Edited Transcript of EMAM.NS earnings conference call or presentation 29-Jun-20 10:00am GMT

As we stand today, we have ramped up production across all our units, and the capacity utilization is now back to the pre-lockdown levels. The trade and supply chain is also almost back to normal in most of the regions. Keeping in mind the safety and precautionary measures for all, we have resumed office with very limited attendance, effective from 3rd of June.

During this pandemic, our study of emerging consumer behavior trends revealed increased consumer consciousness towards health, hygiene and immunity. As we learn to live with the coronavirus, that is not going to go away very soon, we also realize that this new consumer trend is here to stay.

Accordingly, we went to our drawing boards to draw up a robust business strategy in sync with the changed environment and decided to expand our personal care and health care business in newer areas.

As a first step, we launched a hand sanitizer in April under the BoroPlus brand, which is very well-known for its strong antiseptic equity. Subsequently, we have recently introduced a personal hygiene range under BoroPlus to include an antiseptic soap and hand wash. We also launched BoroPlus aloe vera gel during this period.

We ramped up our health care portfolio under Zandu brand and launched Zandu Ayush Kwath Powder, an ayurvedic immunity boosting Kadha and Zandu ayurvedic hand sanitizers. Few more immunity boosting and health care products are lined up under the Zandu portfolio in Q2 FY ’20. I’m also pleased to share that we are also coming up with a range of home hygiene products shortly to tap this growing opportunity.

Coming to our results. The summer portfolio got severely affected due to the operations being completely disrupted from the last fortnight of March until the end of April. This pandemic, followed by the lockdown as we all know, has led to a decline in consumption due to rising unemployment and a significant drop in demand. This also led to a consumer shift towards more essential products, like food and groceries, affecting the sale of our niche and discretionary products. All these external factors, including the impact of COVID-led lockdown, led to a revenue decline of 17% in Q4, with consolidated revenues of INR 533 crores. While the domestic business, including CSD declined by 19%, international business declined by 4% during the quarter.

During the quarter, we roped in Bollywood Superstar Salman Khan to endorse Navratna, which will help in extending the product messaging to the masses. As we all know, there has been a major announcement last week by few MNC in terms of fairness creams. Here, I would like to say that we, as responsible corporate citizen, value consumer sentiments and the environment that we live in and take cognizance of the holistic approach that is required to be taken to address these needs. We are in the process of studying all implications currently and would evaluate to take a conscious and very informed decision.

In FY ’20, we have posted a marginal decline of 1%, with revenue at INR 2,655 crore due to our unprecedented quarter 4 situation. Although domestic business, including CSD sales declined by 4%, international business grew by 16% during the year. I’m not going into the individual brand-wise performance as those details have been shared in our presentation. But I wish to add that we draw strength from the fact that most of our brands increased market shares.

While the traditional channels continue to be impacted in the Domestic Business, we increased our presence in modern trade channel, which grew by 26% in Q4 and by 16% in FY ’20. Contributions from modern trade in Q4 and FY ’20 also improved significantly to 12% and 9%, respectively.

Our e-commerce business also grew strongly by 167% in quarter 4 FY ’20 and by 128% in FY ’20. The channel has increased its contribution to more than 1% in FY ’20 from 0.5% in previous year. And we plan to double it in the current financial year.

During the quarter, gross margins at 65.2% grew by 440 basis points. However, advertisement spends at 18.6% of sales increased by 310 basis points. Staff cost at 13.5% of sales increased by 290 basis points. And other expenses at 14.6% of sales increased by 410 basis points due to lower sales.

EBITDA at INR 99 crore declined by 37%, whereas adjusted PAT after exceptional items at INR 94 crores declined by 22%.

In FY ’20, gross margins at 67% increased by 130 basis points. EBITDA at INR 690 crores declined by 5%. However, adjusted PAT after exceptional items at INR 573 crores grew by 2%.

I would briefly like to update on the cement deal. As you might be aware that Competition Commission of India has approved the acquisition of Emami Cement by Nuvoco, part of Nirma Group and the deal with Brookfield Asset Management of Canada for sale of our solar power business has been concluded, as a part of our business investment plan of noncore business assets. The finalization of the sale of group cement business is at a final stage and is expected to be completed in the next fortnight. Accordingly, we estimate that these disinvestments would lead to a significant reduction in promoter pledge.

We believe that despite these disruptions, market conditions will stabilize slowly, and we expect demand and consumption to bounce back from quarter 2 FY ’20. Rural income are expected to rise due to central government packages from MGNREGA as well as due to good harvest. As we have a higher rural exposure, we expect to be benefited from it. Our innovation pipeline is also future-ready, and we will undertake a slew of new launches to funnel growth as soon as the market condition improves.

With this brief, I now open Q&A. Thank you so much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Abneesh Roy from Edelweiss.

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Abneesh Roy, Edelweiss Securities Ltd., Research Division – SVP [2]

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Sir, my first question is on the e-commerce. Historically, your percentage of sales has been much lower than the larger companies in terms of e-commerce. But in Q4 and the entire year, you have seen very good growth. And obviously, this is pre-corona. So what has worked here, any particular player? Which segments are doing well? So what’s really led to this change because in terms of portfolio, there’s not any significant change versus last year.

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Mohan Goenka, Emami Limited – Wholetime Director [3]

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Right. So Abneesh, and now we have touched 1% as far as e-commerce is concerned, and I told in my opening remarks that we are wanting to double it. So what we have done in the last few months that we have focused very extensively on this e-com by offering good prices, launching a lot of different SKUs for — especially e-commerce. And we have set up a separate team entirely for e-com. So whatever small challenges we faced in the past, we have overcome all those challenges. And now anyways, we all know that e-com has a very bright future. So we think that we would be able to grow significantly going forward with a lot of new…

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Abneesh Roy, Edelweiss Securities Ltd., Research Division – SVP [4]

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It’s across segment?

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Mohan Goenka, Emami Limited – Wholetime Director [5]

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Sorry?

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Abneesh Roy, Edelweiss Securities Ltd., Research Division – SVP [6]

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This is across segment?

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Mohan Goenka, Emami Limited – Wholetime Director [7]

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Yes. So this is across segments and particularly on big sizes because we have launched very different SKUs for e-com.

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Abneesh Roy, Edelweiss Securities Ltd., Research Division – SVP [8]

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Sir, my second question is what you alluded just now that Q2 should be better, and I understand Q1 also will be very tough. So you have higher indexation to rural, which you said. And second, of course, is we are seeing the migrant labor also come back now to the big cities again, which was a problem for you in Q1. So do you see in Q2 the good growth coming back for Emami?

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Mohan Goenka, Emami Limited – Wholetime Director [9]

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Yes, Abneesh, the trend is very visible. If we see the numbers of April come — and May and June, so it is, by and large, I would say, June, we have come to the last year numbers, okay? If I compare it to the last 2 months, we have grown significantly, okay? So I don’t see any reason why we should not grow going forward. Anyway, we have a very rural base, whether it is in urban or rural. So — and our — most of our brands, they — they are almost like — they are almost like necessity in some form or the other. So I don’t see a challenge going forward from the month of June onwards, I would say.

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Abneesh Roy, Edelweiss Securities Ltd., Research Division – SVP [10]

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Sir, last question, you said cement’s money will now come soon in the next fortnight possibly. So my question is more structural on the promoter focus for FMCG part of the business. So one is where do you see the promoter takes longer term? And if possible, any time frame? And same thing on the pricing, medium term, where do you see that number? And because most other parts of your business are anyway sold, does it mean on FMCG now, there will be much higher focus, and that’s why the execution will also be much better than the last 2 years?

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Mohan Goenka, Emami Limited – Wholetime Director [11]

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Yes, I would say, Abneesh, that the cement deal is now almost done. We are expecting money anytime in the next 10 to 15 days. And it would reduce our promoter pledge currently from 90% to, I think, about 45%. And with the — further 1 or 2 disinvestments, it would — we will bring it down to 0. So we are absolutely on the right track. And I have always mentioned that not that our focus was not on FMCG. But yes, once these pledge issues will come down, we would be able to focus a lot more.

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Abneesh Roy, Edelweiss Securities Ltd., Research Division – SVP [12]

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And promoter stake?

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Mohan Goenka, Emami Limited – Wholetime Director [13]

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Sorry, so what about promoter stakes?

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Abneesh Roy, Edelweiss Securities Ltd., Research Division – SVP [14]

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It has gone down by 20% in the last 1.5 years, so where do you see this longer term?

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Mohan Goenka, Emami Limited – Wholetime Director [15]

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No, we haven’t taken any decision on the promoter stake. (foreign language) the present state is we want to bring our pledge down to 0, okay? So promoter stake is anyway, 53%. That would always stay.

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Operator [16]

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The next question is from the line of Shirish Pardeshi from Centrum Broking.

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Shirish Pardeshi, Centrum Broking Limited, Research Division – Senior Analyst [17]

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I hope everyone at Emami is safe. My — I have 3 questions. The first question is on the Q4 performance. We have seen a largest decline in BoroPlus and Fair and Handsome. And if I go back to quarter 3 commentary, we have hired BCG to have a revival in Fair and Handsome, but that is not reflected. So could you please highlight what are the reasons these 2 products have seen highest decline?

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Mohan Goenka, Emami Limited – Wholetime Director [18]

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See, BoroPlus, Shirish, you know it’s — the season is not there for quarter 4. So it doesn’t matter much. As far as Fair and Handsome is concerned, we are ready with our strategy, recommended by them. We are yet to launch the new strategy. Suddenly, this pandemic came, and we have further postponed. Now this name change has come. So it is further delaying the strategy. But I think we are ready with what exactly we want to do with Fair and Handsome brand. For BoroPlus, I’m not worried because as the season — we are approaching the season now, we would come back to our growth.

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Shirish Pardeshi, Centrum Broking Limited, Research Division – Senior Analyst [19]

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But is it something to do with the international business, which has declined because BoroPlus is also sold in a large quantity in Russia and other part of European countries?

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Mohan Goenka, Emami Limited – Wholetime Director [20]

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No, these — we are talking of the Indian numbers. And international, if you will see, we have actually grown healthy in the last — in the fourth quarter. Our growth has been almost 16%.

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Shirish Pardeshi, Centrum Broking Limited, Research Division – Senior Analyst [21]

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Okay. My related question on Fair and Handsome. We have seen that competition is going away with fair word, fairness and this all thing. Is there any — is there any compulsion or regulation which is passed by Indian laws that you need to take out this fair word from your Fair and Handsome?

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Mohan Goenka, Emami Limited – Wholetime Director [22]

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No, there is no regulatory requirement that we have to get away with the word fair.

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Shirish Pardeshi, Centrum Broking Limited, Research Division – Senior Analyst [23]

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Because what I’m seeing that till the time, if there is no law, we will always get benefited from the competition because Fair and Handsome or even BoroPlus is a very strong brand into the trade.

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Mohan Goenka, Emami Limited – Wholetime Director [24]

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Right. No, so I have told in my remarks that we are evaluating the pros and cons. What needs to be done, we will take a call in few days.

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Shirish Pardeshi, Centrum Broking Limited, Research Division – Senior Analyst [25]

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Okay. My second question is on A.T. Kearney, we have hired for cost improvement and optimization in the supply chain. Would you have any — or will you be able to quantify what kind of benefits we will draw in FY ’21?

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Mohan Goenka, Emami Limited – Wholetime Director [26]

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So we have quantified that, Shirish. Hopefully, we will get — in FY ’25, we will get a benefit of roughly about INR 50 crores to INR 60 cores in this year.

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Shirish Pardeshi, Centrum Broking Limited, Research Division – Senior Analyst [27]

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Okay. Okay. Any thoughts on international business, how we can see this because, obviously, even if international will have a similar COVID challenges in terms of lockdown, but how do you estimate the next 3 quarters? If you can give some color on international?

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Mohan Goenka, Emami Limited – Wholetime Director [28]

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So international, in this quarter, I think is — at least in first quarter, what I see is that it is slightly more hit than the domestic. In the June month, we have got good amount of orders for the international business also. So things are picking up very, very fast. Hopefully, I think year — by the year-end because we are also launching a lot of new products under the brand Creme 21 in a lot of geographies. So keeping everything in the mind, I think we would be able to sustain last year numbers for international business.

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Shirish Pardeshi, Centrum Broking Limited, Research Division – Senior Analyst [29]

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You mean to say, FY ’20?

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Mohan Goenka, Emami Limited – Wholetime Director [30]

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Yes, FY ’20 — yes, FY ’21. Whatever numbers we have done this year for FY ’20, we’ll be able to do next year because first quarter would be a decline. So we’ll be able to make up in the last 3 quarters.

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Shirish Pardeshi, Centrum Broking Limited, Research Division – Senior Analyst [31]

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Okay. So you’re saying that the business will come back to FY ’20 level?

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Mohan Goenka, Emami Limited – Wholetime Director [32]

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Yes. Because June, we are seeing a significant jump.

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Shirish Pardeshi, Centrum Broking Limited, Research Division – Senior Analyst [33]

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Okay. My last question is on raw material prices. I think I see that directionally, we have got benefit in Q4. So do we have some guidance on FY ’21, what kind of inflation you are seeing in menthol and other packaging material?

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Mohan Goenka, Emami Limited – Wholetime Director [34]

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See all the packaging material and menthol is favorable, and we are further seeing expansion in gross margin by at least 100 basis points.

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Operator [35]

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The next question is from the line of Harit Kapoor from Investec.

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Harit Kapoor, Investec Bank plc, Research Division – Analyst [36]

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Just a few questions from my end. Firstly, your thoughts on innovation. You spoke in your opening remarks about a slew of things that you’re planning to do going forward as well as home hygiene that you’re looking to launch. So on that, I just wanted to get a sense of what do we expect going forward in terms of new products as well as in home hygiene, do we look to do it under the — in the current brand umbrella or a separate brand?

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Mohan Goenka, Emami Limited – Wholetime Director [37]

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So we will come out with that, Harit, very soon because we are working on finalizing the strategy now. And we have already finalized it. But once the — we come nearer to the launch, we will come out with the presentation, okay? But it would be a new brand, it is not under any existing brand.

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Harit Kapoor, Investec Bank plc, Research Division – Analyst [38]

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Got it, sir, got it. Second question was on the hair oil kind of category — the overall oil category, specifically for Navratna as well as Kesh King. So if you look at, there is a thesis that a high price point products in the current environment, especially in the value-added hair oil space would — could see some stress going forward. So how do you kind of read into that? Do you think the same applies for 7 in One and Kesh King as well or in the market, are you seeing a different trend?

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Mohan Goenka, Emami Limited – Wholetime Director [39]

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See, Harit, as I said that — see, till — from almost 15th of May, we are seeing a very normal sales as far as Navratna is concerned or even 7 Oils is concerned, okay? Anyway, you know that our small pack sales are very high contribution to Navratna. So we are not seeing any pressure or a huge consumer shift or trends going against any of these brands. So there is no need for us to change anything. It is a seasonal brand, unfortunately, be lost out on season, the peak season got impacted for Navratna, okay? So that we can’t get back. But honestly, going forward, I don’t see it would have any impact.

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Harit Kapoor, Investec Bank plc, Research Division – Analyst [40]

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Right, sir. And last question was on rural versus urban trends. Given that you have a strong salience in rural, are you already seeing this divergence in growth between Tier 1 metro towns and smaller towns? Is that something you’re already picking up from on the ground?

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Mohan Goenka, Emami Limited – Wholetime Director [41]

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Yes, yes, absolutely. There are trends where we see that the sub-stockist in small towns, the growth is slightly higher than the urban towns. Because there’s a lot of big towns, anyway, there are sporadic cases of lockdowns and wholesale market still not functioning in some markets. So because we have a very strong rural coverage, we could manage our numbers from May 15 onwards. And as I said, June is almost like we are crossing our last year numbers. See, if the trend continues like this, I don’t see a cause of worry going forward because our consumer base is very, very widespread.

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Harit Kapoor, Investec Bank plc, Research Division – Analyst [42]

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Yes. Yes. Fair point, sir. Last one, if I may, was from a distribution touch point perspective, number of outlets that you service, what percentage of that are back on track? I mean is it 90%, 95%? Are we close to store levels in terms of GT servicing outlets? And MT and e-com, I can understand. From a GT perspective, are we almost there in terms of pre-COVID levels or I just wanted to get a sense on that?

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Mohan Goenka, Emami Limited – Wholetime Director [43]

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Yes. No, we haven’t reached those levels because just to bring things to perspective, like we have almost 2,300 salespeople on the field. Presently, we are working with about 1,900 or so, okay? So some areas where still people are unable to visit the markets. So we are touching almost 75% to 77% of our outlet base. But the major outlets, which gives almost 90% contribution, there we are servicing. Because you — you also know that suddenly, we see a lockdown in Chennai or a lockdown in Assam or a lockdown in some place or the other. So those are the places where we lose some bit of business.

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Harit Kapoor, Investec Bank plc, Research Division – Analyst [44]

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Understood, sir.

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Mohan Goenka, Emami Limited – Wholetime Director [45]

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But we are trying to make up that business through some wholesale markets also.

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Harit Kapoor, Investec Bank plc, Research Division – Analyst [46]

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Okay. Sir — wholesale, sir, would be affected, right, in the current context? The wholesale space would be impacted.

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Mohan Goenka, Emami Limited – Wholetime Director [47]

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Wholesale is impacted, but because we are unable to reach out to every outlet, ultimately, we have to reach to the wholesale only. So we have seen some demands. See like in the month of May, we didn’t have a single person visiting the markets, but we could do significant business. So it was primarily through the wholesale channels, right? Same is also for June. As I said, we haven’t reached to every outlet. So we still have to depend significantly on the wholesale channel.

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Operator [48]

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The next question is from the line of Prakash Kapadia from Anived PMS.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd – Principal Officer [49]

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Sir, on Zandu, which are the geographies where we’ve test marketed? I guess these would be more urban audience-targeted? And when do some of these newer products be available pan-India? What’s the time line for FY ’21? Because Zandu is one of the very strong brands. And in your opening remarks, you did mention about the entire immunity building portfolio. So what’s the plan for FY ’21?

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Mohan Goenka, Emami Limited – Wholetime Director [50]

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No, plan is very clear. We are coming with a lot of new offerings under Zandu. Because I strongly believe that post this pandemic, Zandu has a significant role to play. And we have identified a slew of products under Zandu. We would be launching all these products pan-India because we have a very strong distribution across India. So there is no question of test marketing any of these products. The products are very well tested in our R&D. A lot of products we have been working for many quarters. So I think this is the best time to launch every product and not delay it any further.

So every month on month or every fortnight, we would be launching a lot of products. These would always be niche products, so — but very, very relevant post-COVID times.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd – Principal Officer [51]

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And these would be available and the positioning would be urban, right?

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Mohan Goenka, Emami Limited – Wholetime Director [52]

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Sorry, the positioning would be?

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd – Principal Officer [53]

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More towards the urban consumer rather than rural?

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Mohan Goenka, Emami Limited – Wholetime Director [54]

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Yes, prices are slightly higher. I see, if the need is in rural, people will always buy. It is not like people don’t buy Chyawanprash in rural areas or they don’t buy Pancharishta in rural areas. There’s nothing like urban or rural portfolio. Wherever the need would be, people will buy these products. And Zandu is a very, very well-entrenched brand in urban and rural both.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd – Principal Officer [55]

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Right. So over the next 2, 3 years, we could see far more increased contribution to overall top line from this Zandu portfolio, right?

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Mohan Goenka, Emami Limited – Wholetime Director [56]

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It looks like because we are launching a lot of products in the Zandu.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd – Principal Officer [57]

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Yes. And secondly, sir, amongst other power brands, which do you think could end up in positive growth trajectory for FY ’21? I’m not talking of next quarter or Q2. So based on our internal assessment, which other power brand you think will at least end up being positive for the year?

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Mohan Goenka, Emami Limited – Wholetime Director [58]

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So see, I think pain category is doing very well in this period. The best-performing brand from our side has been the pain categories. And now every brand has started performing to the pre-COVID level. So whatever business is lost, I think, is lost. Other than if any brand which is slight challenge, I think it is still Fair and Handsome, where we need to completely relaunch. Other than that, I don’t see any challenge in any of the brands. The only challenge is the first quarter. That’s it.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd – Principal Officer [59]

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Right. Right. And lastly, one question for Rajesh. Out of the INR 192 crore amount on buyback, how much is already spent or the average cost per share, whatever, if it is available or you could share?

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Rajesh Sharma, Emami Limited – SVP of Finance & IR [60]

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So we have already spent roughly INR 150 crores.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd – Principal Officer [61]

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Okay. Okay. This would be a day or 2 days ago?

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Rajesh Sharma, Emami Limited – SVP of Finance & IR [62]

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Yes.

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Operator [63]

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The next question is from the line of Tejash Shah from Spark Capital.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division – VP of Research [64]

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Sir, many companies are using this crisis to reboot the whole cost structure, relook the distribution layers, management layers. So are we doing any structural changes in how we do the business on any of these aspects or any other aspect with them, without them?

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Mohan Goenka, Emami Limited – Wholetime Director [65]

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Tejash, as ATK is helping us in the cost reduction measures, I think we have been very, very aggressive, not just because of the pandemic, but even before that, because this project is going on for the last 6, 7 months now. And we have identified a lot of areas where we can save cost. I also said that at least I’m very sure that INR 50 crores to INR 60 crores benefit would come in this year, only on the cost front. So I don’t think we have left a single area on the cost side. I can’t really detail out the projects or in detail, whether it is supply chain, IT or operations or sales, it is every area we have covered.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division – VP of Research [66]

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Great, sir. This is helpful. Sir, similarly, on top line side. So if you see the last decade for Emami, we had a fabulous first half of the decade, then post-demonetization, things went downhill for various macro and micro reasons. So now, obviously, you spoke about a lot of launches in Zandu and many of the launches of variants in the existing portfolio. These are good initiatives. But as — but beyond these interventions, are we having — are we working with any 3-year, 5-year plan to get back on track and cover up the lost ground that we would have lost in the last 3 — 2, 3 years, in particular?

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Mohan Goenka, Emami Limited – Wholetime Director [67]

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No, absolutely, Tejash. I think we have worked very hard on the — during the last 2 quarters. One is on the cost side and on the new launches. Post-pandemic, you would realize that in the last 120 days, we have almost worked on at least 40 to 50 products new line. Our R&D has been working 24/7. Our marketing department, R&D, everyone has been working almost 24/7. And we are launching these products, some of the products we have not even envisaged before the pre-COVID levels. And now we are launching these products. So definitely, there has been a lot of aggression from our side. And somebody asked also on the management. Now we are putting all our efforts on ensuring that Emami gets back to the growth levels, at least at double-digit growth levels. With the home and hygiene with a lot of Zandu products, I think we would also — and with soap and hand washes and with a lot of those products, we would reduce some bit of our seasonality concerns also. This is also in our minds. So I think we are on the right track. That’s what I think. Let’s see what — how the market accepts these products.

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Operator [68]

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The next question is from the line of Soniya Varnekar from Equentis Wealth Advisory.

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Soniya Varnekar, [69]

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I have 2 questions. One is on the pledging. You said that we are looking out for more — one would disinvestments and then the pledging will be 0. Do you have any time line for this? That is the first question. And second is on the capacity utilization. You said that, see, we have reached 3 lockdown levels. Can you share the number at what percentage?

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Mohan Goenka, Emami Limited – Wholetime Director [70]

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So when I say production, so we have always reached we were at pre-COVID levels. If it was 100, we have reached 100, okay? And as far as the — because all our factories are running full capacities now, as per the demand. So — and as far as the pledge issue is concerned, I think you can see the intent. We have been maintaining this for the last 1.5 years that we would bring down our pledge, and we would divest some of our loan core businesses. And we have done also. Cement, I’m being very vocal. In the next 2 weeks, you would see that. Some of our other businesses, I think because this lockdown happened, otherwise, we could have done some more. But max to max, I think, by March, we should see our pledge levels to almost 0. Either it would be through land sale or some of our business — other businesses. Promoter is very, very clear that the pledge has to come down.

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Operator [71]

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The next question is from the line of Shubham Aggarwal from Centrum Broking.

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Shubham Aggarwal, Centrum Broking Limited, Research Division – Associate of Consumer Staples and Discretionary [72]

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Just a continuation on the earlier question, Harit has asked. I just wanted to understand your capacity utilization is about 100% right now. And we are also talking about significant number of new launches coming through. So do we have a robust CapEx plan in the current year? What will be the CapEx guidance, 2, 3 years?

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Mohan Goenka, Emami Limited – Wholetime Director [73]

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No, most of it is third-party manufacturing because these products are not planned. We are outsourcing them. And when I say capacity realization as 100% in the sense, of course, we have much more capacity. But if our demand was — we were producing 100 before, we are now also producing 100, but the capacity is far more to produce. We always have a 30%, 40% buffer everywhere.

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Shubham Aggarwal, Centrum Broking Limited, Research Division – Associate of Consumer Staples and Discretionary [74]

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Okay, okay.

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Mohan Goenka, Emami Limited – Wholetime Director [75]

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Yes. But for new product, it’s mostly outsourced.

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Shubham Aggarwal, Centrum Broking Limited, Research Division – Associate of Consumer Staples and Discretionary [76]

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Okay. Okay. And you also mentioned that you touched last year sale. Is my understanding correct that we’ve touched last year sales in spite of tucking this 75% of the POS? Products are placed at 75% of the POS because we are working with less capacity, 1,900 salespeople against 2,100 that we generate work with?

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Mohan Goenka, Emami Limited – Wholetime Director [77]

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Right, right. So when I say that, I mean that in the month of June, we have reached our last year numbers, okay? Because April and May we’re — April was very low, May we picked up, then June, we are almost at last year numbers. And still, our entire frontline people are not in the street. But 90% of our outlet coverage, we have almost reached, which gives 90% of coverage.

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Shubham Aggarwal, Centrum Broking Limited, Research Division – Associate of Consumer Staples and Discretionary [78]

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Okay. 90% coverage till 100%, almost there at pre-COVID level of sales, last year comparison here on April. Okay. Sir, and just a continuation to this one. Actually, Navratna declined 12% in Q4 FY ’20 as a result of the lockdown, I’d say. And has there been inventory filling in Q1, which would have helped us reach the — this gap? Has there been inventory filling in Q1?

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Mohan Goenka, Emami Limited – Wholetime Director [79]

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No, no, there is no question of inventories — there is no question of inventory filling in any of the brands.

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Shubham Aggarwal, Centrum Broking Limited, Research Division – Associate of Consumer Staples and Discretionary [80]

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Because we wouldn’t have been able to place our products in Q4. That’s what I think. It would have been compensated in Q1, is my understanding correct?

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Mohan Goenka, Emami Limited – Wholetime Director [81]

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No, no, see, demand only started coming in, post the lockdown was lifted. So yes, yes. We are being very cautious because we are not wanting to increase our number of days of inventory at the distributor’s level. So inventories have not gone up to be very precise.

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Shubham Aggarwal, Centrum Broking Limited, Research Division – Associate of Consumer Staples and Discretionary [82]

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Okay. And sir, just the last one. Our short-term loans and advances has increased by about $600 million, it is significantly above our previous leverage of loans and advances from about $29 million last year, and it’s been in the range of $40 million in the past 5, 7 years. Anything you would like to follow why is there such a significant increase in loans and advances shorter?

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Rajesh Sharma, Emami Limited – SVP of Finance & IR [83]

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Hello? Yes, Shubham?

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Shubham Aggarwal, Centrum Broking Limited, Research Division – Associate of Consumer Staples and Discretionary [84]

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Sir there’s been an increase of $600 million because of short-term loans and advances. Just wanted to get a sense of what contributed in this because it’s significantly higher than what it has been in the past?

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Rajesh Sharma, Emami Limited – SVP of Finance & IR [85]

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Yes, right. So most of the loans and advances are business credit advances. So one of — there is one loan, which is outstanding in the month of March for roughly INR 60-odd crores, so — which was short-term parking of funds, and post the balance sheet date, we have received the amount back from there.

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Operator [86]

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(Operator Instructions) The next question is from the line of Amit Sinha from Macquarie.

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Amit Sinha, Macquarie Research – Analyst [87]

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Firstly, sir, on the cement business. The last quarter in the earnings call, you had run us through the details of a deal and as in how much money you will be getting and how much will be the loan against the promoters after the deal. So just wanted some of those numbers, while you have obviously outlined that the pledges will come down to 45-odd percent — 40% to 45-odd percent, but just wanted some absolute numbers, if you can?

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Mohan Goenka, Emami Limited – Wholetime Director [88]

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But Amit, we have already — numbers have not changed since last time. So the number stands the same, whatever I said in the last quarter because we have not renegotiated the deal, no…

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Amit Sinha, Macquarie Research – Analyst [89]

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No, no. Yes, absolutely. So but the loan against — but the overall loan against the shares, that has also remained the same? I just wanted to get that number?

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Mohan Goenka, Emami Limited – Wholetime Director [90]

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It remains the same. It has not gone up, Amit.

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Amit Sinha, Macquarie Research – Analyst [91]

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Okay. Okay. Understand. Okay. Secondly, sir, on the input cost scenario, how do you see the raw material prices as of now and…

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Mohan Goenka, Emami Limited – Wholetime Director [92]

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I have already answered this, Amit. I think you missed it out. We are seeing an expansion of about 100 basis points next year. Costs are all in — well under control. Menthol prices have also come down and also other raw material, packing material costs.

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Amit Sinha, Macquarie Research – Analyst [93]

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Sorry, sorry, I may have missed it because I joined in late. Last question from my side is, when you say this INR 50 crore to INR 60 crore savings which you expect in FY ’21, does it also include savings in — on the A&P side? Is there any particular savings we are targeting on that side because of renegotiation of rates and…

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Mohan Goenka, Emami Limited – Wholetime Director [94]

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It is not on the reduction of advertising because some brands we have reduced in the first quarter, but it is, yes, the rates for advertising has come down, which we have calculated.

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Amit Sinha, Macquarie Research – Analyst [95]

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Sure, sir. Just one last thing. Kesh King, I see there is a market share gain. Just wanted to understand, I mean, how is the competitive intensity there? Are you seeing prospects of further market share gains in that product?

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Mohan Goenka, Emami Limited – Wholetime Director [96]

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Kesh King is — it remains where it is. And this quarter also, we are seeing, the brand has bounced back to the prelockdown levels in the month of June. Of course, I would not say that the growth has come back. So going forward, this is, of course, a very important brand for us. We are launching some of the small SKUs in Kesh King shampoo also in this quarter. So hopefully, we would be able to achieve our last year numbers for 3 quarters. That’s what it looks like.

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Operator [97]

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The next question is from the line of Shirish Pardeshi from Centrum Broking.

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Shirish Pardeshi, Centrum Broking Limited, Research Division – Senior Analyst [98]

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I have 2 questions. One is that, Mohanji, just wanted to understand, you have launched BoroPlus hand sanitizer, and we also see that — presentation says that you have Zandu ayurvedic hand sanitizer. These 2 hand sanitizers are in what strategy? I mean where do you think this is going to penetrate?

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Mohan Goenka, Emami Limited – Wholetime Director [99]

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Shirish, firstly, I would say, we don’t need any strategy to launch sanitizers, okay? So it is almost given, so Zandu — because we strongly believe that Zandu has a far more brand — stronger brand equity in south than compared to BoroPlus. So we have launched it particularly for the southern markets where Zandu enjoys a better attraction than BoroPlus, okay? And sanitizer, as I said, is extended now to — every brand has extended into sanitizers, okay?

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Shirish Pardeshi, Centrum Broking Limited, Research Division – Senior Analyst [100]

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Yes. I think what I was trying to say that Zandu has always held the flank to and this is very strong equity in rural. So from that sense, I was expecting — would it dilute the equity, that’s what my…

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Mohan Goenka, Emami Limited – Wholetime Director [101]

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No, no. I really don’t feel it would dilute any equity. (foreign language) we are not sure how long — how many years it would last, but for short term, it is absolutely essential.

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Shirish Pardeshi, Centrum Broking Limited, Research Division – Senior Analyst [102]

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Okay. And can you give some thought that how big is now health care? And maybe what I’m trying to understand is that yes, you have displayed and said lot of new product launches. So what kind of number you have in mind, contribution from new products in FY ’21? Because you seem to be optimistic that the loss of sales, which has happened in April, May, against 8-months operation, you are saying that you will cover for 12 months?

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Mohan Goenka, Emami Limited – Wholetime Director [103]

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Yes, yes. No, so we are — if I see all the brands with the new offerings, we expect at least 3.5% to 4% contribution from these new launches.

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Shirish Pardeshi, Centrum Broking Limited, Research Division – Senior Analyst [104]

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And does it mean that you will have to spend more on advertising and margin may not occur in FY ’21, but FY ’22, there will be some improvement in margin for new products?

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Mohan Goenka, Emami Limited – Wholetime Director [105]

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Not really. See, basically the Zandu or whether it is sanitizers, we are not going to invest much money behind them. It would ride on the brand Zandu. Of course, on home care, we have to spend some amount of money. But we would be able to save a significant amount of money on our existing products. So I don’t see any pressure on margin because we would lose on turnover in the first 2 quarters. And there are a lot of fixed costs attached. So we are trying to make up every cost by launching a lot of new products. And also, I think the need of the consumers are changing, where Emami can play a significant role. So taking everything into mind, I think we have identified some areas and opportunities. As I said, see, ultimately, the customer will respond to whatever we do, we have to just wait and watch. But yes, company is getting aggressive, for sure. And I don’t see any pressure on any margin and nothing at all because cost is well under control. We have taken a lot cost measures. We will save a lot of money everywhere and put some money behind advertising.

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Shirish Pardeshi, Centrum Broking Limited, Research Division – Senior Analyst [106]

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Okay. So in the new product launches, are you going to introduce Creme 21 in India?

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Mohan Goenka, Emami Limited – Wholetime Director [107]

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We haven’t decided on bringing in Creme 21 in India. Creme 21 is doing exceptionally well in some global markets. We have also launched a lot of products under the brand Creme 21. So — but yes, as of now, we don’t intend to bring it into India.

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Shirish Pardeshi, Centrum Broking Limited, Research Division – Senior Analyst [108]

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Okay. And are you planning to get into any new category because I see you have gone into soaps now?

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Mohan Goenka, Emami Limited – Wholetime Director [109]

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So that is an extension of BoroPlus, I mentioned. Home and hygiene is a big range. Zandu, we are launching a lot of new products. So yes — for e-commerce, we have identified a lot of new areas. We would launch a good amount of products only for e-com.

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Operator [110]

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As there are no further questions, I would now like to hand the conference over to the management for the closing comments.

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Rajesh Sharma, Emami Limited – SVP of Finance & IR [111]

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Thank you, Percy. Thank you, IIFL, and thank you all the participants for joining us today for our — this ConCall. Thank you.