In Body Wash, new players like ITC, Colgate-Palmolive, D2C companies are gaining. Legacy soap companies seem behind the curve in the liquid format. Why is Body Wash growing slower than Liquid Detergent?
Abneesh, we are behind the curve on Body Wash. The good thing is that Body Wash as a category is behind the curve on Liquid Detergents. Liquid detergents in India is exploding. Body Wash is growing fast but it is still a fraction of the overall Soap market, whereas now Liquid Detergents has become a substantial part of the detergent market. We hope that by the time Body Wash becomes a substantial part of the Soaps market, the actions that we take in the next few years will give us our fair share of Body Wash as well. I think if you ask the question on why Laundry Liquids is doing well, it is a combination of washing machines and also there has to be a right price to the upgrading format. Laundry Liquids in India are at the right price to detergents. And I think the good news is that we are extremely pleased with our performance in Laundry Liquids. We are winning market share even in a quarter like Q3. Godrej Fab has been, certainly in the history of GCPL and probably in many companies, one of our most successful innovations.
On soaps, given palm oil prices on the way down and you've taken sharp price increases — from a one-year perspective, would you expect all these issues to normalize? Would you expect growth to be fully normalized by H1 FY26?
Yes. I think we've seen this cycle many times, palm oil prices are on their way down, though PFAD, which is a derivative has still not fallen. So over a period of time, we end up taking prices up. We've been quite aggressive in price increases. As I said, our revenue growth on Soaps was near flat, which is very competitive in this current market. Price increases have to happen gradually hence we expect over the next 2-3 quarters margins will normalize. Even now with this situation, our EBITDA margins in Soaps are just short of 20%. So it's still a healthy margin at a time like this. In the last few years, we've genuinely improved our margins in Soaps.
On rural India — talk about your rural growth versus urban and the contribution of van operations. Is rural doing better in Soaps too?
On the Van Operation, you see the first half of this year, we grew volumes close to 7% and vans contributed a substantial part of this. Even in this quarter, if you leave Soaps and Household Insecticides which have had pretty sharp volume drops in this quarter, for the overall business to be zero, you can imagine what the rest of the portfolio has to grow. And again, van has contributed quite a lot there. I would certainly say that if you look at the full year, first half we grew roughly 7-7.5% volume, Q3 we've grown 0, Q4, I expect some kind of volume revival, the overall full year volume will still be very good for GCPL in the context of the market and van has definitely been a significant contributor. Our rural growths are significantly ahead of our urban growths, and van has been a big driver of that.
On Household Insecticides and RNF — is the feedback from consumers noticeable? Is there perceptible understanding that this product is significantly superior?
I think the general progress in RNF is quite satisfying. In Incense Sticks, our share now is in high single digits of the overall Incense Stick market and our share of handler is close to 50%, which means that our distribution is still only in the late teens, but in those outlets where we are present, we get half the market there. In the other categories, which is largely Liquid Vaporizers, we launched in July, August, even as late as November, December, only 40-50% of the offtakes have been RNF but here also we have gained significant market share in our machines in November and December. So we have got significant share gains in Q3 and that as a combination of a bad Household Insecticides season, but also as a combination of general urban pressure on premium. Even in Coils, where we launched RNF 6-7 months ago, we are seeing market share gains. So I would say, generally, in a difficult situation in terms of consumption and seasonality, we are quite happy with RNF.
On the RNF rollout — will modern trade licenses be through by March? And on consumer awareness, are people aware this is a new formulation?
In certain modern trade chains in e-commerce, we are still manufacturing the old product because the licenses even in distribution take time. But all of that by March should have got over. We are just, as we speak, launching a superior formulation on Aerosols. So, it is somewhat of a long game. Even in Incense Sticks, we launched it in February of last year, but it's only in Q3 of this year that we can decisively say it's working. It's taken us close to 8-9 months for us to get a clear sense. On consumer awareness: We do a dipstick. We just did one to check the awareness of the product, and it is very high. November market shares were good, December was even better. We've been selling this proposition under the proposition of works even if the electricity goes off for 2 hours. And we have seen the recall of the ads, the investments in the ads, the recall of the message, all these are higher than our benchmarks. The machine design also has changed, by the way. So it's not just a packaging that has changed.
Update on the Deos portfolio (PA, KS) — profitability, GT issue, and overall assessment
In Condoms, we are very happy with our performance. Deos has been a mixed bag. In modern trade, we are gaining share but in general trade, we are losing share. I think we made a mistake in merging the 2 distribution systems, and we've now separated it. In terms of profitability, we are behind our business case and behind what I committed to you guys but significantly ahead of what we inherited in terms of EBITDA from RCCL. I think in May, we'll probably share the numbers comprehensively to you guys on total things. So I would say broadly good, some learning from it, but certainly value-creating so far in terms of assumptions of cost removal. And we've kind of significantly improved our EBITDA margin despite much higher increases in advertising. But we've still got a GT issue to solve in the Deodorants.
You're one of the few companies more biased towards urban. What are you seeing on the urban side — any downtrading or changes in market behavior?
A lot of commentary I've been seeing and a lot of articles I've been reading and also some commentaries of companies that there's definitely an urban slowdown. We're seeing it in modern trade. We're seeing it in premium brands. We're seeing some amount of down-grading. Many of our core categories are certainly not the kind of upgrading that one should see. And contrary to that, rural is doing generally well and for us, because of the van program, extremely well. So, in the context, if one excuses for Household Insecticides and Soap seasonality, we are definitely seeing an urban slowdown. Urban GT was anyway under pressure. Urban modern trade is a little slower than it used to be. We are seeing premium products not grow as fast as they were growing a few quarters ago. We are probably seeing some signs of down-trading in categories like Household Insecticides.
Sequential improvement in Q4 — is that largely from Soap destocking being lower and HI season improving? And on Soap pricing — is there requirement for further pricing?
I think that's correct. I don't therefore think that Q4 will go back to H1 levels of volume growth. But it will be somewhere in between zero and where Q3 has been, I hope. So somewhere in between is where we will end up because 2 of these reasons are transitory, but 1 or 2 of them are slightly more permanent. My suspicion is that we will see a volume recovery over 2 quarters is what I hope. I don't think Q4 will go back to H1 levels. I hope that Q1 of next year, we do that. On further pricing: I think there is requirement for another round of pricing in Soaps in particular. Of course, these are driven by looking at the market construct but we are not done with the pricing because at the end of the day, we have to get back to our nominative margins. This quarter, for example, our India business had ~22.5% margin which is not bad per se, but frankly, this business should be anywhere between 24-26%. So, we certainly feel that there is scope for one or two more rounds of pricing in Soaps.
Africa is at ~15% margin ahead of expectations. How do you look at that market over the next 12-24 months — is it now revenue growth driven?
Yes, I think so. I think we're at about 15% EBITDA margins there. Maybe there's scope for another 100-200 bps of margin increase there. But certainly, now that we've got to mid-teens and we were quite brutal about getting to this mid-high teens kind of margins and even if it came at the cost of business, we said, it doesn't matter. Having now got to this kind of margin structure, I guess we've got to start growing now. We should start seeing a better picture of growth from this quarter and certainly next quarter in Africa.
What is driving the divergent trend between palm oil (down 20% from peak) and PFAD (only down 7-8%)? And when does this normalize?
PFAD has a lot of interaction with biodiesels. It should, over a period of time, normalize. It varies in the short-term. And you must remember that the palm oil prices from a peak of MYR5,200 has now fallen to MYR4,200. That is almost a 20% drop from its peak. PFAD has only dropped 7-8% from its peak. So I mean, at some point of time, these have to normalize. And there are some complications there because of the India import duty and stuff like that. So there are various dynamics. But broadly speaking, in the long run, these do tend to normalize. In terms of normalization, that's the right way to read it. The only thing is whether palm's correction is a proper correction or is it temporary? I don't know yet because typically the palm season in Malaysia, Indonesia is July to September. So this is a lean season for palm. But if palm remains lower, then at some point, PFAD has to fall.
How should we look at Q4 India margins? And what does normalization mean — is it 23-24% or 26%?
I think the margins in Q4 may be more of the same because, all said and done, PFAD still high and we are still consuming oil that was bought in Q3. So that may not materially change. In fact, we've taken some prices up, but in Q3, we consumed Q2 oil also, in Q4, we're entirely consuming Q3 oil. So margins may be more of the same, plus, minus, little bit here there. I think volumes will definitely improve and pricing also should go up. In terms of the normal margins, this 24-26% is the kind of I feel normal range that our business right now should aim for. So let's say, 150 bps higher than where we are today. I don't know when we'll get to it. That's hard for me to say. But that's the kind of number that we need to get to. I mean, firstly, look for an FMCG business, 24% margin is a very healthy margin. I hope we get to that in the next 6-8 months.
In Q1 and Q2 presentations, you explicitly called out Personal Wash market share gains — this time there's no such comment. What happened to market share this quarter?
We don't usually give market share numbers, but it is true that in this particular quarter, our market shares have roughly been flat. Though I must say that our growth of near flat, from what we hear from market seems to be higher. So, our growth seems to be market beating. Nielsen reported market share was not negative, but it was flattish in this quarter. Of course, for the full year it is gaining still. So you'll have to read into this in 2 aspects. One is what is an externally reported share. And second is, you'll have to look at our internal growths versus the growths of others, many of whom are reported, some of whom are not.
The urban slowdown you mentioned — is quick commerce growth at the margin impacting modern trade?
I think, look, it may be affecting modern trade at the margin, but one has to remember that total e-commerce sales are growing at the same 30-40% range. So a lot of quick commerce has come at the expense of e-commerce. It may affect modern trade at the margin, but I think if you take the totality of urban - which is urban GT, which is doing badly, modern trade, which is less than before and e-commerce, which is roughly where it was and quick commerce within that is doing extremely well. One can only conclude that the overall urban picture is a little weaker than it's been in the past.
Incense Sticks are now high single digit share with 50% handler share — how do you grow from here given trade pushback on lower margins?
I think we just have to be at the game, Arnab. We like to get to wholesale, build awareness. These things take a little bit of time once demand builds up. We may not increase trade margins because we don't make too much money. We just have to be patient. Gradually, direct distribution will go up, wholesale demand goes up, every couple of months we'll do a wholesale activation and temporarily reduce prices in wholesale to get it through. Because what we've noticed in the past is that once you cross 20% distribution, the game becomes wholesale. The first 20% value-weighted distribution, you can get through retail. After that, you have to go to wholesale in these kind of categories.
For India margins in FY26 full year — given where palm oil prices are today, is the lower end of 24-26% range a reasonable assumption to go with?
I think probably unless something dramatically changes in terms of oil prices. I think that's probably right.