Ladies and gentlemen, good day and welcome to GCPL Q2 and H1 FY 2023 earnings conference call hosted by Motilal Oswal Institutional Equities. As a reminder, all participant 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 touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Krishnan Sambamoorthy from Motilal Oswal Institutional Equities. Thank you and over to you, sir. Thanks, Aman. On behalf of Motilal Oswal Institutional Equities, I welcome you all to the 2Q and 1H FY 2023 earnings conference call Godrej Consumer Products. Without further delay, let me hand over to the management for introduction and opening comments. Hi, good evening, everyone, and welcome to the call. On the call, with me from GCPL, is Ms. Nisaba Godrej, Executive Chairperson, Mr. Sudhir Sitapati, MD & CEO, and Mr. Sameer Shah, CFO. We'll now have Sudhir share his thoughts on our performance, and then we can open up for Q&A. Thanks, Pratik. Good evening, everyone. I hope you and your families are doing well. Thanks so much for joining us on the call today. I wanted to first start with an organizational change up front. Pratik, who has been leading Investor Relations and M&A, has decided to move on. Tapan, who has earlier led Investor Relations, and many of you would have interacted with him, will head Investor Relations alongside global S&PA. I wish both Pratik and Tapan all the best. I will now start with a quarterly update of our quarterly performance. Our results have been behind our expectations, though the quality of profits have been good. Our sales grew by 7%, three-year CAGR of 9%. Volumes declined at 5%, three-year CAGR of +1%, and gross margins, after four quarters of decline, grew by 3%. However, led largely by a nearly 50% increase in advertising spends to drive market development, our EBITDA declined by 15%. Our PAT declined by 25%, led largely by VAT amnesty scheme settlement and some currency volatility. Despite this, our operating cash flow doubled, driven by simplification initiatives largely on working capital. In India, our sales grew at 8%, gross margins grew at 7% and above the line grew at 52%, leading to an EBITDA decline of 5%. In Q2 FY 2023, our 3-year CAGR in India was 1% versus 4% in Q1. This reduction was entirely led by a drop in our household insecticide business, which, based on positive sales growth in this quarter, seems probably like a seasonal impact. GAUM had a good operating quarter with 15% growth. Gross margins grew at 8%. A&P grew by 77% and as a consequence, EBITDA declined by 12%. However, severe depreciation in currency have meant that our Forex and interest costs were up. Indonesia sales declined by 8%. Gross margins declined by 14%, while EBITDA declined by 41%. This was largely driven by an increase in media spend and inflation pressure. However, the good news is that the growth in Q2 ex Saniter was 12%. As the Saniter base wears off, as it did in September, we should see positive growth in the H2 of the year. While headline Q2 FY 2023 results are below our external and internal expectations, we think that the quality of profits within the results was good. This, alongside some green shoots in parts of our business as seen in October, augurs well for the rest of the year's performance. Our strategy to achieve long-term consistent volume growth is based on three pillars, market development of our core portfolio, funded by simplifying our business, and finally placing planet and people alongside profit. I'd now like to talk a little bit about our progress on all these three. Despite adverse costs, we have been committed to increasing our spends for market development in three areas, advertising, penetrative pricing and sampling. In Q2, while our ATL increased by 46%, our working media increased by 70%. An area where this is reaping rich dividends is in haircare and hair color, where we are seeing very high growth in key markets like India and Indonesia. An area where increased investments have not yet led to significant trajectory change is household insecticide in India. While we were happy with Q1, Q2 results have been soft. We will see how H2 plays out before reviewing our strategy and regrouping on next steps on household insecticide. An area that we have focused in terms of simplification is in the area of SKU count. In India, we have reduced the number of SKUs by 25% in the last six months. In GAUM, we have reduced our SKUs by one-third in the last one year. These sharp cuts have led to a fall in inventory from 60 days in September 2021 to 51 days in September 2022. As a consequence, despite muted profits, our operating cash flows have nearly doubled. These, along with several other moves, means that our cost to serve, which is our total cost, ex cost of goods and working media, despite high inflation, is down 30 basis points in Q2 FY 2022. As gross margins recover to normative levels in H2, this augurs well for our operating profits. Finally, on people and planet alongside profits. In order to effectively compete in the hyper-competitive talent market, we launched Project Neo, targeted at managers with 1 to 3 years work experience who perhaps wanted to change functions or industry. We received approximately 7,000 applicants, many of whom were extremely diverse and extremely high quality. We are in the process of finalizing candidates, but feel that this move has the potential to be a game changer in terms of entry-level talent for us. The operating environment for FY 2023 continues to be challenging at the consumer end. The demand environment remains taxing, marked by unprecedented inflation, consequential impact on consumption, aggressive monetary tightening measures from central banks globally resulting in strengthening of the US dollar and all this resulting in GDP growth cuts across the board. Despite this, our prognosis for FY 2023 broadly remains unchanged on double-digit sales growth with low single-digit volume growth. We have been focused on fundamentals both in terms of investments, but also correcting some of the issues in our international business. The external environment remains tough, but we are cautiously optimistic about the quarters ahead this year. Thank you. 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. First question is from the line of Abneesh Roy from Edelweiss Institutional Equities. Please go ahead. Yeah, thanks. My first question is on HI. You mentioned HI has been soft in Q2. I understand Q2 there were the extreme seasonal issues, very high summer, and then very high rainfall. Both are not conducive. When you mentioned the performance was soft, was it also in reference to the industry performance? Because you did mention that in H2 you'll evaluate if any changes are needed. Changes would be needed only if competition is doing better. I wanted to understand that bit. Plus, global warming is a reality. In that context, do you think the mosquito presence, et cetera, that remains a key question mark in the coming quarters also? Abneesh, I think I'll answer this in two parts. Firstly, Q2 was indeed soft, I suspect, for the entire market because of the seasonal impact that you spoke about, especially in the east of India, we had delayed monsoons. October, the monsoons seemed to have spread into, you know, we had a late monsoon as well. We definitely had you know, this is a seasonal category and probably not right to look at this category as one quarter. I would say that between Q2 and Q3, I hope anyway things will even out. No, I didn't mean. You see, we are broadly holding our shares in household insecticide. Our challenge in household insecticide, Abneesh, is not to win share. Our primary challenge, given the fact that we are market leader, is to premiumize this category and grow it faster. We had a good Q1. You see, we made two big interventions. We increased our media, as you can see in our results, and we have also repositioned in particular Goodknight. We were very encouraged by the Q1 results. Now, the Q2 results have been relatively poor. We are not able to make out, given where we are today, how much of it is due to seasonality and how much is due to, you know, whether some of the interventions, whether they need to be course-corrected, bolstered, et cetera. So that's what I meant. To answer your question really on global warming, et cetera, look, this is a category which is 70% penetrated in India. Volumes in the overall actives in this category continues to grow. The issue in the category is that the premium formats of liquid vaporizer and aerosol should grow much faster than what they are growing. This category needs to premiumize faster than it's doing today, and our efforts are basically focused on that. One follow-up there. I do see a lot of price-off promotions in the liquid. Your effort to premiumize could become difficult if your key competitors are always on an undercutting mode, which could be because they are not seeing that volume growth. It is linked, right? The whole thing. I mean, pricing and tactical pricing is, you know, every quarter. If you take a step back, Abneesh, we are the market leaders and our job is to get coil and incense stick users to move to liquid vaporizers and aerosol. You see, as I told you, our market shares are flat in household insecticide. It is not, you know. We don't see this primary issue as winning share or losing share or, you know, undercutting and price cutting and so on. That trigger, we have to get to it. We'll get to it. I mean, Q1 was encouraging. Q2 is less encouraging. We'll see when Q3 and Q4. We've got plans ahead, Abneesh. As they get rolled out, we will also share with you. Just to acknowledge the fact that we're seeing many green shoots in our business, but this particular one, which is a one that we have to solve, we still have to say clearly that green shoots are visible. Sure. Thanks. My second question is on the Indonesia business now, with a new business head, for the past few months and an encouraging 12% kind of growth, ex of Saniter. Would you say that now, high single digits growth in Q3, Q4 is possible? Because if I see the data last eight quarters, only one quarter there has been a decent 5% kind of a growth. In the balance seven quarters, three quarters, last three quarters it has been a negative, and the balance three quarters it has been flattish. It is not just a Saniter issue. There are other issues in Indonesia which you have always highlighted in terms of COVID restriction and the economy itself. Wanted to understand this 12% ex of Saniter growth. Is that a growth we can look at in terms of the H2, a high single digit kind of growth? Yeah, I think the way the math will spill over because Saniter waves, et cetera, continues, and there are some more cleaning up that has to be done, is I hope that Q3 will come to near flat in Indonesia and Q4 onwards we should see very high growth. Sure. One last question, that's on the cleaning up of the SKUs which you mentioned. That's a commendable effort. Want to understand in your key segments in India, the 25% correction say in the SKUs, that kind of SKU, does the market leader also have in each of your categories? In some of the categories you are the number one, so say in soap, your SKU, how does it compare with the market leader? In FMCG, choice and the fill rate and all those are also very important. Is there any loss of demand also, does it happen because of the 25% culling of the SKUs? I don't think so, Abneesh Roy. We've done a very rigorous analysis like all companies do, and you'll find that you know, there's a very, very strong Pareto in terms of SKUs, in terms of top line, but even more so in terms of margins. Culling these SKUs are not likely to impact top line. We've been very careful. We've used two, three criterion, you know. Knocked off anything which is less than a certain value, made sure that that doesn't have a substitutable SKU, made sure that the gross margin of the knocked-off SKU was low, so it doesn't have any value accretion. I don't think it has. When we benchmark ourselves versus peers in terms of number of, let's say, SKUs per call that the salesman makes versus the number of SKUs we have. If you have on the numerator the number of productive SKUs sold in an outlet divided by the total number, we think those numbers were low. I think now they're on benchmark, what we've now done in India by reducing 25% SKU. The results are very visible, right? I mean, you know, in a quarter like this where profits have been poor and, you know, we have to take one-offs, if we still manage, in particular in India, to grow cash flow, you know, almost double cash flow, a lot of it is coming from removing capital locked in SKUs. Sure. That's very helpful. That's all from my side. Thank you. Thank you. The next question is from the line of Percy Panthaki from IIFL. Please go ahead. Yeah, my first question is on Indonesia. On the margin front, you have done around 17% margins here. If you can just parse out the different impacts on the margin. One is the operating deleverage because the sales have declined. Second is the input cost inflation, and third is increase in advertising, if any. Hey, Percy, this is Sameer here. I think we have detailed out in the 90 bps drop, you know, in Indonesia. I think around 150 bps is driven by upfront working media investment. As we can see, the core business has done relatively well, I mean, in Q2. We'll continue with the upfront investment. The second impact is because of the scale deleverage, right? On the whole, the business did decline. I mean, high single digits, close to double digits. That does have its impact on the overall, you know, operating performance. The third is in Indonesia, it still continues with, you know, consumption of high-cost inventory. It's difficult to quantify the impact, but our gross margins, while sequentially were better, but still on a year-over-year were, you know, lower. We expect that to ease out, I mean, with coming, you know, kind of, quarters. Because generally the inflation is cooling off. We have also taken some, you know, price increases. That's the composition largely for. The reason I ask is that the margins are down almost 1,000 basis points. 150 basis points is due to the increased investments, which is fine. Yeah. I mean, I just wanted to understand going ahead, let's say if I look forward into FY 2024 or maybe H2 of FY 2024, if that gives you more comfort, what kind of stable state margins are we looking at in this geography? I think the ambition for us would be to, you know, kind of go to early 20s% margins in Indonesia, that with the fact that we would still continue to, you know, have upfront marketing investments. Got it. On Africa, again, we have in the past also mentioned that, we aim to increase margins here, but they still remain in single digits. While the medium-term target is quite clear, can you give us some sort of roadmap to that, in terms of how and at what pace we would see the increase in margins happening in Africa? A couple of things. One is, I mean, again, if we double dig into last quarter's margins drop, Percy, I think close to around 270-odd bps, half and half. I think half is upfront media investments and half is input cost as well as currency depreciation. Currencies have appreciated sharply in some of the markets, which we will, you know, kind of mitigate through price increases or have been actually mitigating it through price increases. That's one. No, I think going ahead, the target which we have, you know, set out or the ambition which you have called out earlier in terms of reaching to high teens margin is very much intact. No changes, you know, on that front. I think the route is also as what we have called out in the past. One is definitely a scale. The second is, you know, some very serious, you know, continual cost-saving, you know, program. Also, we are evaluating some, you know, kind of changes in our operating model. Once we have, I mean, some of those in place, we'll be very happy to share with the street in terms of not just the changes in operating model, but also the impact which it will have, I mean, you know, over a period of time. Right. My third and last question is on household insecticides. I know you probably won't share the exact market share numbers, but I mean, from a longer term perspective, if you remember what you had shared is that when you had taken over this business from Sara Lee in 2010, the market shares were around 30%-33%. In a short span of about 5-6 years, they went up to the early 50s%. Just wanted to understand in that context, where are we today? I mean, is it that we are still gaining market share, and we have probably sort of progressed from that 50%-55% band into the next band? Are we about still approximately in that same market share band as we were in 2016, 2017? Yeah. I mean, without sharing very specific details, Percy, I think Sudhir also mentioned earlier that largely we have, you know, kind of, kept our market share, and that has been the case also. I mean, if you look at basket of last 3-4 years, we have directionally lost the market share because of the emergence of incense sticks, right? Because the category was growing, largely driven by incense sticks, and none of the organized players had incense sticks in their portfolio. The recent past performance, I think start of COVID, middle of COVID, our market share has been more of the same. Nothing much has, you know, kind of moved, you know, on market share front in either direction. Okay, that's all from me. Thanks, and all the best. Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead. Hi, Sameer Shah. Just wanted to understand one bit on the volume growth. Now, you've clearly called out that the H2 we would be looking at a single-digit kind of volume growth coming in from the decline that we are witnessing. Is this based largely on the HI recovery that you were alluding to in the earlier question, or is there any other segment that you There are three reasons for the volume decline in the H1 and three reasons why we're we feel that the volumes will be quite good in the H2. The first reason is the whole Indonesia sort of, for lack of a better word, Saniter reduction in inventory, et cetera, which should come back in H2. The second reason is that there was hyperinflation in soap. What happens when there is hyperinflation in soap, and we didn't pass on anywhere close to the inflation, but that kind of inflation usually doesn't lead to marginal drops in consumption, but pretty large drops in pipelines. Now with the soap prices cooling and, you know, all of us. We took the lead in dropping prices, we are already seeing the volumes come back in the soap category. It will come back because consumption doesn't go anywhere in soaps. The third thing is household insecticides in H2. The H1 of this year was, you know, with a very high comparator of H1 of last year, which was COVID affected. As we discussed during COVID, a lot of people stocked up household insecticide at home. We had a particularly poor, frankly, August end and September. You know, moving to softer comparators and, you know, with the seasonality shift, which we hope to see in at least one or two months now, we think that the household insecticide volume should go back to normative levels. Now, this is not necessarily the kind of aspiration that we have for volume growth, but it's nowhere near the kind of declines we're seeing now. A combination of these three give us reasonable confidence that we will see, at least for the next few quarters, good volume growth. I hear you. Would it be fair to say that the Indonesian one would be the longest with the largest impact, but that would be seen in Q4, right? Because this is the Q3 impact is more from the other two aspects. I think so. I think in the Q3, Indonesia also, you know, wants to show the kind of declines that it showed in Q2 and Q3. Indonesia will take Q3 to kind of come to flattish then go to growth. I think both soaps and household insecticides and volumes will do better in Q3 and Q4. Got it, sir. Very clear. The second bit is essentially on the margin side. Now, you did allude, in the presentation as well that with Indonesia margins kind of coming back, gross margins also improving, this is something that you expect. Do you see a similar risk of what we kind of planned out in Q2 could possibly play out even in the Q3? Given that Indonesia will probably be something that takes more of a whole quarter, because you'd shared a similar expectation that going forward this is something that will pan out. Obviously high cost inventory, you know, the growth in HI kind of pan, you know, weighed on this. Would love to hear your comments on that. We know, sir, I think one of the reasons why Indonesia's margins were what they were in last quarter was for, you know, speedily leverage, high-cost inventory and media investments. I think out of the three variables, the media investments will continue. High-cost commodity impact will start flattening because we are seeing overall, you know, kind of, commodities, you know, kind of, cooling off in terms of price. The speedily leverage impact will, you know, lighten up, will not completely go away, and hopefully will go away from quarter four. This is the way the three variables will move. Directionally we do expect, I mean, not getting into quarter three, quarter four, but at least in H2 of the year and earlier, what I was sharing, to Percy's question, I mean, also for next year, we do expect increase in margins. The margins are also not going to, you know, move dramatically because we will continue to be in investment mode and also keep an eye on the volumes which we get, in that business sustainably over a period of time. Okay. That's clear. Thanks, Sameer. That's all from my side. Thank you. The next question is from the line of Vivek Maheshwari from Jefferies. Please go ahead. Hi. Good evening, Sudhir and team. My first question is, you know, Sudhir, a big picture question. There is a feeling, you know, amongst investors that the business is taking a lot longer to turn around, compared to what everybody expected. You took over almost about 12 months back or so. What is your sense now that you have completed, you know, 12 months? Is it, you know, is it tougher than what you thought or do you think market expectations were running high at that point of time? No, I mean, look, the short answer is no, it's not tougher than I thought it was. I think we've been dealt with one card, which has been a big joker in the pack, which is the, you know, Ukraine crisis and the oil impact on account of the Ukraine crisis. That has, you know, completely, you know, now it's, you know, put all the plans to, you know, has changed it. I did think that Indonesia and Africa when I came in required a little bit of cleaning up, and I think that's happening. The broad point is then you had a bit of a, you know, stroke of bad luck, I guess, in terms of HI in September month and August month. I continue to be on many fundamentals. I'm very happy with the state of the business. You know, if you want to look at fundamentals of the business, we promised to invest, you know, categories. We are seeing in categories like hair color and haircare, and even Indonesia actually, haircare, significant growth. We're seeing significant reduction in SKUs, reduction in inventory, increase in cash flows, reduction in controllable costs. I feel like the fundamentals are in good shape and a lot of this is. I mean, I feel you'll see pretty good quarters ahead. Got it. A related point, you know, your advertising, you know, spends have gone up quite a bit and, yeah, it's great to see that number, the fact that you are investing. You know, the fact that you are investing more behind growth, does that mean that a lot of work which had to happen has happened and, whatever cleanup, whatever fundamental changes that you wanted to make are pretty much done, and from here on, the focus here on, you know, focus will be much more to geared towards, growth? No, no, I think, Vivek, you know, it's a continuous improvement process. It's not like, you know, something is done. Certainly, some of the volatility in the market has smoothened out. Some of the things we wanted to do in Indonesia and GAUM we have done. You know, some of the bets that we invested in, like haircare, are paying off. Some of them, like HI that I already spoke about, we have to be more circumspect. You know, these things don't happen immediately. I think we have to constantly see progress every quarter. It starts from I mean the household insecticide category, even accounting for, you know, seasonal variations, we have to premiumize it faster. That, for example, is a challenge that remains. Forex management in Africa is a challenge that remains for us. There are plenty of challenges that we've got ahead. I would just say that if I look at a year in terms of the inputs and what we have done, we've certainly made a lot of progress, and I hope the results come soon. Got it. A couple of small questions. On the SKU side, you know, I understand on the cash flow side and its impact on simplification, but can you just quantify, because these are, you know, large numbers from an SKU standpoint, but what would these, you know, these SKUs contributed to overall revenues? Which ones? The ones that we rationalized? Typically, they'll be less than 1% or 2%. Okay. They will be much more in terms of inventory. Typically what happens is that these are less than 2% in terms of sales, less than half, I mean, this is typical. I'm not giving you exact numbers. I'm just giving you a typical flow. It'll be less, a small, very small proportion of profits, a small proportion of sales, relatively large proportion of cash employed. Got it. Last question on soaps. We have seen, you know, fairly, you know, let's say, aggressive stance by the market leader on the promotion side following the palm oil price correction. What is the market context right now, specifically in soaps? What is the level of, you know, competition or competitive pressures or intensity that you are seeing, you know, both from market leaders and other players in the market? Vivek, you know, when prices went up, we did not pass on the full inflation to consumers because we knew that prices would come down. When prices came down, as they did in Q2, and I think some of you have written about it, we passed it on quickly because our underlying principle in this is to be on the side of consumers. One of the other reasons, for example, gross margins could have been higher in India than they were, but they aren't because even though we were sitting on high price inventory, we priced for what was the replacement because we said that is what consumers should get. We should be quick. We have reaped pretty rich dividends, both in terms of growth and in terms of market shares in soaps. We remain focused actually in soaps. We are, you know, catering to the value consumer. We remain focused on doing what is right and you can, yeah. That's really been our strategy in soaps. Got it. Thank you very much. Wish you all the best. Thank you, Vivek. Thank you. The next question is from the line of Arnab Mitra from Goldman Sachs. Please go ahead. Yeah, hi. My first question was on ad spend. This increase that you're seeing, is it setting like a new normal of ad spend that this business will now have from here on? Or is it a few quarter phase where you will be investing heavily to kickstart the growth and then you will be coming somewhere in between where you were and where you are now? If you could just explain the difference between working media and ad spends, how you kind of calculate the two different things. I think, Arnab, I think exact numbers and all will be hard to get because there's always toggling. We are investing, then we will judge return on investment in media. We may cut back, we may go ahead, et cetera. Broadly, it's fair to say that as a company over the next four, five years, we should see increases in advertising spend even from where we are. I mean, obviously calibrated and obviously looking at what it's giving us in terms of growth. This is certainly not something we're gonna do for a few quarters. It's certainly more philosophical in terms of what our portfolio deserves and what we should do for it. In terms of the difference between working media and above-the-line, working media is what consumers see, which is, you know, the money that you spend on a TV channel or on a billboard. Total ATL includes other things like production costs, agency fees, some amount of visibility in modern trade, et cetera. This is really what consumers see is working, which is relevant, right? Because the amount of money you spend in production or spend on agencies, consumers don't see it. Okay, understood. Thanks for that. The second question was on gross margin. Actually, your gross margins in the standalone business are nearly 1,000 bps lower than what they were 8-9 quarters back. Now that the palm oil prices have corrected, and you've also passed on some of the pricing, how do you see the overall gross margin recovery? Does it, in at least in soaps and those categories, go back to what it used to be? Or, those margins are going to be tough to achieve given the overall context and the competitive intensity? In soaps, Arnab, our gross margins will go back to the normative gross margins which we had in FY 2021, maybe, you know, in and around, you know, those levels. Directionally also, I think the overall gross margins will go up in coming quarters sequentially as well as on a YOY basis. Difficult to, you know, kind of put a number to it, whether it will go back to, you know, those +800-900 basis points, which was the case 8-9 quarters back, but they will, you know, kind of directionally go up going ahead. Understood. Just lastly, on Sameer's comment that ad spends, this is not like a one-time step up, one-time few quarter effect. Fundamentally, do India margins then become a little lower than in the past, given that your gross margins will at best go back to where they were and your ad spends are going to be high? Or are there enough efficiencies you see that you could manage to get back to your normal margins at an EBITDA level once the commodity deflation has kind of played off and your growths are back? Yeah, Arnab, I think, you know, the gross margins, as Sameer said, will go back in and around the normal territory, maybe a little less, but broadly there. The working media will go up, but we hope to get both through growth and through cost-cutting exercise, saving in the rest of the costs, which is apart from cost of goods sold and working media, everything else we want to continuously cut. In the H1, for example, if you remove these two costs, our costs are down by about 150 basis points, right? This is the savings that we have got from our business. I don't know exactly where EBITDA will end up, but I do believe that there is potential in our cost to serve, which is pretty significant. It may or may not compensate entirely for the advertising, but it certainly is not going to be gross margin minus additional media costs. There'll be savings, and they are coming through. Understood. That's very clear. Thanks so much. All the best. Thank you. Our next question is from the line of Krishnan Sambamoorthy from Motilal Oswal. Please go ahead. Am I audible? Yes. Yes. Since the changing strategy resulting in focusing on fewer and more disruptive innovations, could you highlight with a couple of examples on the products launched more recently, how we have been able to back them better compared to the past? I mean, look, I think it's better for me to talk about the innovations that we didn't launch and the products that we supported, and also give you a few examples of innovations that we did launch in fewer. For example, let's talk about air care, right? Which is a pretty, you know, large category, not top of mind for a lot of analysts, et cetera. That category has seen explosive growth, and that has come by investing in one SKU, which is aer matic. Now, aer matic was an SKU that was present in India and selling reasonably well and growing reasonably well. But in Indonesia, it was a far larger SKU. When we set up the global category structure, the team saw that, hey, there's an SKU in Indonesia, which is, you know, so many x times the size of this SKU in India, and in India, that's got some kind of momentum. We started advertising aer matic. When we started advertising aer matic, we've seen explosive growth. I think many of you now. I go to a lot of households, and I see this, aer matic there. That's an example of an innovation because it is an innovative product. It was an innovation done a few years ago, which has got focused support now. Is it an innovation? Is it existing? I don't know. That's really good, and that's made a material difference, by the way, to our business in the H1, which is aer matic. That's a good example of an old innovation that we have supported and got exponential results. The other innovation that I want to give is to Magic Body Wash. We launched Magic Body Wash 3-4 months ago, and this is a habit-changing innovation. It takes a lot of time. We have continued to persist on this, even though it's a slow burn, even though, you know, the few consumers who are buying it like it, but it's a big habit change to move from soap to body wash, to move from a liquid to a super concentrate. This is again an example of a new innovation, but not, you know, whatever the financials of our innovations are, we are committed to kind of keeping it going. These are two examples of kind of focus on the core at slightly different ends of the spectrum in terms of what we're doing. Yeah. Very useful, Sudhir. Also, my second question is regarding the breakdown between digital and what you term as working media. How much was digital versus conventional media, say, two years ago? How much is it now, and what's the intent going forward? I think, you know, that firstly, you know, we don't look at. That's not the way we look at the metric. We just look at lowest cost to reach consumers and whatever media is the lowest cost to reach consumers that it is. I think when we do the numbers and we look at it and we benchmark it across FMCG competition, we are roughly around about where competition is in terms of total digital to your conventional spend. Got it. Thanks. Thank you. Our next question is from the line of Harit Kapoor from Investec Capital Services. Please go ahead. Yeah, good evening. Thanks for taking my question. First question was on A&P spend again. You know, in the context where you know the demand environment you know for India as well as globally a bit volatile. You are obviously supporting some of your new initiatives. Is the share of voice significantly higher for you you know in terms of the spend that you're doing? You know, in an environment where demand is weak, you know, are you still able to get you know ROIs in line with you know what you expect? You know, given that consumer is not as probably responsive as he or she was about a year and a half back. See, we have increased our working media by 70% in the last quarter despite the gross margin pressure. I mean, you guys know better what FMCG companies and peers are doing, but I suspect that's a lot more than you know better. That's a pretty large investment in the context of the gross margin. I think, see, the media investment firstly is iterative. It's, you know, one invests, one finds out what's happening, then one takes a call again. Ultimately, media is an investment for the long term. It is for developing and building categories, right? See, for example, on air care, we have increased our media by like 5x or 6x, right? It's building for the future. It is I mean whether the demand environment is weak or not is a separate question, but that is not the relevant variable here. The relevant variable is what are the categories of the future that we have to develop and what is the kind of media investment required to take it there? That's how we have done our media investments in Q2 and what we'll do in the next few quarters as well. Got it. The second question was on, yeah, you mentioned something about October optimism. If you could just kind of talk a little bit about whether any change you see in the market environment for your, you know, for your category. See, you know, bulk of our categories are dependent on, you know, market development and low penetration. Consumer demand, while there are, I think I broadly agree with what most people have been saying, which is there has been a softening of demand in the eastern parts of India. The rest of the world. India is relatively stable and doing well economically. Many other parts of the world, in Africa, Latin America, countries are going through a tough time, so it is a tough, operating environment. No, I just feel like the October and November, you know, the season, it's a seasonal shift in household insecticides. I would say that, you know, if Q2 for us is being similar to Q1 with the exception of household insecticide, and that I'm not sure, I can't say this for certain, but seems to me sitting here now in mid-November, a seasonal impact of Q2. Okay. Got it. My last question was on, you know, you put out a release on streamlining of, some overseas subsidiaries. So, any comment you would like to make on that? Yes. It's part of the overall restructuring which we are rolling out. I mean, one of the biggest objective is also to sort of simplify, right? We have heard this now as a theme from our end, and we have few, you know, special purpose vehicle companies which were created, I mean, at the stage of, you know, buying out those businesses and some of our acquisitions also have been in a calibrated way. They have outlived its utility. We are looking at, you know, kind of delayering, and, you know, reducing down the number of subsidiaries, which, you know, sort of simplifies and also, I mean, evaluate possibilities of upstreaming cash in the most tax-efficient way for some of our large markets. Apart from tax savings, I mean, any other business impact? No, absolutely no business impact. Hopefully there should be lower, you know, G&A expenses also because of reduction in the number of legal entities. Got it. That's all for me. Thanks a lot. Thank you. The next question is from the line of Manoj Menon from ICICI Securities. Please go ahead. Hi, team. While you know a lot of questions and responses about Hit was already done, just wanted to push the envelope on one particular aspect on the mosquito repellent side. Look, a lot of discussion on you know whether this being a market problem, a sales problem or an R&D problem, et cetera. You know, and thanks for the responses. You know, but one question is there a sales problem or a distribution problem yet to solve? Sudhir, and the reason I'm asking this because you have been reiterating you know this for a while, that premiumization is one of the important agenda for you as a company, particularly in the context of Hit. Are we essentially saying that it is just a marketing problem to solve or there is no sales uplift which we can expect in the medium term? No, there is in the sense that these premium categories are not present in as many stores as we want them to. That's not because we are not going to those stores. We are going to those stores in soaps and many other categories. It's not going to those stores because of whatever reason, relevance of price, et cetera. It's not relevant to smaller stores. One of the things that will have to happen is the distribution will go up. I don't think that's the underlying reason for lack of premiumization on household insecticides is not unlike, let's say, air care, right? A lot of the growth that we've got on air care this year has been on the back of massive distribution increase and massive media increase. Quite simple. That's not the case in the case of household insecticides in India. Yeah. Understood. Understood, sir. Now the kind of, sort of a follow-up question on this is, like what is likely happening in Indonesia currently, that there is definitely a course correction, you know, in terms of the overall portfolio or a country level margins. Is that some sort of a necessity in India also in the medium term, so that you are in a much better wicket, from a longer term point of view. No, I think definitely there's reason, and we have already done it, so it's not we're not just talking about it. We need to increase our investments behind our brands. You know, gross margins, you know, as Sameer said, we'll take it to roughly where they were or maybe a little less or somewhere in the vicinity, and we will go hell for leather behind costs. Our objective should frankly be to try and save as much of the increased investment in working media through costs, and hopefully the balance gets covered by volume leverage. That is the business model. Yeah. I think the aggregate of that also, Manoj, should result in profitable growth. I mean, something which we had called out in our strategy also, you know, few quarters back. Okay. Understood, Sameer. Now the question, or rather one of the important investor questions, and I got one-off follow-up also on one of the messages from investors, is that: Look, you know, where are we in the journey of, let's say, finding the right water level in terms of margins? Adjusting for inflation and passthrough, et cetera. I'm talking about on a LFL basis. Manoj, again, right, like, as I said, and I've said this in the past as well, like, it's better not to target a margin, right? It's better to say what's the right kind of gross margin for this kind of business. What Sameer is saying, which, you know, I agree with, is our normative margins are roughly the right kind of gross margins to target for this kind of business. What's the kind of advertising spend that this kind of business should have? I think we're still some way away, by the way, even after all the increases here. So you can build that. Then we have to ask the question, everything else, we've got to keep reducing costs. We'll keep doing it. I'm saying, I don't think we should stop at either, you know, cut on media because we're not achieving a target EBITDA margin or stop at an EBITDA margin even if there are more costs to be saved. If your question is, do I anticipate massive EBITDA margin declines versus the past? Probably not. That's not on how we're thinking about it. Very clear, sir. Second, it's more of an investor question stroke chatter, you know, which get addressed to us, you know, some of the analysts. There is a perception of, you know, higher managerial churn, you know, or let's say particularly in the middle to senior management, and this is honestly excluding, you know, Sunil, you know, pursuing other career opportunities. Is there anything which you'll be able to offer comment for the larger audience? Hi, Manoj. Are you with me? Nisaba here. Hi. Hi, Nisaba. Hi. I don't think you know I think there's been across industry higher attrition than obviously that we saw in COVID. Manoj, if I look at some of the other external boards I'm on, FMCG benchmarks or even within other Godrej Group companies, I don't think GCPL's attrition rate, if anything, is higher. Actually, what's happening we had, we've had attrition like other companies. What we're actually seeing right now is people also coming back and what's happening, some of our best people are actually coming back. I don't think GCPL is facing any particular issue on attrition. If anything, I think people, you know, it's been a tough macro environment, but I think people are quite excited about some of the changes and some of the, you know, strategic clarity on strategy and simplifying the business and going for the big bets. Loud and clear. Thank you, Nisaba. Thank you, Sudhir, Sameer. Appreciate this. Good luck. Thank you. The next question is from the line of Sheela Rathi from Morgan Stanley. Please go ahead. Yeah, thank you very much for taking my question. My first question, Sudhir, was to you. You mentioned in the opening remarks that the performance this quarter was below your expectations. Is this more to do with India business or across businesses and across geographies? You know, Sheela, we have a forecast which we, you know, at the beginning of every quarter, we keep having a running forecast. So when I say below my expectations, only been below my expectation on one particular sale, which is India household insecticide. Both in terms of top line and bottom line, that has been the only sale that has not been what we forecast at the beginning of the quarter. So yeah, I mean, the rest of the sales, I mean, even Indonesia, which is not a great result, is something we foresaw a few months ago. We didn't foresee such a big drop in household insecticide versus what we thought would happen. Understood. The second question was, you know, a lot of questions obviously have been asked around ad spend. Just wanted to get some understanding here is that from our perspective, right, minimizing category development, the focus going ahead would be more on ad spend along with distribution or ad spend over distribution. If you could just give us some idea on how, the distribution strategy has been playing out. I mean, how the focus has been say over the last one. Look, you know, the focus on India market development is on three big areas. One is on awareness led by advertising, second is sampling, and third is by getting accessibility. For example, on hair color, what we did, which was launching a INR 15 sachet, is market development through accessibility, and we're very happy with those results. These are the three things in India that we will do. In Africa and Indonesia, in addition to this, we would like to increase our GT footprint. We've had significant expansion of general trade footprint in household insecticides in Nigeria, for example. In Indonesia, I think it's a structural problem, but Rajesh is engaged with how do we move our salience of GT from 30-odd to 50-odd. I would say the unsolved problem on distribution as an independent variable is largely in Africa and in Indonesia, and Africa is yielding very rich results. I would say a lot of our fast growth in SMPG, which, you know, we've not spoken about here, but we are very happy with the progress we are seeing in household insecticide or haircare in Africa. A lot of that has been driven by direct retail distribution expansion. Understood. My final question was, you know, if you could just elaborate once more, you know, in terms of when you say what is this profitable growth which we are talking about? You know, what is this profitable business? If you could just elaborate that? What is that? That's basically, I mean, you know, increase in our margins, right? I mean, while the sales will grow at whatever pace it does, it will also be, you know, backed with expansion in margin. Something again, Sheela, which we had called out in our strategy, right? That we will see expansion in margins, I think around 150-200 basis points over a period of time. Profitable growth is your margins expand alongside, you know, sales growth. Understood. Thank you. Thank you, Venk. Thank you. The next question is on the line of Richard Liu from JM Financial. Please go ahead. Hi. Thank you for taking my question. I got two questions. Number one, Sudhir, can you outline for us how you think soaps will pan out now that you are doing price cuts? You know, 25% kind of growth, what we've been seeing in recent quarters in this business, can talk to how low as you start to cut prices and how much will margin expansion offset that impact. Related to this, how much danger is there from the unorganized guys coming back and spoiling the party in the wake of the move that is input cost reduction? Hello, Richard, are you there? Did you hear me or? Yeah. No, I heard the question on soaps. I got disconnected. Was there a second question? No. The second question is a different area. I wanted to understand a little bit about the movement in other expenses, which seem to be, you know, pretty well controlled in India, but there's a big increase in international. That was my second question. Okay. Let me answer the question on soaps, right? It's easy for you to do the math. I mean, soaps is a category that grows a little bit more than the population growth of the country is what the volume growth of soaps typically is. The population of the country grows at 2%-2.5%. It's a 95% penetrated category or 98% penetrated. The category grows at 3%-3.5%. We roughly have been gaining some amount of share. For the last decade odd, we have been gaining 50-60 basis points of share a year. That's been our share trajectory. You can now calculate in this entire inflation period of about four or five quarters, while the volumes went down, I don't think consumption went down. At least in the past it has not happened. I'll have to see the result carefully now. One can assume that the consumption is what it was and the inventory got reduced. Somebody was having 60 grams of soap at home, it became 55 grams in the pantry. Shopkeepers were keeping, you know, less stock, you know, retailers were keeping less stock, et cetera, et cetera. I would say that the three-year CAGR of this category will be in the 3%-3.5%. Our long-term CAGR will be in the 4%-4.5%. Now you can calculate based on the various ups and downs. Therefore we will see the compensatory upside in volumes pretty soon to compensate for the fallen volumes. If for a moment you say that consumption hasn't fallen and it's all been an inventory pipeline for the last four quarters. Given that, you know, that the rate of value growth was explosive in the last four or five quarters while that inflation lasted, and now that is gonna come off to a more rational level. From a profit growth perspective, as far as this category is concerned, you know, how much of leeway is there, you know, in the form of farm prices coming off, but obviously you will be passing on some of it through price cuts? I mean, you know, in general terms, I mean, we price to, you know, as Sunil said, to get back to normative or normal margins, right? We have passed on price drops. By this time they're still significantly higher than what they were at this time of the year, but they will even out. This will again, like we're going through a cycle of results, you know, there'll be a cycle and it'll even out eventually. What will remain is the long-term, I hope growth of the category at 3%-3.5%, and I said maybe 150 bps over that, I hope is what the structure will remain. Margins should return back to close to where they were. That should happen pretty soon actually. Your comments on the unorganized guys probably coming back and spoiling the party. See, unlike in some other categories, Richard, soaps is not a category which has a huge amount of unorganized players anymore. This category is now, I mean, I think in terms of volumes, it'll be like, I'm guessing about 10%-12% will be the unorganized players. It is largely the top five, six players and at most some local regional brands. Unlike some other categories where there's high deflation in some commodity categories, you know, suddenly local players come up. That's not to the same extent that will happen in soaps. I see. Thanks for that, Sudhi. The second question is really on other expenses, especially on the international front. You know, that seem to have like grown quite a bit, despite the fact that the Indian other expenses were very, very well controlled, your perspective on that, please. Yeah. I think a couple of reasons for that, Richard. One is increase in the utilities cost, right? I mean, they have been, I mean, honestly through the roof over the last, you know, three, four months. That's, you know, something which is sitting over there. And also a lot of our route to market expenses, both in Indonesia as well as key markets in Africa like Nigeria are sitting other expenses. The combination of that has resulted in increase and also by the way, we had a little bit of FX leverage in Indonesia. That's the third reason why the other expenses in international business has gone up on a YOY basis. Okay, got it. Thanks, Sudhir. Thanks, Sudhir. Thanks, Sameer. Thank you. The next question is from the line of Abhijeet Kundu from Antique Stock Broking. Please go ahead. Yeah, hi. Thanks for the opportunity. My first question was on, you know, directionally, we have seen that all your India categories other than HI has done well. There would be some time to scope in the overall sales growth. But there have been those underlying strategies across the board has worked. What has not really worked is in HI, where, I mean, accessible packs innovations will lead the way. But where are we, you know, September has been, September quarter has been bad. But when we say we are seeing some amount of optimism, is there some optimism in household insecticides? Because our channel checks say that there has been some amount of recovery for the category as a whole. So my first question was on that. No, I'm saying I don't. Yeah, I know. I think, look, you know, as I said already, there are the. Structurally, our Q2 performance ex-HI in India has actually been very good. HI, there are two components to it. One is that there is a seasonal impact, which, having looked at now October and November, I think was a seasonal impact. There is also an impact in HI which we have to do better, which is to premiumize the category. We've got to break up, even if the season was good, let me say that the HI growth would not have been where we want it to go. That broad story continues. If anything, the non-HI part of our portfolio has done extremely well in. See, don't forget, in India, we've grown at 8% in Q2, and that's on the back of a very, very difficult quarter on household insecticides. You can imagine, you know, this is a large component of our business. You can imagine what the rest of our portfolio has grown at. Secondly, on you know, when we look at your Africa margins, there is a significant difference between the EBITDA margin and the EBIT margin. So just why is that? I mean. I think one of the biggest reason for that, Abhijeet, is the Forex, especially in some of the markets in which we play in Africa. That's the reason why the EBIT is lower than EBITDA. Once the Forex fluctuation reduces over a period of time, then that difference should reduce. Yeah, absolutely. My sense is in coming quarters, maybe the quantum of Forex losses would, you know, move up. As you've seen in the previous quarters also, they keep on oscillating. Yeah, I mean, they will come down once the currency stabilizes. Got it. Thanks. That's it. Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Mr. Pratik Dantara for closing comments. Thank you, and over to you. Thanks, everyone, for joining. If you have any further questions, do reach out to the IR team. Thank you. Thank you very much. Ladies and gentlemen, on behalf of Motilal Oswal Institutional Equities, that concludes today's call. Thank you all for joining us, and you may now disconnect your lines.