Bajaj Consumer Care Limited — Q3 FY25 earnings call

So as far as the sales growth is concerned, very clearly as you have seen the hair oil industry, especially the value-added hair oil segment, if you read the commentaries of other companies as well, while the only product that has been growing in the hair oil category is the coconut category. All other hair oils if you see commentaries from other companies also have been under stress. Almond Drops is a premium hair oil in the value-added hair oil category. So obviously has faced headwinds. We have taken enough corrective measures. We are further taking corrective measures in terms of increasing our advertising spends on the brand etc. While we will also take some price increases and rationalize the cost to ensure that our EBITDA margins are protected. So, this is a step that we are taking. The other thing that we have already done, as you would hearing in terms of Project Aarohan, we have been continuously working to ensure that our entire RTM for general trade because all the pressure that is there, is only on general trade. We had corrected the wholesale. Now wholesale is slowly coming back. We had seen now these are changes that take some time to adopt. It cannot happen overnight. So, we wanted to ensure that the large wholesalers are controlled. I think a lot of good hygiene work has happened. Now we are seeing both in terms of number of wholesalers as well as in terms of wholesale itself coming back. It does take time but now it is already on track. Similarly, in terms of retail presence we had already had aimed that we wanted to take it. Now we are structurally partnered with a consultant which will be doing for the next four quarters as well. And there is already some positive signs we are seeing in UP and MP and now we are going to extend it to other states. Coming to your cost structures; yes, you're absolutely right. Certain costs have gone up. Especially, if you break it up in certain areas the cost will look the same. One is in terms of employee cost because there has been no increase in terms of employees etc. It's just that there is a bit of higher percentage fill as far as employees are concerned which is making a little bit of a difference. But the bigger difference is obviously a deleverage thing where the sales has not grown and the employee cost has had an annual increment. That is what has taken a blip at this current moment. This will get corrected as the sales naturalize and come back in the next few quarters. The other area you will see is in the other expenses, admin expenses especially so as I had mentioned, so two things are going on. One is a continuous thing where Project Aarohan is going on. So, there are some additional investments as far as Project Aarohan is concerned. So, this will continue for somewhat two-three quarters more. Specifically, a one-time investment had been made in IT. Certain things like e-invoicing and e-way bill, Cloud application protection, geofencing, central managed and detection response and higher DMS support. All of this we have done this way. We had to do these corrections. We have done it in this quarter. We could have split it across quarters. So, we are taken this, this has also resulted. This will normalize in the next quarter and you see this coming back. Thank you.

Analyst questioned the company's inability to achieve sales growth targets and rising expenses, prompting management to explain challenges in the value-added hair oil segment, RTM changes, and one-time IT investments.

Asked by Rachna

So, the 15% to 17% margin, just an aberration in this quarter. Till last quarter you would have seen that consistently we have delivered 15%-16%. I don't think this was just an aberration. You should see, as I said we had made it was in a downward cycle for both. Both in terms of the corrections that we have made. Some of the results coming in has slowly started to trickle in. Whether with the wholesale corrections, whether the investments in terms of feet on ground that we have increased whether the rationalization of VANs which are now being converted to sub-D, so cost structurally we have done all these corrections. So, the results will obviously slowly flow in the next quarter or two. But these are the investment, plus we made those one-time investments as far as the IT requirement enablement based that is concerned. So, this is a blip that has happened. You will see this coming back quickly. So that should

Analyst sought clarity on when EBITDA margins would return to the previously guided 15-17% range, with management indicating recovery in the next one to two quarters due to structural corrections and investments.

Asked by Kaushik Poddar

So as I said there'll be four-prong to the strategy. The first and foremost is where we see synergies coming in. As far as our company is concerned. We feel that we ourselves can substantially add value to Banjara's brand and make it much larger in terms of just in terms of sheer let's say all the other back-end benefits that we can provide as a much larger company to the company. So, Banjara's itself, we feel that from the 50-55 crores of annual revenue that they do, in the next 2 years that can be scaled up substantially in Banjara's southern market. The second benefit we see clearly is where the Bajaj brands that are today available can go into the five southern states where our distribution scale up can straightaway go to about 3X times. I mean that is the kind of numbers that are looking at. And clearly there are some products which can go into that market. So that clearly is the second growth lever that we see. The third growth lever obviously as we see is that in terms of modern trade and e-commerce, I just told you that we have now a 30% salience as far as modern trade is this thing which was about 5%- 6% about 5 years back. This is exactly where Banjara's are even lower. And that clearly, we have the expertise now in modern trade, e-commerce which with our full team and Banjara's, they are also very excited that we can add value to their product range in that market. Because as you are aware, south is a large modern trade salient market and e-commerce, large players sit out of Bangalore. So, a lot of benefit can come out of modern trade and e-commerce as well as the international markets we see there is some scope as far as the Banjara's product is concerned. The last and is where your question is specifically. We also see some of the products like Multani mitti etc. These are products which are face packs etc. These are basically northern products more suited for the northern markets which are now going into the Banjara's. We are also looking at how that can be scaled up in the northern market. So, a four-prong strategy, we see there's a large opportunity for growth upside as far as all these.

Analyst inquired about the strategy to grow Banjara's pan-India, leading management to detail a four-pronged approach focusing on synergies, distribution expansion, modern trade/e-commerce leverage, and introducing Banjara's products to northern markets.

Asked by Gaurav Gandhi

So, the gross margin that this company has consistently operated for the last 4 years is about 60%. So, it has remained between 59.5 or 59ish to about 60 and a halfish. So, they have consistently maintained that they have a large range of product categories that they operate and all of them operate at these kind of. So, they have a face pack range, they have rose waters, they have other skin care products, they have black henna, natural henna and other hair care products. That is roughly where it is and all of them are between let's say 55% to 60% kind of a margin. So very well distributed and very well controlled products. So coming to ATL cost, this company had made large ATL investments in FY22 and after that they have scaled it down. So now they operate with a mix of ATL and BTL where the ATL is substantially lower but BTL is much more. You have to also remember, they have beauty advisors at their places. So, lot of it is also sold the way the beauty advisor sells at the shop at the point of purchase consumption happening. So, they are extremely adept at that. And they are also very efficient in terms of churn of the new products. So with their beauty advisors they are able to monitor what kind of trends are happening as far as the new products in the various categories and they are able to churn out newer products and also scale up the older products. The other great advantage of this company is this is a completely secondary sales focused company. So only when the distributor, so they only do replenishment of stocks of distributors. So, in that manner they are actually even better than a company like Bajaj. This is a very well-managed efficient company in terms of stocks etc. So, they have complete channel management in that sense to ensure that there are not too much of bad stocks or obsolete stocks that happen. So great NPD work and as well as great inventory management.

Analyst sought details on Banjara's financial profile, revealing its consistent ~60% gross margin and a marketing strategy focused on BTL and beauty advisors rather than high ATL spend.

Asked by Rachna

So good question Karan. I mean I think we started the Project Aarohan quite some time back and we implemented it in a phased manner in both UP and MP. We did not take full UP and MP in the beginning because we wanted to ensure that all of it is monitored. So, we have a Project Aarohan team of our own and there is a steering group there as well as we have a project manager of Project Aarohan while PwC's own people are also fully involved. So now the entire states of UP and MP are covered. The objective was to ensure that we ensure that everything that is required as far as the improvement in the route to market has been put in place. So in terms of rationalization of distributors, in terms of conversions of sub-DBs to direct DBs, satellites to sub-DBs, rationalizing of Vans which we knew would result in reduction of sales or cost to sales will improve. Neither will happen immediately but all of them will over time as you convert, rationalize the VANs and add them into the sub-DB network as it stabilizes it will give you advantages. So, all of these actions as well as both UP and MP is now about 90% completed. 90% as in what was identified as Project Aarohan. Whatever has come out of Project Aarohan and which we had presented and we saw and then finally said okay, these are something that we will take up, 90% of those have been now already implemented. So just to give you certain numbers, let's say the number of unrepresented towns etc. 475 has gone into 658 towns that we have now taken into coverage as far as UP is concerned from 90 to about 112, as far as Madhya Pradesh is concerned. I talked about coverage expansion of direct reach of UP and MP. UP went from 42.4K outlets to 58.6K outlets. That's about 1.4X and MP from 15,000 outlets to about 24,000 outlets. So, we see great progress that is happening. Obviously, numbers will not immediately show up because these are all in the stabilization process. So now all the investments are happening. So, we have put foot on the ground because to service this larger number of towns and this thing etc., you will require more people. But as they stabilize and as they see, you will start seeing the numbers slowly and strongly flowing in. And given this, as we see and as we are so confident that this has been a successful path going forward, we are now extending it to eight more states now, and few more we will add at the end of the 3rd Quarter. So, for the next four quarters we will aggressively push this so that then this entire attempt where we were trying to ensure our retailing initiatives become stronger, whereby we are program outlets etc. that programs that retail loyalty programs etc. Now we are structuring it in our own with a project managed by a consultant. So, we wanted more on ground execution project rather than a strategy project because I think as a company, we required this intervention more than a strategy project. And I think we have had fantastic results coming out of this and going forward we feel that as it scales up in the other states, we will see very good results coming.

Analyst asked for tangible results from Project Aarohan, and management detailed significant progress in direct reach expansion in UP and MP, with plans to extend to eight more states, expecting sales impact in coming quarters.

Asked by Karan Bhuwania

So, I'm not saying any commentary on that because all of these are initiatives which take time. These corrections maybe you will see results a little more earlier in terms of the initiatives as far as RTM is concerned and some of the others. But in terms of developing brands etc. you have seen coconut already go beyond INR 100 crores etc. So, those kind of products will slowly take time and we are in the right path. I mean you will see in the last 5 years there are no products

Analyst pressed for a timeline on when various initiatives would translate into financial numbers, with management indicating that while some RTM improvements might show results earlier, brand development takes longer, and they expect 'good numbers' by FY27.

Asked by Raaj

If you look at in the last few quarters, I mean slowly we are seeing the demand cycle slowly coming back. While it was quite under stress last year. Slowly we are seeing the hair oil category itself coming back in terms of growth as well as earnings and numbers are concerned. Obviously, it is still led very much by coconut. But we can also see value added coconut slowly trudging back. And given that this kind of announcement has happened from the budget where we feel that there will be more participation as far as discretionary spends are concerned, we feel we are quite buoyant that Almond Drops also should be able to see a benefit out of the demand cycle reversal.

Analyst questioned the challenges in the value-added hair oil segment, and management acknowledged past stress but noted signs of demand cycle recovery, particularly for coconut oil, and anticipated a boost for Almond Drops from budget announcements.

Asked by Kaushik Poddar

We clearly think that international if we play out well for the next 3-4 years can easily go to good low-teens, high-teens, even to the 20% of our contribution. But there we need to play it well. But that is clearly an opportunity and easily doable which we have also demonstrated in the last few weeks.

Analyst inquired about international business growth, and management highlighted its current 7% contribution, 37% CAGR over 3 years, and potential to reach 20% of total business in 3-4 years, driven by expansion in markets like Bangladesh, Middle East, and the US.

Asked by Amit Agicha