Bajaj Consumer Care Ltd (BAJAJCORP) Q3 FY23 Earnings Concall Transcript

Bajaj Consumer Care Ltd (NSE:BAJAJCORP) Q3 FY23 Earnings Concall dated Feb. 10, 2023.

Corporate Participants:

Jaideep Nandi — Managing Director

Analysts:

Karan Bhuwania — ICICI Securities — Analyst

Varun Bang — Bryanston Investments — Analyst

Percy Panthaki — IIFL — Analyst

Gaurav Gandhi — Glorytail Capital Management — Analyst

Shirish Pardeshi — Centrum Broking — Analyst

Mohit Mehra — Guardian Capital — Analyst

V.P. Rajesh — Banyan Capital Advisors — Analyst

Kaustubh Pawaskar — Sharekhan — Analyst

Sanket Malpani — Precision Capital — Analyst

Vaibhav B — Honesty and Integrity — Analyst

Abhimanyu Godara — Antique Stock Broking — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Bajaj Consumer Q3 FY ’23 Conference Call, hosted by ICICI Securities. [Operator Instructions]

I now hand the conference over to Mr. Karan Bhuwania. Thank you and over to you.

Karan Bhuwania — ICICI Securities — Analyst

Hi, good morning, everyone. It’s our pleasure at ICICI to host Q3 FY ’23 results conference call for Bajaj Consumer Care. From the management, we have Mr. Jaideep Nandi, Managing Director; Mr. Dilip Kumar Maloo, Chief Financial Officer; and Mr. Richard Dsouza, AVP Finance.

I would like to hand over to Mr. Jaideep Nandi for the opening remarks, post which we can open it for the Q&A session. Thank you.

Jaideep Nandi — Managing Director

Thank you, Karan, for hosting this call. Good morning, everyone, and best wishes to all of you and your families for a wonderful 2023. I am delighted to have you all join us for this call. Let me take you through the performance of the Company for the quarter and nine months ended December 31, 2022, before we open up the house for questions.

We continued to witness unprecedented inflation across a wide basket of commodities impacting disposable income, as a result consumer spending adversely. While there has been some easing of commodity prices and supply chain pressures, inflation still remains a significant challenge. The overall hair oil market as per Nielsen declined by 4.4% in terms of volume with similar value decline in Q3 FY ’23 over the same-period last year. While urban markets have seen a value decline of 2.1%, rural markets witnessed a steep decline of 7.5%. The decline in rural is in line with similar trends in the previous few quarters, as consumers especially at lower income levels feel the pinch of both inflationary pressures, and reduced disposable income, leading to downtrading and prioritizing essentials over discretionary.

The long-term MAT December ’22 decline was witnessed across all categories in hair oils, with steeper declines in premium categories as against mass categories which also underwent some decline. The Company reported sales of INR225.5 crores, translating to flat value growth over the same period last year. For the nine months ended, reported sales were at INR696.8 crores, delivering a growth of 7.3% in terms of value, and 4.2% in terms of volume over the same period last year. Sales of NPD has doubled in Q3 FY ’23 and is now contributing to 13% of the overall company sales. This expansion of NPDs is in-line with the long-term strategy of the Company to build a robust portfolio beyond ADHO. The gross margins of Q3 FY ’23 was at 53%, which was lower by 240 basis points over the same period last year, mainly due to steep commodity price inflation. Change in product mix also contributed to the same, hence saw improvement of 120 basis points with softening of material cost. For the nine months ended, gross margins was at 53.1% as against 57.6% for the same period last year.

The prices of LLP for the quarter were higher by 32% over the same period last year due to surge in crude prices, post the Russia-Ukraine war depreciation of the INR against USD, and tightening of refining capacities. Sequentially, LLP prices have corrected by 8% on account of overall weakness in demand. On the other hand, RMO prices remained stable in the current quarter over Q2 FY ’23. To mitigate the inflationary trend, cost saving initiatives continued to be driven to bring structural reduction in material costs and overheads. A&P spend for the quarter was at 18.9% of sales, which was higher by 6.4% in absolute value terms over the same period last year. For the nine months ended, A&P spend was at 18.6% of sales, translating to an increase of 26% in absolute terms over the same period last year. The significant increase in A&P spend is on account of increased investments on the new products.

The EBITDA for the quarter was at INR34 crores with a margin of 15.1%, whereas the PAT for the quarter was at INR33.7 crores, with a decline of 15.8% on a year basis. For the nine months ended, EBITDA was INR102 crores with a margin of 14.8%, whereas the PAT was at INR98.8 crores. Retail continues to scale up with a double-digit growth on the back of loyalty programs, which has also helped to build the NPD portfolio across urban areas. Retail, as you are aware, has been a focus for us for the last two years as a company. Rural slowdown continuing remain a concern, and offset the growth in urban, driven by retail activations, and wholesale revisals [Phonetic]. Both the focus businesses of modern trade and e-commerce have registered excellent growth once again, as both channels continued to scale up well. The performance of non-ADHO portfolio in both these channels have been very encouraging, as is the ADHO performance as well.

Modern trade grew by 41% in Q3 FY ’23 over the same-period last year, and now contributes to around 9% of total sales. Modern trade business has scaled up 2 times over the last two years in the first nine months of the year. Our strategy of focusing on channel specific SKUs in select key markets, as well as new products have been yielding good results. During the quarter, we acquired a significant market share in top retailers. Canteen business also saw a revival in Q3 over last year. E-commerce continued to scale up well, achieving a growth of 84% in Q3 FY ’23 over the same period last year, and now contributes to 7% of total sales. Contribution of non-ADHO portfolio is scaling up sequentially. E-commerce business has scaled up 4 times over the last two years for the first nine months of the year. We reported highest-ever market share on a leading e-commerce platform in a non-event month.

Growth in Almond Drop extension that is almond soap plus almond and argan and serum and oil have also been very encouraging. The consolidated international business reported a strong growth of 36% in Q3 FY ’23 over the same period last year. New channel partners appointed in major countries in Middle East, Africa region have been starting to yield results, helping drive top line growth. Nepal saw muted growth due to macroeconomic environment in the country. Rest of the world performed well by new geographies and new portfolio of introductions. During the quarter, ADHO registered a mid-single-digit value decline due to weak demand conditions in key HSM, especially the rural markets. Share of Amla portfolio remained steady in mid-single digits at an all-India level. Steady progress has seen in Bajaj 100% pure coconut, and consistent sales is now driven by repeat demand, and distribution. Bajaj Coco Onion saw good traction in modern trade and e-commerce. Almond Drop soap is supported with TV media plus digital and continues to receive positive and encouraging feedback from consumers. Lifting of the brand has been done in large modern trade chains this quarter. Almond plus argan oil and serum with oil under the Almond Drop extension portfolio have been live on e-commerce and will drive off-takes in the coming quarters.

Our range of digital-first brands Bajaj 100% Pure and Natyv Soul also being supported with digital marketing and are scaling up as per plan. We will continue to invest strategically in these two brands, in the digital space going forward. We continue to provide media support for ADHO across TV, digital as well as print, supporting key markets. The Company has recently signed up with popular Bollywood actor Kiara Advani as its brand ambassador for ADHO. The latest creative with Kiara Boring Nahi, Ban Ja Toofani campaign aims to connect the brand with young women to further consolidate its market leadership in this segment. As the new phase of the brand, she will feature in a series of high-energy marketing campaigns and events in the coming months.

The social media activity towards the new ADHO campaign Daro Nahi Dare Karo registered 1.3 crores views over December-January. Community marketing for ADHO on beauty, parenting, and lifestyle reached 63 lakhs people in around 200 online communities. The Almond SOP has increased from 8% to 17% in these communities. We continue to make visible progress in our ESG program in line with our 3R philosophy of reduce, recycle, and reuse, we continue to take initiatives for reducing carbon proof print, and greenhouse gas emissions. These initiatives have led to reduction in consumption of glass bottles by 8% this year, over and above 16% reduction achieved last year. Similarly in laminates, we reduced our consumption by 6% on top of 14% reduction last year.

The Company continues to focus on reduction in usage of natural resources like water by monitoring the water consumption sources, and installation of controls at critical places. This helped us reduce water consumption by 34% in nine months FY ’23. Steps taken in-process improvements at the plant helped in reduction of wastage of certain critical categories like laminates by around 25% over the last year. While we see raw materials slowly coming off its peak and the gross margin pressures easing slightly, the Company will continue to invest in its existing brands as well as new launches to support its long-term growth aspiration of diversifying its portfolio PND [Phonetic]. As we expect the markets to normalize in the coming months and RM prices to soften, we believe we will be in a much stronger position to reap the benefits of the portfolio expansion, which we are already seeing yielding results. This would lead to derisking ADHO, having a consistent and robust top line growth, as well as better EBITDA margins going forward.

With that, I end our opening remarks and open the session for questions. Thank you.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Varun Bang from Bryanston Investments. Please go ahead.

Varun Bang — Bryanston Investments — Analyst

Yeah, thank you for the opportunity. I have a couple of questions. First one is on ADHO segment. So if I were to take a slightly longer-term view on ADHO segment, given how the consumer preference is evolving around hair oil, in a normalized environment, what sort of opportunity do you see in ADHO segment? Does it still have potential to grow 4% to 5% in volume terms over long term. Is it possible or can you share your thoughts?

Jaideep Nandi — Managing Director

Yeah. See, if you look at — currently the way we are witnessing because of this downtrading, in urban if you look at, the downtrading is not that obvious. In fact, urban markets even ADHO has been performing pretty well. It is because of this sharp decline that is happening, and especially the markets. Unfortunately, that’s the trend we are seeing as far as our company is concerned that in spite of so many initiatives, especially, exactly where it hurts is hurting us most, which is the markets of, let’s say, UP, MP, Bihar and Chhattisgarh and Jharkhand. I mean that belt consistent story story for the last three months, four months. Even Nielsen data specifically shows, let’s say, UP is down by 12%, Madhya Pradesh is down by 10%. That is which is hurting us most.

Other than that, if you ask me, in terms of expansion of ADHO is concerned, I mean, there are a lot of pockets in the country where we feel ADHO can still further grow, and those are where we are seeing the growth happening as well for ADHO, whether be it in the Western and the Eastern markets and some parts of South, maybe not the entire South. So, we are seeing good green shoots happening as far as ADHO is concerned. And if we look at — because of the democratized markets through modern trade and e-commerce, there also we see a proliferation of ADHO in markets which are beyond our traditional strength HSM markets. It’s the HSM markets which is today are concerned, and if you ask me if the markets normalize, if the demand conditions were to come, that overall demand, where the discretionary basket for the people, I mean, they are able to spend money on disposable income, I personally think that kind of growth is easily doable.

Varun Bang — Bryanston Investments — Analyst

And on new production, in the products like Coco Amla, Coco Onion. Then, we have range of products in Bajaj, 100% Pure and then range of new products we’ve launched under Almond Drops category as well. So given that this market is crowded with lots of new age products, what is our right to win in this market, and how do you think we stand vis-a-vis the competition, and if you can just share your thoughts over slightly long term, how do you think we need to position ourselves?

Jaideep Nandi — Managing Director

Yeah. So absolutely right. In fact, when we launched the soap, we were absolutely in a 20,000 crores completely saturated market that we are launching a brand in a very saturated market. But as we had made the commentary at that point of time, and we are clearly seeing the results bearing out now, the launch was not only a part of a product launch in a soap category. We wanted to launch in the entire almond category itself, but we wanted to own the entire almond category and that is where you see now a plethora of products coming up. We have the serum, which is tracking well in the e-commerce and modern trade channel. We have that almond plus argan oil, which is already tracking well. Soaps has already started showing good traction. It’s still — obviously, it’s a plateaued market as you rightly pointed out, so there’ll be a slow growth, but with our consistent push in terms of TV ads, etc., we are seeing traction coming in and now there’ll be one or two more products, which you’ll see coming up in the next few quarters as far as this almond.

So almond category, Almond Drops extension category is something that we want to develop as a 10 to 15 products over a period of three to five years, which we want to push, and I think that category of Almond Drops, which is where we feel that we have some ownership, I mean, that we want to proliferate across consumers and wherever we have done consumer districts etc., we see that the fact that it is coming from the house of Bajaj with that Almond Drops umbrella, that itself is a good right to win, and as far as the product is concerned, they see a value-add as far as this part of the portfolio is concerned.

As far as the hair oils portfolio is concerned or the oils portfolio, if you look at whether be it in Amla, whether be it in coconut, I think there is enough proven record for us, but we are seeing good traction. I mean today, you see the new products, which used to be one of our key concerns that we do not have a portfolio beyond Almond Drops, that today that NPD is now sitting comfortably at 13% both your quarter number saliency as well as your year saliency is at 13%. If the hair oils market were normalized, it was not at its minus 4.5% overall market situation, then, I think we would have been in a far better situation.

If you look at the commentaries of the various hair oils players, and you look at us, I think in terms of hair oils with a growth of about 7% yearly, I think we are doing fairly well as far as hair oils itself is concerned. It’s just that the market, if they were more [Indecipherable] you would have seen the results coming up in terms of our portfolio expansion, and these numbers would have been far stronger.

Varun Bang — Bryanston Investments — Analyst

[Indecipherable] products, how would be the repeat demand for some of the differentiated products? Is there a strong pull factor that we are seeing? What is the sense that you are getting?

Jaideep Nandi — Managing Director

So that’s one thing. Most of these products are already — I mean, except the almond serum and oil, these are just being launched. So, none of them, we are doing too much of a primary sale. I mean, quite a few of them are, let’s say, e-commerce focused except soap, which is obviously GT focus. So, it is now beyond the level of where only primary sales has happened. If you look at — and consistently, our focus has been to continuously focus only on secondary sales. If you look at both the quarter as well as the year, our secondary sales for the quarter, in general trade, for example, has been 5% more than primary sales because that’s been the conscious focus, that reduce inventory, get it to as low as possible, so that people focus on actual sale that is happening. So that way, I think, most of the sale that you are seeing is actual sale happening right up to that point.

Varun Bang — Bryanston Investments — Analyst

Assuming that we cut down on our ad spends two years from now, would these products continue to see traction is what I wanted to understand.

Jaideep Nandi — Managing Director

So different products will see different kind of, let’s say, tracking that is happening. If you look at today, ADHO gets about 60% of our ad budget, and new products get about 40% of our ad budget and roughly about 25% of our spending is on digital. Now slowly, the digital component itself is going up, and moment you increase your digital component of your ad spend, obviously, your total — the cost itself will also keep going down, and moment these products start showing traction. Today, it is 13%. I mean we have far higher aggressive plans as far as taking these NPD numbers higher as concerned. So as a percentage, obviously, the ad spends will keep falling. So today, we are at 18%, 20%, we intend to keep it like that somewhere until maybe next year and then slowly start bringing it down to the levels of that 16% or so, which is what we want to stabilize it at.

Varun Bang — Bryanston Investments — Analyst

Okay. Thank you.

Jaideep Nandi — Managing Director

Yeah.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Percy Panthaki from IIFL. Please go ahead.

Percy Panthaki — IIFL — Analyst

Sir, I just wanted to make sure I heard that correctly. You just mentioned that you have grown 7% in the hair oils segment. Is that right?

Jaideep Nandi — Managing Director

That is correct on a nine-month basis.

Percy Panthaki — IIFL — Analyst

On a nine-month basis, okay? And how much for this quarter?

Jaideep Nandi — Managing Director

The quarter is actually flat. Quarter sales, your value sales overall also is flat, yeah, hair oils is also falt.

Percy Panthaki — IIFL — Analyst

Understood. Secondly, just wanted to understand what is the percentage contribution of ADHO to the total company now?

Jaideep Nandi — Managing Director

So ADHO — see total, we have now 85% contribution coming out of ADHO, 2% is coming out of the traditional brands, and 13% is coming out of the new product.

Percy Panthaki — IIFL — Analyst

So when you say new products, you are including this onion oil, Natyv Soul, and Bajaj Pure, everything put together, is it?

Jaideep Nandi — Managing Director

Yes, absolutely. See, the definition of new products is everything that has been launched in the last three years. Anything that has been launched in the last three years, and we’ll keep dropping anything that goes outside the three years period.

Percy Panthaki — IIFL — Analyst

Understood. And this 13%, even if you’re not giving exact numbers, but any kind of flavor you can give how it is distributed, this 13% among the various initiatives?

Jaideep Nandi — Managing Director

So, if you look at in general trade, the launches have been only a few products. It has been basically the Amla range, the coco range and the soap. So general trade, the distribution is of that. And as far as e-commerce is concerned, it is all of this, as well as, let’s say, any extensions of serum and almond oil, as well as the digitals brand. If you look at the e-commerce and even the modern trade quite a bit of it, it is very, very democratized. All of these are tracking well. If you look at our partners like Amazon and even Flipkart, all of these brands are tracking very, very well. As far as general trade is concerned, obviously, the product range is restricted. It is, as I said, the Amla range, the coco range and the soap and it is distributed between these three only in India. Yeah.

Percy Panthaki — IIFL — Analyst

Just looking for at least the sequence in terms of size, I mean, which is the largest amongst Bajaj Pure, Natyv Soul, the coco range, the onion range. Out of these four or five, if you can just arrange them in descending order of size or something like that, it would help.

Jaideep Nandi — Managing Director

See, because you’re — because of your shared general trade presence, both your Amla range as well as the coco range, that is the entire coconut portfolio as well as the Amla portfolio, both of them in terms of size is much bigger. And beyond that, if you look at all of them are tracking in similar trajectory. Soaps are a little higher, and I think Natyv Soul, the serums etc., is just coming, but showing good traction. In fact, the almond, that extensions are showing pretty good traction, and we are very buoyant about both the serum as well as oil in serum as well as the almond argan oil has been showing good traction, and we are trying to launch a few more in this almond extension category because we are seeing that tracking very, very well. Yeah.

Percy Panthaki — IIFL — Analyst

So, over a three-year period, I think the ADHO salience has gone down from some 92%, 93% to maybe 84%, 85%. So, if I look at only ADHO, over a three-year period, is that product flat in terms of revenue, or has there been a revenue decline? And if so, by how much?

Jaideep Nandi — Managing Director

So, this year, you would have a little bit of a revenue decline, but overall, if you look at a three-year period, it has a little less than a mid-single-digit growth. Close to about a 3% growth over three year period.

Percy Panthaki — IIFL — Analyst

Value wise, right?

Jaideep Nandi — Managing Director

Yeah, value wise. In fact, volume wise, it is more or less flat.

Percy Panthaki — IIFL — Analyst

Understood, understood. Next question is on margins. If we look out the two quarters, three quarters from now, what kind of margins do you think at a Company level we can clock? Are we sort of set to go back to a high-teens EBITDA margin in two quarters to four quarters, or will it take longer than that?

Jaideep Nandi — Managing Director

So let me answer your — see, if you look at our entire cost basket, the two costs, which are basically impacting our EBITDA margins are basically the gross margin as well as the marketing costs. Marketing costs, I’ve already told you, given that we are investing in it, we are seeing traction, that 18% to 20% is roughly going to remain for the next four quarters or so. And then, I think as the business scales up, we’ll see a natural reduction of these marketing costs coming down to about 16%. That’s as far as the A&P spend is a concern.

If we look at the gross margin dilution that has happened, just to give you a sense of where we are seeing. Roughly, let’s say, a 5.5% gross margin dilution that we see, about 4.5% is coming straight out of [Indecipherable] — I mean we do a pure math. It’s about 4.2%, 4.3% is coming out of just RM prices, which is basically impacting our gross margin, and the balance of about, just a little more than 1% is due to the product mix because what we have also decided is we will go ahead with products other than maybe what in the hair oils, which is the Amla range. Other than that, we’ll go ahead with products which have decent gross margins and EBITDA margins for us to be met. That’s the direction we have taken for us. So, all the products that you saw, that we mentioned have decent gross margins, and going forward also, I mean, that’s a basic benchmark we have put for ourselves that only products which have high — a decent gross margins or high gross margins are the ones we’ll launch.

So, with that, this is how the breakup stands. So as the raw material prices stabilize, you will see this one straightaway flowing back into us. That margin dilution of about 1.2% or so that happened due to the product mix, that obviously will not flow back, and we are comfortable with that.

Percy Panthaki — IIFL — Analyst

So, given where the spot prices, not consumption, but the spot prices where they are today, if they were to maintain for the next several quarters at that level, then, do you think there will be any improvement in gross margin because you are using input costs, which are priced higher than spot, or that’s not the case?

Jaideep Nandi — Managing Director

No, just one second. So, in fact, we have had about 200 basis point improvement. So we have added 200 basis point improvement on the buoyant spot prices. You already see an improvement also on our gross margins happening itself, right. So, I see — I mean, it will be more a function of how we see the LLP prices moving in the next two quarters, three quarters. We see that the prices have already stabilized or rather normalized quite a bit the thing, and with the weakness of demand, we feel that LLP prices can further go down a bit. But there’s a still…

Percy Panthaki — IIFL — Analyst

What I meant was, are today’s spot prices higher or lower than the Q3 consumption price?

Jaideep Nandi — Managing Director

Today’s spot price is lower than Q3 consumptions right, yeah.

Percy Panthaki — IIFL — Analyst

Okay. So, Q4 should naturally see some more gross margin benefit over Q3?

Jaideep Nandi — Managing Director

Let’s see. This is just the middle of the first or second month. So, we see how that is pent-up. But if this trend remains, yes.

Percy Panthaki — IIFL — Analyst

Sure. Okay. That’s all from me, sir. Thanks and all the best.

Jaideep Nandi — Managing Director

Okay.

Percy Panthaki — IIFL — Analyst

Thanks, sir.

Operator

Thank you. We have the next question from the line of Gaurav Gandhi from Glorytail Capital Management. Please go ahead.

Gaurav Gandhi — Glorytail Capital Management — Analyst

Hi, sir. Thanks for the opportunity. Sir, our advertising and promotion spends, I want just the breakup of how much is for the incentives and how much is for advertising?

Jaideep Nandi — Managing Director

This is all advertising. Incentive is not part of A&P. This is accounting right?

Gaurav Gandhi — Glorytail Capital Management — Analyst

All right. That is pretty much higher, so that’s why I was asking.

Jaideep Nandi — Managing Director

This is how we’ve always kept it. As I said, 60% of the cost goes into ADHO, and 40% goes into new products.

Gaurav Gandhi — Glorytail Capital Management — Analyst

All right. And sir, with our new product, that serum with oil, how much are you confident with this product, and how will it perform because serum is the category which is attracting — younger India is attracted towards that, so how much are you confident about that product?

Jaideep Nandi — Managing Director

So, we have launched this product in both this as well as the almond with argan oil, which is about 50% premium over the ADHO itself. Both these products have gone into modern trade, in e-commerce first, and now into modern trade, and we are seeing good traction happening as far as our serum is concerned. In fact, as a product, all the products that we have launched in terms of consumer, we are getting good traction and good feedback, including our Natyv soap itself. So as far as the almond extension is concerned, we are slowly seeing that niche is getting carved out as far as our portfolio of Almond Drops products are concerned. And as we see more products getting launched and you can see more products coming up.

Gaurav Gandhi — Glorytail Capital Management — Analyst

My question was regarding the — is it a regular serum or serum with oil, I mean how — what is the product exactly? Serum with oil, will it be something different from the regular serums, which are present in the market?

Jaideep Nandi — Managing Director

So, this is a very similar product. It is serum with oil, which basically adds to the nourishment. I mean not only does it reduce frizz control, it adds oil also as well as serum.

Gaurav Gandhi — Glorytail Capital Management — Analyst

All right. And the next question…

Jaideep Nandi — Managing Director

[Speech Overlap] oil as one of our key this thing. So, this just accentuates the oil part of the product. I mean serum is for frizz control. This oil adds into the nourishment.

Gaurav Gandhi — Glorytail Capital Management — Analyst

Right, right. Right, sir. And the next question is on the Nomarks brand, do we produce that or have we stopped producing the Nomarks brand soaps because what my observation on ground says that the almond soap, which we have launched, has a similar appeal to many other soaps for the people at large entities saturated, but Nomarks soaps are something different. And people — we might create a differentiation with that product in the soap category. So, what are your thoughts about that?

Jaideep Nandi — Managing Director

Actually, I would like to politely disagree with that. The Nomarks soap actually did not bring in any specific attribute itself because Nomarks, by the name itself, means that you will leave no marks and it was more like a no scar kind of a brand. It was not. Really, it was a very different portfolio, which was through the OTC channel that we are servicing and mainly in the Bihar, UP markets, etc. So the Nomarks as a brand remains, but the soap itself, I would like to think that the AD soap has a far higher product proposition than Nomarks soaps itself. So Nomarks soap itself will not get pushed. AD soap, obviously, yes.

Gaurav Gandhi — Glorytail Capital Management — Analyst

All right. And the last question is, do we have any plans to get into some of the products where the growth is higher, and include those products in our basket because our existing portfolio is almost saturated and Bajaj has a very fine goodwill in the markets to penetrate easily. So how should we look at that? And also, how should we look at the Company in a slightly longer term, say, five years to seven years of time frame? Can you throw some light on that?

Jaideep Nandi — Managing Director

Yes. So, as you said, as we embarked on the journey earlier maybe a few years back, the objective was to derisk ADHO and create a portfolio where Bajaj has a right to win. So, we had identified two areas where we saw — I mean, with our consultants, etc., that we worked and with consumer studies. The two areas is where Bajaj can work, which is the hair oil space itself, which is what we have filled up with quite a few product offerings, and now we cover about 85% of the overall hair oils market in terms of product offering. And on the other side, using the Almond Drop extension in skin and oil category, skin and hair category, which is what we have been — we have taken up for the next three to five years to take on. This is what we have been pushing.

We also feel that there is some more scope of the Bajaj brand name, which is an Indian brand name, which is a very traditional trusted Indian brand name with more categories as far as the personal care space. This is under consideration, and as and when you see it coming, we’ll come back to it. Again, the criterial will be where we see growth potential and where we see a gross margin. Only products where we feel that can be exploited with a right to win is where we would like to benefit.

Gaurav Gandhi — Glorytail Capital Management — Analyst

All right. All right, sir. Thanks a lot. Thank you very much.

Jaideep Nandi — Managing Director

Thank you.

Operator

We have the next question from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.

Shirish Pardeshi — Centrum Broking — Analyst

Yeah. Hi, Jaideep. Good afternoon. Thanks for the opportunity. Just two, three observations. When we go back a year before, and we started saying that we have launched coconut, and we are trying to look at the penetration, and then we launched the Amla segment. And if you look at the observation the last three years, Amla has grown very fast and there was a downtrading which is happening. But right now, when I connect the dot with Nielsen, the rural is still declining 7.4% in volume terms, what you have stated in the presentation. Can you give some benefit what exactly we are trying to make because if Almond Drops equity is premium, and we have launched Amla, but the growth rates are still falling. And as a company, would you guide what we can expect in next one year?

Jaideep Nandi — Managing Director

As I said, if you look at, Shirish, in terms of hair oils, I think we have — overall, if you do a comparative analysis, I think we have performed well, either if you look at the quarter number in isolation only for the hair oils, or you look at the nine-month period, I think across all companies put together, I think we are tracking pretty decently. Having said that, specifically, Amla, we have taken a strategy call saying that given the kind of a bloodbath that is happening in the Amla market today, I mean, as the market stands, we wanted to stay out of some of the lower-priced products as far as the Amla concerned, which is more the INR10, INR20 packs specifically because we thought with the current structure of LLP and RMO and all the other raw materials, you really can’t make too much of margins with the kind of pricing that is happening in the market.

So, we actually took a conscious call in Q3 this year, I mean, end of Q2 and Q3 this year, where INR10 and INR20 packs of Amla that we defocused on because there was no money to be made. You would have got top line growth, but margins would have collapsed further. So, this is what we have taken up. I mean, Amla still the larger packs have been doing well, tracking well. We’ll continue to support that. And as we see RMO, LLP, they were to stabilize, etc. I mean this is a segment even though LUP is something that we’ll definitely go back into. So, that’s the hair oils market is concerned.

Shirish Pardeshi — Centrum Broking — Analyst

That’s helpful. My second question on HSM market. Last four quarters, we have been talking about HSM market, there are pain points. We started saying that we are expanding the van distribution. And then in between, we tried to escalate the efforts on the wholesale pack. Where are these initiatives? Are these initiatives really yielding any efforts because quarter-on-quarter, we are seeing that HSM is becoming a pain point for us.

Jaideep Nandi — Managing Director

Yeah. So, if you look at even HSM markets, it’s again a very consistent commentary, unfortunately, that the entire HSM as a block is not what is doing badly, neither for the country, nor for us. It’s the Northern part of the HSM market which is Delhi, Punjab, Haryana, Rajasthan, that belt is still good even for us as far as Nielsen data is concerned. Yes, there are some blips here and there market-wise, but otherwise, overall, we’re doing well. It’s this market of which I called out, which is UP, Bihar, Madhya Pradesh, Chhattisgarh, Jharkhand, which is where the problem has been for the last one year, and not only in Nielsen data, even we are facing. Unfortunately, [Indecipherable]. So, this is what we are grappling with currently, but we are seeing some green shoots coming up, and hopefully, this should slowly start normalizing as the year goes by.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. My last question on the gross margin or EBITDA margin, a year before exactly, you guided that we will take a hit on the EBITDA margin, but we will spend money on the advertising. So maybe if I look at next four quarters — I mean, not the guidance per se, but if you can provide the direction where we are heading for the gross margin, given the context that the RMO prices are softening and the input material is also softening. So maybe your qualitative comments on that?

Jaideep Nandi — Managing Director

No, I give you this thing on gross margin, how it has got diluted and what is the recovery back. So, of the 5.5% gross margin dilution that we saw, about 4.3% odd was coming out of the raw materials alone, the raw material itself. That is after the price effect that we have taken, and about 1.2% because of the product mix change that has happened. That 1.2% is a deliberate conscious call, and we are comfortable with that. The 4.2% is a function of how the market price has stabilized. We have seen already a gross margin improvement that has happened over Q2 because of the raw material softening, and we are expecting that in Q4 and Q1, it might further stabilize. We expect the iron ore prices to come down a bit with a good crop and LLP we have to see. I mean this is a function of how it is, but if these prices were to go down, you’ll see a direct contribution happening itself by the direct contribution.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. Thank you, Jaideep, and all the best to you.

Jaideep Nandi — Managing Director

Thanks, Shirish.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Mohit Mehra from Guardian Capital. Please go ahead.

Mohit Mehra — Guardian Capital — Analyst

Good morning. Thank you for the opportunity. I wanted to ask you about the demand recovery, especially in rural area. Now that commodity price inflation has started coming up, how do you see that? And secondly, how have Jan volumes been so far?

Jaideep Nandi — Managing Director

So, answer — the easy question of the second part is that I can’t give you guidance on January. So, we’ll have to leave January out of this discussion.

The second part is rural demand, unfortunately, we have been hearing commentaries earlier after the Q2 earnings call, that rural expected in Q3, Q4 to be better. I think after Q3, we hear the earnings call to be far more muted, and I don’t think there is a very clear directionally improvement in terms of rural demand. I don’t think there is a very, very clear near sight that the rural demand is going to be very, very — much better than what it has been in Q2, Q3. So Q4, I don’t think there will be a huge improvement in rural demand. Having said that, we clearly see urban doing pretty decently well, and some of the markets, which I called out earlier, have been still okay. It’s the more the poorer markets, which is where the low-income market is where the problem in rural remains, and I don’t think that is going to get sorted out in Q4 itself.

Mohit Mehra — Guardian Capital — Analyst

Got it. Thank you.

Jaideep Nandi — Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] We have the next question on the line of Kaustubh Pawaskar from Sharekhan.

V.P. Rajesh — Banyan Capital Advisors — Analyst

Yeah, good morning, sir. Thanks for giving me the opportunity. Sir, my question is on the new product launches. So currently NPD contribution is around 13%. At what level of contribution do you expect it to contribute materially to the profitability, so that there would be kind of a basis for you over the period of time. So, for example, if you say 20%, 25%, it should start contributing materially to your profitability?

Jaideep Nandi — Managing Director

So, if we look at on a net contribution basis, quite a few of the products are today profitable, except the ones which are getting very, very high media investments, disproportionate to the sales that is happening. Only those are a bit negative at the current stage, but some of the products already EBITDA positive, and that’s why we talked about rationalizing of some of the costs that — some of the products that we are selling in terms of SKUs that we wanted to sell, etc., because keeping it EBITDA positive is one of the things that we wanted to do as a structural thing, even when we started the business. I mean this gross margin reduction that we see is what is hurting us. Otherwise, in terms of basic fundamentals of business in terms of how we want to take each of these products, except one or two, all of them are keeping them to be net positive in terms of margins. And by net positive, I mean that all the marginal costs for the product is taken in, not only just the gross margin.

Kaustubh Pawaskar — Sharekhan — Analyst

Yeah. So, can you explain us which are which products? Which are currently profitably of the new launches?

Jaideep Nandi — Managing Director

As I said, except for the ones where there is high media investments happening, except those, most of them are positive.

Kaustubh Pawaskar — Sharekhan — Analyst

Okay. And in last one year, have you lost any market share in Almond Drops?

Jaideep Nandi — Managing Director

So, Almond Drop, the market share remains more or less steady. I mean, it is in that — hovers between that 63% to 65%. So that’s where we maintain that because the LHO market itself has also declined substantially. If you look at the Nielsen data, LHO market itself has declined by about 8.6%.

Kaustubh Pawaskar — Sharekhan — Analyst

And sir, the new product launches, which you did into general trade, are some of these launches are done in small units, or you’re comfortable launching big in a bigger packs and attraction good for whatever launches you’re planning on general trade?

Jaideep Nandi — Managing Director

You really can’t launch in different pieces in terms of not launch the entire range as far as the product is concerned. So, launches happen across all ranges, but the support may not remain across the LUPs at this stage. So, the low unit PAT, which is typically the INR10, INR20 pack is not something that is supported by the Company because of the gross margin profile that’s currently — not to say that they will not happen in the future, but at this stage, [Indecipherable].

Kaustubh Pawaskar — Sharekhan — Analyst

Okay sir. Thank you. Thanks for the opportunity.

Jaideep Nandi — Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] We have the next question in line of Sanket Malpani from Precision Capital. Please go ahead.

Sanket Malpani — Precision Capital — Analyst

Hello, sir. Sir, my question is first on the buyback side. So, what was our intention with the buyback and how do you see that happening? And second is on the cash on the balance sheet, the current investment is close to INR500 crores. Is there a plan to invest it further in other ventures?

Operator

Ladies and gentlemen, the line for the management has dropped. Please stay connected as we reconnect the management. Ladies and gentlemen, we have the management reconnected. Sir, you may go ahead.

Jaideep Nandi — Managing Director

Yeah, are we back on?

Operator

Yes, sir.

Jaideep Nandi — Managing Director

Oh, thank you. Sorry. So, coming back to your buyback and usage of cash. So, the — see, buyback is basically a way of rewarding your regular share growth. So, we wanted to go into some steps of rewarding back our long-term shareholders, and that’s the way we have got into our buyback. We have finished off our statuary mandatory 50% of our buyback, which is the minimum that you need to do before you can decide to follow up or not. So, we have finished that, and we have about three months still pending as far as the closure window of the buyback is concerned, and the buyback is still continuing as we speak.

As far as the cash utilization is concerned, again — that’s again a way we’ll have to see how we can both look at the interest of the business, as well as the interest of the shareholders. So, we have the dividend policy, which has been there, and we’ll see how that will pan out as well as we are looking at investments. I mean we had called out even earlier. We’ll keep excluding. We have not done any M&A still now, but we’re actively looking at in terms of profiles where we want to invest in. And we are also looking at some of the markets outside India where we wanted as well as some investments going in there. So, this will how the cash flow will get deployed. We are not a very debt-friendly company, so we are not looking at leveraging ourselves too much at this stage, but if the situation arises, whether be it in terms of a large M&A opportunity, etc., we’ll not share [Phonetic] from that.

Sanket Malpani — Precision Capital — Analyst

All right. Thank you very much.

Operator

Thank you. [Operator Instructions] We have the next question from the line of V.P. Rajesh from Banyan Capital Advisors. Please go ahead.

V.P. Rajesh — Banyan Capital Advisors — Analyst

Thanks for the opportunity. My first question is on the NPD side. What percentage of revenue do you think will be coming from new products, let’s say, in the next three years? Like right now, it is 13%. Where do you see that percentage going up to?

Jaideep Nandi — Managing Director

So, our long-term aim for the next three to five years with that NPD, just organically, we think that the NPD can go anywhere between 30% to 50%. I mean, 50% would be on the higher side, but 30% is clearly doable. I mean, 30% is very, very clearly visible with the current portfolio that we have and maybe taking it to about 40% is what I would say within the next three to four years is what we would be looking at. But that is just an aspiration at this stage. It will also be a function of some of the launches and how they track that we have for next, let’s say, in eight quarters [Phonetic].

V.P. Rajesh — Banyan Capital Advisors — Analyst

And then, ADHO at that point, is it fair to assume it will become less than 50% because some of your new products that have been launched in the last one year will no longer be start of NPD in the next…

Jaideep Nandi — Managing Director

Let me then rephrase that. So yeah, technically, you are right. So, I will rephrase myself. I’m including the products that we have launched back, taking us to that number of 30% to 40% [Phonetic].

V.P. Rajesh — Banyan Capital Advisors — Analyst

Understood. Okay. So, what you’re saying is like whatever you have launched in the last two years, plus whatever you will launch in the next three, four years, will hopefully contribute to 30% to 40%?

Jaideep Nandi — Managing Director

Whatever we have been launching after the COVID period, if you were to look at those products, that should contribute about 30% to 50%, maybe 40% is more what we are aspiring for, and ADHO should pick up in the balance sheet. That’s what we are looking at. Your current 85% should be looking at 60%, and obviously, the investments will continue on ADHO.

V.P. Rajesh — Banyan Capital Advisors — Analyst

Right. And if you do something inorganic, then obviously, the situation will change?

Jaideep Nandi — Managing Director

Then, that’s a different thing.

V.P. Rajesh — Banyan Capital Advisors — Analyst

Yeah. And my second question is a couple of times you mentioned certain states which are hurting us more. Sir, I’m just curious what is your observation? Is it a temporary situation? Or there is something specific going on with our products? Or is everyone hurting? If you can just give more commentary around those markets, especially UP, Bihar which are very core to us, that will be helpful.

Jaideep Nandi — Managing Director

So, we have taken up — see, we were looking at all the links and data across other categories, so whether it be soap, shampoos, etc., all the other categories. If you look at even categories like soaps, which is the largest category there, I mean though there have been value growth because of the amount of price increase people have been able to take, you look at the volumes. In fact, soap is in a worst situation as far as UP is concerned than hair oils. Overall, it has a minus teens kind of a growth rate and that it is having. So across all other discretionary categories, wherever disposable incomes have gone down, so all the products that come under that category, we have seen there has been a [Indecipherable]. So, it is not specific to hair oil. Hair oil usage has not really gone anywhere. Hair oil usage has, in fact, in the urban markets, there has been chain changes that we observe and we have been able to ride and take some benefit out of that, which is you were seeing our growth in modern trade and e-commerce. But in terms of the rural markets or, let’s say, the core markets of UP, Bihar, etc., we don’t see so much of change that is happening. It’s more the money in hand of the consumer today, free money in the hands of the consumer, or disposable money, and once that comes back, we feel that we have enough where it helps to be able to get that. We don’t have any specific issues either be it in a distribution or in terms of our retailing or in terms of the product offering, etc., that will help us.

V.P. Rajesh — Banyan Capital Advisors — Analyst

So, if I may ask a follow-up on this. Are you saying that you are continuing with your market share and there is no competitive intensity that has gone up in those states? It is just that the consumer doesn’t have the money to buy a premium product? Is that really what you’re saying?

Jaideep Nandi — Managing Director

No. So competitive intensity is up, but the competitive intensity is not a like-to-like product. There has been down trading. There is no question on that. Both in terms of the trading and down purchasing, that is — LUPs have gone up, as well as the lower quality or lower price products have gone up. So, we are seeing a surge in the Amla products that have gone up, the lower end of the Amla products which have gone up, the INR10, INR20 packs which have gone up, which clearly are not margin making products there. So — I mean, they do yield volumes, but they obviously will erode your gross margins quite drastically. So, we are decided not to play very strongly [Technical Issues].

V.P. Rajesh — Banyan Capital Advisors — Analyst

Understood. Thank you so much. That’s all I have.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Vaibhav B from Honesty and Integrity. Please go ahead.

Vaibhav B — Honesty and Integrity — Analyst

Yeah, thanks for providing the opportunity. So on ADHO, for the overall almond-based hair oil market, what is that — what can actually drive the increase in the overall market — almond-based hair oil market as compared to the overall hair oil market is what I’m trying to understand because we have been saying that this market is a little stagnant or declining as compared to the other hair oil market. So, is it price-based action, is it more marketing? What can actually turn our cash cow around in terms of growth, is what I’m trying to understand.

Jaideep Nandi — Managing Director

So, there are two aspects of the question as I see it. One is growing the light hair oil market itself is concerned, other is growing ADHO, which I think are little two different thing. As far as ADHO is concerned, I think we are taking it in two steps. One is, obviously, we need to get back our core. I mean the core itself is now in a little bit of a difficult time, but that is not too much of internal issues that I see. It is more external, and we hope that when the external issues come back, we will be in a position to take them head on that.

Other two core areas where we think it is a growth — part of our growth strategy, which we could take, one was basically looking at the unexplored or unexploited markets of ADHO, especially in the western and the eastern markets. Those are where I think we are seeing some good traction even today coming up. Not maybe the way we would have wanted to, given the, again, the demand scenario, but I think that is really tracking much better than our HSM markets. South is not somewhere we are still very strongly present and that I would have to admit, it’s still an area that we need to track. And I hope when the demand conditions come back, it’s something that we’ll focus on.

The other area is looking at the modern day, modern age, the young customer of today, who is more in the urban and the semi-urban towns. I think there, we have done a pretty decent job through our digital marketing, getting connected with the young generation consumers. And you can see the results coming out in terms of both e-commerce and modern trade. The B2B part of modern trade and e-commerce, they are doing, I mean, fantastically well. We have also been very, very conscious that we don’t want to push the B2B part of it. So, the B2C part of both modern trade, e-commerce has been doing very, very well. And there is a lot of new gen customers who are today talking about it. And that’s a very conscious strategy, they’ll spend — lot money has been shifted to digital media as far as ADHO is concerned and those are bearing fruit. And I think when the market stabilizes and demand conditions were to come back, and I don’t think there is any inherent problem in the Indian economy as such that demand should not come back. I think we’ll be in a good position to take advantage of these true growth legs that we have been pushing, as well as coming back of the core, which is the markets that I talked about.

Vaibhav B — Honesty and Integrity — Analyst

And so do you want to touch our pricing premium as compared to other hair oils or you don’t want to target that?

Jaideep Nandi — Managing Director

At this moment, I don’t think the pricing premium is making too much of an issue, except from [Technical Issues] we are looking at strategically. But other than that, I don’t think the pricing premium is hurting the the brands, so we would not. While, yes, you are absolutely right. If you look at a five-year period, our brand has taken a little higher premium than what it was compared to the top two brands in the hair oil market, this thing. That is how we also see it. But I don’t think that is resulting any loss of business [Indecipherable]. One or two packs maybe we might want to do something, but we would also want the prices of raw materials to stabilize before we take on any action on that.

Vaibhav B — Honesty and Integrity — Analyst

Okay. That’s it from my side. Thank you.

Jaideep Nandi — Managing Director

Thank you.

Operator

Thank you. We have the next question from the line of Abhimanyu Godara from Antique Stock Broking. Please go ahead.

Abhimanyu Godara — Antique Stock Broking — Analyst

Hello, sir.

Jaideep Nandi — Managing Director

Yes.

Abhimanyu Godara — Antique Stock Broking — Analyst

Good morning. So I just wanted to know, sir, can you give some flavor on rural demand and urban demand? There are commentaries regarding rural demand revival and the urban consumption growth, some moderation in the urban consumption growth because of already high base. So can you give some flavor for the coming quarters on that?

Jaideep Nandi — Managing Director

So again, if you look at, while what you are saying is correct on an overall basis. For us, urban has always been — urban, most of our urban was based on what we used to do in wholesale and our retail was competitively not as strong as if you were to compare with some of our other competitors. So, retail has been a focus for the last two years as far as the organization is concerned. We have been seeing good growth happening in retail throughout in spite of this kind of a debacle that is happening in the marketplace, we have had a good, strong double-digit growth. In fact, it is higher than mid-single digits. It’s actually in the range of 20% plus as far as the retail growth is concerned, I mean, on a nine-month basis and about 15% as far as the quarter is concerned.

So retail is something that has been doing very, very well as far as urban is concerned. In fact, if you look at even wholesale today is positive. We did a wholesale revival last year. Last year, we did lose out on wholesale. We did a wholesale revival, a lot of work happened as far as the wholesale was concerned. So, wholesale has also revived. So wholesale is also positive. It’s obviously not as strong as retail, but positive. So as far as urban is concerned, we are pretty strong, and we feel that for the next few quarters also, urban will continue to do well as far as BCCL is concerned, this company. Rural, if you were to sort out and if the rural market stabilized, it think would be in a stable position.

Abhimanyu Godara — Antique Stock Broking — Analyst

Okay, sir. Okay. Thank you.

Operator

Thank you. That was the last question. I would now like to hand it over to the management for closing comments.

Jaideep Nandi — Managing Director

So thank you, everybody, for joining in this call. I think we witnessed a very interesting quarter as far as we are concerned. In fact, all the legs that we have been wanting to push in the last two quarters is now slowly starting to bear fruit. The new products have been good, giving us good traction in the modern trade, e-commerce also has been doing well. Even in general trade, it has been a mixed bag. While the overall numbers in general trade is not very healthy, but overall, in quite a few of the markets that we wanted to push in terms of the western market, some of the eastern markets and the up north market, they have been also doing pretty well. It’s one block of market in general trade, which has actually been pulling this company down and I am very, very hopeful that once this were to sort out, and as we see the raw material prices softening a bit going forward, if this market were to be sorted out, I think we will be more or less back on track in — with the commentary that we have been talking of in the last two, three years of where we wanted to take the company, both in terms of growth as well as in terms of EBITDA profile. So, thank you for all joining us and wish you all the best. Thank you.

Operator

[Operator Closing Remarks]