Looking ahead para says India business will deliver continued calibrated normative EBITDA margins. Given West Asia world war / inflation, should we assume you can hold the 21.5% normative margin on India?
This quarter and next quarter, I expect some pressure on EBITDA percentage margin, but we are seeing upside in a variety of other areas. We're seeing pricing growth higher than what we thought we'd get. We are seeing in certain categories like laundry and household insecticide, a lot of pressure on locals. So overall, I am expecting lower margins still this oil remains at 100, 110, but higher revenue and kind of netting out at reasonably good levels as far as EBITDA goes. It may take 3 to 4 months of a little dip in percentage margins. But unlike palm oil case where 6%-7% inflation is in one category, crude affects all categories so the same 6%-7% is spread out over every category. While we may have a percentage gross margin lower than Q1, we're also lapping a weak competitor. It will come back much sooner than during a palm oil crisis.
On Muuchstac and Raymond acquisition - what is the update and outlook given West Asia cost inflation and stronger summer for these 2 businesses?
Muuchstac question and Raymond question I would take on Monday when you guys are here because we have some slides on how Muuchstac and Raymonds are doing. We wanted to use this call to answer our Q4 questions and Q1 questions and more portfolio questions on Monday. Short point - we're very happy with Muuchstac. We are also quite happy with PAKS - we had early successes in sexual wellness which seem to have dried off but good consistent volume growth on deodorants. There's a negative in terms of cost. There's a positive in middle distillate prices (linear alkyl benzene and kerosene used in detergents and household insecticides) - those prices are going up significantly and with lots of locals coming on it, from our business point of view, this is a positive of West Asia. If El Nino predictions are right, Q1 will be a difficult quarter for HI; should be okay for Q2 and Q3. Soap should generally be good. Indonesia does quite well during El Nino. In FY24 the last El Nino year turned out reasonably good for us.
On soaps - in most FMCG categories GST has had benefits. Local players in soaps is not a big number. From compliance side, is there improvement at 5% (degree of bypassing system much lower)? And is your optimism on soap volume recovery in Q1/Q2 due to El Nino or because of inflationary conditions you and the market leader gain market share?
On why I'm reasonably bullish - last year was pretty cold summer in various beverages categories, ice cream and this; this year expected to be the other way around. On GST impact - overall impact on GST has been quite good. Consumption we've seen results. We are also quite happy with 8% volume growth in India. Overall consumer sentiment certainly seems to have improved after GST, benefiting a lot of discretionary categories like laundry liquid and air care, which may not have had a direct reduction in GST prices. As far as soaps itself, it doesn't seem to have shown significant improvement in volumes. Categories which are slightly underpenetrated or which have heavy locals have benefited from the GST price cut, but soaps and a few other universally penetrated categories, the impact has been limited of the GST, though we've passed on all the benefits to consumers.
On pet food - any update or share at Analyst Day?
We are in the quest of product market fit and getting increasingly convinced we have it. We've set up a state-of-the-art plant in Nasik, and we've shipped our volumes from there. The more we understand this category. Firstly, it's going to be a long burn. There's going to be a lot of value, I'll share this on Monday, but we do feel that this is a category that has a good odd for us to really become a big business in a few years' time. We may have entered this at the right time.
In light of inflation with moving parts in percentage margin and top line, if I look at rupee crores in terms of Y-o-Y EBITDA growth, do you think analysts need to relook at rupee million EBITDA figure, or will you manage what you had in mind before the war?
We'll give you guidance on Monday. At this current stage, this is not an alarming inflation because it's spread out over all categories evenly versus a typical 20-25% palm oil inflation which then one category takes and can't price up. We have 2 variables - one fundamental variable (we believe our business is on a compounding effect of a couple of categories like hair care and parts of HI and laundry). Volume momentum building quarter after quarter. There's another compounding factor of potential El Nino and a third one in West Asia. These are the 3 dimensions we're looking at. Given this is not an alarming number as things stand today.
On Indonesia - you've slowly been building back margin, again 28%+ operating margin. Are issues on competitive intensity completely behind us because margin delivery doesn't reflect that?
Margin delivery has a little bit to do with revenue recognition - in Indonesia we already did a round before this Expert Advisory Committee recommendation came up. We already did some reclassifications. Broadly, Indonesian margins are where they are - it's not 28, it's competitively. In quarter 4 we generally have a spike because it's the month of Labaran, Ramadan. Indonesia margins are steady. Volumes are back to being steady, 2 quarters in a row of 4, probably potential to go to 5% to 6%. Some businesses we'll talk about on Monday - Africa international business, even Latin America - we may be in the cusp of much higher growth there.
If I understand correctly, you will see margin pressures over the next 2 quarters because of where crude is - is that correct?
I think percent in margins, we will absolute EBITDA also we may or may not, but we will try and see the way we can recover because we do expect both pricing growth and some kind of share growth in a few categories.
On personal care - you've been bullish on soap doing well or picking up for past couple of quarters, but is it not doing as well as thought and impacting overall growth? Is there a plan to increase marketing spend or awareness for soaps?
Couple of things on soaps. One is last year, we genuinely think the temperature has affected the overall category volumes - when we look at data, it is a bit anomalous. FY24 was a good year in terms of volumes, FY25 was okay, FY26 actually okay in a couple of months. There is a temperature impact there. There is also a movement of soaps to liquid. The biggest thing we have to do is look at the overall skin cleansing business. We're having a lot of green shoots on Cinthol body wash. We're doing extremely well on Magic handwash and now with Muuchstac we have an acquisition in face wash, which is also kind of very promising. We have to change our lens from soaps to cleansing and look at the growth there.
But nothing more to do on the marketing expense or visibility or anything else, right?
It's just about how you gain and gain market share consistently and not to lose market share, but the growth of the market is the growth of the market. So between cleansing and other categories, we'll have to compensate. As we show you on Monday, there are some categories which are on hyper growth and those are compounding every quarter. So the impact of that is becoming bigger and bigger every quarter.
While you're seeing margin under stress over coming quarters, you have price hikes leading sales growth. Do you see consolidated EBITDA growth following similar trajectory as margin - moderating from 4Q levels in the first term?
Yes I think so because of course India gets hit the most. But I think the same principle will be the percentage margin and we will have absolute EBITDA margins are quite high.
On personal care in India - presentation says soaps did well and perfume fragrances, but powder hair dye is under pressure. Can you elaborate?
Bulk of our personal care businesses is soaps, and market sectors are muted despite GST. So, while we have gained some market share, our growths have been muted in soaps. Condom sexual wellness has been quite muted and we've declined but it's a small business. Hair colour has had an okay quarter, not a great quarter, but an okay quarter. There was some seasonality impact of marriages. Overall, a somewhat muted quarter on our personal care business.
On India business growth of ~10%, if Home Care +12% and Personal Care +3%, the other portfolio has grown about 75% adding 2.5-3 percentage points - what has happened there?
Our Home Care business salience is increasing every quarter. The second is there has been a lot of explosive growth globally on our air freshener business, which we don't capture indeed, till next time onwards we'll capture it; so far is a small number, but we are just having very high growth on air fresheners globally, which we broadly make in India and export from here and that has been the delta contributor.
On Indonesia, how confident are you about the turnaround given inflationary pressures? And outlook on Africa for FY27?
In Indonesia even last quarter, we had about 4% volume growth. And this quarter also we had 4% volume growth. In a steady state, if we can do 5% to 6% volume growth in Indonesia, this sales growth has to do with currency, that may turn actually in Q1, the other way around. Revenue growth will now lead volume growth in Indonesia - mid-single-digit volume, high single-digit value going forward. As far as Africa goes, we are having a very strong performance in Africa. One of the big drivers has been FMCG driven by air care in Africa. Revenues have gone up that requires advertising spends. So we have kind of investing ahead of the curve in building FMCG in Africa. Our Africa business now is looking more and more like a conventional FMCG business to us.
Follow-up on Africa - given the base has been higher in the last few quarters and this quarter constant currency growth is just okay (reported is good because of currency), should we be mindful of base for FY27?
In FY25, we had a very depleted performance in Africa. So, the FY26 numbers come on a depleted base. I expect Africa performance to be quite strong, on Monday, we'll explain to you that there are some underlying drivers in FMCG, which are driving bulk of the growth in Africa, and those will continue to compound in FY27.
On personal care - tailwind of restocking in Q3 has normalized. How should one think about growth from here? Is hair colour flexibility just because of marriage seasonal impact and soaps going to remain?
We didn't have a bad quarter in hair colour, just a little lower than usual. Pricing growth will come into soaps pretty significantly going forward. So I do expect personal performance to improve. Pricing is coming back in soaps more than what we thought due to various cost inflation, both in soaps and in general Personal Care. So I do expect higher revenue growth than this in FY27 and going forward.
On Home Care, we've seen fairly strong growth on what was a tough base. Can you throw light on what's working - LV launch being pushed wider and acceptance? And as we get into summer with an extended summer expectation, what's the seasonal impact on insecticide business?
Quarter 4 was pretty good and broad-based in terms of Home Care. All our businesses did well - Household insecticide, air fresheners, fabric care, both top line and bottom line. Going forward, if summer is a hotter summer (last year was a cooler summer and actually the whole of last year cooler), soap volumes have been a bit muted in the overall category because of slightly cooler year. Summer Q1 is typically a small quarter for HI. So it's possible that HI numbers aren't as great as they should be. But on the other hand, there is a dynamic of local players not getting kerosene to make intrinsic. There are complicated dynamics between weather and West Asia. Weather dynamic is positive in soaps; in HI weather may be negative but West Asia may be positive. Laundry also the West Asia thing may be positive.
Because hair oil has seen a very good benefit, and that's also very well penetrated.
I don't know whether is hair oil or premium? Premium has also grown strongly, VAHO has grown very strong. That's what I also believe - it's a premium phenomenon. Other penetrated categories like oral, I don't know what the impact has been on GST.
On palm oil - feedback was palm oil and crude oil linkage broken, but we've seen fantastic linkage this time also. And on soap new formulation that number 1 player has taken - what is your current stance given big palm oil inflation?
Palm oil inflation after this - crude went from $70 to $100 (40-50% increase); palm has gone from 4,000 MYR to about 4,500 MYR (10-11% increase). Some middle distillates - kerosene, linear alkyl benzene, which competes with jet fuel, costs have more than doubled. Palm oil of 10% is not a deal breaker the way 20-25% inflation is. At $100 Brent and 4,500 MYR palm oil, still roughly 7-9% inflation which between costs/cuts and pricing we should be able to recover. As far as formulation and competitor - not proper to comment. We are on our path on soaps, we're happy with the margins. Volume in soaps category is a little lower than typical; we wonder whether it's because of a colder last year and structural change. Not an alarming change in volumes. There's a little bit of wait and watch in soaps. Doesn't seem to be a game changer one way or the other for FY27.
Typically in soaps when there is a price increase, there is significant measurable volume impact. This time because of GST prices got cut and now due to inflation they will go back again - point-to-point over last 5-6 months the consumer prices haven't changed at all. Does this mean no volume backlash and whatever pricing you take is purely incremental to top line?
In fact, it may be the other way around. GST went from 18% to 5%, palm oil is up 10%. We may not take up the full hike. Palm oil is not the only thing that goes into soaps. So the chances are the price increase we take will be less than the GST benefit that we passed on to consumers. If anything, compared to October, the consumer will see pre-October pre-GST in fact slightly lower prices on soaps. Though our realization will improve because the GST doesn't affect our realization.
You mentioned price increases already in place. Any indication on range of price hikes on weighted average basis that have already gone through the market?
In soaps, we have taken our prices by 5%. In detergents, we have taken up prices again by 6% or 7%, which is now a meaningful part of our business, maybe 7%. In household insecticide, we have taken up prices again by 4%, 5%. That's the kind of range. Some of those price increases just happened in April - all of them happened in April. So they're not reflected in the results of last quarter.
Bookkeeping - what is your tax rate outlook for FY27?
The tax ETR is likely to remain the same as this year. The one-offs which you've taken and we've clarified separately.
On Godrej fab portfolio - where are we tracking versus the INR500 crore exit aspiration ARR? And South vs North split of current ARR? Also at what revenue scale does fab portfolio turn EBITDA positive on a bank level?
Our ARR is about on GSV terms about INR500 crores in quarter 4 and maybe INR450 crores in NSV terms. Internally we look at our gross sales value at about INR500 crores. It's a very, very fast tailed brand. Every quarter is doing better than the previous quarter. It's also kind of broken even in quarter 4. There will be some issues in quarter 1 because laundry does get pretty badly affected by crude. But we have a good solid path to profitability on fab. The sky is the limit - this is a INR4,000 crores market in India very rapidly. We've come from nowhere to becoming INR500 crores. We feel this market is a hypergrowth market and we have a lot to gain and very little to lose here.
Follow-up - would it be fair to assume that the INR500 crore growth is more or less to do with South (more than 50%)?
No, fab is now across the country doing extremely well in most states, North Maharashtra. It has gone significantly beyond being a South player. South is leading it. So everything is bigger. We started there in the South, but this is a national player. We're very excited with the scale opportunity this provides us in the future.
Couple of quarters now - if one category performs, something else doesn't, specifically personal care not going as planned. What is the long-term strategy because roadblocks in next 2 quarters will only amplify anything not performing?
In every quarter, you will have some category performing. You have to look at the overall numbers. In India, we delivered 8% volume, 10% sales growth and 18% EBITDA across the world, we delivered 11% revenue and 10% EBITDA. There will always be some category in some quarter that doesn't do well. As long as most geographies are range bound and more, then one should be okay. These things do change a little. Personal care number is a bit lower than what we thought, but this 3 can go to 7, 8. Personal care structurally is a slightly slower growing business for us than home care because of the weightage of soaps. But I'm not unduly worried about Personal Care. It's at the lower end of what it should be, may be a little higher than this on the long term. We do expect our home care businesses to really grow much faster. So one can expect in the long term, our Home Care business will grow faster than our personal care business because of the weightage of soaps.
Question on margins. In the previous two instances when crude crossed $100 in FY2022 etc., saw about 200 bps controlled margin contraction. Your comments indicate this time margin contraction won't be meaningful - what's different this time?
Combination - in '22 palm oil hike had gone up 20-25%. That's not the extent of palm oil inflation we're seeing today - palm oil hike so far is 10%. The relative salience of soaps is lower than it used to be. We are becoming a larger home care business. So it's a combination of all these. I still expect lower than normative margins in Q1 and probably Q2, though it may not be very different from what it was last year, but that's the reason.
On detergents - you've taken single-digit price hike against 50% increase in RM cost. Is there more pricing action required?
Yes, we will do this in a couple of steps. We are committed to pricing drive. We're still not a market leader in this category. So we will be led by the market leader here.
On RNF molecule (around for a year) - how has it impacted HI categories' market share growth acceleration? What gains/traction in incense stick and LV? Do you expect continued acceleration or is it in the base now?
Will talk about this on Monday in detail. Having looked at numbers for a few quarters, we conclude in general RNF has worked better in some places than others. Overall it has worked - we feel reasonably confident that from a zero to low single-digit growth category household insecticide is at least a high single-digit strategy. Over time can compound into a double-digit category. The household insecticide problem that plagued us for 10 years is probably behind us. There will be volatility in season - ups and downs. The entire mean is going to change meaningfully. We've been observing a meaningful variance on our total business over seasonality since we launched RNF. It's taken bit of time to happen. We have a lot of main themes on Monday to show you in detail on why we believe the HI issues may be behind us.
On soaps - in Q3 you commented that packet growth was better than volume growth. With full impact of grammage increase playing out, what led to growth not accelerating vs Q3? Is the packet to unit growth deceleration?
We're still sitting on very high grammage range growth last year at the same period. Between Q4 of FY25, Q1 and Q2 of FY26, we had very sharp grammage cuts. So we're still lapping a base where our grammage on small packs is significantly lower than what it was in Q4 of last year. One of the reasons volumes are still a little muted on large packs - they were better than they are on small packs.
Even adjusting for GST Y-o-Y the grammages for small packs are lower - is that what you mean?
Yes. The kind of hike or drops we took in soaps between Q3 of FY'25 and Q2 of FY'26 when palm prices shot up - for example, Godrej #1 INR10 well from something like 55 grams to 40 grams, then took it back to 46 or 47. So it's still a good 15%, 20% lower than what it was last year.
On a blended basis, what is the inflation we are facing for the company as a whole?
We put that out in our result - 7% to 9% is what we're seeing. Even on the spot - spot is changing every day, but even on an average spot price. USD 100 to USD 105 Brent and 4,500 MYR CTO is what we see.
On Fab - pricing choices you plan to take will be determined by how the market reacts rather than how RM behaves?
Yes. When we are leaders, we lead price; when we have followers we follow price.
Follow-up on price hikes - in the categories where you're taking price hikes, are you seeing some sort of price inelasticity or some drying up on volume based on what you've done so far?
I don't expect drying up on volumes, to be honest, because I've seen a couple of these hyperinflations in crude before so there are market share gains versus local in some categories you get. Maybe volumes will be a little lower than what we wanted at the beginning of the year, maybe revenue growth would be a little higher than what we thought we'd get at the beginning of the year. Maybe EBITDA will be as things stand slightly lower than what we thought, but still pretty good or maybe to be where it is. That's what I'm anticipating at current costs.