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Edited Transcript of EMAM.NS earnings conference call or presentation 7-Feb-20 10:30am GMT

Q3 2020 Emami Ltd Earnings Call

Feb 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Emami Ltd earnings conference call or presentation Friday, February 7, 2020 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Mohan Goenka

Emami Limited - Wholetime Director

* Rajesh Sharma

Emami Limited - SVP of Finance & IR

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Conference Call Participants

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* Abneesh Roy

Edelweiss Securities Ltd., Research Division - SVP

* Abul Fateh;Baroda Mutual Fund;Analyst

* Ajay Thakur;Alder Capital;Analyst

* Amit Sinha

Macquarie Research - Analyst

* Amnish Aggarwal

Prabhudas Lilladher Pvt Ltd., Research Division - SVP of Research

* Ankit Babel;Subhkam Ventures;Analyst

* Arnab Mitra

Crédit Suisse AG, Research Division - Research Analyst

* Bhakti Thacker

Investec Bank plc, Research Division - Analyst

* Gaurav Jogani

Axis Capital Limited, Research Division - Assistant VP of Consumer

* Nitin K. Gupta

SBICAP Securities Ltd., Research Division - Analyst

* Percy Panthaki

IIFL Research - VP

* Prakash Kapadia

Anived Portfolio Managers Pvt. Ltd - Principal Officer

* Shirish Pardeshi

Centrum Broking Limited, Research Division - Senior Analyst

* Surbhi Prasad;Cogencis;Analyst

* Tejash Shah

Spark Capital Advisors (India) Private Limited, Research Division - VP of Research

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and a very warm welcome to the Emami Limited's Q3 FY '20 Earnings Conference Call hosted by IIFL Securities Limited. (Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Mr. Percy Panthaki from IIFL Securities Limited. Thank you, and over to you, Percy.

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Percy Panthaki, IIFL Research - VP [2]

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Good evening, everyone. I have with me, Mr. Mohan Goenka, Director; and Mr. Rajesh Sharma, VP, Finance from Emami, to take you through the third quarter results. So without further ado, over to you, Mr. Goenka.

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Mohan Goenka, Emami Limited - Wholetime Director [3]

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Thank you, Percy. A very good evening, friends. I welcome you all to this conference call on Emami's result for the third quarter and 9 months ended 31st December 2019. We are very happy to inform that we posted broad-based growth in most of our brands, except for the winter portfolio and Male Grooming range. The delayed onset of winter, unfortunately had severe impact on the performance of our winter products, which declined by 13% during the quarter and accounted for more than 35% revenue in this quarter.

Further, Male Grooming range continued to be under pressure due to the ongoing adverse environment for discretionary consumption, leading to a decline of 39% during the quarter. Therefore, if I look at our quarter 3 performance, excluding the winter portfolio and Male Grooming range, overall revenue grew by 10% in volume and 12% in value, and domestic revenues grew by 8.5% in volume and 11% in value.

We do believe that despite ongoing challenges, such as weak rural demand, liquidity concerns, hike in food inflation and an overall weak consumption environment in the Domestic Business, our performance was satisfactory.

However, we also wish to add that we are taking good amount of corrective measures for Male Grooming range, which would yield results in the first quarter of FY '21. We are glad to inform that our other brands like pain management has posted a good growth of 13%, Kesh King grew handsomely by 18% and Navratna range grew by 11%. 7 Oils in One grew by 66%, while health care range grew by 4%.

As you would be aware that BoroPlus grew by 39% in quarter 2 in anticipation of good ensuing winter, but delayed and rainy winter adversely impacted offtake, which led to a decline of 12% during the quarter.

Therefore, if you look at the performance of the brand, from April to December, BoroPlus posted an overall flat growth. Overall, Domestic Business declined by 2% during the quarter. However, our international business grew by 18% in this quarter, leading to an overall flat revenue growth in quarter 3 of FY '20, with consolidated revenue of INR 813 crores.

While the traditional channels continue to be impacted by the ongoing slowdown in the Domestic Business, modern trade continued its growth momentum, growing by 15%.

During the quarter, CSD channel grew by 7%. We are happy that our power brands, irrespective of the demand environment, continue to gain market shares.

Balms volume market share at 55.3%, grew by 80 basis points. Kesh King volume market share at 27.5%, grew by 20 basis points, Navratna Cool Oil maintained its leadership position, with a volume market share of 66.5%. Further, Fair and Handsome cream's volume market share at 64.6%, grew by 90 basis points, and BoroPlus antiseptic cream volume market share at 73.2%, grew by 120 basis points, which reaffirms the fact that weak winters as well as adverse environment for discretionary consumption impacted these categories.

This quarter, we introduced Navratna Garam Tel, an ayurvedic innovation that provides instant warmth and relief in harsh winters. We also launched Zandu Cough Syrup, a smart sachet solution at just INR 5 in this quarter.

During the quarter, gross margins at 68.2%, grew by 120 basis points. Advertisement spends at 17% of sales, increased by 110 basis points, due to investment in new launches.

EBITDA at INR 264 crore, posted flat growth, with margins at 32.5% and PAT at INR 144 crores, grew by 5%, with PAT margins at 17.8%, increasing by 80 basis points.

For the first 9 months of this financial year, our revenues at INR 2,122 crores, grew by 3%. Gross margins at 67.5%, increased by 20 basis points. EBITDA at INR 592 crores, grew by 4% and EBITDA margins at 27.9%, grew by 10 basis points.

PAT at INR 280 crores, grew by 13%, with PAT margins at 13.2%, increasing by 120 basis points.

We do believe -- we would like to believe that the market conditions will stabilize slowly, surely in the next 2 to 3 quarters, driven largely by higher spends by the government-run rural infrastructure and better agricultural GDP growth.

Before I invite you to the Q&A session, I would like to update you on the cement deal announced yesterday. Enterprise value for the deal is INR 5,500 crores. After deducting business loans of INR 2,200 crores, the promoters would be left with a balance of INR 3,300 crores. Promoter loans on the other hand are around INR 3,000 crores. This leaves with a balance of INR 300 crores in our hand. But we would also be required to pay taxes on sale of stake and some growth capital of -- for existing businesses. Accordingly, we estimate that our outstanding loan against shares post the execution of deal expected around May or June of '21, would be around INR 500 crores to INR 600 crores for some time, which would be gradually reduced to nil by March '21 upon sale of other noncore assets like power, some real estate projects.

Accordingly, current pledge of promoter holding would reduce substantially from 70% to around 20% upon execution of deal, which would then reduce to nil by March '21.

However, in addition, the promoters would have to pledge around 8% of promoter holding to the buyer of cement towards guarantee of reps and warranties.

With this brief, I now open the 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 Kesh King. Numbers are very volatile. First quarter, 30% growth. Second quarter, minus 11%. And this quarter, again, good growth, is back at 18%. So my question is, why should the growth be so volatile? And this quarter, 600 ml SKU, what was the impact of that channel filling?

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Mohan Goenka, Emami Limited - Wholetime Director [3]

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So Abneesh, you are right because it's slightly volatile. It depends on the consumer promotions that we run in the quarter. So during the time of promotions, the sales really goes up. And when we remove the promotion, the sales slightly comes down, but overall growth has been robust. And as far as 600 ml is concerned, it is very miniscule. We have just launched in modern trade.

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

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And the promotions will also remain volatile going ahead? Because if there's so much impact on sales, why not keep it ongoing?

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Mohan Goenka, Emami Limited - Wholetime Director [5]

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But we can't keep promotions permanently. We have to remove promotions.

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

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And sir, second question is on Navratna. Good growth back in a quarter in which it is not having too much impact on the overall sales. My question is, you have launched this Garam Oil using the word garam. Now Navratna is known for the cooling hair oil brand proposition. Won't there be a brand dissonance in the customers' mind with the garam word and all that? It helps in diversification in the winter quarter. But as a brand, does it impact in the customer's mind?

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Mohan Goenka, Emami Limited - Wholetime Director [7]

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No. We have tested it with the consumers in the last 2 years. There was a need which was emerging. After all, Navratna is a therapeutic oil. People don't use it in the winter months. So we thought there is an opportunity because whether it is stress-related issues or whether it is sleep-related issues, they also have during winters, but they can't use because of the cooling properties. So we had tried it in certain markets, and then we have launched in Central India now.

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

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And sir, last question, 7 Oils in One, last 7 quarters has been extremely good. So what is the size of this brand on an annual exit basis? What's the sense you're getting? And is it taking share from the bigger players in, say, value-added hair oil already? Or it's too small, so currently may not be taking too much of real share from them?

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Mohan Goenka, Emami Limited - Wholetime Director [9]

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Yes. Presently, it is small, Abneesh. I -- we are not seeing that it is taking shares from the big players. But yes, you are right. The brand is showing momentum. We also launched a new campaign with Katrina Kaif, which has yielded good results. And so domestic should be about INR 32 crores, INR 33 crores, but including the international business, it is about a INR 100 crore brand.

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Operator [10]

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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 [11]

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I have a few questions. I mean, I'm still worried in the BoroPlus segment, we have done a winter loading in the Q2's quarter. However, the offtake has not happened. So does that mean that the inventory is stuck and that's why we have not had the replenishment? Or where -- what is the issue?

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Mohan Goenka, Emami Limited - Wholetime Director [12]

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Yes. So whatever we had stocked up in quarter 2, that did not move. Of course, you put in the stock by anticipating that the winter should be good. So that's why the desired winter was not there, and we saw an impact. But because our sales have declined in this quarter, so by and large, the inventory has now become to normal at the distributors' point.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [13]

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Yes. So directly my point was we have seen the winter which has been delayed, but the winter has really picked up very harsh in the many parts of country. So is that inventory, which is substantially lower, and you see a second round of filling, which should have happened in the month of January?

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Mohan Goenka, Emami Limited - Wholetime Director [14]

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No, it doesn't work that, Shirish. The season normally ends by end of December. And we also don't produce BoroPlus on a continuous basis. So normally, the season ends. So it doesn't really help us in growth in January.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [15]

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I have a next question on Kesh King. I mean, Kesh King fantastic growth, I mean, post the innovation, what we have done. So would you be able to split how much is led by shampoo and how much is pure core -- Cool Oil in your sales?

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Mohan Goenka, Emami Limited - Wholetime Director [16]

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So the growth in oil is roughly about 15%, and on shampoo, it is about 30%.

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

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30%?

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Mohan Goenka, Emami Limited - Wholetime Director [18]

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Yes.

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

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Okay. My next question is on pain management. I mean, even pain management has done wonderfully well. And obviously, 13% growth is really creditable. So going forward, I think whatever issues we are seeing in pain management has been resolved, and we see this kind of growth when the season is on, maybe in the first quarter FY '20 onwards?

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Mohan Goenka, Emami Limited - Wholetime Director [20]

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Pain management season also gets over. This is not the peak season. Now the season starts only in the month of July. So as I said in my opening remarks that we got impacted primarily on the winter portfolio and on Fair and Handsome. Other than that, all round, we have done a wonderful performance.

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

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Okay. My next question is on international business. Again, fantastic growth Q-o-Q, and we have seen that the momentum has completed. So can we build in a similar growth for FY '21 and '22 in excess of 15-odd percent?

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Mohan Goenka, Emami Limited - Wholetime Director [22]

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Yes. So we have taken this target for the international business. We hope that the momentum continues, and we expect at least a 15% growth from international business going forward.

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

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Okay. And just last one question on cement deal. Do you expect that this should get over by May? Or any time lines you have because there's a lot of hopes built around this?

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Mohan Goenka, Emami Limited - Wholetime Director [24]

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Yes. So -- no, we have said that by May or June, the deal should be concluded. We would just be waiting for the CCI approvals. As soon as that comes, the deal would be concluded.

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

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I missed that group loan number. Would you be able to restate that?

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Mohan Goenka, Emami Limited - Wholetime Director [26]

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It is about INR 3,000 crores, loan against shares.

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Operator [27]

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The next question is from the line of Arnab Mitra from Crédit Suisse.

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Arnab Mitra, Crédit Suisse AG, Research Division - Research Analyst [28]

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On the Fair and Handsome decline now, it's been 2 quarters of very steep decline. Normally, such declines don't happen in consumer categories. Is there also -- is it end offtake declines? Are you taking a pipeline correction? And how -- what -- how could you -- how do you explain this kind of a steep situation?

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Mohan Goenka, Emami Limited - Wholetime Director [29]

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So you are right, and this is across the board, we have seen this decline. And we have done a big deep dive. So what we have seen, Arnab, is that the core consumers, which are between the age of 20 to 28 or 29, there has been a trend of keeping beards. So the surface area has reduced substantially by almost 25% to 30% in men's. We have done a lot of dipsticks and we found that men -- boys or young men, who are keeping beard, they have -- they are using at very low quantities. So which we all -- you know that we can see the trends now. So that is also one of the reasons that the brand is slightly showing some stress. But we feel there is still an opportunity on Fair and Handsome. We have taken a lot of corrective measures. And we expect that it should bounce back in the first quarter, for sure.

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Arnab Mitra, Crédit Suisse AG, Research Division - Research Analyst [30]

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Right. So in terms of the corrective measures, is there more to be taken, which is why you feel that 1Q should be the time when it -- or is there a restage of the brand, which could happen? Or if you could highlight what sort of measures you have already taken in the recent couple of quarters?

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Mohan Goenka, Emami Limited - Wholetime Director [31]

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So there are a lot of measures which are yet to be taken, which would come in the first quarter.

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Arnab Mitra, Crédit Suisse AG, Research Division - Research Analyst [32]

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Okay. Sure. And my other question was on the -- again, the cement transaction. So is CCI the only approval required? Or are there other approvals which are required? And is there due diligence from the buyer's side, those kind of things done? And it's just regulatory approvals now, which is between now and the deal completion?

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Mohan Goenka, Emami Limited - Wholetime Director [33]

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Absolutely. All the due diligence have been done by them. And that's why we have signed the binding agreement. It is only the statutory approvals which are needed. Once that comes, the deal would be concluded that day, and that is primarily CCI only.

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Operator [34]

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The next question is from the line of Percy Panthaki from IIFL Securities Limited.

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Percy Panthaki, IIFL Research - VP [35]

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Sir, just looking at your quarterly performance, it seems that if I exclude the seasonality impact, your growth is actually the highest in the sector. You've done a 13% value growth on your non-winter care portfolio. So if basically the main reason for the poor numbers is seasonality, and from Q4 onwards, that reason goes away, then how do we look at your growth going ahead? I mean, is it fair to expect a close to double-digit sales growth from now on?

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Mohan Goenka, Emami Limited - Wholetime Director [36]

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Absolutely, Percy, there is no reason why we should be -- we should not be optimistic. If we have performed in this quarter, we should also be performing in the fourth quarter. Now the loading of Navratna would start. As I said, January has been a slightly dull period because there is an extended winter across the board. So we don't know when the loading would start for Navratna. But if we would be able to load Navratna, then I'm pretty confident of doing a double-digit growth. Because interestingly, all the other brands have really fired, other than Fair and Handsome and BoroPlus.

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Percy Panthaki, IIFL Research - VP [37]

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What basically has changed because last -- if I leave out this December quarter, the 2, 3 quarters before that were quite lackluster and suddenly, December quarter, excluding the seasonal portfolio, has done extremely well. So what basically has changed? Is it something specific that you have done at your end? Or do you think that now the overall consumption climate has improved, which is leading to this change? What is the reason for the change?

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Mohan Goenka, Emami Limited - Wholetime Director [38]

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No, I don't -- I won't really say that the environment has changed dramatically. Rural still is under some stress what we see, but it is mostly push from our side. It is -- it will [basis] our targets to our dealers and the market and sales team, everything put together, also some schemes, a lot of aggression, which we had put on the other brands.

So because we could sense that we would not be able to achieve our numbers through winter products, so we got these numbers from other brands.

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Percy Panthaki, IIFL Research - VP [39]

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Right. And finally, just wanted to understand your gross margin movement. This quarter also, we have seen a Y-o-Y expansion in the gross margin. So just wanted to understand what are the drivers behind that? And how do we look at gross margins for the next 3, 4 quarters?

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Mohan Goenka, Emami Limited - Wholetime Director [40]

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No, gross margins should stay in this band only. We are seeing that the prices are benign. So it should help us to improve margins only -- gross margins. Not so much, I think, 50 basis points, so we can see that going forward.

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Operator [41]

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

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [42]

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On Zandu Healthcare, most of the sales are urban focused. On a year-to-date basis, growth has been around 1%. So is new product launches now going to be a continuous basis? We've launched a few products, which is mentioned on the PPT, plus, I think, we've launched Zandu Honey also, which is actually a very good and differentiated product. So if you could give us some sense on the health care division?

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Mohan Goenka, Emami Limited - Wholetime Director [43]

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So it is definitely a core area for us. And yes, you are right, we would be launching a lot of new brands. And 1% growth is, Prakashji, because Pancharishta still has not shown the kind of results that we expected. Otherwise, the growth could had been much, much higher. So -- but...

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [44]

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Any sense why Pancharishta continues to show muted growth or not as per our expectation because the relaunch was done, support was given?

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Mohan Goenka, Emami Limited - Wholetime Director [45]

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But it was declining. If you remember, Pancharishta was declining very heavily, but now Pancharishta that -- sorry? So what Rajesh is showing in the data, is it was de-growing at almost 18% for first 6 months. But in this quarter, we have grown by 3%. So after the relaunch, there has been some reversal.

But yes, health care, we would be launching brand, but gradually once the market sentiments have to improve.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [46]

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But correct me if I am wrong, most of the products would be urban focused, right? And sentiments in urban seem to be better than rural.

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Mohan Goenka, Emami Limited - Wholetime Director [47]

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But because the size is so small, it doesn't show so much of this on the needle. The needle doesn't move. The size is only 120, 130 crores. And it's not a big difference. When you ask me urban, rural, okay, rural is weaker than urban, but difference is not like urban is going at 10% and rural is taking anyway 10%, it's very marginal.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [48]

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Understood. Secondly, on the channel liquidity, if you could give us some sense because we keep on hearing, there is still liquidity issues. So something at the retailer or wholesaler level, are we extending more credit selectively to grow the business? Are we not? What are we sensing? Is worst over?

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Mohan Goenka, Emami Limited - Wholetime Director [49]

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No, no, there is a liquidity concern at -- both at the wholesale and the retail level. So definitely, we've extended credit to our dealers in the tune of almost 12 to 13 days.

And we see that continuing. There is no sense of reversal or easing out of liquidity. If we find that things are improving, we may reduce it down to 7, 8 days, but yes, we would have to extend credit.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [50]

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Okay. And on Zandu, is it again relaunch to test? And now we are creating a differentiated product because we were very gung-ho on honey in terms of differentiated product, pricing premium, quality being good. So the flavored honey is really good, so -- or is it just on a test marketing, and we are still awaiting more?

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Mohan Goenka, Emami Limited - Wholetime Director [51]

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These are niche markets, Prakashji. We would have to wait and see what results we get. Now our endeavor is to, of course, launch differentiated ideas. And consumers have liked it in some belts. Because the product is a little expensive one, market is limited for these products. And we were working on...

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Operator [52]

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Uncertain interruption. May we request you to come back in queue for follow-up questions. (Operator Instructions) 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 [53]

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What will be your overall domestic volume growth for the quarter?

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Mohan Goenka, Emami Limited - Wholetime Director [54]

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Domestic, the volume has de-grown by 2%.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [55]

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2%. And Mohanji, second question pertains to this whole winter -- delayed winter. Now intuitively, in last 4 years, 3 years, would have seen delayed winter and climate change seems to be making such volatility new normal. So is there a way to address this structurally, so that we can respond to this long tail of winter demand, which we are missing out for the last 2, 3 years?

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Mohan Goenka, Emami Limited - Wholetime Director [56]

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No, you're right. Tejash. We are also seeing that the winter now somehow comes in January and February. But unfortunately, our mindset is such where we don't -- dealers or the market, the trade doesn't stock the product after a certain date, which is Sankranti, as I said. 14th of January, generally, the trade -- overall trade, they think the winter is gone. So whatever stocks they have, they want to liquidate that stock. And these mindsets don't change overnight. We also don't plan, we don't know how would be the winter. We also stop productions of every winter product in the month of December. Even if there is extended winter and there is some demand, we cannot meet that because we don't produce.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [57]

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Is the confidence level of dealer stocking up same in the direct reach as it is in wholesale?

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Mohan Goenka, Emami Limited - Wholetime Director [58]

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Can you be slightly louder? Can you be slightly louder?

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Operator [59]

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Sir, you're not audible.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [60]

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Yes, is the dealer level confidence to stock up winter demand post Jan, equally weak in your direct distribution as it is in non-direct?

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Mohan Goenka, Emami Limited - Wholetime Director [61]

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Yes, 100%. First is our dealers, then is the wholesale or the retailer.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [62]

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So they also don't stock with the...

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Mohan Goenka, Emami Limited - Wholetime Director [63]

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Yes, they don't stock the products. No they don't keep the products because it is all paid stocks ultimately. And we also -- please, strategically, we also don't want to put so much of stock because we know that we have to now sell Navratna. So that additional INR 4 crores, INR 5 crores of business doesn't really move the needle.

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

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Fair enough. Yes. And Mohanji, what will be top 3 categories in modern trade? And what will the market share data in modern trade versus GT on those categories?

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Mohan Goenka, Emami Limited - Wholetime Director [65]

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So that data, I think you can talk to Rajesh separately. I don't really have it off yet.

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

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Okay. And lastly, if I may squeeze in. Sir, you said INR 3,000 crore group level debt. I believe we also raised INR 15 billion NCD last week. So this number will include in that, right?

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Mohan Goenka, Emami Limited - Wholetime Director [67]

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Yes. So yes, actually. Yes, absolutely.

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Operator [68]

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(Operator Instructions) The next question is from the line of Amnish Aggarwal from Prabhudas Lilladher.

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Amnish Aggarwal, Prabhudas Lilladher Pvt Ltd., Research Division - SVP of Research [69]

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Sir, my first question is on...

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Operator [70]

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Sir, you're not audible.

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Amnish Aggarwal, Prabhudas Lilladher Pvt Ltd., Research Division - SVP of Research [71]

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Hello?

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Mohan Goenka, Emami Limited - Wholetime Director [72]

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Yes, yes, please go ahead.

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Amnish Aggarwal, Prabhudas Lilladher Pvt Ltd., Research Division - SVP of Research [73]

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Yes, my first question is on promoter pledge. As per BSE, the total amount of pledges are around INR 5,000 crores, and the promoter will get a net of INR 3,000 crores from the cement deal. So based on that, say, 3, 4 months down the line, once it gets consummated, so how much is the promoter pledge likely to come down?

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Mohan Goenka, Emami Limited - Wholetime Director [74]

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I had already said in my opening remarks, it would come down to roughly about 20% from 70%.

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Amnish Aggarwal, Prabhudas Lilladher Pvt Ltd., Research Division - SVP of Research [75]

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So amount will be close to INR 2,000 crores?

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Mohan Goenka, Emami Limited - Wholetime Director [76]

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How it will be INR 2,000 crores? No, I'm saying -- sorry, what are you asking?

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Amnish Aggarwal, Prabhudas Lilladher Pvt Ltd., Research Division - SVP of Research [77]

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Sir, the current total pledges are INR 5,000 crores and not a percentage. So once we get this INR 3,000 crores and the entire amount gets utilized, so the total...

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Mohan Goenka, Emami Limited - Wholetime Director [78]

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The entire amount doesn't get utilized because, as I said, we have to keep some amount for taxes and other promoter requirements.

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Amnish Aggarwal, Prabhudas Lilladher Pvt Ltd., Research Division - SVP of Research [79]

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Okay. So how much of amount we could be utilizing for this?

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Mohan Goenka, Emami Limited - Wholetime Director [80]

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So after this, we would be having about INR 500 crores to INR 600 crores of debt.

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Amnish Aggarwal, Prabhudas Lilladher Pvt Ltd., Research Division - SVP of Research [81]

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Balance?

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Mohan Goenka, Emami Limited - Wholetime Director [82]

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Yes, balance.

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Amnish Aggarwal, Prabhudas Lilladher Pvt Ltd., Research Division - SVP of Research [83]

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Okay. So how much would be promoter pledge in terms of amount?

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Mohan Goenka, Emami Limited - Wholetime Director [84]

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So as I said, it would be in the range of about 15% because price keeps on varying. So it would be -- could be anywhere in the range of about 18% to 20%.

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Amnish Aggarwal, Prabhudas Lilladher Pvt Ltd., Research Division - SVP of Research [85]

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18% to 20% of the total paid up...

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Mohan Goenka, Emami Limited - Wholetime Director [86]

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Of promoter's holding, which is 52 -- which is almost 53%.

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Amnish Aggarwal, Prabhudas Lilladher Pvt Ltd., Research Division - SVP of Research [87]

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Okay, okay. Understood, understood. And sir, my second question is that, as you stated...

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Mohan Goenka, Emami Limited - Wholetime Director [88]

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Beside this, I would also make it very clear, we are keeping an 8% pledge with the buyer towards some guarantees. So it would take to almost, I think, about 25%. That is what is our estimate is.

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Amnish Aggarwal, Prabhudas Lilladher Pvt Ltd., Research Division - SVP of Research [89]

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Okay. Understood. And sir, my second question is that, as you stated that some of the winter care products were slowing this quarter. And so you have given, say, aggressive push and also dealer discount, et cetera, to push the non-winter portfolio. Now once we go into 4Q, where there's a lot of, you can say, the inventory push happening or say the trade takes the summer products. So won't the push which has happened in 3Q impact the offtake in 4Q in terms of sales of the company, not consumer sales?

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Mohan Goenka, Emami Limited - Wholetime Director [90]

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See, we would have to wait and see because now as I said, almost 50% or 45% depends on Navratna's loading. So if the summer comes on time and we would be able to load Navratna, then we are confident of achieving about the double-digit number.

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Operator [91]

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The next question is from the line of Surbhi Prasad from Cogencis.

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Surbhi Prasad;Cogencis;Analyst, [92]

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Yes, actually, I wanted to know what's the overall volume growth for the quarter?

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Mohan Goenka, Emami Limited - Wholetime Director [93]

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Overall volume growth was minus 1%.

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Operator [94]

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The next question is from the line of Gaurav Jogani from Axis Capital.

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Gaurav Jogani, Axis Capital Limited, Research Division - Assistant VP of Consumer [95]

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Sir, my first question is with regards to, as you have alluded that the winters have also extended now they're till the Feb almost. So don't you think it will have an impact again on the summer products, that is Navratna products, Navratna Oil product?

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Mohan Goenka, Emami Limited - Wholetime Director [96]

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Let us wait. Yes, the winter is extended, but the summer can come anytime. It's beyond anyone's predictions.

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Gaurav Jogani, Axis Capital Limited, Research Division - Assistant VP of Consumer [97]

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No. But sir, like how our winter got impacted due to -- winter products got impacted due to delayed winters, can't the same thing happen....

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Mohan Goenka, Emami Limited - Wholetime Director [98]

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But of course, it can happen. Of course, it can happen.

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Gaurav Jogani, Axis Capital Limited, Research Division - Assistant VP of Consumer [99]

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So that could be a risk going ahead?

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Mohan Goenka, Emami Limited - Wholetime Director [100]

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Yes. If you take it as a risk, it can be a risk. It is beyond us.

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Gaurav Jogani, Axis Capital Limited, Research Division - Assistant VP of Consumer [101]

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Okay. And sir, my next question is with regards to the pledge thing that you've mentioned. So is there any time line, the 8% equity, when does that get released from the one which we will place for warranty?

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Mohan Goenka, Emami Limited - Wholetime Director [102]

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So that we would have to wait and see because it might take some time. It might take about 6 months' time. Once -- yes...

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Gaurav Jogani, Axis Capital Limited, Research Division - Assistant VP of Consumer [103]

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From May, when the deal gets executed, from

there, 6 months' time, right?

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Mohan Goenka, Emami Limited - Wholetime Director [104]

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Yes. Yes, absolutely.

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Operator [105]

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The next question is from the line of Amit Sinha from Macquarie.

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Amit Sinha, Macquarie Research - Analyst [106]

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My question was on the other expenses. And this quarter, we have seen some savings. I just wanted to understand, on a run rate basis, how should we look at this cost going forward? Can we expect significant savings from the current run rate?

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Rajesh Sharma, Emami Limited - SVP of Finance & IR [107]

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So Amit, overall, INR 240 crore is the other expenses for the first 9 months, and a similar kind of run rate should continue.

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Amit Sinha, Macquarie Research - Analyst [108]

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As a percentage of sales, this...

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Rajesh Sharma, Emami Limited - SVP of Finance & IR [109]

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No, as a percentage, it has gone down this particular quarter. But overall, if I look at 9-month, I think that 9-month number should be more repetitive number.

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Amit Sinha, Macquarie Research - Analyst [110]

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So you'd say FY '21 should also be broadly similar as a percent of sales?

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

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Right, right.

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Amit Sinha, Macquarie Research - Analyst [112]

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Okay, okay. And in terms of the A&P spend, how should -- I mean, will -- the spend which you are planning on Fair and Handsome, will that be something which will take up the A&P spend? Or you'll maintain broadly the same level?

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Rajesh Sharma, Emami Limited - SVP of Finance & IR [113]

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No, no, we'll broadly maintain at the similar current level of 17.5% to 18%.

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Operator [114]

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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 [115]

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Some follow-ups. Mohanji, we are seeing that health care business has been struggling. And if I compare the competition, the national competition from the organized [player], it's shown a 12% odd growth. So what is it that we are missing? Is that distribution, which is driven by wholesale is the channel issue or is the product issue?

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Mohan Goenka, Emami Limited - Wholetime Director [116]

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I said -- on the health care business, our majority of the sales come from Pancharishta, okay. So there is no comparison as such, which health care companies you're talking of, I don't know. If Pancharishta has declined by 18% in the first 6 months, I cannot grow because almost 65% -- 60%, 65% business comes from Pancharishta. If Pancharishta fires, now in this quarter, it -- as I said, it has grown by 3%, then we can grow at 10%, 12%.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [117]

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Okay. Got it. Yes. Any quick comment on wholesale recovery? I mean, yes, this is an important channel for us when we look at the seasonality. I think this -- so any signs of recovery you are seeing in the North or maybe in the Eastern part where wholesale is really declining much faster?

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Mohan Goenka, Emami Limited - Wholetime Director [118]

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No. I'm yet to see recovery at the wholesale and the retail levels.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [119]

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And in terms of raw material, will you be able to say what kind of deflation we have seen in the key raw material like mentha and your packaging in this quarter? And what kind of benefits we can build in, say, in quarter 4 also?

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Mohan Goenka, Emami Limited - Wholetime Director [120]

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See mentha has been stable for quite some time now. But again, we are seeing some reduction in the petroleum prices. So going forward, if this momentum, again, continues, then hopefully, as I said, we will be able to gain another 50 basis points to 60 basis points going forward.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [121]

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And just last one quick question. If you can give me the brand [salience] in Q3?

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Mohan Goenka, Emami Limited - Wholetime Director [122]

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Brand?

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [123]

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Brand contribution in Q3. I mean, top 5 brands.

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Mohan Goenka, Emami Limited - Wholetime Director [124]

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(foreign language) I think you can discuss with Rajesh, if you want to get into details.

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Operator [125]

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The next question is from the line of Bhakti Thacker from Investec.

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Bhakti Thacker, Investec Bank plc, Research Division - Analyst [126]

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Sir, what would have been the international revenue growth, excluding Creme 21?

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Mohan Goenka, Emami Limited - Wholetime Director [127]

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Overall growth was 18%. Excluding Creme 21, it was about 3.5%.

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Operator [128]

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The next question is from the line of Percy Panthaki from IIFL Securities Limited.

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Percy Panthaki, IIFL Research - VP [129]

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Sir, if you can give some more granularity on Fair and Handsome. You have mentioned in your presentation that you're putting in some inputs into the brand, and you expect the brand to turn around. What steps exactly are you taking there?

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Mohan Goenka, Emami Limited - Wholetime Director [130]

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We cannot go into the details, it's a competitive scenario. One of the steps that we have taken is by reducing the prices in this quarter. So that we have already done. Other than that, as I said, there are a lot of corrective measures which we are taking, and you will see it in first quarter.

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Operator [131]

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The next question is from the line of Ankit Babel from Subhkam Ventures.

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Ankit Babel;Subhkam Ventures;Analyst, [132]

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Sir, my first question is, so once you start growing in double digits, which you're expecting from next quarter onwards, and with the 50 basis point gross margin expansion, can our EBITDA margins go back to the previous highs of around 29%, 30%?

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Mohan Goenka, Emami Limited - Wholetime Director [133]

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(foreign language) would be a little stretch. Let us see because in this quarter already, we have raw materials and packing material already there. But if this momentum continues, then I said, for the year-round, 50, 60 point gross margin expansion is possible. But we would have to see overall numbers. If the market sentiments also improve, we might have to take up some advertising. We have to launch a lot of new products. That is where our focus is all about, okay?

So the immediate focus is not on improving our EBITDA margins to 29%. If in natural course it happens, it happens because already we have a very healthy EBITDA margin.

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Ankit Babel;Subhkam Ventures;Analyst, [134]

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Yes, true, true. And sir, just to simplify. So this - on the pledge issue, so by March 2021, you are expecting a 0 pledge. I mean, that's 8% pledge also getting released and this INR 500 crores, INR 600 crores of debt also getting repaid. So that FY '21...

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Mohan Goenka, Emami Limited - Wholetime Director [135]

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INR 500 crores, INR 600 crores, so we are pretty confident. On the 8%, we would have to wait and see. Matter is -- so we would -- matter is sub judice. We will just have to wait and see that.

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Operator [136]

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The next question is from the line of Ajay Thakur from Alder Capital.

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Ajay Thakur;Alder Capital;Analyst, [137]

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Two questions. First is on the tax rate. Can you guide us to the tax rate for FY '21 and '22?

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Mohan Goenka, Emami Limited - Wholetime Director [138]

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It is about 20%.

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Ajay Thakur;Alder Capital;Analyst, [139]

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For both the years?

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Mohan Goenka, Emami Limited - Wholetime Director [140]

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Yes, yes.

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Ajay Thakur;Alder Capital;Analyst, [141]

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Okay. And secondly, I wanted to check the -- how would be the group company that like in terms of do promoter need to support them in terms of the overall debt servicing, especially for the unlisted group companies?

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Mohan Goenka, Emami Limited - Wholetime Director [142]

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Not really. So as I said, there is some requirement, which we have already considered in these numbers.

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Operator [143]

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The next question is from the line of Amnish Aggarwal from Prabhudas Lilladher.

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Amnish Aggarwal, Prabhudas Lilladher Pvt Ltd., Research Division - SVP of Research [144]

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Sir, just one follow-up from me. In the case of Emami Cement, how much is the debt of that company?

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Mohan Goenka, Emami Limited - Wholetime Director [145]

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INR 2,200 crores.

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Amnish Aggarwal, Prabhudas Lilladher Pvt Ltd., Research Division - SVP of Research [146]

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INR 2,200 crores. So it means that INR 5,500 crores minus INR 2,200 crores, INR 3,300 crores, we will be getting?

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Mohan Goenka, Emami Limited - Wholetime Director [147]

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Right.

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Operator [148]

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The next question is from the line of from Abul Fateh from Baroda Mutual Fund.

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Abul Fateh;Baroda Mutual Fund;Analyst, [149]

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Sir, you mentioned that the cement debt was INR 2,200 crores. But if I look at your DRHP, the June 2018 number says INR 2,350 crores. And I don't think that debt would have reduced. So is this number carrying? Or does it exclude the short maturities or the current maturities of long-term debt?

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Mohan Goenka, Emami Limited - Wholetime Director [150]

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It also includes some of the unsecured loans by the promoters, which had been given by the promoters. Whatever numbers I'm saying, these are actual factual numbers, okay?

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Abul Fateh;Baroda Mutual Fund;Analyst, [151]

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And another thing, what will be the tax outgo on this number?

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Mohan Goenka, Emami Limited - Wholetime Director [152]

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That we are working out. As I said, we have kept for other requirements in this -- in the tune of about INR 800 crores.

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Abul Fateh;Baroda Mutual Fund;Analyst, [153]

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INR 800 crore rupees, other requirements, tax and what else would be the...

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Mohan Goenka, Emami Limited - Wholetime Director [154]

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Right. Mostly tax and other requirements. Somebody asked before you now that there are -- are there some other requirements. So there would be some requirements. First, we would have to take out money for taxes, then whatever we have taken out, it should be about INR 700 crores, INR 800 crores.

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Abul Fateh;Baroda Mutual Fund;Analyst, [155]

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And on this 8% of promoter holding to be pledged for guarantee of cement assets, what is this? This is a pledge already been created on that assets or the new pledge would be created?

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Mohan Goenka, Emami Limited - Wholetime Director [156]

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No, no, new pledge would be created. But after taking this pledge, plus the -- as I said, it would be about anywhere between 15% to 20%, the total pledge should not be more than 25% or 26% by investing 70%.

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Abul Fateh;Baroda Mutual Fund;Analyst, [157]

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Okay. And this is by June you're saying when the deal gets completed and the money gets received?

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Mohan Goenka, Emami Limited - Wholetime Director [158]

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Absolutely, absolutely.

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Abul Fateh;Baroda Mutual Fund;Analyst, [159]

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And also, there was a media item that promoters were selling, that hospital in Bhuvaneshwar. And is the money received there? Or the deal is still not completed? This is just a media report that we have...

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Mohan Goenka, Emami Limited - Wholetime Director [160]

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No, we haven't received the money, but the deal is completed. There are some -- sorry?

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Abul Fateh;Baroda Mutual Fund;Analyst, [161]

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What is that amount on that -- for that asset?

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Mohan Goenka, Emami Limited - Wholetime Director [162]

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I really cannot share them out.

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Operator [163]

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The next question is from the line of Nitin Gupta from SBI Cap Securities.

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Nitin K. Gupta, SBICAP Securities Ltd., Research Division - Analyst [164]

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Just wanted to know from the Kesh King perspective. We have added this scheme or you can say the promotion in the Kesh King that it is now with 100% money back guarantee. So do you see any efficacy issue in the premium end or hair fall category as such?

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Mohan Goenka, Emami Limited - Wholetime Director [165]

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If you would have seen that, we wouldn't have given 100% refund. We are so confident that we will not get that.

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Nitin K. Gupta, SBICAP Securities Ltd., Research Division - Analyst [166]

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No, that's okay. But is it like after some feedback on the supply chain that customer want this kind of assurance, we are sort of highlighting this promo?

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Mohan Goenka, Emami Limited - Wholetime Director [167]

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I'm not clear. But -- no, we are so confident that we won't get a single claim. We are confident on our products. That's why we have said. If you're not satisfied, we'll give you 100% refund.

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Operator [168]

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The next question is from the line of Gaurav Jogani from Axis Capital.

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Gaurav Jogani, Axis Capital Limited, Research Division - Assistant VP of Consumer [169]

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Sir, just one clarification. Sir, the 7 Oils in One, you said the brand is INR 100 crore with a INR 30 crore sales from domestic. Is that right?

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Mohan Goenka, Emami Limited - Wholetime Director [170]

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Yes.

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Operator [171]

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(Operator Instructions) As there are no further questions, I now hand the conference over to the management for their closing comments.

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Mohan Goenka, Emami Limited - Wholetime Director [172]

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Thank you, Percy. Thank you, IIFL, for ending this call, and we thank all the participants for joining us on this earnings call for Emami on quarter 3. Thank you.

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Operator [173]

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Thank you very much. Ladies and gentlemen. On behalf of IIFL Securities limited, that concludes this conference call for today. Thank you for joining us, and you many now disconnect your lines.