On soaps — versus the market leader, what was the volume growth gap in Q1 and Q2 and when would you expect to grow faster than them? And on PFAD — given global tariff issues, we haven't seen much PFAD correction. How relevant is PFAD for your H2 margins?
That is not proper for me to answer on individual competitors. I think we have to ask ourselves, are we growing faster than the market. In soaps, it's also very hard to read Q2 because there's really been on soaps a lot of chaos in terms of pipeline. Hard to look at October, September. So I would say that in soaps, we feel that in the long-term, we continue to outperform the market and we will continue to outperform the market as we go forward. For the next four quarters, I am anticipating pretty sharp volume growth in soaps. On PFAD — you are right about the fact that international PFAD prices haven't corrected, but domestic PFAD prices, because of this duty reduction in crude versus refined palm oil, a lot more crude palm oil is coming into India, and that is getting refined here and PFAD is being generated in India. So domestic PFAD is actually quite attractively priced. So overall, it's not international PFAD that matters, but domestic PFAD, and that is quite attractively priced.
Palm has been volatile. Are we still on track for normative standalone margins of 24-26% in second half? And with higher palm prices recently, is there a risk to that guidance?
No. I don't mean, when we said normative that is what it is and it may be around normative, maybe on the slightly lower end of normative. Palm prices have been a bit volatile, but they have been range-bound between MYR4,000 and MYR4,500. In fact, in the last three days, four days, it had a sharp fall as well. But it does seem to be range bound between MYR4,000 and MYR4,500. And last quarter was the kind of last quarter that we had to price for this. Last year, Palm, we were MYR3,600, MYR3,700. So I would say that palm has relatively been stable. And right now, we are roughly priced for this palm now.
On Indonesia — volume seems to be coming back and market share too. But margin pressures and price cuts — should one expect this to continue? What is the new normal for Indonesia revenue and margin?
I was just back from Indonesia two weeks ago and I think that there is a genuine kind of slowdown in the economy. The government is aware of it and they're taking appropriate action. But maybe for the next few quarters, our volume growth may be in this 2% to 4% range. In terms of NSV, about 4% of it is actually a restructuring of an agreement between distributors, which will continue for another three quarters because it's a reclassification. The rest of it is due to pricing pressure, some of it will come off. What happened in Indonesia is three quarters ago, the market very sharply slowed down. And then to respond to it, there was a lot of price competition, both by retailers and by companies. That seems to have eased off a little bit. So I think there will be a little bit of improvement in delivery in Indonesia in the second half. But for us to go back to 4%, 5% volume, it may take a little bit more time. We'll let you know when we see that. But we should be in this low single-digit volume range.
Africa margins are back to around 14% with very strong growth, making up for international misses. Is there a one-off in this? Can one expect continuity of this performance? And on employee costs and A&P savings of 200bps — do those continue?
Of this 25% revenue growth, about 10% is positive currency, which is a relatively rare occurrence for us. But 15% is the constant currency growth. This is a little high. It's lapping relatively low basis. It may come down to high single digits kind of revenue growth, we are hoping. It will not continue at this 25% revenue growth. Margins should be in this mid-teens is a good margin for us to run the Africa business. So if in the medium-term, we can run a mid-teens EBITDA business kind of a high single-digit constant currency business or maybe even touching a double-digit constant currency. I think last quarter, we had one or two one-offs. The range of this mid-teens may be a pretty wide range due to structural volatility in Africa. But this is where we should kind of be. [Aasif on employee costs and A&P savings] In terms of employee costs, nothing unusual in terms of write back — it is regular true-ups. In terms of media savings, we kind of worked through a couple of levers to ensure that this year the overall ATLs will be lower, ensuring that the same effectiveness is delivered. We are on track on the larger projects. We should get more or less the savings which we've spoken about — 200 basis points.
Congrats on Muuchstac acquisition. Male grooming has looked attractive for five years but we haven't seen much scale-up from any brand. Why this brand, why male grooming, why face wash?
I think especially male grooming is a bit of a misnomer sports brand. 95% of their revenue is one single SKU in male face wash. So we're talking about male face wash, not male grooming broadly. And within male grooming, face wash is a category which is very allied to soaps. Soaps is upgrading into body wash, hand wash and face wash. This is where soaps is moving. So we've got a strong play in hand wash, an increasingly strong play in body wash. And now we've got an entry into face wash. We're entering through the male market with the number two online and number three overall brand, which has roughly got a 10% share of male face wash and growing rapidly. So I would look at this through the lens of face wash and not through the lens of male grooming. We acquired the brand at roughly 4x of sales and 10x of EBITDA, which is significantly below market benchmark transactions. On INR80 crores of revenue, if you do INR30 crores of EBITDA, there's something clearly going on — it tells you there's consumer demand.
On Muuchstac — what is the positioning, and how does it gel with existing GCPL face wash offerings from a pricing perspective? What synergy benefit do you see in kirana outlets and GCPL's e-commerce?
We don't have a face wash today. This brand is positioned largely on anti-acne. One of the really interesting things about Muuchstac — INR80 crores of revenue, they make INR30 crores of EBITDA, which at least among D2C brands is quite unique. And one of the reasons for it is they have a pretty unique influencer model. So I think GCPL can certainly learn a lot from Muuchstac on influencer models. Muuchstac is also unique that most of its sales comes from online customers. But a lot of it comes from Tier 2 and Tier 3 cities. So in Tier 2 and Tier 3 cities with our distribution, because Muuchstac is operating at about 70-75 RPI to the market leader, there's an opportunity for us to distribute it widely in Tier 2 and Tier 3 towns. It's also only in two e-commerce channels right now, so scope to expand within e-commerce, in modern trade, in GT. And this is an EPS-accretive acquisition from day one.
Q1 was a good HI quarter. Q2, season was not favorable. On new RNF formulation intrinsically — how is it doing? And on H2, La Nina is expected to bring a harsh winter which is not good for mosquito season. What's your HI H2 outlook?
On every single segment within household insecticide where we've got the new molecule, we are continuing to gain market share. You are right about the fact that Q1 was a good season and Q2 has been a poor season. Q3, I don't know. I've also heard La Nina, though, it is a transition from autumn to winter when really mosquito season happens, which is now. So it depends a little bit on how long the season is. In any case, second half of December and January, we don't sell too much mosquito products in the North. So look, it's really hard to predict what will happen in terms of season. Typically, you have one good and one bad season. The important thing for us is to ask a very simple question, which is, are we growing competitively and are we spreading the season? We have a measure called spreading the season, which is our volume growth versus the seasonality index. Are we doing better than the season — and on both counts, I think the answer is yes.
Is it possible to call out the GST impact on overall standalone top line? And which are the white-space categories you're evaluating, and is acquisition the preferred route rather than brand extensions for some existing names?
On GST impact — I think it will be 3% to 4%. On white spaces and organic versus inorganic — it's just a mix of launching extending brands, launching new brands organically and doing acquisitions. We just recently extended Park Avenue into a deo lotion in Tamil Nadu, which is kind of an antiperspirant. But equally, we launched two new brands ourselves, Godrej Spic and Godrej Bloq in toilet cleaners and antiperspirant categories, respectively. And Muuchstac and Park Avenue are examples of inorganic. The basic question between organic and inorganic is: if the market has three to four players, it's a little bit overbaked, then it is better to buy out if you get an attractive valuation. The first question is whether the category has a long runway of growth, low penetration, good margin structures. And we are attempting many new categories — laundry, toilet cleaner, antiperspirants, pet care. The second question on organic versus inorganic largely has to do with the competitive intensity of the category and the availability of an asset at the right price.
Is it possible to call out the market share gains in HI since the RNF launch, for both LVs and coils? And the current scale of incense sticks — I think an INR100 crores number was mentioned at the Analyst Day?
We don't specifically give out these numbers, but let me just say that our share gains in electrics on already very high shares is pretty significant. In coils on reasonably high shares is reasonable. On incense stick, it is very high. We have now become the market leader in incense sticks, and we are growing at roughly 100% on incense sticks.
On GST-related destocking — do you expect trade pipelines to normalize within the December quarter? And when we talk about high-single-digit volume growth for the full year, are we effectively talking about double-digit-plus in the second half? Is that delta largely from soaps turning around?
I think it will happen within the quarter. Most of it has happened within the month actually, but certainly everything will happen within the quarter. On the volume trajectory — if you look at the last four quarters, our volume growth ex of soaps has been kind of double-digit only, including this quarter despite all the GST transitions. Soaps has been pretty sharply negative. That will almost certainly turn around. I'll be surprised if that's not high single digits. So between the two, we should kind of be in the high-single-digit, double-digit volume trajectory in India. Our volume growth in India in quarter 1 was 6%, in quarter 2 has been 3. So it's about 4.5. So we may end the year kind of at 7, 8. So you're right. It will — I hope to be in that range, with non-soap momentum continuing and soap being a very significant change.
On Godrej Spic — when you did Fab, the disruption was on pricing plus differentiated product technology. What is different in Godrej Spic versus existing toilet cleaners? And do you see a similar potential as Fab, or is this a slower two-year ramp-up?
As a philosophy, we're looking at a lot of categories. The starting point is not price. Starting point is product, which is a disruptive product. This is a disruptive product and the proposition is not just cleans, but also prevents stains. So it's a formulation that is a distinct formulation. It's not a me-too product. It's operating at roughly I think 75 RPI or 70 RPI to the market leader, which is roughly where Fab is operating today. And it has what we think is pretty clutter-breaking advertising. So, we are very hopeful that after Fab, this becomes a good growth driver for us.
Last quarter you mentioned that overall incense sticks' share within HI continues to go up. Is that still holding true or is it plateauing?
Incense sticks' growth as a category continues to be high, Arnab, which is one of our — not an ideal situation. That continues to be high. So that growth doesn't seem to have slowed down. We continue to gain share in a fast-growing category. It would be ideal for us if it slowed. It will happen at some point. And we're also doing various things to try and see how we can slow down incense sticks without slowing ourselves down. But I would say that that's not fully a solved problem yet.
Clarification on guidance — is the high-single-digit UVG for India for the full year? And on soaps with the GST transition, what percentage of the portfolio gets price cuts vs. grammage increases?
Yes, that's right — the high-single-digit UVG is for the full year for India. On the soap portfolio split: all grammage packs will see grammage increases. All non-grammage packs will see price cuts. So roughly two-third, one-third ratio. Two-third is large package, and one-third is grammage, Harit.
On Africa mid-teens margins — any negative headwinds in the next 2-3 quarters from currency or specific country issues? And on India, volume growth and value growth are fairly close at 3-4%. Is this 1-1.5% UPG going forward?
[Aasif on Africa] Currency movements are difficult to forecast — you can get a sudden movement. Hence, it's better to kind of see it more at an annualized level. From a year perspective, we know we'll kind of get margins broadly at those levels. Our guidance is that GAUM and India will kind of work towards delivering double-digit EBITDA growth for the year. Those are the two pieces which are more robust in terms of guidance. You can have a few months or a quarter where you could see kind of some currency headwind or tailwind and that's difficult to forecast. [Sudhir on India UPG] Yes. Soaps will continue to have UPG, but there are some other parts of the business and mix which are operating the other way around. So I think this is roughly you will get 1%, 1.5% UPG.
Apart from palm oil, what are the other variables or risks to the normative margin band in the second half?
There are three structural risks in GCPL. One is palm prices, second is seasonality for household insecticide and third is currency volatility. So I think palm is now pretty much under the bag. Currency volatility — Argentina this year, currency volatility looks to be in our favor, lower than before. Household insecticide seasonality — if it's a very cold winter, what happens, then I don't know. But that is really the only remaining risk at any point in time.
Despite bad macro in Indonesia, competitive intensity and negative constant-currency growth, margins have held up pretty well. What explains that? And how should we think about Indonesia margins going forward?
[Aasif] Margins are, I would say, improved but mildly below the normative level. And some of it, when this reclass happens in terms of some costs going through and the price growth goes down, it also kind of gives us mild boost to margins. But that's really very mild because it's only around 4% movement between the lines. Margins are within the range, but it's on the lower side of the range. [Sudhir] Both in India and Indonesia, we have a lot of cost savings. So part of it is reclassification, then some of it has been plowed back into pricing. So that explains the negative UPG and flat margins.
On consolidated margin guidance — you said marginally lower EBITDA growth. Does that mean high single-digit or lower? And on Q3 — with GST being a 3-4% top-line hit but India delivering 3% volumes, does that mean Q3 should see high-single-digit or even double-digit volume growth from pipeline refill plus actual demand?
What I mean to say is that we'll have good EBITDA growth for the full year. India and GAUM will roughly be on plan. LatAm certainly looks like a very volatile situation right now. And Indonesia, we're having some issues. So the consolidated number may be a little lower than what we originally guided at the beginning of the year. But if we have a little bit of luck, not too much lower. On Q3 volume — I'd be disappointed if we don't come to somewhere near high-single-digit to double-digit because some of it has to come from pipeline, some of it one hopes the soap trajectory changes. Roughly, we are running a volume trajectory in India of about 6% if you remove the noise, including Q2. I'm hoping that underlying number goes to 7%, 8% at least for the next four quarters with soap and then with some pipelines here and there. You may be right about Q3 and maybe in Q4, it may again go back to a slightly lower number than that.
On Muuchstac market share — you mentioned INR80 crores of revenue and INR1,000 crores total male face wash market. So that's a small single-digit share. Beyond INR150-200 crores, won't scaling up this brand be challenging, especially against a large market leader?
INR80 crores is NSV and INR1,000 crores is MRP. So these are slightly different numbers. So our market share may be closer to 11%, 12%. Anything over 10% is — and this is with being present only in online. So our online share is close to 30%. So it's a one-third player, which kind of shows you the strength of the equity. So our job is to expand it nationally. In one or two channels, we're actually market leaders in face wash. So it is clearly — it clearly got something to it in terms of kind of consumer traction in most measures. You can go to Flipkart and just check out the reviews and you'll get a sense of the scale of the brand there.
On HI electrics — you've improved electrification penetration, affordability with the INR50 pack, and efficacy with RNF. Yet overall HI growth is double-digit, which is credible but not exceptional. Are there other interventions needed for the category to grow faster?
Manoj, I think — this has been largely a seasonality hit. The monsoon has been very different — temperatures have been lower, monsoon has been widespread. Our spreads are roughly what they've been for the last two quarters, three quarters, a little lower, but roughly maintained. So I just feel like we'll continue to grow household insecticide faster than in the past. There will come a time in which incense sticks slows down and premium grows. We'll try and mediate that as soon as we can, and then we'll have the next level of growth here. We are quite happy with the RNF relaunch. Q1, the numbers are very good in electrics. Q2, the numbers have been lower, but higher than the seasonal impact. Overall, I feel like HI, from being a low single-digit growth business, will probably move to being a kind of a high-ish single-digit growth business over a year period. I think that's what the relaunch has done for us.
On Muuchstac — I hadn't heard of this brand before. What is the geography, the use case, and where do you take this brand in the medium to long-term?
Rather than asking 100 people in office, just look at Flipkart and see the reviews — you'll get, I think, 10 lakh reviews. I must be honest that when the deal came to me, I had also not heard of Muuchstac. Two things caught our eye. One is that 90%, 95% of their sales came from one SKU, which is always a good thing — it tells you that one SKU has some kind of brand power. And the second thing is that they have very unusually high profitability — INR80 crores of revenue, INR30 crores of EBITDA. On geography — it's a reasonably widespread brand. It's slightly bigger relatively in the South, but it is certainly over-indexed in Tier 2 and 3 cities. The proposition of the brand is around anti-acne. It's got reasonable polarization — a lot of consumers like it; it doesn't suit some consumers because it's a pretty unique formulation with a sharp fragrance, a distinct product. They have a purely influencer-led brand with no performance marketing. Most of the sale comes in Tier 2 and Tier 3 terms. Meesho and Flipkart are the big customers for Muuchstac. Our growth hypothesis is that GT expansion and rural expansion may actually help this category. There is scope to expand within e-commerce, in modern trade, in GT. And this is EPS-accretive from day one.
If we spend on R&D, is it that difficult to build a brand like Muuchstac in-house? Why spend INR300 crores on a brand that I see only working in Tier 2 and Tier 3? Godrej itself could maybe do a far better job building a competing brand organically.
It's not that easy to build a new brand. There's a large cost of a new brand and low probability of success of a new brand. Any new brand to build will cost you crores and one in five, one in six succeeds. So you're effectively looking at a couple of hundred crores even to launch a new brand off to moderate success and even to get to the scale of Muuchstac. When you're looking at the kind of margin profile, EBITDA profile of Muuchstac, the retention rates of the product, it's not easy. Otherwise, nobody would buy any brand. In this particular category, in body wash, we decided to extend Cinthol into body wash because it's a category that we know and we can do it. But in some categories, when you have a great deal come your way, this kind of economics will be hard to do organically. What we know is that face wash, men's face wash is a INR1,000 crore category growing at 25%. This brand is a double-digit market share brand within men's face wash and is only available in a few online channels. With some expansion, with some marketing money, probably the share can increase. If you go to high-teen share, 20 share in a INR1,000 crores, 25% growth category, you are in for a lot of good value creation.
On margins in the second half — should we take Q2 India margins as the baseline for H2? And on consol, the same approach? And what are the FY27 drivers for margin expansion beyond the 24-26% band, assuming palm stays where it is?
No, I think we'll do better than Q2 EBITDA margins in second half. There's a pricing curve, there's a cost savings curve, there's media savings. We also got deleveraged in Q2 because of GST — if your sales suddenly don't go through in the last 20 days, you can't remove your fixed costs. I would say that the guidance that we've given, we kind of hold to, which is this maybe at the lower end of our normative margins, 24% to 26%, but that's where we will be for India. For global businesses, margins of Q2 are roughly where they'll be, though Africa has positive seasonality and Indonesia and LatAm will roughly be the same. On FY27 margin expansion drivers — there are cost savings. The second is that there are some relatively low-margin parts of our portfolio for which we are taking up margins pretty sharply sequentially. Laundry is one of them, incense sticks is another. These will be the two big drivers — cost savings and margin improvement on certain parts of our portfolio which are relatively lower.
On Indonesia — you said low-single-digit volume for now but top-line is significantly negative. When does the pricing negativity go away? And if BTL reduces, does that show up in EBITDA expansion?
About 4% of negative pricing will continue for another three quarters because, as I said, we've reclassified some costs into the top line because we've entered into some agreements with distributors. So that negative 4% is optical. That will continue. The other negativity, which is largely because of BTL increase for pricing competition, that should kind of reduce over the next one or two quarters. Yes, it will show up in terms of some EBITDA margin expansion a little bit. The way I'm looking at it is — we don't lose market share, do what it takes to hold market share. Probably market may grow at low single digits for the next few quarters, be okay with that and figure out what to do elsewhere.