Emami Q4FY22 Conference Call

Thank you, Percy. Very good evening, friends. I welcome you all to this conference call on Emami's results for the fourth quarter and year ended 31st March 2022. During the quarter, consumption trends remained subdued amidst weak sentiments and steep inflation. The geopolitical conflicts aggravated the raw material inflation scenario as crude oil prices spiked up and persistent inflation continued to hurt consumer wallets across rural and urban markets, leading to a slowdown in sales. Despite the challenging macro environment, we have been able to post a resilient performance during the quarter with consolidated revenues at 770 crores, growing by 5% in Q4, which translates into a two-year CAGR of 20%. Our India business grew by 4% over previous year, that is a two-year CAGR of 22%, with flat volume growth over previous year. Our major brands like Pain Management grew by 9%, Healthcare range grew by 4%, Male Grooming range grew by 4%, and Seven Oils in One grew by 8% during the quarter, while Navratna posted flat growth during the quarter. It grew by 13% on a two-year and 4% on a three-year CAGR basis. Kesh King, however, declined by 7% over previous year but grew by 16% on a two-year CAGR basis, and Boro Plus declined by 18% during the quarter. In this quarter, Modern Trade grew by 9%, E-com continued its robust run, growing by 90% over previous year. In Q4 FY22, the salience of the E-com channel has increased to 7.1% of domestic revenues, and Modern Trade contributed to 8.4% of domestic revenues, increasing its salience by 60 basis points as well. CSD revenues grew by 32% during the quarter. Our distribution initiatives continue to progress with an additional 8,000 rural towns being added in this quarter to Project Khoj, taking the total tally to 40,000 rural towns. Revenues and presence in standalone Modern Trade outlets increased with coverage expanding to 40 cities and more than 3,300 outlets. The company also activated around 32,000 additional outlets for its healthcare products by focusing on Ayurvedic bhandars and chemist outlets, taking the total tally to 1.1 lakh outlets. Coming to our international business, our sales have grown by 8% during the quarter on a high base of 28%. However, if we exclude the sales from the CIS region which was impacted due to geopolitical issues, our international business grew strongly by 17%. Key geographies like Bangladesh and UAE performed well during the quarter. If I look at the profitability numbers this quarter, I believe we have posted a decent set of numbers despite strong inflationary pressure and a high base of previous year. Gross margins at 62.4% contracted by just 30 basis points on account of judicious price hikes and strategic procurement. EBITDA at 164 crores grew by 1%, and profit after tax at 104 crores declined by 15% on account of a foreign exchange loss of 5.1 crores and lower other income. However, PBT at 356 crores grew by 4.1 times over previous year on account of recognition of MAT credit entitlement amounting to 288 crores in this quarter. In FY22, consolidated revenues at 3,192 crores grew by 11%, EBITDA at 952 crores grew by 8%, profit after tax at 703 crores grew by 23%, and PBT at 839 crores grew by 85%. I am happy to share that we have posted a three-year profit before tax CAGR of 20% in FY22, which is one of the highest in the industry since the COVID period despite the ongoing challenges. In the full year, our major brands like Pain Management range grew by 18%, Kesh King grew by 11%, Healthcare range grew by 9%, Male Grooming range grew by 16%, Boro Plus and Navratna grew by 5% each, and Seven Oils in One grew by 29%. I am happy to share that we have not only managed to increase or maintain our market leadership positions but also increased our household penetration in most of the categories. As we are all aware, the business environment since early 2020 has been facing many challenges which affected consumer behavior. While the industry has had an uphill task of mitigating these challenges by smart adoption of new ways of doing business including digitization, it keeps facing new challenges in the form of geopolitical issues and steep inflation in global commodities, leading to price hikes by companies to tide over the cost push. This, we believe, has led to plummeting consumer sentiments across rural and urban, affecting the industry. However, we believe that there is sunshine behind every dark cloud and thus we are optimistic of witnessing an upward curve in consumer sentiments in the near future. We have always believed in growing both organically and inorganically and keep investing in businesses and brands where we see synergies with our current businesses and scope of growth. In March, we acquired the Dermacool brand of prickly powders and also invested in Two Brothers, an F&B new age company marketing nutrition products. We do believe both of these brands will pay rich dividends in times to come. At the same time, we will continue to invest in our existing power brands as we do believe there is much head room for growth. With this brief, I now open the floor for Q&A. Thank you.

Abnesh, you are right. Now that the materials we had have mostly been consumed in quarter four, we have to buy at new prices. As of now, there should be a pressure of about 200 basis points in quarter one, and that is post the price hikes we have already taken.

As of now, niche markets are still subdued as far as rural demand is concerned. We are seeing some pressure, but at the same time, we see good traction in our summer portfolio. There is some concern on the very high base of our pain portfolio. Overall, the demand sentiment is still low, but we are very optimistic that in the second quarter there should be some bounce back.

It is very difficult to cut expenditure just like that because we had some new launches and some amount goes into our general trade care. That is an ongoing cost we have to incur. On a yearly basis, we have maintained our numbers; we haven't increased advertising significantly.

Thank you.

On Kesh King, we are very bullish. We delivered a good set of numbers on a two-year CAGR of 16%, and for the whole year we grew at 11%. We were sitting on a very high base in Q4; last year our growth was almost 40%. So the decline is due to the high base, not a product issue.

Navratna has bounced back in the last two years. In the peak season we had covered, but we have seen good numbers coming in April. So I think Navratna will deliver quite significantly this summer. I am not worried.

Very much so. Vivek is here on the call; he will answer your question.

Yes, we have taken almost 4.5% price increase across the board.

Thank you.

Prakash, on market shares, we have increased them in almost all categories we operate in despite the challenges. Now we need to grow the markets. We have taken an aggressive stance on advertising because after two years of lull, we need to invest aggressively on our summer portfolio, which is key for growth. We are confident we can grow the market beyond just the pain portfolio. As for down trading, we have small LUPs that contribute about 23-24% of total business, so there is no gap. We have not seen significant growth in LUPs due to inflation, and we are able to service all markets. On the urban side, we already have bridge packs at price points from one rupee to ten rupee, so no gap there.

Helios is doing pretty well. Brillcare is smaller. Helios is around 80 crores top line this year and should continue to do well. From April 1, Dermacool consolidation happened, so revenues from that will start coming this year.

Thank you.

Right now, we don't have external consultants working with us. The projects from BCG have been completed, and we are implementing those strategies. The ongoing distribution project, Project Khoj, continues. We have identified growth areas internally, such as Navratna, summer portfolio, Fair and Handsome, Seven Oils in One, and healthcare. We are investing accordingly.

We still believe Kesh King is a great opportunity. On a two-year CAGR it has grown 17%. The decline this quarter is on a high base of 45% growth. Premium-priced products are not selling well in this environment, but hair fall is a very relevant problem. On a long-term horizon, it has potential for double-digit growth. We are not worried about one or two quarters.

You are right, the south has many hair oils. We have invested in Andhra, Tamil Nadu, and Karnataka, and we are seeing numbers from south India. But the potential still lies more in the north and west. Changing habits takes time and is expensive. We will keep investing in certain markets but not as much in Kerala.

We are focused on implementing the strategies from past consultant projects and driving growth in our core brands. That's the priority.

Thank you.

Done in a few accusations, investments in startups, just trying to understand the relationships with the startups. We have monthly meetings with them, they share their plans which are jointly approved by us. Whether it is Hilliers or Bill Air Brilla (now part of Emami), or Hillary where we have a significant share, we are actively involved. Other investments we have made keeping long term in mind because the markets are moving to a new direction which is difficult for Emami to do on their own. There is good amount of learning from these startups. Our online presence, which you were always doubting, has reached almost 7.5%, and modern trade plus e-com is now 15% of our portfolio. There is definite learning from these startups which we implement in our existing portfolios.

I'll answer it both for e-com and modern trade. The key learnings are democratization of investments, what investment works, and the path and formation. We made decisions on large packs and combos, which are becoming significant growth drivers. In-store investments, we are seeing 40% off-take growth in stores where we invested. We're using Planck offer, complete Ayurveda care, and doing Emami brand blocks. We've become preferred suppliers in large accounts, sharing the table with Colgate. These learnings have helped drive growth in e-comm and modern trade.

Whatever I'm saying is on our existing portfolio. This integration has not happened; they are only selling from their own network. The numbers will add on our balance sheet, but the arrangement is that they will distribute this year, and it will come to us from next year.

I don't think there would be an issue. If we had taken it then there would have been much larger issues because it was peak season.

Gross margins.

Roughly, next year the amortization should be around 120 crores. For the first quarter, Cash King will be amortized, and post that only Dermacol and smaller brands will be amortized.

We will be paying MAT only next year, so roughly 18-19% overall tax rate. But from this quarter we started recognizing MAT credit, which should bring down the tax rate by one or two percent.

Thank you.

It depends on the category. We have been aggressive. You have to recognize that 23-24% of our portfolio comes from LUPs where we don't take price increases. On the packs where we have taken price increase, it goes in the range of 7-8%. This is the max we can pass on at this point.

We have already done that in the past. There is not much scope honestly on grammage reduction.

Prices have stabilized now. In the long term, this is not the kind of price increase we normally take. Once the market stabilizes and we see a downtrend, we will bounce back to our original 70-72% gross margin levels. We have seen that in the past with menthol prices. It is a matter of two quarters, and benefit will come in the third and fourth quarter.

We have three hair oils: Navratna, Cash King, and Seven Oils in One. None have performed badly. Navratna was a one-off due to COVID. April and May have been good for Brahmi oil and Seven Oils in One is showing continuous growth. Cash King has seen some pressure due to pricing in the last two-three months, but we are confident it will bounce back. There is no structural issue with our oil portfolio.

Last year we had a couple of new launches. Contribution from new launches was about 2%, which included some healthcare portfolio. Gulraj is here; he is the CEO of healthcare division. Gulraj, can you throw some light on what we are doing on healthcare and what growth you see in the midterm and long term?

We have three categories: cooling oil, seven oils in one, and Cash King. Right now we will focus on these to grow them. Any launches would be on e-com platform as premium offerings.

We have to calculate; we will come back to you.

For Dermacol from next year, almost 60-65 crores of amortization. Remaining 20 crores for CRAM 21 and other smaller brands. So roughly 85 crores annually after Cash King.

Pledge right now is at 34%. Any plans to cut? It will happen post sale of some assets we are looking for. Overall percentage has gone up because of price correction.

There is no issue. Please appreciate that schools, colleges, social events were not happening due to COVID. Now everything is opening up, so this market will also see an upswing. We have seen good growth in April and May for where an answer is concerned. Other than pain portfolio and some healthcare challenges, all categories are showing good signs of growth.

Let me also tell: despite challenges of inflation, low sales rural not doing well, we haven't cut a single budget for project coach. There is a clear mandate to implement all opportunities. We have increased our people on the ground by almost 50% in rural.

I can't comment on this. If it happens, you will come to know. We have an excellent set of professionals and we are seeing the results. It's a good mix of professionals with family. We are very aggressive. Despite pressure, we are not cutting advertising. It's not a short-term strategy. The targets to every CEO are to grow, and we will earmark budgets for that. Right now we don't have a definite plan to appoint a CEO.

Vishal, it is primarily on account of summer building stock and also inventory for Dermacol which we acquired at the end of March.

No, it has nothing to do with any specific reason. It is only because of increasing business of some brands and acquisitions like CRAM 21 and new launches in healthcare. So inventory is with respect to that.

Rural is still higher at almost 54-55% for us.

We thank all the participants for joining us for our earnings call for quarter four. Thank you. Thank you everyone.