U.S. Markets open in 1 hr 21 mins

Edited Transcript of GSKCONS.NSE earnings conference call or presentation 8-Nov-19 5:30am GMT

Q2 2020 GlaxoSmithKline Consumer Healthcare Ltd Earnings Call

Nov 10, 2019 (Thomson StreetEvents) -- Edited Transcript of GlaxoSmithKline Consumer Healthcare Ltd earnings conference call or presentation Friday, November 8, 2019 at 5:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Navneet Saluja

GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director

* Parul Agarwal

================================================================================

Conference Call Participants

================================================================================

* Arnab Mitra

Crédit Suisse AG, Research Division - Research Analyst

* Kaustubh Pawaskar

Sharekhan Limited, Research Division - Senior Research Analyst

* Manoj Menon

ICICI Securities Limited - Head of Institutional Equities Research

* Percy Panthaki

IIFL Research - VP

* Vishal Gutka

PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst

* Vismaya Agarwal

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, ladies and gentlemen. Welcome to the GSK Consumer Healthcare, Q2 FY '20 Post-Results Conference Call hosted by ICICI Securities Limited. (Operator Instructions) Please note that this conference is being recorded. I'll now hand the conference over to Mr. Vismaya Agrawal from ICICI Securities. Thank you, and over to you, sir.

--------------------------------------------------------------------------------

Vismaya Agarwal, [2]

--------------------------------------------------------------------------------

Thank you, Lisa. Good morning, everyone. On behalf of ICICI Securities, I'd like to thank the management for giving us the opportunity to host this call. From -- on behalf of GlaxoSmithKline from (inaudible), we have with us today Mr. Navneet Saluja, Managing Director; Mr. Nitin Mathur, Head of Finance; and Ms. Parul Agarwal, Finance Controller.

I'll now hand the call over to the management for the opening comments.

--------------------------------------------------------------------------------

Parul Agarwal, [3]

--------------------------------------------------------------------------------

Good morning, everyone. Parul here. I would like to take this opportunity to introduce you to Mr. Nitin Mathur, who's our new Head of Finance for GlaxoSmithKline Consumer Health Limited. In this role, Nitin will be providing financial leadership to enable business growth and ensure business continuity. Nitin joined GSK in 2005 and has been an integral part of the Finance Organization, working across various roles in India before moving to Bangladesh as we finance the (inaudible). He returned to India after leading this equity program, and later moved to Singapore as a Regional Finance Controller for Asia Pacific. Prior to GSK, Nitin worked Pepsico India. I will now hand over the call to Mr. Navneet for opening remarks and the quarter's results.

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [4]

--------------------------------------------------------------------------------

Thanks, Parul, and a very good morning to everybody. Thank you for joining the conference call today for Q2 '19, '20. The quarter witnessed a strong financial performance, which was in line with the past few quarters. The revenue from operations increased by 6% to INR 1,345 crores, led by volume growth of 3.2%. The domestic business sustained momentum and grew at 7%, while exports saw a decline of [15%] in the current quarter. Gross margin for the quarter has improved by 92 basis points by pricing and better overhead absorption.

We have been witnessing inflation in commodity prices from the last quarter, and the commodity prices are expected to remain bullish in the next few quarters as well.

We are investing competitively behind our plans, with increased focus on TV and digital media. And spending during the quarter in A&P was at 11% of sales. PBT for the quarter increased by 6% to INR 452 crores. The underlying PBT has increased by 9%, adjusted for one-offs, largely explained the clearing of old vendor balances. PBT growth was driven by volumes, pricing and costing initiatives, partly offset by commodity inflation. PAT for the quarter has increased by 25% to INR 345 crores, driven by reduction in corporate tax rates. The effective tax rate earlier was 35%, whereas in the current year, the effective tax rate is 27% because of the restatement of the open detractors. On an ongoing basis, the effective tax rate will be 25% for the (inaudible).

GSK has gained volumes and value share both in Horlicks and Boost in the current quarter as per the Nielsen report. Horlicks gained is 1.3% volume share and 1.2% value share. Boost gained 1,001, volume shares and 0.5% value share in the last 12 weeks. SMP volume market share plus 12 weeks of September '19 stood at 65.7%, and then value share at 55.4%. We continue to drive brand-building activities through step-up investments in our brands, innovations and consumer connect activities that has helped us to improve SMP market share in both value and volume growth.

SOV distribution stood at 2.05 million outlets in the current year, as against 1.81 million outlets in the previous year, indicating a growth of 14%. Q2 '19/'20 distribution was also the highest single distribution that we have achieved in past 5 years.

Further, we continue to strengthen our business through price innovations and branding initiatives. Some of the important initiatives were, continuing the hunger for growth platform and driving benefit and credentials across South and East. 50% of our SOV consumption is in India (inaudible) while giving help to bring popular demand among others, there are limited options available in the market that cater specifically to adult-recommended rightly around this. And most of the available options are quite expensive as a popular (segment products.

Active Horlicks was launched to shift through this recap by providing product design as for other fees and at an affordable price. The brand has received -- the brand has achieved significant milestones within 3 months of launch. The brand passed 1.6% market share volume needs and 0.8% for the market share volumes in SOV.

The loss was supported at (inaudible) campaigns covering [7] outdoor and counted medium for the (inaudible) and metros. The quarter also saw 1 to 2 key initiatives in the driving condition awareness and agencies' trial with consumers.

Women's Horlicks completed 10,000 bone window density test to drive awareness of low bone mineral density. Horlicks Protein launched a muscle test activation, using modern trade outlets, helping more middle-aged consumers measure their muscle strength and consider Horlicks Protein+ to add protein to their diet.

These activations are first in the industry and best-in-class, and we'll be providing in some trials (inaudible). The Boost campaign (inaudible) continued in Q2, consistently strengthening the appreciation with the brand on stamina and sports. The SPS continues to be market-leaders in the health care sector with (inaudible), we will continue to drive noise and across the product, we will gow and maintain leadership in the category. The macroeconomic environment continues to be (inaudible), with slow GDP growth and driving inflation, further SMP impact (inaudible) slowdown because of macroeconomic factors affecting GDP, (inaudible) income and liquidity cash. The recent policy measures and announcements signal strong commitment to take action against the slowdown.

The corporate tax reduction is a big boost to the industry. We're hoping that these ultimately lead to other verticals from near to medium-term quarter businesses.

In continuing to what we spoke in the previous quarter, we are in the process of securing (inaudible) and the merger. And the time the merger comes into effect following government approval and completion of contractual obligations, with both (inaudible) and (inaudible). We'll continue to operate (inaudible).

With this (inaudible) a brief update on Q2 and open the call for question -- and the questions. Thank you for joining the call today for Q2 2019 and 2020.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question is from the line of Sameer Gupta from India Infoline.

--------------------------------------------------------------------------------

Percy Panthaki, IIFL Research - VP [2]

--------------------------------------------------------------------------------

This is Percy Panthaki here. I just wanted to know what is the domestic volume growth that you have locked?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [3]

--------------------------------------------------------------------------------

So Percy, thanks for the question. In terms of domestic volume growth, we are at 3.6%.

--------------------------------------------------------------------------------

Percy Panthaki, IIFL Research - VP [4]

--------------------------------------------------------------------------------

Okay. And when was the last time that a price increase was taken? And to what quantum?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [5]

--------------------------------------------------------------------------------

So our last price increase was taken in general. And I think the price increase was to the tune of around 1.5% to 2%.

--------------------------------------------------------------------------------

Percy Panthaki, IIFL Research - VP [6]

--------------------------------------------------------------------------------

Okay. So the current difference between volume and value, which is 3.5%, 1.5% to 2% is explained by price, so the remaining, should I say, is explained by mix? Or am I missing something else?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [7]

--------------------------------------------------------------------------------

So we have also taken drastic initiatives. We have done a lot of work on our management, which is net revenue management, which is (inaudible) our sites. It is basically (inaudible) discounts in the market.

--------------------------------------------------------------------------------

Percy Panthaki, IIFL Research - VP [8]

--------------------------------------------------------------------------------

Okay, okay, understood. Secondly, I just wanted to understand, I mean, it seems that different dairy companies have said that there is significant inflation in both milk as well as SMP prices. So in light of that, milk, SMP being sort of large proportion of our input cost, we haven't seen any kind of impact on gross margin. So is it just that we had old inventory, which we were consuming and that is why this has not happened? Or is there some other explanation?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [9]

--------------------------------------------------------------------------------

Because in terms of inflation, we are witnessing inflation in this quarter in our numbers. But like we said, we had cover on SMP and Barley, which has kind of had us. But next quarter onward, we expect inflation in our numbers. But we are also communicating in this quarter as well.

--------------------------------------------------------------------------------

Percy Panthaki, IIFL Research - VP [10]

--------------------------------------------------------------------------------

Okay, okay. So in terms of the cost inflation, how do you manage -- how do you plan to manage it? I mean, do you plan any price hikes? Or do you think that your margins are very healthy, and it is okay to take a hit on the margins?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [11]

--------------------------------------------------------------------------------

In terms of managing our margins, there are fixed price increases (inaudible)that we have. We also run a cost-saving program, that has been doing very well internally. Setting the (inaudible) is that. And also, we look at online, on the P&L to see how we can deliver the operating profit. So in terms of management, we are not expecting to(inaudible). But we are managing this inflation through various levels.

--------------------------------------------------------------------------------

Percy Panthaki, IIFL Research - VP [12]

--------------------------------------------------------------------------------

Okay. And also, can you just tell me what is the SMP price inflation as it stands today versus, let's say, what it was 6 months back because most of the inflation, I believe, has happened in the last 6 months? Or if you want to say it on a Y-o-Y basis, that also is fine. And I'm talking about the spot prices, not your consumption cost.

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [13]

--------------------------------------------------------------------------------

In terms of inflation, we have seen a significant double-digit inflation proceeds. I don't have the figure of specific prices, spot prices, maybe we can connect later. But we have seen that there will be a inflation now on SMP

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

The next question is from the line of Vishal Gutka from PhillpCapital.

--------------------------------------------------------------------------------

Vishal Gutka, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [15]

--------------------------------------------------------------------------------

I just wanted a couple of things. One thing is on the sachet. What have been the contribution of sachets this quarter and how it has grown? Secondly, on the business (inaudible) if you can comment something on that front. What has happened under (inaudible) income. How did grown, and (inaudible) contributed (inaudible)? The last question is on high-selling dish products, If you can give some comments on 14% growth plus. How are you seeing the growth and whatever trend has been since you launched the product?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [16]

--------------------------------------------------------------------------------

Your first question was on traffic. So traffic continue to do well for us. We are seeing close to 32% growth on sachets right now. In fact, there's roughly 12% of our business in terms of contribution. The second question you asked on business [operating] . We are seeing a good growth on the business, positive impact. Brands like Sensodyne and Otrivin are doing well. So our patent is also growing. And then (inaudible) close to 13% in the quarter.

--------------------------------------------------------------------------------

Vishal Gutka, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [17]

--------------------------------------------------------------------------------

1 3, right?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [18]

--------------------------------------------------------------------------------

Yes. 1 3.

--------------------------------------------------------------------------------

Vishal Gutka, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [19]

--------------------------------------------------------------------------------

And then in the last year on on the high sciences product, Protein+ and Growth+. How had there been a growth during this quarter? If you can comment because the growth are remain pretty early because the gross margin on the product are far either in the base product. So I just wanted to know what has happened on that front?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [20]

--------------------------------------------------------------------------------

So Active Horlicks has been very good for us. In fact, it has seen significant market share. And even 13-plus translates to do well. (inaudible). So the highest line portfolio for us right now is doing very well for us right now.

--------------------------------------------------------------------------------

Vishal Gutka, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [21]

--------------------------------------------------------------------------------

Okay. Sir, how different is Active Horlicks versus the base product? Is it just something similar, or you launched it for (inaudible), basically? Is it something into 14-plus? Or how different the product is? I just wanted to know on that front.

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [22]

--------------------------------------------------------------------------------

The Active Horicks is more targeted to the adult segment, and it is more for the energy and steady more than 13. And it has a lot of fiber and energy nutrients to help people stay active for longer. So in terms of population, it is different from standard Horlicks for vendors in-house.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

The next question is from the line of Arnab Mitra from Crédit Suisse. (Operator Instructions)

--------------------------------------------------------------------------------

Arnab Mitra, Crédit Suisse AG, Research Division - Research Analyst [24]

--------------------------------------------------------------------------------

My question was -- first one on Active Horlicks. So your shares are quite good for a new launch. Is it largely in your assessment? Is it largely cannibalizing existing adult usage, which was already there in Horlicks? Or is there any way to see if you're actually getting incremental consumption through Active Horlicks?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [25]

--------------------------------------------------------------------------------

Arnab Nitra, I think a lot of the scale, we'll get consumers from both areas because there is a lot of adult demand already there. And therefore, there could be some switch. Also -- but remember, we never advertised very clearly, a mid-priced or a competitively priced Horlicks brand for the adults. So this is a moment where we're also winnning a lot of new users. Only time will really tell us what the level of cannibalization, combination research we have seen, there was a significant amount of incremental users that we would likely you to get is the more (inaudible) proposition here, and that's why we launched it.

--------------------------------------------------------------------------------

Arnab Mitra, Crédit Suisse AG, Research Division - Research Analyst [26]

--------------------------------------------------------------------------------

Right. And just continuing on this. So essentially, your distribution here is initially quite broad-based, like a normal Horlicks? Or it is still a bit more chemist-focused to begin with and then you gradually broaden it out from there?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [27]

--------------------------------------------------------------------------------

It's been pretty broad-based. Because the proposition is broad-based, and the pricing is in line with Horlicks pricing.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Right. Sure. The second was on Protein+. So if you could just share, within the protein category, what kind of market shares now you have in this segment? And in terms of distribution, how much of coverage would you potentially can have? Have you already done? Because it's been now, I think, a year into the launch?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [29]

--------------------------------------------------------------------------------

Yes. So we're kind of do well on protein, right? It's a segment which is going to continue to grow as you've seen in the last 15, 20 years, that this segment has a traction. So we are now doing, in terms of share, I think, a 4.4% as I shared. The key thing is how we really continue to leverage this over the next few years. So I think very few brands in the process ahead of launch had a number of approximately INR 51 crores. And I think this brand has done that, which is absolutely brilliant. And we really expect that as we continue to invest and continue to understand the consumer needs better in this segment, we'll be able to do a better job of growing the product.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

And on the RTD of Boost, I understand at least there's some feedback that the RTD is -- I mean, generally, both Milo and Boost actually. Are the offtakes still quite weak? And do you see this as a category, which will take a lot more time to really break out into a bigger segment?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [31]

--------------------------------------------------------------------------------

This category, you're right, is a new investment phase. But every consumer insight tells us that this is a category which will definitely thrive in the future. So all our studies, all our insights give us that comfort. Obviously, in India, the trade is extremely fragmented. So it is not in the most ideal situation to explore immediately. But I think as the trade evolves, as the consumers evolve, this format is going to exclude like it has done in most parts of the world. Having said that, I think we are very satisfied, we're very happy with the performance of Boost RTD in the market. We're likely to celebrate INR 4.5 to INR 5 crores of sales, just in South on this brand, on one singular clinic. And I think that really meets our expectation and gives us a platform to continue to grow and invest behind the brand.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Right. And one last question from my side. So in Tamil Nadu, you've seen Milo getting relaunched effectively. Has it in any way affected your Boost share in the end? Because that's a very big market for Boost.

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [33]

--------------------------------------------------------------------------------

Just started so not really having a significant impact right now. We'll keep waiting for more reports to come. We are actually very, very happy that this category is being so much of action. There is a massive issue of malnutrition increasing in India, right? And I think SMP really, really plays a very important part in fortifying the bones and giving children the right kind of nutrition there. So I'm so happy and delighted to see that more and more players are coming into the category and helping us grow the category.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

(Operator Instructions) The next question is from the line of Nandakumar, an individual investor.

--------------------------------------------------------------------------------

Unidentified Analyst, [35]

--------------------------------------------------------------------------------

(inaudible) You have done a very good performance during that 0.5 years. I would like to ask something regarding the proposed merger between [Hindustan] Unilever. I understand the ratio has been picked [4.39] sales of material for every share of GSK (inaudible) was way back in -- it's almost 1 year before (inaudible) December 2018, early this (inaudible) ratio was fixed. And generally, when 2 companies have less than 1 (inaudible), the soft ratio is announced. Whatever benefit one company needs to reach shareholders, like a (inaudible). Other company also, either the operations should be adjusted accordingly, or the other company should also. Because it is not fair to give us some benefits and one-time (inaudible). If you see the half yearly components of these 2 companies, half yearly earnings per share for Hindustan Unilever is [16.65] a day. And for (inaudible)consumer care, it is 131%.

The mix were below the swap ratio. And what I am (inaudible) the Hindustan Unilever, after the half yearly performance, they have announced that the interim dividend at INR 11 per share. That being out of the [INR 16.65] at (inaudible) end. During the first half year, they are giving out INR 11 to the shareholders as -- by a way of an interim dividend, whereas we at the consumer care, it has -- which has a half yearly EPS of INR 141. You haven't declared a (inaudible) interim dividend. So in my question to you, sir, when do we have any plan to give an interim dividend, so the matter will be more on an equal footing because we have managed our delays so no other reasons (inaudible) to multiple shareholders.

And the procedure has been finalized by now. We will also have (inaudible) dividend. But right now is [INR 0.03] beyond our control, the merger is getting delayed. And our performance is, in fact, way above that of the company, that business we are getting merged. So in place of INR 11 dividend, that is almost 70% of their earnings may have even on that interim dividend. Do we have any time frame there, sir?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [36]

--------------------------------------------------------------------------------

San, Thanks, I've got great questions. I will let Nitin answer that. As a philosophy, very clearly that include operating (inaudible), all the regulatory clearances are given here. So we are not really exchanging and thinking as one merged company. We're thinking as 2 independent companies and running our operations completely independently. Once the regulatory clearances are given, obviously, we -- then the current budget for sales (inaudible). But having said that, I'll leave the (inaudible) on it. But if (inaudible) is that we are an independent organization right, till the time that the new figures operated. And in fact...

--------------------------------------------------------------------------------

Unidentified Analyst, [37]

--------------------------------------------------------------------------------

(inaudible) So we are pleased to declare an interim dividend. That is (inaudible) from having an interim dividend, sir. In fact, I understand you. Whenever we have an interim dividend, i.e, they're paying out 70% of their earnings asset because we are moving, all these reserves will go to the shareholders of Hindustan Unilever. Whereas it relaunched yesterday, with the bulk of your performance, our team performance, we made a good profit. And I think there's still a goodwill. Before starting way before we're giving everything to Hindustan Unilever, I believe our shareholders deserve the (inaudible). (inaudible) bonus issue, 1:1, although they had to privately participate with all of these stranded and say that it is an independent company, and we have to get that differential and all those swap ratios.

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [38]

--------------------------------------------------------------------------------

The budget ratio of 10, collected around 6 (inaudible) expected and allowed under the merger agreement. We will have already declared the dividend for '18, '19, in line with the (inaudible) for the past few years. And as of now, we don't have any service lines to declare interim dividend.

--------------------------------------------------------------------------------

Unidentified Analyst, [39]

--------------------------------------------------------------------------------

In my opinion, it is unfair, and I request the Board to kindly consider it. What I am saying is that because we want (inaudible) because the number is getting delayed, shareholders on one company is one clearly benefited. And we are (inaudible) the people have made. We are proud of you. You have impacted (inaudible) and grown independently, our growth would have been much bigger than that of the other companies. And there is a big factor in pricing circular asking for the shareholders (inaudible) share further dividend. In fact, if there were further delay, they may declare another interim dividend. And then they will be losing. So my request to the Board is to please think about it.

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [40]

--------------------------------------------------------------------------------

(inaudible), thanks of our position. Really highly appreciated and thanks for your positive reinforcement of the (inaudible). Thank you so much.

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

The next question is from the line of Kaustubh Pawaskar from Sharekhan.

--------------------------------------------------------------------------------

Kaustubh Pawaskar, Sharekhan Limited, Research Division - Senior Research Analyst [42]

--------------------------------------------------------------------------------

Other income was lower by 12% during the quarter, so can you just help me what is the reason for the same?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [43]

--------------------------------------------------------------------------------

There was a large one-off put in the space. This is a reason for the lower growth. (inaudible) it was underlying with the business growth.

--------------------------------------------------------------------------------

Kaustubh Pawaskar, Sharekhan Limited, Research Division - Senior Research Analyst [44]

--------------------------------------------------------------------------------

Okay, okay. And for export, export market declined by about 16%. So which particular region is getting it?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [45]

--------------------------------------------------------------------------------

Basically, there are 3 reasons for the decline in exports, and there are 2 markets, Middle East and (inaudible). We are seeing a bit of slowdown, and they have reduced the demand, and they're also destocking, so those are two. And the third is because of the political tensions with Pakistan, (inaudible) happening in the quarter. So these 3 are the basic reasons for the decline in export.

--------------------------------------------------------------------------------

Kaustubh Pawaskar, Sharekhan Limited, Research Division - Senior Research Analyst [46]

--------------------------------------------------------------------------------

And so what is your current distribution rate as of now?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [47]

--------------------------------------------------------------------------------

;

(inaudible) [2.05 million] outlet right now.

--------------------------------------------------------------------------------

Operator [48]

--------------------------------------------------------------------------------

(Operator Instructions) The next question is from the line of Vishal Gutka from PhillipCapital.

--------------------------------------------------------------------------------

Vishal Gutka, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [49]

--------------------------------------------------------------------------------

I just have one follow-up question. Can you give me the 3 (inaudible) growth on line and what had happened with regards to Western and Northern markets for our core business? How it has been -- how the performance was in the core market of (inaudible). Have they been growing faster? Or if you throw some color on it? What has happened of that front?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [50]

--------------------------------------------------------------------------------

In terms of growth, the Southeast market are also being achieved, but North and West are doing better than the South and East market in terms of growth. If you look at the growth, South and East grew at roughly 7%. And North and West growth, 9.2%.

--------------------------------------------------------------------------------

Vishal Gutka, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [51]

--------------------------------------------------------------------------------

Okay, okay. And this is the year you are pushing the very end of the (inaudible). We've got the main (inaudible) part on the core, we will be selling more in what we call and South and East, and the (inaudible) will be selling more North and East state?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [52]

--------------------------------------------------------------------------------

(inaudible) doing quite well in the markets that we operate (inaudible) we are doing there.

--------------------------------------------------------------------------------

Operator [53]

--------------------------------------------------------------------------------

(Operator Instructions) The next question is from the line of Manoj Menon from ICICI Securities.

--------------------------------------------------------------------------------

Manoj Menon, ICICI Securities Limited - Head of Institutional Equities Research [54]

--------------------------------------------------------------------------------

I think just 2 questions here. One, on the (inaudible), the incremental 1 on sugar control, et cetera, just an industry update. And if you may (inaudible) if you could help us understand the conversations, and (inaudible) the conference of what is actually happening to that. So that's the first one. The second is, any qualitative comment on the pipeline of products? Even for the medium to long-term actually could be very helpful. Actually, the data should be profitable.

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [55]

--------------------------------------------------------------------------------

Okay, Manoj. I'm trying to get the experts on the regulator into the room as possible to answer your question. Otherwise, we will take it off-line. But I think my own understanding of the (inaudible) is that they've been very pragmatic on the entire approach. They want to do things, which are right for the consumer, at the same time, right, for the industry. So I think the conversation between the industry and the regulators continue on a very, very positive note. So it's a good relationship going and a very mature relationship that's is going. And I think it will only have positive outcome for the consumers and for the industry also. So overall, that's the feeling I get from my entire team. But if you want exact details, I will just try and get these personally. I'll give it to you off-line.

In terms of pipeline innovation, growth, the key one on this -- we have started the journey on, one, trying to cover the entire segments. Pretty much it's exciting, the Active Horlicks opportunity is very exciting. The high science opportunity really excites me. As India becomes richer, the malnutrition problem is humongous in our country. And there is -- it's difficult to give these kids the entire nutrition through food. All models do price. They do their best to make it happen. But it gives us difficulty (inaudible) making sure that they have all the right vitamins and the windows in the right composition on a daily basis becomes almost an important task. And this is where it plays a very important role there.

And therefore, I believe the opportunity in this category remains amazingly large as we progress. So if you look at markets like Malaysia, markets like Vietnam, we see the opportunity on high science here. So we remain buoyant. There is a massive innovation pipeline that we're looking at, both on the protein side and giving adults better nutrition. Specific nutrition, for example, if there is an issue on diabetes, right? Is there a better product that we can help diabetic patients with. All these are innovations in pipeline. There is a massive work that we do, which actually run sometimes in 3- to 5-year perspective. So the time line could be long, but there is work happening to ensure that we capture all consumer needs and patient needs as we go forward here.

One of the big things in India is that India do not like popping tablet here. So (inaudible), therefore, of fortification of food becomes an important way to help people meet their fortification needs.

--------------------------------------------------------------------------------

Manoj Menon, ICICI Securities Limited - Head of Institutional Equities Research [56]

--------------------------------------------------------------------------------

Understood, understood, understood. The only context of (inaudible) question was -- I mean, there is obviously the high sense opportunity, there is also the bottom of the (inaudible) opportunity , which you had just 2 (inaudible) a few years back. The question is, is there anything on the mid- to low segment in terms of some (inaudible)? Or is it just a gross margin decision, which you think, let's say, to accelerate the asset?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [57]

--------------------------------------------------------------------------------

There is -- that's a great question. But also, there is a team which is looking at all the opportunity. Not really at a stage where I can really comment to this. But what you are saying is right. And if we can come up with the right proposition at a different price point, is there a bigger opportunity? That's a great question. And we continue to evaluate, continue to refer as to how we can give a product to the consumer with the right price point, which can create a win-win for everybody, including us and the consumer here.

[indiscernible And in case, I repeat your question and maybe I have question, too, connect with me offline more, but at least on a sharp summary note we can give you an idea as to what's happening with the regulators. So we can just ask you a question again, please?

--------------------------------------------------------------------------------

Manoj Menon, ICICI Securities Limited - Head of Institutional Equities Research [58]

--------------------------------------------------------------------------------

This is Manoj Menon of ICICI Securities. (inaudible) just understanding the evolution of the (inaudible) condition on difficult control the way we understand from outside. And also, possibly talk about the content of where we are standing today in terms of interaction with the regulator. And how do you think it's likely to go. I can have top-down projection.

--------------------------------------------------------------------------------

Unidentified Company Representative, [59]

--------------------------------------------------------------------------------

Thanks, Manoj. I'm sure (inaudible) to you, but my name is (inaudible), I head up the regulatory function for Consumer Healthcare business. If I have to summarize briefly, and if you like, we can connect later as well. I think there are a couple of high-level streams that I see that is in place for, actually, the last 3 years since we have (inaudible). One, I would say, transparency and predictability of the regulatory framework. That -- and I have seen a lot of work within the regulatory framework and enforcement has been done. And it looks like that is going to be a continuing sort of a corporate insight in all aspects.

I think the second I see is the partnership. We see more and more industry, academy and regulator partnerships in building the regulatory framework and also increasing time in the regulation. And more bringing, I wouldn't say harmonization, but alignment and convergence with the international regulatory framework. And that will help the food processing industry in India, and of course, the businesses in India as well. So I think that's the second stream I see.

And third I see is (inaudible) the progress has been done is the capability and capacity building at that time, not only at the center level, but at the state level as well.

So when you look at the capacity point of view, they have price, they have massive recruitment process and they have built that capacity. I wouldn't say they are optimal at this point, but there's still a huge progress made in the last 3, 4 years. And I think that will continue as well.

If I look at capability point of view, within the regulatory framework and the regulator, you would have seen that number of new regulations starting from where there is a process (inaudible) at SMP and so on and so forth. You would have also seen that many standards have been revised in the food and food processed -- processed food area, which is again good because that is now up-to-date with the science and more or less aligned with the international standards as well.

And the time we are looking at, again, having more scientific discussions with the regulatory framework. So more or less, these are the 3 buckets I see as substantial improvement. And I see that this will continue in foreseeable future as well. I hope it made sense.

--------------------------------------------------------------------------------

Manoj Menon, ICICI Securities Limited - Head of Institutional Equities Research [60]

--------------------------------------------------------------------------------

I understood. But there's only one follow-up, if I may. I mean [indiscernible consensus we have is that the labeling of, let's say, high sugar content and how that can actually impact consumption. Anything on time direction, which you have clarity at this part now. (inaudible) the overall industry.

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [61]

--------------------------------------------------------------------------------

So again, that's an important topic for the country and public health point of view as well. And this journey has started long back, and that we have seen. And there is a more rigor, practical science-based approach that regulatory is taking, especially when it comes to high fat, salt, sugar part. But it's not the only aspect. They are also looking at (inaudible) campaign. They are also looking at more idea variance and promoting industry to move in that area as well. So I think that discussion is continued, of course, it's a complex and multi-stakeholder discussion, and that's continuing as well.

--------------------------------------------------------------------------------

Operator [62]

--------------------------------------------------------------------------------

(Operator Instructions) (inaudible) from ICICI Securities.

--------------------------------------------------------------------------------

Unidentified Analyst, [63]

--------------------------------------------------------------------------------

So just 2 questions. Now with the milk prices moving upwards, the cost for the company goes up because of milk and SMP. Point two, for the consumer, the cost of consumption of milk itself goes up. So for a child, the cost of concerning (inaudible) with milk dramatically increases. So this may lead to relatively slight lower milk consumption itself impacting more or less itself. So how do we plan to tackle this? Or I mean, what are the plans the company is looking at or pushing more (inaudible) compared the brown (inaudible). So is there anything on that?

And point number two, earlier we have discussed that some of the other formats in the category are coming up, not just the powder format or something like Hershey's chocolate syrup is one or the chocos by Kellogg. So that is also another way because children eat choco with the milk. So then what are the benefits? Are there -- are there coming (inaudible) chocos? So then there is no need of additional (inaudible) drink. So any thoughts on that, plans to enter these categories or any product launches?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [64]

--------------------------------------------------------------------------------

Yes. So all innovation opportunities, we -- basically, we don't see ourselves just as an activity category. I think we see ourselves as a nutrition brand and a band which will help fulfill the needs, the consumer needs and nutrition guide. So any format to deliver that, we'll be very keen on that, and we keep evaluating those opportunities.

--------------------------------------------------------------------------------

Unidentified Company Representative, [65]

--------------------------------------------------------------------------------

And just adding to what Navneet mentioned, (inaudible) to your first question. (inaudible) consumers (inaudible) use water alternative, not really milk. So in terms of the cost, yes, there will be an impact. But in terms of our prices to consumers, we keep our pricing cases in line with the city inflation. And we use various levers to kind of reduce the (inaudible) impact of inflation. So these are the factors we used to try and manage those inflation to consumer subject.

--------------------------------------------------------------------------------

Operator [66]

--------------------------------------------------------------------------------

(Operator Instructions) And the next question is from the line of [Nitin Gupta] from [SBI Cap Securities].

--------------------------------------------------------------------------------

Unidentified Analyst, [67]

--------------------------------------------------------------------------------

My question is on the gross margin management. Like we are at the peak level of gross margin, and despite inflation trends in Bali and SMP, so how do you see the going forward, how the gross margin we are focusing in the future? And what is your view regarding the EBITDA margin, which is also at a peak level?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [68]

--------------------------------------------------------------------------------

So like I mentioned earlier, in terms of the gross margin, so we maintain the gross margin through various levels. The price increases, cost-saving initiatives, looking at net revenue management. So there are a lot of levers we have. And these are the levers we kind of use to maintain the gross margin, and similarly probably EBITDA also. So overall basis, there's a good processing program running across the business. We are using various levers in the advertising promotion, whereas to kind of manage (inaudible) and manage the cost inflection. And we'll continue to do so.

--------------------------------------------------------------------------------

Unidentified Analyst, [69]

--------------------------------------------------------------------------------

Anything specifically you have with regard to the financial year? We are trying to achieve, in terms of cost savings, any percentage of revenue or something?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [70]

--------------------------------------------------------------------------------

It's a regular program. I don't have any specific one-off, but I have one single thing that I can call out. It's across the volume, all the line of (inaudible).

--------------------------------------------------------------------------------

Unidentified Analyst, [71]

--------------------------------------------------------------------------------

And how would you -- do you see the operating margin like going forward? Like are you going to maintain it? Or do you feel that there's inflation in RM likely to put some pressure on that?

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [72]

--------------------------------------------------------------------------------

Inflation definitely is going to put pressure, but our intention really is to maintain our margins.

--------------------------------------------------------------------------------

Operator [73]

--------------------------------------------------------------------------------

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the closing comments.

--------------------------------------------------------------------------------

Navneet Saluja, GlaxoSmithKline Consumer Healthcare Limited - ISC Area GM, MD & Director [74]

--------------------------------------------------------------------------------

So thank you very much for the active participation. It is a pleasure to interact and get an external perspective for the category and business. It gives us an opportunity to understand what you, as analysts, expect from us. As a company, we remain committed to growing the category by bringing in products based on high science and innovation.

With that, I would like to thank you once again. Thank you, everybody, and have a good day.

--------------------------------------------------------------------------------

Operator [75]

--------------------------------------------------------------------------------

Thank you. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes today's conference. Thank you for joining us, and you may now disconnect your lines. Thank you.