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Edited Transcript of EMAMILTD.NSE earnings conference call or presentation 8-Aug-19 10:30am GMT

Q1 2020 Emami Ltd Earnings Call

Aug 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Emami Ltd earnings conference call or presentation Thursday, August 8, 2019 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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* Aditya Soman

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Amit Sinha

Macquarie Research - Analyst

* Gaurav Jogani

Axis Capital Limited - Assistant VP

* Harit Kapoor

Investec Bank plc, Research Division - Analyst

* Kunal Vora

BNP Paribas, Research Division - Analyst

* Naveen Trivedi

HDFC Securities Limited, Research Division - Research Analyst

* Percy Panthaki

IIFL Research - VP

* Prakash Kapadia

Anived Portfolio Managers Pvt. Ltd - Principal Officer

* Shirish Pardeshi

Centrum Broking Limited, Research Division - Senior Analyst

* Tejash Shah

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

* Venkatesh Sanjeevi

Pictet Asset Management Limited - Senior Investment Manager

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Emami Limited Q1 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. Thank you, and over to you, sir.

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Percy Panthaki, IIFL Research - VP [2]

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Good afternoon, everyone. Joining us in this call are Mr. Mohan Goenka, Director; and Mr. Rajesh Sharma, Senior VP Finance. So over to you, Mr. Goenka.

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Mohan Goenka, Emami Limited - Wholetime Director [3]

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Thank you, Percy. Very good evening, friends. I welcome you all to this conference call on Emami's result for the first quarter ended 30th June 2019.

Although the macroeconomic environment continues to be challenging with a distinct slowdown in the consumer demand curve, particularly for discretionary products, we are happy to report a healthy profit-led growth this quarter. With revenue of INR 649 crores, we closed the quarter with a growth of 5.6% against a high base over previous years wherein we had growth of 19%.

Volume growth for the quarter stood at 2%. During the quarter, Domestic Business grew by 2% with flat volumes. Navratna grew by 4%. Kesh King grew by 30%. And 7 Oils in One grew by 31%. However, Healthcare range declined by 3% against a base of 28% growth achieved in quarter 1 last year. Pain Management declined by 6% against a base of 39% growth in previous year.

Quarter 1 being the nonseason, BoroPlus declined by 7%. Male Grooming declined by 7% on account of slowdown in discretionary consumption. However, our power brands reinforced leadership in their respective categories, increasing their market shares during the quarter, which we believe is credible given a poor consumer sentiment.

Navratna Cool Oil volume market shares, at 66.8%, grew by 60 basis points. Balms volume market share, at 54.7%, grew by 130 basis points. BoroPlus volume market share, at 76%, grew by 80 basis points. And Kesh King volume market share, at 26%, grew by 190 basis points. Fair and Handsome maintained its leadership position with a volume market share of 64.6%.

While sluggishness in traditional channel persists, modern trade continued to yield positive results. The channel grew by 17% during the quarter, now contributing to 9% of our Domestic Business. International Business too grew by 34% during the quarter led by strong growth in SAARC and MENAP regions. Excluding Creme 21, International Business grew by 10%.

During the quarter, gross margins, at 64.2%, declined by 210 basis points due to increase in raw material costs. Despite this, EBITDA grew by 11%, and EBITDA margins, at 20.7%, grew by 110 basis points. PAT, at INR 39 crores, grew by 47%, and PAT margins increased by 170 basis points. Cash profit, at INR 123 crores, also grew by 11%.

Going ahead, we expect input cost pressures to ease in the second half of this financial year, which would help us maintain or expand gross margins for the full year. Our outlook for the balance quarters in FY '20 remains positive based on the various strategic initiatives adopted by the company to build a strong foundation for sustainable profitable growth, efficient management of risks and improvement of operating margins. With the government impetus to put rural growth on fast track, we expect business to bounce back in the coming quarters.

With this brief, I now open the Q&A. Thank you.

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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 Aditya Soman from Goldman Sachs.

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Aditya Soman, Goldman Sachs Group Inc., Research Division - Equity Analyst [2]

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Just 2 questions from my end. Firstly, when we look at market shares for the categories, these are market shares with specific categories, right? So for Fair and Handsome, that would just look at men's fairness cream, but is -- has categories like Fair and Handsome lost share to nonfairness facial moisturizers? Similarly for cooling oils, could there be a case that the cooling oils overall are losing market share to some of the other medicated hair oils or even general sort of value-added hair oils?

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Mohan Goenka, Emami Limited - Wholetime Director [3]

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So these are the specific categories like we have always defined. So the comparison is like-to-like. So cooling oils is some brands which fall under the cooling oil category. This is how [mainstream] also defines them. So the markets have not been growing for most of these brands because we have almost 60% to 70% market share. I would not say that the other brands are taking away shares in any of our categories.

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Aditya Soman, Goldman Sachs Group Inc., Research Division - Equity Analyst [4]

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Yes -- no. No, my question was whether the cooling oil category itself, I mean more consumers are just moving away from a preference towards cooling oil towards other value-added hair oils, or in the case of Fair and Handsome, whether the consumers are shifting to general moisturizing creams, whether male or female. More major consumers, for example, is using general moisturizing creams (inaudible). I'm just asking you that question is that -- have any of your channel partners suggested that there's been a shift of consumers?

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Mohan Goenka, Emami Limited - Wholetime Director [5]

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Not really. No, we have not seen that shift in these categories.

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Aditya Soman, Goldman Sachs Group Inc., Research Division - Equity Analyst [6]

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Okay. Because -- if you look at the growth for some of these other categories, they -- those continue to do very well. It's only in the men's fairness cream or cooling oil that we are seeing obviously overall growth plateau over the last couple of years.

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Mohan Goenka, Emami Limited - Wholetime Director [7]

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So we have not seen that shift, therefore, there has been reasons because Fair and Handsome is absolutely a discretionary category. So there has been a general slowdown, as you all know. That's why we are seeing this lump in the fairness cream in particular. And as far as Navratna is concerned, this is -- this was the peak season. Somehow we lost in the first 2 months because of general elections in the rural markets. So that is one of the key reasons why -- we could still grow at 4%. We could have done better, I think.

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Aditya Soman, Goldman Sachs Group Inc., Research Division - Equity Analyst [8]

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Understand. So you would expect both of these brands to sort of return to double-digit growth for the rest of the year? Or that it will probably be a steady process that we get there?

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Mohan Goenka, Emami Limited - Wholetime Director [9]

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That we would need to see because the peak season for Navratna has now gone. So to get back to double-digit growth for Navratna would be a slight challenge. And for Fair and Handsome, we are looking at a larger picture because we need to get back to growth, but the economy also has to grow for this.

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Aditya Soman, Goldman Sachs Group Inc., Research Division - Equity Analyst [10]

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I understand. And lastly, the Kesh King that has done well over the last few quarters, what is generally your thoughts there? And what's the feedback been from the market? Or do you expect this level of growth to continue?

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Mohan Goenka, Emami Limited - Wholetime Director [11]

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Yes. So Kesh King has bounced back after our relaunch. So we are seeing good momentum. And I hope that the average growth for Kesh King for the year should be in the range of about 15% to 17%. We had recent slowdown in Kesh Kanti that has also helped Kesh King to grow.

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Operator [12]

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(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 [13]

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I'm wondering -- just wanted to understand if you can -- you made fair observations in the beginning of the call, but if you have to give some sense on regional-wise demand scenario on rural/urban, how they are panning out? And second point on the demand. At one end, Kesh King, which is kind of discretionary product again that you have seen good revival, whereas the balance part of the portfolio where again the drivers are discretionary in nature, we are not seeing the recovery. So what differentiates this behavior in the consumer's part -- consumption part then in the same economic environment?

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Mohan Goenka, Emami Limited - Wholetime Director [14]

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The Kesh King has really bounced after our relaunch. We have also been very aggressive as far as our marketing was concerned. So there -- and Kesh King also had probably a little lower base. So that's why we have seen big growth on Kesh King. And as far as the reason why is concerned, we're not seeing a big difference in North, East, West South. By and large, all regions are behaving in the same [lent.] Rural has been slightly slow growth. If you ask me, rural is almost at 1% growth versus urban is at almost 2.5% growth -- 2.6% growth [as far as] domestic business is concerned.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [15]

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Yes. Second, this an observation from our recent communications and report on 1Q presentation. It seems Emami brand has been repositioned as a wellness brand. So is there a definite business plan around this repositioning which is aligning branded communication? Or is it just a routine communication and we should not read anything more over here?

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Mohan Goenka, Emami Limited - Wholetime Director [16]

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Yes, yes. I think there's no deep thinking on that. It has always been a wellness brand. So there is no major region around that, I would say.

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Tejash Shah, Spark Capital Advisors (India) Private Limited, Research Division - VP of Research [17]

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And lastly, Pancharishtha is missing from communication -- last 2 communications. So any update if you can share on the sale?

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Mohan Goenka, Emami Limited - Wholetime Director [18]

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So Pancharishtha has not grown. Pancharishtha, this quarter has been declined at 10% -- or rather 12%, I'm sorry. So the situation is same in Pancharishtha. It is not growing.

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Operator [19]

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(Operator Instructions) The next question is from the line of Amit Sinha from Macquarie Group.

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Amit Sinha, Macquarie Research - Analyst [20]

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Sir, my question was on your gross margin and EBITDA margin. And you said that you'll try to maintain for the full year. Firstly, on the gross margin, when I look at some of the Bloomberg numbers of mentha and et cetera, it has declined significantly from the margin levels. So that should actually help you in the overall gross margin. Are you seeing that you have a large inventory which will continue to weigh on the overall margin?

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Mohan Goenka, Emami Limited - Wholetime Director [21]

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So your observation is right, Amit. Now that the prices have come off, we still had some inventory in the first quarter. And now as it eases, that's why we have said we'll be able to -- rather be able to expand on gross margin because both crude and mentha's in our favor. So probably, you will start seeing the same level of margin in this quarter and then maybe slight improve from the third and the fourth quarters.

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Amit Sinha, Macquarie Research - Analyst [22]

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Sure, sir. And on the A&P spend, any particular guidance for the year? Are we likely to see a similar kind of A&P spend or -- because of slowdown, you would decide to clone it down?

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Mohan Goenka, Emami Limited - Wholetime Director [23]

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We are reviewing it on a regular basis. I would not say that it would significantly come down or go up. We would try to maintain it as for last year numbers as far as the entire year is concerned. So but, yes, doubt that there would be a big increase on advertising for the year unless the market revise. So that's why we are very confident that we would be able to maintain our margins where there could be some scope of improvement on margins.

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Amit Sinha, Macquarie Research - Analyst [24]

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Exactly. So basically, the margin should expand, right? I mean if the gross margin expand, that should flow through your EBITDA margin -- and flow to your EBITDA margin?

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Mohan Goenka, Emami Limited - Wholetime Director [25]

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Absolutely, absolutely, yes.

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Operator [26]

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The next question is from the line of Naveen Trivedi from HDFC Securities.

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Naveen Trivedi, HDFC Securities Limited, Research Division - Research Analyst [27]

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Sir, can you just give us some idea about when we expect the recovery in the balm segment because it has been like last 4 quarters what we raised around 2% for every decline. So which all initiatives you're taking in? When can we expect a growth in the treating (inaudible) from here onwards?

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Mohan Goenka, Emami Limited - Wholetime Director [28]

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So [one,] we are expecting to grow at about 6% to 7%. Now that the -- because this is the peak season for balm and now that monsoons have set in, so we expect that this quarter should be slightly better. And we are taking some initiatives to get back to at least the growth numbers by giving some consumer offers or maybe a slight head push as far as balm category is concerned.

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Amit Sinha, Macquarie Research - Analyst [29]

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And considering your -- you mentioned from most brands you have -- until (inaudible) basing them last year to post a 19% kind of a growth (inaudible) let's look at [Slide 20]. Your base is very favorable. And you are talking about -- we are taking lots of initiative also to recover the -- this category. So considering those type, any sense, any guidance that you want to share (inaudible)?

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Mohan Goenka, Emami Limited - Wholetime Director [30]

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So I can't give very specific number, but in the first quarter like we have grown at 6%, I hope in the balance, 9 months, we should be able to at least surpass the -- at least go back to 9%, 10% growth.

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Amit Sinha, Macquarie Research - Analyst [31]

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Okay. And any particular reason that this tax rate is upwards of 30% the last 2 quarters?

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Mohan Goenka, Emami Limited - Wholetime Director [32]

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I'm sorry, come again?

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Amit Sinha, Macquarie Research - Analyst [33]

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Sir, taxes in the last 2 quarters has been upwards of 30%.

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Mohan Goenka, Emami Limited - Wholetime Director [34]

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What has been upward 30%?

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Amit Sinha, Macquarie Research - Analyst [35]

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Tax rate.

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Mohan Goenka, Emami Limited - Wholetime Director [36]

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Tax rate.

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Rajesh Sharma, Emami Limited - SVP of Finance & IR [37]

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Yes. Naveen, tax rate is, again, high this quarter, particularly on account of some deferred tax impact. But for the full year, we feel we should be at 32% kind of a tax rate for the entire year.

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Operator [38]

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

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [39]

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I missed the opening remarks because I logged in a bit late, but can you tell me the volume growth for the Domestic Business and promoter pledge as on date?

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Mohan Goenka, Emami Limited - Wholetime Director [40]

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So the volume growth is flat as far as the Domestic business is concerned. And as on date, promoter pledge is about 52%.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [41]

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And weren't the last 3 years (inaudible) if I see through variations in our sales there are obviously with GST wholesale channel issues, the demand, but if I look at some of our power brand and the penetration levels, so shouldn't this now even out? And we should have far more visibility and confidence of higher double-digit volume growth because some of these factors have to even out sooner or later, right?

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Mohan Goenka, Emami Limited - Wholetime Director [42]

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So you're right, Prakashji. I think -- at least as far as we are concerned, we are doing -- we are being aggressive wherever needed, but unfortunately, the markets have not been so favorable. There has been a big slowdown as far as rural consumption is concerned. This being peak season, we could have done better on the Navratna portfolio. But during the election time, we saw a big slump whatever we could do within the month of June.

So -- and we have seen Navratna still this grew at 4%. So there are -- these are one-off cases. Monsoon has also set in a little late. So we have seen some pressure on the balm category. So always you remember, at Emami, we are very highly dependent on the season. And if there is any disruption in that, then somehow we lose. But you are right. So Kesh King has been doing well. 7 Oils in One has been doing well. Some of the brands are doing well.

So we are hopeful that we should be able to do at least a 10% number as far as the remaining 9 months are concerned.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [43]

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And modern trade and e-commerce, I think, you mentioned around 9%, which is, I think, around 7% earlier around, I think, last year. So we were earlier skeptical because of discounts and offers. What has changed now? And what are we focusing on, I think, increase in distribution? So if you could give us some sense of modern trade and e-commerce.

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Mohan Goenka, Emami Limited - Wholetime Director [44]

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The modern trade and e-commerce, they can't be ignored because these are fast-growing channels. And in whatever way we have to grow, we are doing -- we are taking all actions. E-commerce still remain a very small portion. So we are focusing big time on e-commerce because we think there is big opportunity. The consumer sets are a little different. So we can't take more of these consumers. But I think, by and large, because of the growth in modern trade, which was almost at 40%, 50%, has -- this quarter has been 17%. So I think we have reached a base of 9%, 10% in modern trade.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [45]

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And lastly, we had seen some of the launches last year, Fair and Handsome, [Fine One], HE Magic Duo, Zandu Diabrishta, (inaudible) Lactase and Supplement. Any response, any feedback you can share? And what looks promising from a scale perspective? And what does the new product pipeline look like for FY '20?

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Mohan Goenka, Emami Limited - Wholetime Director [46]

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I mean mostly we are working on extensions. We're not launching new products as such because primarily for the market conditions. The pipeline is strong. Once we see good momentum or good growth in the market, then we would be launching those products. All these products are in the market. I cannot really say that they are doing exceedingly well, but it is primarily because of the slowdown. I mean people are not really trying out new products.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [47]

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And to drive more specific trials, we are trying more lower SKUs, lower [search] (inaudible) or what is the route for us to induce more trials because we are leaders in most of the categories. So unless and until we try and don't do that extra bit, the trial also will be difficult.

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Mohan Goenka, Emami Limited - Wholetime Director [48]

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We have SKUs at all levels, so whether it is INR 1 INR 5, INR 10 for each of our products. But because our contribution from rural is more than 50%, 55%, the rural has been at a slowdown. So how do you know what -- at this point of time, we have to have a little bit of caution. We are working on cost reductions. We are wanting to preserve cash. When the right time comes, then only we should spend money. Just launching a new brand or a category or an extension costs a lot of money.

Oddly, the return on that investment seems to be a little risky. That's what we feel. The pipeline is very strong. We can always launch the brand when we see there is healthy growth.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [49]

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(inaudible) helpful?

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Mohan Goenka, Emami Limited - Wholetime Director [50]

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Yes. What is very important is that we have not lost market shares in any of our core categories. We have protected that. Kesh King, which was struggling, we are bouncing back in that. So our distribution has reached to almost 9.5 lakh outlet. So we have strengthened our pillars, e-com, modern trade, which was a weak area, we have strengthened those. So I think it's just a matter of time. When markets would start to roll in, we will also see results. It was a challenging quarter because of elections, but still we could grow at 5%, 6%.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [51]

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I totally appreciate and understand, but sir, somewhere, some of this has to even out, right? Because there is no presentation somewhere. Some of these things have to translate it to higher volume growth, particularly (inaudible).

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Mohan Goenka, Emami Limited - Wholetime Director [52]

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It could happen.

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Operator [53]

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

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Percy Panthaki, IIFL Research - VP [54]

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Can you tell us for this quarter, what is your EBITDA margin you made on the Creme 21 business?

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Mohan Goenka, Emami Limited - Wholetime Director [55]

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EBITDA margin on Creme 21 business. That we have to call separately, Percy. We don't really have the revenue numbers in front of us.

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Percy Panthaki, IIFL Research - VP [56]

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Okay. Okay. No problem. And secondly, just wanted to understand, as per Nielsen, what is the male -- men's fairness category growing at?

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Mohan Goenka, Emami Limited - Wholetime Director [57]

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Male fairness category. Yes. The category is declining, Percy. The male fairness category is declining.

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Percy Panthaki, IIFL Research - VP [58]

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But any idea what was the number?

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Mohan Goenka, Emami Limited - Wholetime Director [59]

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Just a second. I think you can talk to Rajesh.

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Percy Panthaki, IIFL Research - VP [60]

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Okay. Okay. I'll take it off-line.

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Mohan Goenka, Emami Limited - Wholetime Director [61]

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Yes. You could take it...

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Operator [62]

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(Operator Instructions) The next question is from the line of Gaurav Jogani from Axis Bank.

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Gaurav Jogani, Axis Capital Limited - Assistant VP [63]

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This is Gaurav from Axis Capital. Sir, first, I would like to ask the reason for the high other income this quarter. So it grew very substantially. So any particular reason why?

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Mohan Goenka, Emami Limited - Wholetime Director [64]

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Reason for, sorry?

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Gaurav Jogani, Axis Capital Limited - Assistant VP [65]

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High other income.

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Rajesh Sharma, Emami Limited - SVP of Finance & IR [66]

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So this -- last year, we were net -- we had net debt on our balance sheet. So now we have net cash. So we have deployed surplus cash too on some income. So it is probably on account of income on those surplus funds which we had this year.

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Gaurav Jogani, Axis Capital Limited - Assistant VP [67]

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Okay. And sir, on the [consult] level also the other income has increased quite substantially. So is there some dividend payout also from subsidiaries or anything of that sort?

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Rajesh Sharma, Emami Limited - SVP of Finance & IR [68]

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Yes. There is a dividend payout from subsidiary, but that gets knocked off. So (inaudible) accounts also the subsidiary is not factored. So whatever other income has gone up in [consult] level accounts also is on account of the income from surplus funds which we had this quarter.

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Gaurav Jogani, Axis Capital Limited - Assistant VP [69]

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Sure, sure. And sir, one more thing. I mean you just alluded that there has been some sluggishness in the wholesale trade. So sir, what -- so we have taken various initiatives in terms of distribution expansion or direct reach and other stuff. So how is the outlook on that front? Are we doing something to mitigate that because, as we see other companies, they're being -- despite being some high basis, they're able to perform well. So where has been the difference with our company as it was with the others?

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Mohan Goenka, Emami Limited - Wholetime Director [70]

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So Gaurav, it depends on the category because we are not really directly comparable to the other companies. The brands are very different. Where we have struggled is because of the late onset -- because of the elections, there was a slowdown in rural. So we suffered on the cooling oil category, okay? Otherwise, we could have done better. Yes, of course, Fair and Handsome has been in decline because of the general slowdown. But otherwise, I would not say that the other categories have really struggled. Kesh King has grown in these challenging times. 7 Oils in One has also grown. So now that the monsoon has delayed there, but it has set in, so we would see the numbers for balms and the other brands also in this quarter.

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Gaurav Jogani, Axis Capital Limited - Assistant VP [71]

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And sir, with regards to the Pancharishtha portfolio and in the Healthcare, sir, the growth has been very patchy in terms of the quarterly we see, so are we taking any specific initiatives to revive growth in that particular segment?

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Mohan Goenka, Emami Limited - Wholetime Director [72]

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Of course, for any category or any brand which de-grows, we take a lot of initiatives. So Pancharishtha is also one of them. But you are right. We are seeing Pancharishtha start to abate, and to grow from there has been a challenge. So let us see. We -- I don't see that it would really bounce back in this quarter or the next quarter. It has come to a standard base now.

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Operator [73]

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The next question is from the line of Venkatesh Sanjeevi from Pictet Asset Management.

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Venkatesh Sanjeevi, Pictet Asset Management Limited - Senior Investment Manager [74]

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Few questions. Just wanted to get this understanding about A&P. So there was a 10% decline this quarter, and you were saying that for the year, you still be at a similar level as last year. Is that right?

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Mohan Goenka, Emami Limited - Wholetime Director [75]

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Right.

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Venkatesh Sanjeevi, Pictet Asset Management Limited - Senior Investment Manager [76]

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So you think that'll accelerate going forward?

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Mohan Goenka, Emami Limited - Wholetime Director [77]

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Yes, slightly.

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Venkatesh Sanjeevi, Pictet Asset Management Limited - Senior Investment Manager [78]

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Sir, this particular decline now, is it across the board? Or is it less focus on particularly some categories and brands?

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Mohan Goenka, Emami Limited - Wholetime Director [79]

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No. It is across the board, not pertaining to a particular category.

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Venkatesh Sanjeevi, Pictet Asset Management Limited - Senior Investment Manager [80]

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Right. Just in (inaudible) what's the thought process there because when there is a slowdown and you also step off better brand investment, it could have some long-term consequences as well. So just wondering, have you done any -- think of the -- as of minus of A&P?

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Mohan Goenka, Emami Limited - Wholetime Director [81]

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No. So Venkatesh, I think, advertising can always be increased in 5 days once we see the demand coming on. With the return on that investment, even advertising is a big cost, right? We have -- it's not cut-throat competition that if we reduce, somebody will come and take our shares that day.

Yes. So it's not like -- we take a very judicious call. We understand it may have a little bit of repercussion, but our competition is less. So we don't think it would have such a big impact. We have seen that when we have reduced also at times, not that we have lost market shares to anybody. EBITDA advertising rates have also come down a bit. We'll see if all of the cost has come down, okay?

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Venkatesh Sanjeevi, Pictet Asset Management Limited - Senior Investment Manager [82]

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Okay.

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Mohan Goenka, Emami Limited - Wholetime Director [83]

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Yes. And as I said, see, the time is -- or what is our sense that the rural is a little slow. Let us wait for the markets to revive a bit. We can always increase our advertising. Nothing stops us from that.

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Venkatesh Sanjeevi, Pictet Asset Management Limited - Senior Investment Manager [84]

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Okay. My next question is on Kesh King. Again, this is growing 30%, right, for this quarter. But you also mentioned you're expecting 15% in sort of growth for the year. So again, is that right? I mean do you think a little bit slowdown?

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Mohan Goenka, Emami Limited - Wholetime Director [85]

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Right. You are right. And base cash flow impact (inaudible) us. Last year, the base kind of (inaudible). And after the relaunch, so now that will set in. Last year, the base is very high, right?

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Venkatesh Sanjeevi, Pictet Asset Management Limited - Senior Investment Manager [86]

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And on the international business, how does the inventory work here? I mean what sort of inventory levels has maintained in this international business?

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Mohan Goenka, Emami Limited - Wholetime Director [87]

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No. Inventory -- so inventory is normal as far as the international business is concerned. I mean the level of inventory at our -- deposit at the distributor level.

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Venkatesh Sanjeevi, Pictet Asset Management Limited - Senior Investment Manager [88]

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At the distributor level.

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Mohan Goenka, Emami Limited - Wholetime Director [89]

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Distributor level, inventory would be about -- how much, 50, 60 days inventory. For the international business, right?

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Venkatesh Sanjeevi, Pictet Asset Management Limited - Senior Investment Manager [90]

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Yes.

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Mohan Goenka, Emami Limited - Wholetime Director [91]

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Yes. It is about 50 to 60 days.

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Venkatesh Sanjeevi, Pictet Asset Management Limited - Senior Investment Manager [92]

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I'm wondering what the growth we've seen this quarter, is it some bit of inventory which has been filled which could sort of normalize going forward? Or is it genuine demand at end?

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Mohan Goenka, Emami Limited - Wholetime Director [93]

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No, no, no. This is -- no, no, we have not built in any inventory at the distributor level. And as far as international is concerned, the organic growth is 10% and the balance is because of Creme 21.

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Venkatesh Sanjeevi, Pictet Asset Management Limited - Senior Investment Manager [94]

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Right. Right. And international overall, is the margin level superior to the Domestic business? Or is it to comprise lower?

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Mohan Goenka, Emami Limited - Wholetime Director [95]

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No. It is slightly lower compared to our Domestic business.

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Venkatesh Sanjeevi, Pictet Asset Management Limited - Senior Investment Manager [96]

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And just last question from me is promoter pledge situation. How comfortable, I mean now after the leasing transaction in terms of payments due in the near term?

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Mohan Goenka, Emami Limited - Wholetime Director [97]

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So as always, we are committed to reduce our pledge. And hopefully, in the next 6 to 9 months, you will see significant reduction in our collection.

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Operator [98]

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Next question is from the line of Harit Kapoor from Investec.

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Harit Kapoor, Investec Bank plc, Research Division - Analyst [99]

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Sir, one question on the 7 in One oils brand. Just wanted to know how big is this now in the overall context of the Domestic business? Secondly, on that, (inaudible) because last few quarters, the growth has been pretty strong. And the third thing is, which SKU size is really seeing strong growth because we understand that even in the hair oil category also especially in the lighter oils, the lower price point tax at INR 10 have seen good growth. So just wanted your understanding in this field.

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Mohan Goenka, Emami Limited - Wholetime Director [100]

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So I think the concept is catching up as far as 7 Oils is concerned. We are getting repeat demand from wherever we have launched from the existing consumers. But in 7 Oils in One, the biggest selling packs are the large size packs, not really the small size packs. So in above 100 mL. So that definitely gives us an answer that even the consumers are very loyal, and they're buying it typically. And there's a big word-of-mouth also because of the quality of the product. We have also invested big time on this brand. We have advertised heavily, and we are seeing positive results.

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Harit Kapoor, Investec Bank plc, Research Division - Analyst [101]

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Approximately, (inaudible) how large will this be as a percentage for Domestic business now?

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Mohan Goenka, Emami Limited - Wholetime Director [102]

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Domestic business (inaudible) is very small. I think it would be not more than 2% -- 1.5%, 2%.

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Harit Kapoor, Investec Bank plc, Research Division - Analyst [103]

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Got it. So you think that the combination and your communication would seem to be working as you're driving location?

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Mohan Goenka, Emami Limited - Wholetime Director [104]

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Absolutely, because we are getting good growth. So we are investing also the (inaudible).

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Operator [105]

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Next question is from the line of [Ali Shah] from [CLSA.]

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Unidentified Analyst, [106]

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Sir, my first question is on international side. Sir, what is your share of Creme 21 in your overall international portfolio?

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Mohan Goenka, Emami Limited - Wholetime Director [107]

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So far this quarter, it is about 17%.

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Unidentified Analyst, [108]

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Okay. And sir, your overall growth of 34% in international portfolio, I mean 10% is [trend.] What is the growth on a constant currency basis? And if you can just share some thoughts. Has there been a big currency swing which has helped in this quarter? Or any thoughts on that.

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Mohan Goenka, Emami Limited - Wholetime Director [109]

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So there has not been any material impact of currency in this quarter.

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Unidentified Analyst, [110]

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Okay. So this 10% growth for the rest of the portfolio that is excluding trend is more or less on a constant currency basis?

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Mohan Goenka, Emami Limited - Wholetime Director [111]

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Right, right.

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Unidentified Analyst, [112]

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Okay. And for the full year, did you mention somewhere that you're guiding for 17% to 18% kind of growth?

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Mohan Goenka, Emami Limited - Wholetime Director [113]

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For the International business?

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Unidentified Analyst, [114]

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For the International business, yes.

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Mohan Goenka, Emami Limited - Wholetime Director [115]

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Yes. For International, it looks like we would grow much faster than the Domestic. It should be about more than 15% growth.

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Unidentified Analyst, [116]

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Okay. Okay. Sir, secondly, just curious to know some more thoughts on your commentary, where you mentioned that you would like to go [through] on your end pipeline, especially in the context that you will be having some marginally as well as we go into second half. And again, if you look at your topic commentary, you seem to be a little more hopeful of government initiatives, et cetera. So can you shed some more light on your end [MP] portfolio that you will be growing very slowly in FY '20 and looking only at 21%? Or any more thoughts on that, sir.

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Mohan Goenka, Emami Limited - Wholetime Director [117]

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(inaudible) as I have said that the products are ready, they're in the pipeline, okay? What we have seen that there has been a general slowdown. So we can always launch the product the day we decide, okay? The risk reward is not favorable, so it is wise because the investments on any new launches today have become very big, okay? So yes, so we can always launch, maybe in this quarter or next quarter, the day we see we are tracking Nielsen, we are tracking market on a day-to-day basis. The day we realize that we have the most markets are bouncing, or where the monsoon has been now unfavorable, the rural demand is coming in or you're getting some positive response from the market, you can always launch any of these brands.

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Unidentified Analyst, [118]

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Okay. Okay. Sir, and finally...

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Mohan Goenka, Emami Limited - Wholetime Director [119]

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But if I launch all those, and I invest, say, INR 50 crores or INR 100 crores of new brands and if I don't get the desired reserves, then what's the point. I will only blame that the economy was not good. Why did we launch?

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Unidentified Analyst, [120]

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What I was just thinking from the context given the market is very slow probably and innovation, probably new launches will help you to get that incremental growth given that category growth rates have been...

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Mohan Goenka, Emami Limited - Wholetime Director [121]

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But it doesn't work that way. Why would people buy when there is a slowdown? They would first buy the necessity items.

Yes. I have to invest INR 50 crores, INR 60-odd crores if I have to launch new brands. First I have to protect my own portfolio. First I have to grow these portfolios. So then I can always launch those products.

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Unidentified Analyst, [122]

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Okay, sir.

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Mohan Goenka, Emami Limited - Wholetime Director [123]

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They're all ready.

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Unidentified Analyst, [124]

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Finally, on the modern trade side, you did mention that it's now almost 9% of your portfolio, which is certainly -- I'm pretty sure it's not the highest that you've been getting now. So on our A&P strategy, are you relooking at your A&P strategy in terms of ad spends, how much you do on PVC, how much you're doing digital? Any thoughts on that? Are you relooking at your [MP] strategy given that now modern freight e-com would be a much bigger pie for you?

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Mohan Goenka, Emami Limited - Wholetime Director [125]

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No. Of course, so as far as digital is concerned, we are really investing big on digital advertising. Big in the sense compared to the numbers that we have. So -- but I think, as I said earlier, if you see our modern trade growth was also in excess of 40%, 50%. It has now come down to 17%. I think it will stabilize at 10%, 11% for us. So for us, [that strategy didn't even change every year], but we used to spend very less on digital. Now that has increased significantly.

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Unidentified Analyst, [126]

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Okay. And sir, final question on the wholesale channel. You have also mentioned in your commentary that wholesale channel seems to be quite stretched. So where do you see this going now because it's been under pressure for quite some time now. So any thoughts, anything specialty that you can -- are you hopeful of -- given the company in wholesale channel going forward and how much your indexed to it if you can share some thoughts on that.

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Mohan Goenka, Emami Limited - Wholetime Director [127]

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So I -- see our wholesale contribution still is at 40%, 42%, okay. And there is liquidity tranche in that particular sector -- channel. When that would bounce, actually only consideration is that the monsoon has set in now almost in every part of India. So if it is normalized, then hopefully maybe in the next quarter or in 2, 3 months, we should see some bounce back.

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Operator [128]

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The next question is from the line of from (inaudible) from [Sharekhan.]

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Unidentified Analyst, [129]

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Sir, 3 quarters back (inaudible) made, there was definitive plan for most of your categories, such as -- or most of your brands like Kesh King, 7 in One Oil, even the Zandu portfolio, Male Grooming and International Business. We have seen growth coming back for Kesh King, 7 in One Oil, and even International Business did extremely well for this quarter. The only thing which was lagging is the Zandu portfolio and the Male Grooming. In Zandu, we had plans like growing the portfolio on Ayurvedic platform, launching few products for woman-centric products or having different channels to promote the products. So is this strategy then -- is there any change in the strategy for Zandu? Or you're working for something else to look for Zandu portfolio to regear its growth?

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Mohan Goenka, Emami Limited - Wholetime Director [130]

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No. There hasn't there been any change. We still remain very bullish as far as the Healthcare range is concerned. We have launched certain brands. As I have continuously maintained that there has been some slowdown, we have also slowed down our launches and our promotions on these brands, okay? The brands are already there in the marketplace. Once the right opportunity comes, and we see some momentum, it would be again become very aggressive. We have a separate channel as far as the Healthcare range is concerned. We have strengthened that channel also the distribution in that channel. So things are very much in place.

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Unidentified Analyst, [131]

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No. Because the growth rate are a cinch to be quite -- or we have not seen the category performing that well for you even though clearly you have strategies in place. So will it take some more time for the portfolio to come back on track or something like that?

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Mohan Goenka, Emami Limited - Wholetime Director [132]

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So Healthcare way, because it is primarily the growth was driven by Pancharishtha and because Pancharishtha has not grown in this quarter, so we have seen some drag. Yes, once Pancharishtha bounces back, then you will see the growth on Healthcare also.

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Unidentified Analyst, [133]

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Right. And what about Male Grooming, sir? Because even that category is not doing that -- it was Fair and Handsome obviously is not working well for you. And there are some of the other brands as well as in Male Grooming category. So when can we see growth coming back in the Male Grooming's business?

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Mohan Goenka, Emami Limited - Wholetime Director [134]

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See I had told earlier also that it is a discretionary item. And we -- because of general slowdown, we are seeing some slowdown in Fair and Handsome. So we have a definite plan. We are making an aggressive call as far as this brand is concerned to at least see there is no decline and we get back to the growth levels. We are taking a lot of initiatives as I told you last time also. Sushil is working on the strategy. Let them come up with the strategy. And yes...

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Unidentified Analyst, [135]

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Okay. Got your point, sir.

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Mohan Goenka, Emami Limited - Wholetime Director [136]

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We still have a 66% market share. Despite the stiff competition, we have been able to maintain this.

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Unidentified Analyst, [137]

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Okay. So one question on the distribution front. Currently, what is our distribution region? Where do you expect it to at the end of the year?

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Mohan Goenka, Emami Limited - Wholetime Director [138]

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So we have reached our target of 9.5 lakh outlets now. And hopefully, we want to maintain at these levels as far as direct reach is concerned.

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Unidentified Analyst, [139]

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Okay. And sir, one final one. Any CapEx plan for this year? Any significant CapEx you're planning to do?

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Mohan Goenka, Emami Limited - Wholetime Director [140]

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No. There is no significant ongoing CapEx.

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Operator [141]

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The next question is from the line of Kunal Vora from BNP Paribas.

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Kunal Vora, BNP Paribas, Research Division - Analyst [142]

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Just wanted to check on -- yes, we see you working with BCG, just as you mentioned last time as well. What's been the progress there? And when can we expect results on the ground on Fair and Handsome?

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Mohan Goenka, Emami Limited - Wholetime Director [143]

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Maybe by third quarter.

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Kunal Vora, BNP Paribas, Research Division - Analyst [144]

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Third quarter. Okay. Do you already have some plan in place now, but you already (inaudible), okay.

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Mohan Goenka, Emami Limited - Wholetime Director [145]

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Yes, absolutely.

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Kunal Vora, BNP Paribas, Research Division - Analyst [146]

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Yes. And on like any impact of this which you had on numbers because I don't think there is something (inaudible) anything to highlight there?

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Mohan Goenka, Emami Limited - Wholetime Director [147]

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Sorry?

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Kunal Vora, BNP Paribas, Research Division - Analyst [148]

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Ind AS 116 impact.

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Rajesh Sharma, Emami Limited - SVP of Finance & IR [149]

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There's no significant impact on Ind AS for us.

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Kunal Vora, BNP Paribas, Research Division - Analyst [150]

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Not even on EBITDA level? EBITDA level also no impact?

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Rajesh Sharma, Emami Limited - SVP of Finance & IR [151]

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No, no, nothing. No impact.

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Operator [152]

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(Operator Instructions) The next question is from the line of from Shirish Pardeshi from Centrum Broking Limited.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [153]

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Mohan, just 2 questions extending from the previous. In Healthcare, if I understand correctly, is the different sales challenge which we have in India. So is that sales challenges also having the liquidity issue or offtake?

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Mohan Goenka, Emami Limited - Wholetime Director [154]

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Yes. For Healthcare, we have -- the channels are more or less the same. So there is liquidity crunch everywhere, but Healthcare guys, you see the major decline is due to Pancharishtha. Hello?

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [155]

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Hello. Yes. So I'm saying that this is -- I mean there are a lot of initiatives which the government is trying to take. So do you think that second half is going to be a better for us because, I guess, seasonality factor will be having the base effect?

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Mohan Goenka, Emami Limited - Wholetime Director [156]

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Right. Yes. As I said, we are hopeful that we would end the year with better numbers than what we had in the first quarter.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [157]

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Yes. Because why I'm asking this question is, the last 3, 4 quarters, we have seen that there is a decline in rural sales, and there is a whole offtake issue. So my sense is that the rural inventory level would have significantly come down because these seasonality factors has not actually panned out the way we thought. So trade would have not stopped. So inventory at the trade level would have significantly come down. Is that the thing which is what we -- you are experiencing?

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Mohan Goenka, Emami Limited - Wholetime Director [158]

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Not really, Shirish. We have not seen as far as our dealers are concerned in the rural areas or even in urban areas. The inventories have not really come down. The secondaries have been slightly poor only.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [159]

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Okay. In terms of international sales, this Creme 21 we have launched -- or we have rolled out in Middle East, is there any plan that we will take it to other countries also?

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Mohan Goenka, Emami Limited - Wholetime Director [160]

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Definitely. But as of now, we will stick to these markets.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [161]

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Is there any production constraint we have for this product?

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Mohan Goenka, Emami Limited - Wholetime Director [162]

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No, no. There is no production constraint.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [163]

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And this is purely all MENA and SAARC countries that has gone? Or it's only Middle East that has gone?

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Mohan Goenka, Emami Limited - Wholetime Director [164]

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It is Middle East where we get almost 50% of the business.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [165]

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Okay. And the other question is on, again, on BCG, what the previous question was there. So this you're saying in quarter 3 that the winter season which will start. So it will get launched before the winter or will launch during the winter?

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Mohan Goenka, Emami Limited - Wholetime Director [166]

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There is no launch or relaunch. It's just a strategy because brand is well interest. We have a significant market share. We would -- if there would be -- would just slightly reject the strategy.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [167]

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So this is more on to do with the go-to-market strategy reaching our distribution.

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Mohan Goenka, Emami Limited - Wholetime Director [168]

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Absolutely.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [169]

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Okay. The other thing I wanted to understand, the hair oil market which we have seen very, very volatile performance, the whole category shift which is happening. So you also mentioned that Navratna oil you have not seen the change in the category mix, but surprisingly, 7 in One Oil, which is getting more offtake, so is that the consumer trend is also shifting towards something which is value-add or which is functional? Is that the thing which you are experiencing?

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Mohan Goenka, Emami Limited - Wholetime Director [170]

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7 Oils in One is, Shirish, very small base, okay, compared to Navratna. The consumers are very different. As I said, the concept is working good with the young consumers. So we are seeing these kind of numbers. We are also being very aggressive as far as advertising of 7 Oils in One is concerned now.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [171]

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The next question is on advertising and spend. So is that the quarter which last 4, 5 years, we've seen that [as soon as the stores] promotion and less on advertising. Is that the thing we should read from the lower expense in this quarter?

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Mohan Goenka, Emami Limited - Wholetime Director [172]

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The promotions has always been part of our strategy. This quarter also we have definitely increased our promotions. So going forward, depending on the market demand scenario, we keep on changing those strategies.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [173]

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I'm just trying to understand. You said we need to conserve the cash. So you do think significant (inaudible)

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Mohan Goenka, Emami Limited - Wholetime Director [174]

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Conserve cash primarily on new launches, not on existing brands.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [175]

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But still you will maintain the (inaudible) for your core portfolio?

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Mohan Goenka, Emami Limited - Wholetime Director [176]

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Of course.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [177]

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One last question on Ind AS exchanges filing, what you have given in terms of filings. We -- there is one line item which says that (inaudible) science and private limited, you have increased substantial fee, which is at 34% -- 31.67%. So is that -- what we should -- I mean I wanted to understand what is this business? And how it is -- what are the synergies which we have within of it.

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Mohan Goenka, Emami Limited - Wholetime Director [178]

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That investment we already had that is part of our terms that we had with them. So we had to increase our stake, and we have increased it.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [179]

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Now it has become the associated company. So what are the things -- I mean what are the party -- what are these companies to do with us?

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Mohan Goenka, Emami Limited - Wholetime Director [180]

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Their products mostly sell in salons in mostly in skincare and haircare. So it's a little high-end products. So we wanted to explore this market. So we have invested in that company.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [181]

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No. I understand.

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Mohan Goenka, Emami Limited - Wholetime Director [182]

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(inaudible) scope on e-commerce, sorry? It's a very small investment to try it out, because...

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [183]

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What is the quantum of that investment?

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Mohan Goenka, Emami Limited - Wholetime Director [184]

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(inaudible). That could be about INR 15 crores or so.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [185]

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Okay. And so how long will we take to acquire 100% stake in this company?

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Mohan Goenka, Emami Limited - Wholetime Director [186]

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But that is not an idea that we will acquire 100%.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [187]

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Yes. I mean we have now have a significant holding around 35%.

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Mohan Goenka, Emami Limited - Wholetime Director [188]

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Yes.

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Shirish Pardeshi, Centrum Broking Limited, Research Division - Senior Analyst [189]

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So are we waiting for how this is going to pan out and contribute meaningfully to our top line?

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Mohan Goenka, Emami Limited - Wholetime Director [190]

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We do very small, Shirish, in our overall scheme of things. We have no plans to increase our stake. It will remain at these levels. We are working with them to see how can we grow the business, okay? We don't run the business. It is run by them only.

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Operator [191]

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As there are no further questions, I will now hand the conference to the management for closing comments.

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Mohan Goenka, Emami Limited - Wholetime Director [192]

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Thank you for joining our call. Thank you all, participants, and thank you IIFL for arranging this conference call for us. Thank you.

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Operator [193]

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Thank you very much.

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Mohan Goenka, Emami Limited - Wholetime Director [194]

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Thank you.

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Operator [195]

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On behalf of IIFL Securities, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.