Ladies and gentlemen, good day and welcome to Q3 and 9 Months FY25 Earnings Conference Call of Honasa Consumer Ltd, hosted by JM Financial Institutional Securities Ltd. 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sumanyu Saraf from JM Financial Institutional Securities Ltd. Thank you, and over to you. Yeah, thank you. Good evening, everyone. On behalf of JM Financial, I welcome you all to Honasa Consumer Ltd's Q3 and 9M FY25 Earnings Conference Call. From the management, we have Mr. Varun Alagh, Co-founder, Chairman, and CEO of the company; Ms. Ghazal Alagh, Co-founder and Chief Innovation Officer; and Mr. Ramanpreet Sohi, Chief Financial Officer. I will hand over the call to the moderator, and we can start with the Q&A. 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 touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to only use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants who wish to ask a question are requested to press star and one on their phone now. Ladies and gentlemen, we'll take our first question from the line of Dhiraj Mistry from Antique Stock Broking. Please go ahead. Yeah, hi sir. Good evening. So one question is, where are we in our journey with our inventory collection in General Trade channel, and when do we see that in how many quarters it should be done, and we can see normalized growth going ahead? Hi Dhiraj, thank you for asking the question. And hello everyone. Welcome to the quarterly call for Honasa Consumer. Dhiraj, to answer your question, the inventory collection that is happening is happening in our distribution system, not in the retail system. And like we had said last time, the majority of the collection, almost 85%+, was already taken care of in the last quarter itself. Now the journey has been to gradually scale up the new distribution system, which is something that we have been actively doing. And our view is this is the quarter where we have at least been able to, in top 50 cities, get to the distributor sort of appointments, the Tier 1 distributors that are appointing, 100% of that sort of task has been done. And we are also seeing direct distribution scale-up starting to sort of happen. Over the next couple of quarters, we believe that the full effect of this transition will start coming into play, and the GT system should start coming back into the room. Got it. Got it. And sir, second question, if you can split your growth, I understand that the Mamaearth is one of the brands which has been largely impacted because of this transition. What kind of growth we have witnessed in non-Mamaearth brands, The Derma Co and all, and how's the growth rate compared to the previous quarter? Where other FMCG companies have been reporting, there has been very muted demand in the urban market, and how do you see that panning out for your brands, for the non-Mamaearth brands? Dhiraj, so for non-Mamaearth brands, the growth continued to be solid. In fact, we have talked about that in our presentation as well, that the younger brands continue to grow at 30%+ growth at a YTD level. And that's the kind of growth that we've seen during Q3 as well. And these brands have continued to also gain in contribution, more than 40% of the company's revenue is contributed by the younger brands. And we are quite happy with both the execution and scale-up of these brands. Okay. So 30% growth rate continues for non-Mamaearth brands during the quarter as well. Is my understanding right? Yep. Yeah. And third and last question from my end, that other FMCG company has been reporting that there's been a slowdown in the urban market, and it may take some couple of quarters for them to recover in terms of urban market demand coming back. Have you witnessed a similar thing or anything different for your brands? See, this is because we are going through our internal transition. I wouldn't sort of comment as much on the demand scenario. Of course, the metros have been affected by both the combination of wage inflation gaps as well as because of the distribution change driven by e-commerce, etc., and we are all watching that out, but I would rather not sort of attribute some of the actions that are happening internally to that. What we are doing is largely absolutely by design from a long-term play and fundamentals perspective. We are focusing on just getting our playbooks right. For us, share again is the big agenda, and we believe with the right fundamentals, we want to continue doing that for years to come. Dhiraj, does that answer your question? Thank you. Before we take the next question, we'd like to remind participants to press star and one to ask a question. Next question is from the line of Nitin from MK. Please go ahead. Hi, thanks for the opportunity. I just want to check what I can see is under Project Neev, we have achieved 100% distributor appointment in top 50 cities, which is actually reassuring. Can you please help me with the distributor count now in top 50 cities? Also, how many have been appointed in the last one year? And wanted to gauge your comment, if the growth remains slow, do you see any risk of attrition here? Yeah, hi, Nitin. So I think in the top 50 towns, we've appointed + 150 distributors in the last six to seven months. And Nitin, since there are new partners and the quality of business in terms of, inventory in terms of. I'm sorry, sorry, sorry. More lucrative compared to. Yes. I'm sorry to interrupt, sir. We lost your voice for a few minutes. Can you just repeat the answer, please? Sure. Would you like us to repeat from the beginning? Nitin? No, so there's a new partner comment you had provided. Can you start from there? Yeah, sure. So Nitin, like Raman mentioned, more than 150 distribution partners who are all FMCG distributors have been appointed in these top 50 cities. They've been appointed largely over the last six to nine months. So we're going to assume almost 80%+ of them would be new partners for us. And these partners, the ROI mechanisms that we have are actually fairly strong because of both the margins and now the inventory levels as well as the credit extended by the company. And we are making sure that we continue to focus on scaling businesses with them quarter-to-quarter, which will give them the comfort of both growth and strong returns on their investment. We are going to closely watch and ensure that these partners grow along with us. Sure, thank you. Next question is again offline channel. So I just wanted to gauge how much of our revenue is coming from premium beauty outlets. So this is supposed to be a big channel where we had or we have been having a basis to drive growth faster. So in this lens, I want to check how are we strategizing to drive growth and profitability in this channel and plus wanted to gauge how big is premium beauty channel for us. If I understand correctly, by premium beauty, you're largely talking about the fancy cosmetic counters? Yeah, the counter where we have our BAs, beauty advisors. Yeah. So actually, in GT, BA channel is not a very large sort of channel for us. We only have close to, actually, less than 500 BA counters which exist, and they contribute to less than 20% of the GT sales. The rest of the sales comes from. So e-comm is a very important channel for us. New M odern Trade of course. And we're focusing on all of these channels. Of course, Modern Trade is again an important channel for us. So the growth is actually fairly distributed across these. And of course, our focus for the next three to four quarters perspective is on top 200,000 stores in India, of which also 20,000 are far more critical from premium skin and hair care perspective. So we have been watching and focusing on them closely and ensuring that we end up gaining share in all of them. Yeah, thank you. And last question is with respect to quick commerce. So last quarter, you had highlighted 4%-5% of sales coming from quick commerce. So I just want to know how much is the contribution now given the fast growth happening in this channel? And by any measure, do you have any market share data, how much of the market share we command in the quick commerce space? Thank you. Maybe so now, this last quarter, we could say that it's grown to about 7%-8% of our business. It's the fastest growing channel for us as we speak. The market share data we have, but they're more internally measured and account share. So largely. Sorry, sir, we lost your voice. But that's a metric that we are very closely chasing. On market share, the data that we have is based on our internal relationships and non-disclosure data. We cannot share that. That said, we very closely are watching that data. And our goal is that our quick commerce market share should be higher than our e-commerce market share. And that's the vision with which we are sort of approaching in the future. Thanks for the opportunity. [audio distortion]. Thank you. We'll take a next question from the line of Mehul Desai from JM Financial. Please go ahead. Yeah. Hi, sir. First question, obviously, last quarter, you did mention that several indicators will be taken as far as changing the brand strategy as far as Mamaearth is concerned. I know it's a short period since then, but anything that you would like to call out as to if you have done any test marketing or any SKU changes or any initiatives that have been taken as far as Mamaearth is concerned? And if any kind of results or qualitative comments that you would like to give in terms of the output that is coming from those kind of changes? Hey, Mehul, thanks for asking the question. Mehul, that's absolutely an area of very, very strong focus for us in Q4. The three areas where we are executing those changes have been areas of messaging, media mix, and product. I'm sorry. I'm sorry, sir? Some of these areas require some things to sort of come up with the. Hey, unable to hear you. Yeah, now it is fine, sir. Please go ahead. I'm sorry, I'll check with Mehul as well. Mehul, did you end up missing what I was saying? Yeah, you said about the three or four focus areas about product mix and all, and then after that, we missed you. Actually, that is where I was. That's the last thing that I was thinking. So the three focus areas, like I said, was product messaging and media mix. And we recognized these areas as well as specific actions that we need to take in quarter three and then started work on development of newer differentiated communications and started work on further improvement of our formulations to deliver lightest winning strategies and as well as to design the right media mix experiments, which can only be done once the messaging, etc., is ready. All of that pre-work has been done over the last sort of 90 days. It's only in the last couple of weeks that we have now started mounting these pilots. So very early, the outcomes is the same. I think when we meet next time, we would have more structured learnings that we will be able to share with you. Sure. And lastly, on the margin side, obviously, one of the strategies is also to increase spend and increase the more focused spend on Mamaearth and on SKUs. Do you think A&P spend will increase in coming quarters because now the pre-work is done and now maybe the A&P spend might go up in coming quarters? Or you think this 5% EBITDA margin that we have registered in this quarter, this is the base case? I mean, it should not go below this in the coming quarters. So maybe in Q4 specifically, because we are doing a lot of experimentation, and experimentation will involve some wastages because that's what you're trying to check, what does not work and what works. So in Q4, we do expect the marketing spend to be higher and more aggressive. And then Q1 onwards, they will again start to normalize. So Q4, it should be seen as in a quarter where we'll be doing slightly increased investments to ensure that we are able to learn. And then Q1 onwards, we should be sort of back to the trajectory of what we started moving on. Lastly, a bookkeeping question. Raman, what is the tax rate that one should look for FY 2025 and FY 2026 going ahead? Yeah, Mehul, so I think this quarter we have an exception. We've actually taken and made a deferred tax asset of about INR 5 crore, which is basically coming in from our subsidiary Fusion Cosmeceutics, which is basically that subsidiary is actually merging with our business. We're expecting that to come through by April, May of next year. And also, given the reasonable certainty of profits on that subsidiary, we'll be able to set off the accumulated losses against the future taxes. That number has come in in the quarter, but otherwise, we'll move back to normal tax rates that you witnessed so far in the previous quarters. Okay. Got it. That's just wonderful. Does that answer your question?. Yeah, yeah, that answers my question. Thank you so much. And good luck for the coming quarter. Yeah. Thank you. Thank you. We'll take a next question from the line of Percy Panthaki from IIFL Securities. Please go ahead. Hi team. I'm sorry, I joined late, so apologies if this has been repeated. But can you throw some light on the Mamaearth brand in terms of the sort of performance? Why? Is it in the same ballpark as what we saw in Q2 adjusted for the one-off? Hi, Percy. Yes, Percy, it's in the same ballpark because no different actions were taken in Q3. It was a time when we understood and analyzed both from a consumer and our internal investments perspective what was happening and what was going wrong. Based on which the pilots and the revised strategies have been built into Q4 where we are testing some of those to understand what to scale, and hence, after Q4 and Q1 is when we'll be able to sort of we believe we'll be able to come back on a sustainable sort of trajectory based on the refined playbooks that we learned from this, so Q3 is very much similar to the H1. Within the Mamaearth brand, again, the different channels are also at a similar level. GT, for example, was the main issue last quarter in Mamaearth, which saw a big decline, whereas Modern Trade had seen a decent growth. Online was maybe approximately flattish or something like that. Do those trends channel-wise also remain the same? Very similar. And so, I mean, online continues to be flattish, while Modern Trade we have grown in uptake as well as in shares. And GT continues to be the place where we've declined the most. Understood. And distributors that you have, have you seen any attrition in the distributors? Are any of the distributors sort of have given up their distributorship or anything of that sort? Percy, since the new distribution system is something that we have put into place only over the last six to nine months, so I mean, business as usual. There is no major sort of attrition. In fact, like I was mentioning earlier, our terms of trade with our distributors, be it in terms of the credit extended or the margins, is actually much better than industry, and we are confident that as we scale this system, our partners will end up making much better return on investments compared to industry. Sure. And just delving a little more deeper into this, the GT decline that we are seeing, is it significantly higher on a primary sales basis rather than a secondary sales basis in the sense that are the distributor days coming down and that is why we are seeing this sharp decline? Or is it that even on a secondary sales basis, the decline is the same as the primary? Percy, secondary is better than primary. Okay. But still at a declined YoY, right? Actually, that's very sort of the problem is because Project Neev was instituted largely from Q4 onwards, which is when the DMS implementation was rolled out across the system, and hence, the secondary sales data for the system is not comparable. Got it. Got it. And the other way, if I look at it, which is that number of distributor days that you have in the system as of December, how many days is that? And is it different from what you had at September end? It has gone down. It is now in the range of anywhere between 30 to 40. Okay. Okay. Yeah, that's it from me. Thank you very much. Thank you. We'll take a next question from the line of Mudit M. from M3 Investment. Please go ahead. Hi. Thanks for the opportunity. I wanted to understand what's your quick commerce strategy given your earlier e-comm strategy was to play long tail and keep innovating for new products, whereas quick comm is more of a limited SKU business model where repeat purchases are the drive sales. So how are you going to play this and what's your take on that? And correct me if I'm wrong. You're right. Quick commerce is a more focused assortment play. That said, quick commerce is also a platform where consumers are discovering new brands. We have very strong and healthy relationships with our quick commerce partners. We still strongly believe that brands are built in the minds of consumers and purchased on platforms. I think our focus continues to be on the consumer and using the right mediums to build our brands in their minds. On platforms, our focus is to ensure that our market share continues to sort of be strong and increase on quick commerce as they also continue to grow. Understandable. Sorry to harp on the Mamaearth growth again. Just wanted to understand if your rest of the business has grown by 30%. What exactly is the growth rate in ballpark figure format, and how do you see that shaping up? So, like I mentioned, it continues to be in the same zone as H1. It's on a decline, not a growth rate for the nine-month cycle. Over the next couple of quarters, we are refining the strategy. We are very confident that we will be able to unlock the right investment allocation, media and messaging combinations, which will help us sort of get the brand back to sort of growth levels. But it will take a couple of quarters for us to sort of get there. Right. Right. And continuing on previous participants' question on the distributor-level inventory, and we shared some qualitative colors on, are there been reorders and the quantum of reorders from the distributor, which gives you reassurance that the secondaries are happening? And can you share some colors on reorders and repeat purchase eventually by end customers? I think the best indicator of end customer demand from retail would be the Nielsen share data that we have provided. If you look at the Nielsen share data, in our core categories, we continue to gain share. As well as if you look at the STO, which is the sales turnover ratio, actually, it is lower than the category and has further declined, which means that our stock rotation is faster than the category average, and our stock pressure is lower than the category average, which is again a healthy sign from a brand perspective, and of course, the distributors continue to order on a regular basis. Thanks. I'll join back in the queue. Thanks for the answers. Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone. We'll take a next question from the line of Venkat from 3 Sigma Financials. Please go ahead. Yeah. Thanks for the opportunity and a good set of numbers, at least in this challenging market for all other FMCGs. So my question is, in the last call, you mentioned that the sales organization is going to be kind of like revamped. And you just mentioned that the trials are happening and you are evaluating. So at the end of this particular, what do you call, execution, what would we see? Are we going to see some improvement in EBITDA and EBT? And can you quantify those numbers? Hi, Venkat. Thanks for the question. So all the efforts that we are sort of doing is in line with our long-term plans. And we genuinely believe that these pains that we are taking are going to pay off handsomely in the long term. And the benefits of this, of course, will take time to show. But on channel EBITDAs, on profitability, etc., the impact of these should be fairly [audio distortion]. Okay. Great. My next question is, I'm hearing that there was a Nielsen report recently that the rural sales have started improving. So are you seeing any improvement in sales if you compare with urban rural sales mix? Are you seeing any uptick in that, or is it like flat, similar to what it used to happen? Venkat, unfortunately, we're an urban-only business largely. Almost more than 80% of our sales comes from the top 100 cities, top 200 cities. And hence, we would not be able to comment on the rural roadside. Yeah. I was interested more from e-commerce. You don't see those [audio distortion] happening actually from rural. You don't see that demand coming, right? Yeah. No, I mean, what is defined as rural in SEC, that's actually a very deep, to use t he contribution from those [audio distortion] for our business is very less. And hence, I don't think we should be sort of used as a benchmark for growth there. Okay. Great. Thank you very much. Thanks. Thank you. Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone now. We'll take the next question from the line of Agam Shah, an individual investor. Please go ahead. Yeah. So I just missed your opening question. So the majority of my questions have been answered. But just a quick maybe follow-up you might have answered. But on the distribution front, on the various strategies and whatever steps we have taken from last quarter, so where are we there? I mean, can we say you're seeing green- shoots and are we done with it? Will we be done with it or maybe in another couple of quarters more? So from a setting up of the fundamentals is what I'd say, yes, we are there. But from a scale-up perspective is what we are seeing happening over Q4 and Q1. So it would be right to say that we'll take a couple of quarters for us to sort of get into growth mode in that channel. Okay. So when you say growth mode, so in your presentation, when you said when the margins are from 8% down to 5%, so when this strategy, everything is over, that time you should reach the 8% levels with operating leverage? Or is it fair to assume that or no? So the timing is something that I would not be able to comment. But fair to assume that within FY 2026 itself, probably towards H2, we will be able to hit those levels. Okay. And also on the breakup, so how much is Mamaearth of the contribution of the 500 growths? Like I mentioned, younger brands are now contributing more than 40% to our business. So that's how you can probably tell. What was this number, YoY? Last year, this number would be in the 25% zone. Okay. Okay. Thanks a lot. Thank you. We'll take a next question from the line of Mudit M. from M3 Investment. Please go ahead. Hi. Thanks for allowing for follow-up. I wanted to understand when your direct competitor in actives has been acquired by a global giant. So would you comment about how would you see this competitive intensity shaping up? And in general, how is the competitive intensity shaping over the younger e-comm guys? Because I have seen the heightened competition of like INR 1,000, you get eight products and things like that. So could you comment on that, please? Yeah. Firstly, I would like to congratulate the founders for building a great brand that got a very good outcome with the acquisition. In honestly, it's also, the Derma Co has had a phenomenal journey. The Derma Co is larger, faster- growing as well as better with the levels compared to sort of where many industries have good performance at good brands. Apart from that, competitive intensity in this category is something which has sort of always remained high. It increases in the cycles of sort of funding and then sort of becomes more thinner later on. That said, that's something that we worry less about. Our focus is always on consumer because we genuinely believe that if you do the right things by consumers, they will reward you sort of for their efforts. So I think our focus continues to be on getting our consumer playbooks products proposition right. Understood. Also, if you could, how do you aspire to grow in medium and long term, say, five, three, five, 10 years? What's your aspiration? Because earlier, you were tracking growth of like 2x industry. Now, so what's your long-term aspirations given that you will have a certain portion of mature brands and you'll always keep seeding the new brands? So what's the growth rate that you aspire, maybe after fixing all the tailing issues? What's your medium to long-term goal for the business? And your aspiration. Thank you so much for asking that question. It's rare that we get asked about our long-term goals. Our long-term goals remain absolutely intact. We are very confident that after these transitions and figuring out the fundamental playbooks, we will get back to the industry breathing growth that we have talked about. We are very clear that we need to continue to remain in market share gain mode, especially for the five core categories that we have called out, and towards the end of the decade, we would like the company to be more than INR 4,000 crores in revenue. We would like the company to sort of double from here on. We would also like to see Honasa being nationally sort of top one or two player in multiple of the focus categories that we have identified, so all of those completely remain intact. That's helpful to hear. Thanks. Thanks for your time. Thanks. Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone. We'll take our next question from the line of Kimberly Paes from Envision Capital. Please go ahead. Yes. Thank you for taking my question. So just to follow up on the margins, like you said, that next quarter, we expect some aggressive marketing spend. But just what's the longer-term outlook or aspiration on the margins, say for FY 2026 and 2027, once most of the Mamaearth playbook reinventing is sort of done? Hi, Kimberly. From a 2026 perspective, we believe we should be back to the 2024 levels if you look at the overall year. Then from 2027 onwards, we should start sort of improving on that base as we had sort of called out. For this INR 4,000 crore kind of revenue aspiration that you have, do you think that we could get to a double-digit margin by then? Yes, Kimberly. That will be the plan and ambition. And just one more question. What would the ARR on the makeup brand Staze be right now? I think last quarter, you mentioned it was around INR 25 crores. Yeah. It continues to be in the same zone. It's a PMF stage brand. So we're still sort of tweaking what part of the brand with subcategories, what model, because it's also a lower-priced brand. And hence, it's a newer play for us and newer category for us. So we're still sort of establishing PMF on that. Great. Thank you. Thank you. We'll take our next question from the line of Binoy from Sunidhi Securities and Finance Ltd. Please go ahead. Yes, sir. Thank you for the opportunity. Am I audible? Yes, Binoy. Yes. Please speak a bit louder. Sure. Yeah. Thank you for the opportunity. Very good evening. Please just help me with the sales mix between the offline and the online channels. And within the offline channel, how much does GT contribute? Actually, the mix varies for different brands. For younger brands, of course, the contribution of online is more than 90%. For Mamaearth, the contribution of offline is almost 45%, of which 40% is Modern Trade institutions and 60% is GT. Okay. Does that answer your question, Binoy? Yeah. I have a follow-up. Between the channels, online as well as offline, are you at a break-even in the offline channel? Or is there some burn? Actually, EBITDA for offline channels is actually very good. It's actually better than online business because the allocation of digital marketing media happens largely on the online business. It's actually better than online business. Okay. Thank you so much. Very good. Thank you. We'll take our next question from the line of Pooja Kubadia from JM Financial. Please go ahead. Pooja? Pooja, we are unable to hear you. Hi. Am I audible? Yes. Please go ahead. Yeah. Hi. Thanks for taking my question. I just wanted to understand what were the margin levers for the gross margin expansion we saw this quarter? Was it driven by the transition that's happening in the distribution channel? Or are there any additional levers? So it's actually largely the brand mix change because the younger brands, which are growing faster, also have a better gross margin given they're focused in skincare categories. So that's the largest lever of gross margin expansion. All right. Okay. Thank you. Thank you. We'll take our next question from the line of Bhavya, an individual investor. Please go ahead. Bhavya, please check if your line is on mute mode. Bhavya, we are unable to hear you. There is no response from the current participant. Ladies and gentlemen, to ask a question, please press star and one on your phone now. We'll take our follow-up question from the line of Binoy from Sunidhi Securities & Finance Ltd. Please go ahead. Yes. Once your distribution-related change is settled down and the sales are back to normal, which is the pre-project related changes, right, where do you think the EBITDA margin in offline channel would settle? I think better to look at some of those things from an overall company and from a perspective. Like we have talked about how that journey should be starting next year to the long-term journey over the next five years to get to double-digit margins. I think that's what we would like to focus on. In general, like I mentioned, offline is better sort of margin channel comparatively. So growth in that should be one of the levers which will lead to improvement in overall company margins. Okay. Okay. Fair enough. Thanks. Thanks. Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone. Participants who wish to ask a question may please press star and one on their phone now. As there are no further questions, I now hand over the call to management for closing comments. Over to you. Thank you so much for patiently asking questions and listening to our responses. We'll continue to work on our fundamental levers and make sure we're able to sort of.