Bajaj Consumer Care Q1FY21 report card –
Q1FY21 Shareholding Pattern –
Q1FY21 Concall Takeaways –
The company reported a sales turnover of 191 Crores for the quarter with a decline of 17.6% over the same quarter of the previous year. The EBITDA for the quarter was at 58.25 Crores, a decline of 19% against the previous year, and the EBITDA to sales ratio was at 30.4%, which is a decline of 50 basis points versus the EBITDA reported in the last year same quarter.
The gross margin was 63.6% as against 66.7% in Q1 2020. The margin drop was due to the adverse impact of the product mix, which included the launch of the sanitizer range during the quarter.
The LLP (Light liquid paraffin) prices have softened in this quarter, and if these pricing levels continue, the benefit should be visible in the material cost going forward.
The EBITDA margins remained healthy on the back of a significant drop in A&SP cost, advertising, and sales promotion spends as they are off air from April to mid-June.
One thing that became aberrant during the early stages of lockdown itself, which was later borne out by the Nielsen data, was that the rural markets have been far less impacted than the urban markets, and as most containment zones are in the urban centers and a significant number of large wholesale mandis were shut, while many rural markets currently remained open.
During April and May, the total hair oil off-take decline has been 44% in the urban market as compared to only 30% in rural. So to ensure that the rural distribution reach is dialed up, the company scaled up its van operations in May and June. Currently, overall, we are reaching out to more than 50000 villages that are including the van across 15 states, this has helped increase our direct reach, and helped service the end customers better.
So in April whatever little off take that happened, sales were much higher than that. So they had to replenish the stock at the distributor level. Since then, the distributor stocks have really not gone up, so if you look at the stocks in March they had come down to something like 19 days of stock at the distributor level, now it went up to 24, 25, 26 is where we are sitting as far as June is concerned so really speaking a bit of a 7 day kind of a gap which has got created, which would have also reflected in our March sales.
Going forward, there are two ways that you can look at the market situation, one is obviously the hair oil markets, they do not expect an immediate big recovery, but they also do not expect that market to really crash big time.
As far as ADHO is concerned, they will continue to have their own strategy in terms of ad spends will continue to be there. So they have done some little bit change in our GC, in the terms of where we are now advertising, we are now a little more focused on the rural channel so more GC2 rather than GC1 is where we are focusing as far as our advertising strategy is concerned. What we feel that this market is not going to go away in a hurry it is not going to collapse I mean there might have been a little bit of a down this thing but that is not something that will remain for a very long time, so off takes will come back though this is not a product even though it is not essential it will not go away completely.
Another fact is that our kind of market share which is just about a single-digit to just about 10%, 10.5%, kind of a market share we still think that there is room for us to play across geographies as well as across products.
As you see our product basket, obviously as you are aware we do not have a very large proliferated product basket. In the few segments that we wish to play in, so for example at this very onset, let me just say that coconut is not something that we are looking at, at a very current movement, so that is a large basket is out, I am saying at this current movement definitely that is not really, where I am not commenting on what might or not happen in the future, but currently, we are not into coconuts right.
Amla hair oil , can scale up, especially in rural
Ad spends see this was very unprecedented as far as the March to June was concerned this was I think in the history of the company for the first time for three months continuously we were off the air now that is not something that we would want to see ever in the future or something that if conditions were really that bad and we were forced to do so we will have to do that but we hope that we do not have to go through that history once more. So at this moment if you look at since mid-June we have been on-air and we have been substantially on air, back to our pre COVID levels and unless there is some unforeseen situation which you do not know and the situation we really cannot predict, we would like to continue with our ad spend strategy we would want to fully back ADHO so that the salience of ADHO across the consumer mind remains strong.
Market share – 10.1% to 10.2%
Question – Adjacencies of cooling hair oil and acquisition failed, so what is being done as ADHO single is too much reliance. Now whether we would really go outside hair oils what are the cases etc., I think we will wait and wait for that to come out which we should be through by another two, three quarters I mean we should be able to come back. At this movement we really do not want to speculate obviously all of these points are on the table we would like to see where our strengths lie, what are the things that you can chew and which are the ones we can back for some reasonable long-term at least make to long-term one thing that we have learned out of this exercises possibly that if we take up a project we should not take up too much on our plate and what we take up we should be able to see through consistently that is something that we would want to take up in the future so what, etc., maybe you will have to go for one or two quarters before we come out with what exactly we would want.
Larger packs are selling much more than the smaller packs because the frequency of visits to the shops has also gone down – COVID buying habits.
For sanitizer, they will see if they can play long term or not – for this capacity converted part of the facility to produce this – do not know whether we can play a long-term if this is a potential we see we want to exploit there are other products also in a range we might want to explore in the entire health and hygiene space. So this is something that I think we will wait and watch rather than comment upfront and go ahead higher on that.
One observation – Bajaj Consumer spent 20% on ad spends in FY20 compared to 8-10% by others. Interestingly all use coconut oil and hence to push ADHO, Bajaj has to spend more and explain its benefits of Vitamin E, etc. So a pull vs push parity is visible here.
As you rightly said, clearly the economy hair oils are doing better, so we are also keeping a watch it and I guess that we have already started trying to see how we can make some more meaningful play in that segment and that is another significant other option that we have for us. Having said that ADHO will continue to remain our absolute focus area, I do not think at any point in time that will go out from our radar in any manner whatsoever. Not only going out from radar, but even a little bit of assumption going out from the radar also will not happen, that is something that we will continue to focus on and if you look at premium oils, the impact on the premium oils, really, really premium oils, which is a level beyond ADHO. I think the severe impact has been more on that category. ADHO, I think the user base is also a little lower and whatever little loss has happened is more keeping in the market’s growth rate. So, really speaking not huge losses have happened in this category. So, we would try to monitor that and we think that as the market stabilizes that will also keep coming back.
The performance during the year was hugely impacted due to disruption in sales in the latter half of March 20 led by lockdown, to contain the outbreak of COVID-19. They achieved operating revenue of Rs 852 crores with a decline of 7% compared to the previous year. Proﬁt after tax has been at Rs 185 crores, a decline of 252 bps over the previous year.
The overall commodity prices were ﬂattish for the most part of the year with softening of LLP and PET bottle prices being offset with inﬂation in reﬁned mustard oil and glass bottles.
During the year, they have made signiﬁcant investments behind brands and market execution to increase market share and strengthen brand equity which has led to a dilution in proﬁtability margin. The Board of Directors has proposed a dividend of Rs 2/- per share, subject to the approval of the shareholders at the ensuing AGM.
Last year they gave Bajaj Almond Drops, their iconic hair oil brand, a new look and feel with brand new packaging. This year they have changed the communication strategy to focus more on nourishment from almond and Vitamin E, than the lightness of the oil. The communication also highlights Key Brand Asset – The Iconic shape of the Bajaj Almond Drops bottle. This is helping company in expanding the target audience for the Brand and build on its key imagery attributes of lightness, nourishment in an environmentally sustainable manner.
The brand re-launch has been very successful and has resulted in market share as well as penetration gain. The value market share in the total hair oil segment touched an all-time high of 10.5% in Jan’20 (highest in past 3 years). This rise in market share has been driven by an increase in household penetration.
The penetration of Bajaj Almond Drops has gone up to 21%, with a rise of 1% in penetration within one year. In keeping with the purpose of creating innovative products to serve customers, Bajaj Zero Grey Anti Greying Hair Oil was launched on e-commerce platforms and in select Pharmacy outlets earlier this year. This oil helps delay the greying of hair naturally. Bajaj Zero Grey Hair Oil is enriched with natural actives and increases the production of the natural black color of hair by 5 times. They also added an expert root applicator to enable ease of oiling.
To support customers through the pandemic, the company has decided to enter the hand sanitizer market with a brand new product, the Bajaj Nomarks Hand Sanitizer. The sanitizer marks the entry of Bajaj Consumer Care in the Personal Hygiene Segment. The product is aimed at serving fellow countrymen in this time of Covid-19 where personal Health and Hygiene is essential. The new range of Hand – Sanitizers have more than 70% alcohol which is required to give the user protection against germs. The use of alcohol does make the hand dry and hence they have added Neem and Aloe-Vera extracts to moisturize the hands.
Will continue to drive productivity and implementing safety measures. They will focus on innovation-led growth to weather this crisis which is bound to have a lasting impact on all of us. The company aspires to evolve into a complete FMCG company by introducing a culture of innovation to create newer path-breaking products for consumers across the globe.
The company wants to be recognized as providing innovative solutions to solve tomorrow’s problems for their customers. They will continue to work on micro-segmentation of the Hair Oils market and analyze key markets in great depth to design and activate the ideal assortment and marketing mix in each state.
They will start small and scale fast while focusing on cost excellence and innovation to deliver sustained proﬁtability along with accelerated growth. They continue their work on the Multi-year Transformational Program focused on building an organization geared to succeed in the long-term.
Key Highlights of the Company performance in FY 20:
- Sales declined to Rs 81.775 lacs in FY20 from Rs 88,094 lacs in FY19, registering a de-growth of 7.17%.
- Earnings before interest, CSR, depreciation and tax decreased to Rs 21,624 lacs in FY20 from Rs 28,385 lacs in FY 19, registering a de-growth of 23.82%.
- Proﬁt after Tax (PAT) also decreased by 15.73 % from Rs 22,613 lacs in FY 19 to Rs 19,055 lacs in FY20.
Quarterly Sales, EBITDA & PAT of the Company during the year as follows:
About Bajaj Consumer
The company has eight production facilities including third party operations to cover footprints across India and overseas. Broadly Hair oil & skincare products are manufactured at factories situated in Himachal Pradesh, Uttarakhand & Guwahati regions. Out of the eight manufacturing facilities, three units are located at Paonta sahib & Baddi, one in Baroda, three in Uttarakhand & one in Guwahati for manufacturing of all variants of hair oils & Nomarks skincare products.
Other than hair & skincare portfolio, the company has one facility located in Udaipur, Rajasthan for the manufacturing of oral care products.
The Hair Oil Industry
The hair oil category has witnessed slower growth in FY 2019-20 compared to the previous two years, with a value growth of 3.4% and a volume growth of 0.6%. (Source: Nielsen Offtake Nos. MAT Feb’20)
In this slow growth phase, Bajaj Almond Drops, has been able to maintain the market on value 9.6% (MAT FEB’20)
In the LHO category, the brand has continued to increase its dominance and the value market share has increased by 0.6% to 61% (MAT FEB’20)
Household penetration has also gone up from 20.1% (MAT Dec’18) to 21.1% (MAT Dec’19). The penetration increase has happened across most of the SKU’s and both 100 ml and 200 ml has registered a healthy increase in penetration
The brand continues to maintain strong dominance on the distribution front and is present across 4.10 MM outlets on Feb 20.
During the year, they initiated Project Vistaar with the help of Bain & Co. The project is aimed at signiﬁcantly increasing market share in the Hair oil category over the next few years. This will be done through focused strategies on increasing the Brand’s Memorability in the consumers’ minds, deploying an optimal SKU assortment, and maximizing in-store availability of Hair oil brands. The project was test-launched in two states – West Bengal and Uttar Pradesh. Initial results from both states have been extremely encouraging across key parameters. The project will be expanded to other states in FY21.
In view of the growing e-commerce segment and to cater to specialized Haircare needs amongst consumers, Bajaj launched Bajaj Zero Grey- Anti greying Hair oil which helps delay early greying of hair, naturally. It contains the power of 5 natural actives – Henna, Hibiscus, Shikakai, Kalonji, and Onion Extracts. The brand was launched in March 2020 on leading e-commerce platforms.
Sales and Distribution
Distribution continues to be the backbone of the organization. The entire back end ITeS has been strengthened further and remains fully automated. They are currently reaching close to 41 lacs outlets nationally as reported by Neilsen and amongst the highest compared to peers. Reach expansion drive will be continued going forward speciﬁcally in the rural areas.
They are piloting the Rural Van project to maximize reach. Currently, they are working on costs and viability to create a long term distribution model for the future.
They continue to look for better returns for their channel partners and also continue to generate incremental revenue from them and giving better service to them by fully automated claim management processes and better stock management.
Data Analytics continues to be the main driver for sales and plans to focus on trade marketing and data analytics in a big way in the future.
Supply Chain & Procurement
FY19-20 was a year of value creation and upgradation of the supply chain infrastructure and processes. They have moved their depot count to 19 from 28 in 2017-18 and also upgraded infrastructure in terms of CCTV, meeting rooms, loading-unloading bays for warehouses.
They moved the location of some of the old warehouses to Industrial belts and secondary distribution to the nearest servicing center rather than within state boundaries as per old tax structure. This has helped in optimizing distribution costs and improve service levels.
Value enhancement projects under “Project Netra” were initiated to bring in a fundamental change in the cost structure of products and the location of manufacturing sites. Project Netra also aims at leveraging technology to optimize inventory within the e2e supply chain, reduce wastage, and give visibility on the overall cost of ownership. This once fully implemented will give an improvement in COGS and also improve speed to market.
The focus for 2020-21 will be on supply chain analytics to give real-time visibility into demand patterns, cost of ownership, and e2e Inventory holding. This will be scaled up to give us more insight into trends, increase the planning horizon, and to serve the market effectively in dynamic and fast-changing market environments.
Profit & Loss
In 2019, it created a FCF of Rs 164.42 cr and in 2020 it generated a FCF of Rs 174.31 Cr.
In other expenses we saw a big jump in advertising.
However in Q1FY21 we did see the management talking about going off air and tweaking ad spends!
More Annual report takeaways here.