really help when the three categories are behaving very differently. Sure. We are totally fine over it and thanks for your feedback. I think the intent remains to sort of share lot of details on our subcategories performance, including lot of initiatives so that external kind of partners like analysts, investors get a good flavor of what's happening in terms of building blocks as well as eventual performance. We're fine over it, Vivek. Thank you for your feedback. Sure. Thank you. All the best. Thanks, Vivek. Thank you. The next question is from the line of Manoj Menon from ICICI Securities. Please go ahead. Hi team. A very good morning to all of you. Congratulations to Sameer on your promotion. Super happy to hear that news. I have only one question to Nisa's team. See, given the fact that consumers spent a lot much more time at home in the last 12, 15 months, etc. Two sub-questions there. One on the insecticides, non-mosquito part of the portfolio, how that would have trended. Anything directionally, which any insights or anything which could make this non-mosquito part grow faster. Secondly, the same question, if I can extrapolate to air care also. While I understand that in India, significant component of air care is still out of home. Again, to some thought, was there an opportunity to actually push a little bit of more on air care in the last 12 months or even in the next three months, six months? Again, any insights which will allow these two segments to grow much faster versus the trend over rates in the past? Thank you. Yeah. Hi, Manoj. Thank you for your questions. Hope you're well. I think in our non-mosquito household insecticides growth has actually been very robust. We see great opportunity for this in our portfolio. We see things like anything to do with cockroach, very highly correlated to advertising, correct? Present the problem and present the solution to consumers. Penetration is quite low in these products. We see a huge advantage. We also see that things like we could more effectively then compete against things like pest control because people can avoid people coming into their house. I think this is definitely a growth opportunity. Similarly, in air care, Manoj, penetration is sub 5% levels. Great headroom with good products and good advertising, great headroom for growth, correct? Air care obviously is discretionary during the pandemic. We've also seen that people have been doing more cleaning. I was cleaning my bathroom with a fragrant floor cleaner three times a day and I'm not having guests over, then air care is becoming a little bit discretionary. We do see it bouncing back, and we're very focused with having the right product, right advertising, and right level of investment that both these areas are definitely very exciting growth opportunities. Thank you, Nisa. One follow up, if I may. What I was just trying to get at was any incremental insights which you had picked up in the last 12, 15 months or which includes quantitative and qualitative both. Quantitative could mean let's say household penetration increase or anything of that sort. In household insecticides, household penetration has actually gone up across all categories. Even in electrics and stuff, we are seeing this need to protect themselves, correct? We're seeing household insecticides also do well because we have this full sort of portfolio of products. I was commenting that the low penetration in the non-mosquito segment also gives you a lot of headroom and sort of many years of growth. Air care, I explained qualitatively what we've seen happen in COVID-19, correct? No guests coming. I'm using a lot of other cleaning products, so it's become a little discretionary to me. We see that trend reversing as things sort of open up and we have the right product, right advertising. We're quite excited about this relaunch of aer pocket, where we've made it sort of Power Pocket and it has some germ kill abilities, last longer. That's important. I think also in air care, as travel improves and we have a new launch lined up for cars also at a very interesting price point. Yeah, I think with the right product portfolios and the right advertising and investment, both these categories have long-term growth opportunities. Sure. Lastly on HI launch, which you had done in Africa a while back. I just saw a mention in the presentation about Nigeria, etc. Some commentary would be helpful. Thank you. That's the last question. Yeah. Manoj, I'm glad to report on that it's doing really, really well in Nigeria. Well beyond our expectations. This is something that we do have to really strongly build out on because the incidence of malaria and things like that is highest in the African continent, actually. We have quite a disruptive product there. We're looking forward to good growth and building that category out. Okay, sure. Thank you. I'll actually take it offline with Sameer and Pratik. Thanks, Nisaba. Good luck. Thank you. The next question is from the line of Aditya Gupta from Goldman Sachs. Please go ahead. Hi. Morning, everyone. First on the innovation pipeline. Generally from a product being in a concept stage to a commercial launch, is there a ballpark number you can share? How much time does it take for a commercial launch and then maybe to take it national for it to become meaningful in the portfolio? What we saw in the pandemic, we were doing it literally in four to six months. It really depends by category, correct? Could say in something like household insecticides, which is one of the issues we also had with combating illegal insecticides, is that you have a three-year registration. Your product might be ready, but then it sits with the CIB to get registered for three years. From sort of ideation to end date really depends on which category it is. Got it. Given that you've been launching new products across the home cleaning segment, is there a potential for the contribution from this new pipeline to increase from the mid-single, I think where we are, to maybe? Yeah, most definitely. We've seen with Saniter in Indonesia, it's become a very big brand for us. I think we've seen Magic's variants as part of our sort of overall personal wash and hygiene roles. I've been commenting in terms of sort of resurgence of household insecticides, one of our key categories, which is about 30% globally, and that hygiene is also 26%, 27% overall for us. There are many opportunities to grow this category fast, given the pandemic. Got it. Thanks. Just one more one. A&P spend again. If I look three years back in the India P&L, this number used to be north of 11%, 11.5%. Even if you leave out the first quarter in FY 2021, this was a nine-ish kind of a number. I mean, it's a play between gross margins and EBITDA margin, like Sameer mentioned earlier. Is there a structural savings of 100 basis points that you guys have squeezed out? If GMs go back to earlier levels again, this number is likely to go back to a 11% kind of a handle again? Hey, Aditya, this is Sameer here. No, I think, by our kind of growth vectors, which is innovation and creating a strong kind of pull for the product, we will continue to invest, I mean, very smartly on advertisement spend. This is by no way is sort of a measure to reduce down A&P spends to kind of manage quarterly margins because it doesn't work out in medium-to-long term. I think what is important to note over here is, it's a little bit of balancing, right? Especially in Q1. We will see. I mean, A&P spends moving up. Over a period of last 12 to 18 months, we have also again, done very serious cost-saving program, especially on A&P spends in terms of reducing down CPRPs, in terms of having a healthy mix between traditional channels to digital channels, right? Also, having overall mix between print as well as TV media. All those will kind of come into play. We will continue, I mean, with whatever is the right kind of quantum of investment to drive our growth in the medium to long term. Perfect. Very helpful. Thank you. Have a good day. Thanks, Aditya. Thank you. The next question is from the line of Harit from Investec. Please go ahead. Yeah, even kind of follow up. I just wanted to understand your outlook for the year for margins. I know it's a tough one because you have several moving parts. Is the thought process that in spite of the sharp price increase, the sharp input inflation, you can look to maintain the margins in a certain band the way you have done in quarter one? Is that the way to look at it? Hi, Harit, this is Sameer here. I mean, it's very dynamic, right? At this point in time to call out as to how the margins will evolve. In turn, it is dependent on kind of input inflation and how the second wave or third wave eventually kind of turns out to be. Honestly, quarter one template is perfect template, right? I mean, India did see a gross margin contraction, scale leverage, cost-saving program mitigated good part of it, and then whatever was the kind of remaining hole got mitigated by leveraging the overall international portfolio. Let's see, I mean, on a full year basis where we end on margins. I think the focus internally is more in terms of driving sustainable, strong, hopefully double-digit kind of sales growth. My sense is if that happens, assuming a normative inflationary environment, we should be there on margins. I mean, we are not too overly worried, at this point in time, taking a little larger time period of 9 to 12 months. There will be significant scale leverage also, which will sort of come in. We are, at this point in time, not too overly worried on a full year margin. We'll see, I mean, how it shapes up over a period of time. Got it, Sameer. Thanks. Thanks a lot. Thanks, Harit. Thank you. Before we take the next question, a reminder to the participants, anyone who wishes to ask a question, may press star and one at this time. The next question is from the line of Vishal from Phillip Capital. Please go ahead. Yeah. Hi, team. Congrats on a good set of numbers. I have two questions. First question is on Mr. Magic Handwash. If you can color some more color, what is the size as of now? Distribution reach and how much more room to be covered. How is the new campaign of one handwash equal to three soaps working for you? Second question is on Jumbo Fast Card. Pricing of Jumbo Fast Card versus illegal incense sticks and your incense sticks as well. I didn't get the one on Jumbo Fast Card at the end. I didn't hear. On Magic Handwash, I cannot give you the details for competitive reasons that you've asked for. It is doing very well. We've got very good volume sort of market share, and we continue to focus on the insight that handwash is more hygienic to use, more comfortable to use than bar soap, and this price point is definitely a disruptor. Okay. Anything you can provide on distribution side? Does it reach as of now finished on Magic? No, sorry. We can't share that. Okay. Our second question was on pricing of Jumbo Fast Card versus illegal incense sticks and as well as your incense sticks. What is the pricing differential that is there? The pricing is similar. At INR 15, INR 10 or INR 15 for 10 cards or what? It's INR 15 for 10 cards. Yeah. Okay, great. Thank you. These illegal incense sticks don't have a very fixed MRP. Margins are very thin. Yeah. Okay. Thank you, and all the best. Thank you so much. Thank you. I would now like to hand the conference over to Mr. Pratik Dantara for closing comments. Over to you, sir. Yeah. I'd like to thank everyone for joining the call today. With that, we'd like to draw this call to a close. Stay safe. Stay well. Thank you. Thank you. Ladies and gentlemen, on behalf of Axis Capital Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.