" GlaxoSmithKline - Consumer Healthcare Conference Call. November 02, Page 1 of 18

Transcription

1 " GlaxoSmithKline - Consumer Healthcare Conference Call ANALYST: MANAGEMENT: MS. AMRITA BASU MR. RAMAKRISHNAN S Page 1 of 18

2 Ladies and gentlemen, good day and welcome to the Q3 CY 12 Earnings Conference Call of GSK Consumer Healthcare Limited, hosted by Kotak Institutional Equities. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions at the end of today's presentation. Should you need assistance, during the conference call please signal an operator by pressing * followed by 0 on your touchtone phone. Please note that this conference is being recorded. At this time I would like to hand over the conference to Ms. Amrita Basu. Thank you, and over to you, madam. Amrita Basu: Thanks. On behalf of Kotak Institutional Equities, I welcome all of you to this GSK Consumer Healthcare s 3Q CY 12 earnings conference call. I would like to welcome the GSK Consumer Healthcare Team, Mr. Ramakrishnan Subramanian, Director Finance and Ms. Pooja Thakur, Head of Financial Accounting. I will now hand over the call to Mr. Subramanian to discuss the recently announced earnings. Thank you and over to you sir. Thanks, Amrita. I also have with me Pooja Thakur, the Financial Controller. I will comment on GSK's performance for September 30. Domestic sales at 780 Crores reflect 16% growth over quarter three. What I mentioned here is domestic sales and it has got a volume growth of 6%. PBT, for the overall business at 190 Crores and PAT at 129 Crores reflects around 24% and 25% growth respectively. Taking exports into consideration, the total sales growth for quarter three is 15% over the last quarter. I wanted to say that we had a not that great a quarter on exports, and also the overall sales at 15% has been impacted because of lower sales to CSD. Moving on to brands, Horlicks continued to perform well with 16% growth in domestic sales, and Boost records around 22% growth during the quarter. Biscuits, is really doing well with 29% growth in the quarter. Oats continue to perform very well, recording a market share of around close to 11% in South India. It currently ranks third in entire South India. The quarter also witnessed launch of Nutribic healthy nutritious range of biscuits in two variants, basically highfibre digestive biscuits and biscuits for diabetics. Nutribic has been well accepted by the consumer, wandering (ph) a market share of 8% in South India in the very first quarter its launch. Gross margin, as you would have seen, has improved at 40 basis points last year, despite inflation in key commodities and increase the excise duty. Our continued emphasis on cost containment coupled with judicious price increase helped us to improve the gross margin. You would have also seen we are continuing to make healthy investments behind advertisement promotion, which reflected a 17% increase over the last quarter. Income from business auxiliary service and treasury income continues to do well to support the profit growth. Now, over to you for any questions or any clarification on our performance. Thank you very much. Participants, we will now begin the question-and-answer session. We have the first question from the line of Abneesh Roy from Edelweiss. Please go ahead. Page 2 of 18

3 Sir, congrats on the good set of numbers. My first question is if you could tell us volume growth on Horlicks and Boost and the variants of Horlicks? Thanks Abneesh. Horlicks has recorded on domestic side, a growth of around 4.5% and in terms of Boost, it has recorded 8.5%. How much is the ex-csd? CSD impact is close to around 1.5% because you would see that CSD is actually declined in this quarter by 8% point and if I have to just normalize the growth projections for CSD, which normally used to grow at much higher rate even assuming a growth rate of 16% - 17%, when CSD is declined by 8% we lose close to around 1.5%. So you are saying Horlicks would have grown at 6% ex-csd? That is right absolutely. Sir, because now one or two quarters of lower growth rate, we are seeing in Horlicks and Boost, Horlicks specially so this is growth do you expect in the next two three quarters or you see the trend reversal? I would clearly see the trend reversal, Abneesh. There are a couple of reasons for it. One is specifically in terms of CSD, we hope that to comeback because there is all the pipeline corrections which they must made, they should start ordering for the goods so that is one definite reason is why we believe the growth rate should be back to 7% - 8% kind of a growth rate and the second reason is that very clearly we have specific growth initiatives which I was spoken in the previous concalls so all these things should help us to get back our growth around 8% to 9%. Sir, next question is on biscuits, Nutribic this is the first quarter so if you could tell us in terms of distribution how much is it in terms of your Biscuit distribution is Nutribic available in most of the outlets and similarly in terms of Biscuits as a total distribution of your Horlicks, Boost etc., in how much of that universe Biscuits is available? Obviously some distribution will be different, but within the universe of Horlicks and Boost how much is the Biscuit distribution? First of all in terms of Nutribic it is launched only in South India, and specifically in metros we have not gone down to up-country towns. So, that extent it is as you could see just we had bit of a temporary disruption then we were able to overcome that. So it is just launched in the metros and as regards with the total distribution of the Biscuits it is close to around 400,000 outlets. What is the Horlicks and Boost? Horlicks and Boost we have gone up to around 750,000 outlets. Page 3 of 18

4 Sir, my last question is on Oats. If you see some of the other players are come with differentiated Oats, Masala Oats and all that plus the Rs.10 pack. So question, are we also doing that? Second on Oats is, if I see the sequential market share from 12% it became 11.3% and this quarter you are saying 11% so it is AC Nielsen data issue or are we losing market share? I think we are not too unduly concerned about this kind of a movement on a quarter-on-quarter. We seem to be doing well because the number seems to be coming. So, I would not put the blame on AC Nielson. I would rather say it is a temporary various pick up issues and so on and so forth. Regarding the Masala Oats various things, what you talked about I would not be able to comment but all that I can assure with that there were good interesting products in the pipeline. I will comeback if I have more. Thanks for the opportunity. Thank you. We have the next question from the like of Pritesh Chedda from Emkay Global. Please go ahead. Good afternoon Sir. Just one question in quarter two of the calendar year we had taken some price increase on Horlicks and Boost both, I was just wondering when I see the QOQ gross margin it has not flowed in so if there is any reason to it? See if you really look at we have also took a price increase on similar products both Horlicks, Boost etc., last year also in 2011, number one. Number two, it is like for example if you look at in terms of commodity inflation, it all comes through in the second half of every year. The third one is that excise impact again comes in because really look at after the four months we were able to just manage with our own production stock so the real exercise it starts hitting you in the subsequent quarters. So we were required to take this price increase on a quarter-on-quarter. That is reason you find we do reflect around 400 basis point improvements in the gross margins, which is a combination of price increase and net-off again various cost increases. So this assessment of yours is year-on-year? This is on quarter-on-quarter. This 400 basis point is on quarter-on-quarter. Secondly, if you could just tell us the outlook on how the volume growth should look like here on with the core MFD and what has been the MFD industry growth in the quarter and MFD growth for you? It is like this. Let me tell you in terms of our current growth in terms of MFD, is around 5% point domestically and as I was answering the previous question, if one were to normalize it for CSD, it would go up close to around 6.5% to 7%. Typically, I would expect the growth to come back to a level of around anywhere between 7% and 9% moving forward. What would be the value growth of MFD in the quarter? Page 4 of 18

5 Value growth for MFD this quarter is 16.2% without considering the CSD it is 16.2% but if you were to consider the CSD business then it will be around 18%. This is for GSK right? That is right. The industry should be a similar number. Industry will be close to around 19%, compared to our growth of around 18%. See if you look at if you are asking for MFD business I am saying it is around 16% is our growth as we have reported value growth is our current value growth if you were to consider CSD profit of it will be around 18% and on a like-to-like basis industry would have grown by around 19%. So even the industry would have taken the impact of CSD right? I am sure. So against that your 16% will industry be 17%? It will be a percentage point more basically because what we see is that in terms of the top end of the market which is absolutely super premium segment as we see there the growth seems to be pretty high. It is growing at a rate of close to around 33%. So, where GSK presence is not there so that extent, we do believe there is a bit up of the categories there we are operating we seem to be marginally gaining share but the one which were not present that seems to be growing at much higher pace. Many thanks to you sir and all the best. Thank you. We have the next question from the line of Shariq Merchant from Ambit Capital. Please go ahead. Just a couple of questions. I wanted to understand the segmentation between white and brown if you could give us category growths over there. In terms of which segment is growing faster? See if you look at in terms of what we see in A C Nielson the growth in white from our value perspective is in the region of around 17% - 18% and we do not see much of a difference within while and brown it is in the region of around 17% - 18%, but as you could see the contribution is the white is around 75% and brown is around 25%. If you would look at it geography wise what geographies would be growing bigger and would there be a geography preference to a certain segment like white or brown? Page 5 of 18

6 Brown in itself, the growth to be fine is much more significant in north and west but in terms of the white will be predominantly from South and East. Okay and if all the geographies would be growing more or less at the same pace? That is right. Also could you throw some light on the rural initiative that you have taken? Rural initiatives currently we get close to around 26% - 27% of our sales from rural side. So, what we are looking at is that we do believe, there are lot of villages where penetration levels, we have not been able to kind of reach those markets. So, our target for this year is to look at for incremental close to around 10,000 villages in year 2012 with close to around 75 Crores kind of a targeted turnover increase coming from these initiatives. So at this point of time all that it is happy to say that it is this kind of incremental sales is coming from this region as well. Right now where would our total village s penetration stand? We at this point of time we are looking at this year incremental around 10,000 and the number of villages is around 50,000 villages what have been covering now. Also, are we looking at strengthening our presence in the north and west? That is another initiative I have spoken about earlier because since most of the contribution is coming from south and east, our effect is to kind of make some products, which is relevant to the north and west consumers and increase the contribution there. So, specifically our product positioning, our higher ANP spends and increasing the outlet coverage in these geographies are some of the key initiative which should help us to kind of increase our contribution from these areas. So, would we also be looking at new product launches in specifically at these markets? I would say a specific product launches like for example Chocolate Horlicks is more of Chocolate, Chocolateness is being looked at. It has been launched already, doing very well. We have increased our outlet coverage from 190,000 outlets to 250,000 outlets in these places. We have also seen in terms of a specific product positioning saying that in terms of based on a consumer insight we have been able to kind of say that having Horlicks along with the milk that enhances its nutrition quotient. So, that is again as giving us rich dividends. Sir, lastly on the auxiliary income. Would it be possible to share the contribution of each brand specifically? Page 6 of 18

7 I would not be able to comment on each brand because it belongs to another company. So, overall, I think, this time the total contribution went up by around 21% in terms of business auxiliary income it is around 24%. The strongest drivers for this, strongest growth would it come from without giving specific numbers? It is from Sensodyne. We have launched Sensodyne, it is doing very well. Sensodyne and Eno these are the two products, which are doing very well. Sir, it would not be possible to give the shares of each? No. Sir, lastly on Sensodyne, is it possible to share the market growth rate of the sensitive toothpaste because it is by far the fastest growing category in the oral care segment right now? All that we see from AC Nielson it looks like we have been able to kind of match Colgate Sensitive shares. So, at this point on time we are just equal to Colgate Sensitive share. That is very useful. Thank you so much and good luck. Thank you. We have the next question from the line of Mitul Mehta from Lucky Securities. Please go ahead. Sir, first of all congrats on a good set of numbers. Sir, you did mention in your previous remarks that the top-end of the market seems to be growing at a very healthy cliff. Now we do not have a product in that segment so just your action on that part of the portfolio. Second is can you comment on Oats. I have missed out on your opening remarks so what is our current market share and what is the penetration that you are seeing the Oats segment? How do you see that going forward? My third question is just your geography breakup for MFD in North, South, West, East, and over next two to three years, I understand that our presence, we going to be focusing more on the north and west so how all this initiatives will help us to gain market share? First your question, it is a fact that we are not present in the super premium segment while we are present in the premium segment in the form of products like Women Horlicks etc., etc. Yes it is our intention to quickly get our product positioned in terms of the Super Premium range so there is enough pipeline. We have got enough products in the pipeline which you will see getting definitely launched during That is the first response to your question. As regards the Oats is concerned, we are current present in south and all the four states and currently it is at the rate of 11% market share is what we have got. We are at number third in the overall ranking. Now, the last question of yours is in terms of north, west, currently we are getting close to around 11% or so from north and west but it is our intention to increase this contribution by the set of Page 7 of 18

8 initiatives what I just spoke about a couple of minutes back. So, we are looking at definitely increasing it by at least 4% to 5% points in terms of our contribution. Sir, this super premium typically would be what price point? This super premium category would be what price point? I do not know when I lost you. So, I thought I have answered all the questions in case you have anything more you can let to know. Sir, can you hear me now. So, I just wanted to ask you when you said super premium would be what price point? I would say let us say Horlicks is Rs.171 for a 500 gm, which is around Rs.340 per kilo, we are looking at close to around Rs.1,000 per kilo range. Rs.1000 per kilo range, and Sir what is happening on the Noodles side? Noodles is a good story in the sense we have completely changed our mix. You would see a significant reduction in our overall sales. In fact that is also one of the reasons as to why our topline is marginally down. So, we are right now focusing in terms of products, which are giving us a good healthy gross margins and which is not a mass product but specifically a product, which is giving good nutritional value to the consumers. So, we have got a decline in Noodles compared to the last quarter. We have lost, in fact it is came down by 2 Crores and 25% kind of a drop in terms of the total growth. This quarter we have done around close to 6 Crores Noodles sales. Sir, in terms of the advertisement budget for the year. Is this likely to go up or it will remain at 15% of sales is that what we have always been guiding? No, our advertisement has been in the range of between 15% and 17% I think it will be in that range. Thanks and all the best Sir. Thank you. We have the next question from the line of Paresh Jain from MaxLife Insurance. Please go ahead. Paresh Jain: My questions have been answered. Thank you. Thank you. We have the next follow-up question from the line of Abneesh Roy from Edelweiss. Please go ahead. Page 8 of 18

9 Sir, if you see in some of the premium products, we are seeing some discretionary slowdown. So in sensitive segment, which is definitely the premium end in toothpaste, are you seeing the growth rates comedown on a year-on-year basis in the last few quarters? Actually Abneesh, it is not correct to compare any growth numbers here because it is about it is only one and half years kind of stuff, but I do not see that kind of a slowing down taking place. If it all anything we are beating our internal targets as regards to our oral care category is concerned. Sir, Sensodyne has done really well and you said market share is now equal to Colgate. So, any plants to leverage on Sensodyne brand further for example in toothbrush or say in other segments on toothpaste? We have already launched Sensodyne toothbrush, if you are not aware of it. We have already launched. In the last quarter, we have launched that and as regards to what we are further going to do on Sensodyne Abneesh, would not be able to divulge, because it does not belong to this company and I would not be able to talk about the pipelines. Sir, second one was again in terms of thought process if you see some of the competitors have gone from Oats to (indiscernible) so I would not ask again for a specific answer because I do not think you will give but you would look for further expansion right in that portfolio? In which portfolio. Oats to (indiscernible) 23.57? Oats presents very interesting opportunities in terms of bringing, where one could leverage science, one could bring about interesting products. So of course we will be looking at all the possible opportunity in that area. Sir, Sri Lanka continues to be in a slowdown because last quarter it declined I think by 10%. Yes, Sri Lanka has continued to be posing challenge to us, looking at the inflationary situation in that country overall while GSK our customer there is maintaining the market share but overall there is a category slowdown and that is indeed effecting our export sales. Bangladesh is doing well right? Bangladesh is doing very well. So, when do you see overall exports numbers are improving? Will it be a largely base effect because of Sri Lanka? I would think it should back to it is normalcy in the first quarter Page 9 of 18

10 Sir, last question is on your biscuit business wherein you have done these innovations but overall growth rate is very impressive 29% versus category growing much lower? So, if you could tell us within your own product portfolio how much is glucose segment doing, how much is the premium end doing? That will give us more insights, if you could talk about the industry that is also fine with us? The premium launch has been done only for this quarter, otherwise if you have to look it is all in our milk biscuits category which we seem to be doing extremely good job and I think if you were to look at a market share basis, we must be coming first in terms of milk biscuits. So, all our biscuits are based on milk and that is doing very well and our premium launch, I do not call milk as premium basically because from a profit position it does not give you that kind of great margins, but if you look at this functional biscuits as we call in terms of diabetic biscuits or digestive biscuits that should definitely help us to kind of improve our overall portfolio gross margin in biscuit s category. Last question, Boost versus Horlicks, now you are seeing last few quarters Boost growing faster, so is it a part of your conscious strategy or what is the issue there? I would put it in two fold, answer to this. One, is yes, it is partly led by very good, very strong marketing initiative, which helped us a kind of register us a strong growth, but I also need to quickly add there it will also have a base effect because as you would have seen in 2011, Boost did not do that well. So, combination of the base effect coupled with good marketing initiatives is helping us to record this kind of growth. Thanks and all the best. Thank you. The next question is from the line of Arnav Mitra from Credit Suisse. Please go ahead. Arnav Mitra: Couple of questions. Firstly, just coming back to the super premium segment, how large in terms of percentage, has it become of the overall market segment. I remember that you had products like ActiGrow and Actimind under Glaxo nutrition range. So, when you trying to address this segment, what role do these two play and does your parent have products which can come into India in this space? First of all, it is around 10% of the total portfolio is in the super premium segment, ActiBase, ActiGrow, Arnav you are aware it is not an advertised product this is more of medically promoted products, so we are looking at in terms of specific need based thing which the details of it at this point of time I am not going to say, but we do believe that particular segment is growing at the rate of 35% kind of a growth. We do believe that we need to be present in that segment. Now, you are asking the parent portfolio, no this is going to be locally developed product and it is all going to come out of our own R&D Center here in India. Page 10 of 18

11 Arnav Mitra: This 10% of MFD, it would have been how much these have been a year back in terms of contribution to the category? I think it has been around 6% to 7%. Arnav Mitra: Other question, I had is, have you taken any further price hikes in Horlicks or Boost in the last three months after that 171 pricing? No, we have not taken any price increase subsequent to July. Arnav Mitra: Overall, raw material index, what was the inflation in H2 and as we stand now in December quarter how does it look year-on-year? As per H2, we have got around 8% inflation, and going ahead, I would think around 5% to 6% inflation. Arnav Mitra: Just lastly on the depreciation side, when do you see the depreciation picking up in the sense the new capacity comes on stream and CY 12 what is now the outlook on total capex that you have already done and how much will CY 12 be? In terms of we did get the benefit for September quarter in terms of depreciation going away at our Sonepat plant, but then it will again get picked up because with our capacity we have put through in Sonepat plant we should start getting the depreciation back effective first quarter Now in terms of capital expenditure plan for 2013, would be close to around 270 Crores. Arnav Mitra: In 2012, what is that you have already done? I wanted to know what is the capex for CY 12 which you have already incurred? You are talking about what has been incurred already? Arnav Mitra: Yes. It has been around 60 Crores we have incurred already and plan for us going forward is 270 Crores. Arnav Mitra: Thanks. That is it from my side. Thank you. We have the next follow up question from the line of Pritesh Chedda from Emkay Global. Please go ahead. Sir, I could not get the capex figure, so 60 incurred so far. What it would be for the full year? We should be coming around 125 Crores. Page 11 of 18

12 270 number, which you gave is the total capex to be spent over? Next year. 270 Crores is the next year capex. Should I exclude 125 out of it or 270 is next year? 270, is specifically for next year. You gave the index number of September quarter 8% YOY was that a YOY number? That is right. You gave another number of 5%, so what was that Sir? The second on quarter-on-quarter, December quarter 2012 versus December quarter It will be 5% YOY so that is the focus. Is it possible to share the absolute index number say quarter 1, quarter 2, quarter 3, quarter 4 on a base of 100 is it possible. Is it possible to share the index number value on a base of 100? I do not have it now readily, but I can just give you in fact Q2 we have close around 12%, Q2 what I mean by that is June quarter we are around 12% inflation, March quarter we had around close to around 9%, this quarter is around 8% and December quarter which should be around 5% to 6%. I would think overall if you were to look it is around 8% to 9% is what will be for the year on a whole. Lastly, in the quarter, if you could just give a broad idea of contribution from Biscuits, Oats and Foodles in the quarter or may be MFD now in MFD kind of breakup, if you could give us the absolute number or share and the growth? Foods contribution it is basically the foods, oats and noodles it has contributed around 6.4% to the total sales compared to around 5.5% last year. The growth would be? Growth is 35%. The export contribution on the growth and the decline? Exports have recorded 3% growth. What would be the contribution? It is around 5%. Page 12 of 18

13 Which means balance is MFD? Yes, MFD and foods. 6.5 you said food, 5% is export and balance is MFD. Thank you. Thank you. We have the next question from the line of Lakshmi Narayanan from Catamaran. Please go ahead. Good afternoon Sir. Sir, I have couple of questions, first is a very theory question. I just want to understand why is the sale of MFD low in north and west, is it anything to do with the type, quality or availability of milk and then as a followup on that, what has been the penetration of this like five years back and how it has actually changed now? I think you answered your own question, Lakshmi. In terms of availability of milk, it is indeed the reason as to why as against typically logically, one should have a 50% category contribution coming whereas north and west contribute roughly around 23% of the total category contribution, so milk availability is one of the fundamental reasons for the low contribution to the category. What is your second question? It is regarding the penetration which is like 5 years back how was it and what is it now? It is very low penetration, if overall this category is at 20% for overall all India basis and with south and east going at a rate of around between 40% and 45%, so it must be around 10% kind of category penetration. This availability of milk could be low may be several years back, but I think it has changed now right, or is it still the availability an issue now or let me put it in this way, if you look at people who consume Horlicks in south, do they actually do it as an alternative to milk or how the consumer drinking habits have been? I was give you traditional reason as why this HMPs contribution is more in south and east, but if you were ask me today is it being consumed as a replacement of milk? Answer is no. Because over a period with a very strong brand equity coupled with a lot of nutritional signs factored into the products, right now it is being seen as a good value ad to the consumer. So, different segments are being looked at. The Junior Horlicks which is meant for kids between 2 and 5, then you have a Base Horlicks, which is consumed by all sections of the population. We have Mother s Horlicks, which is meant for pregnant woman. We have Woman s Horlicks which is meant for women 35 plus, so each one has got its unique nutritional requirement, which is packed in, which is how it is not being as a replacement of milk, but more ever a value-added product. Page 13 of 18

14 Do you think the growth from the north, east and west would be significantly higher over the period of time? Is it clearly seen that the growth of north and west is going up when compared to south or it is like trending the same way as earlier? At this point of time, this year we have taken specific initiative, so we do find that north, west is definitely showing growth which is significant ahead of south and east. By what percent Sir? Can you just give us the detail? Again two things, one is backbone of specific initiatives what we have taken, which I have articulated sometime back and second thing is again to low base. The second question, if I look at the sales of less than 500 grams, what are the different SKUs and what is the contribution in MFD of the SKU 500 grams? Most of the contribution is coming around 500 grams. We do have SKUs ranging across multiple price points starting from Rs.5 to Rs.25 then we have 200 grams selling at Rs.80 to Rs.85, then it is multiple price point apart from 500, we even have 1 kg and 2 kg. Our intention is to as a growth strategy look at in terms of growing our sachets which is growing at a very significant upwards of 45% growth. When you say sachet it is around 18 grams, or 100 grams, what you call as sachet? It is 18 grams sachet which is at Rs.5. Just one last question Sir. If I look a global portfolio there is Horlicks Cappuccino, Horlicks Light Cherry Chocolates that are available, why we have not launched in India as yet. Is it a consumer behavior or when do you plan to launch that? I would not able to comment on future pipeline, Lakshmi. There are very interesting concepts which always need to be looked at. Thank you Sir. Thank you. We have the next question from the line of Gokul Maheshwari from Allard Partners. Please go ahead. Gokul Maheshwari: Thank you for taking my question. One, what would be the quantum of the business auxiliary income in this quarter? We have got around 28 Crores. Gokul Maheshwari: The capex which we are doing this would be all Brownfield capex even for next year, or is it setting up on new Greenfield plant? Page 14 of 18

15 It is Brownfield. Gokul Maheshwari: Lastly, on the premium end biscuits, which you have launched on the functional side. Is the pricing similar to the competition or pricing as a strategy which you adopting there? Pricing is in line with competition, but then it is much better rich gross margin contribution coming from this. Gokul Maheshwari: From your end, if you are playing more on the product and branding side for putting your product to the consumer? Yes that is right. Gokul Maheshwari: Thanks a lot and all the best for the rest of the year. Thank you. The next question is from the line of Kaustubh Pawaskar from Sharekhan. Please go ahead. Kaustubh Pawaskar: Good afternoon Sir. Congrats for a good set of numbers. My question is specifically on your biscuit portfolio. You have grown by 29%, so can you just quantify what was the volume growth for this quarter in biscuit portfolio? Biscuits, we have a volume growth of around 23% and balance 5% coming in price. Kaustubh Pawaskar: Sir, biscuit portfolio has been doing pretty good for past several quarters and it is probably good growth and you have added new product at the premium end. So, going ahead, are you planning to add some more products or more range in this particular segment, in biscuit segment? Yes. Kaustubh Pawaskar: On non-mfd side, are you looking at launching new products and which segments are you specifically looking at? I would not be able to comment on future pipeline. Kaustubh Pawaskar: Looking at the presentation, I could see key input prices stabilizing on quarter-on-quarter basis that is if we compare September quarter to June quarter, so if this trend continues. Can we see better margin, which are in CY 13? CY 13, we have to watch. While you are right, it is kind of coming to bit of a stabilization kind of a phase, but it is too early to come to a conclusion. While we do see milk prices showing a downward trend, milk and milk powder, which traditionally used to be around 14% to 15%, this time it is single digit kind of (indiscernible) 41.52, but we need to see is to how sugar prices and wheat prices pan out, because sugar we clearly see a significant increase and so is the case with Page 15 of 18

16 wheat prices. So, in today s paper again people are talking about in terms of minimum support prices for wheat, while Finance Minister is saying, we will not let them increase it, but some other minister is saying, it is function of so many variables. At this point of time, I would not be able to comment, but I would think it could perhaps give us some kind of positive news in 2013, but how much positive at this point in time, I am not able to guess. Kaustubh Pawaskar: Thanks. Thank you. The next question is from the line of Ravi Baid from Union KBC. Please go ahead. Ravi Baid: Good afternoon Sir. What would be the cash in our book Sir? We have around 1350 Crores. Ravi Baid: Thank you. Thank you. We have the next followup question from the line of Mitul Mehta from Lucky Securities. Please go ahead. Thank you for taking my questions. Sir, a very broader question over medium-to-long term three to five years, what top three to four initiatives that the company would take for us to help us to continue the growth momentum? One is in terms of in fact sometimes back I answered this, one is in terms of launching into the premium segment will be on key focus area for us. Second thing is also launching science leverage product by bringing great value to the consumers. Third from north and west in terms of increase in the contribution will be the third initiatives. Fourth one is obviously is going to be rural. So, these are the four specific initiatives in terms of MFD segment. Sir, if I look back into the history contribution from north, west as opposed to what it used to be before five to seven years, how that momentum has grown for you? I would say that it has more or less remained flat. The thing that whatever the growth you are seeing in north, in south and east, the same similar growth was seen in north and west, in the absence of any specific initiative because it is growing in line with overall incentive growth, but what we see is that once you put your efforts there in terms of be it product positioning, be it in terms of distribution coverage and the specific focus in terms of advertisement promotion we definitely see clear increase contribution coming from the geographies. Because the Bournvita and Hines are extremely strong, are we finding it little difficult to kind of break their territory because this exercise has been continuing for quite sometime? Page 16 of 18

17 I would simply say that you put your money where your returns are maximum. So, we have been rather focusing on south and east. I do not with the short of ammunition, we did not go to north and west, it is more just focusing on where you are good at and you are continuing, but we do believe that we are sitting on a huge opportunities and that is the reason we are kind of put our efforts in north and west and to answer your point in a very transparent way I do not think so the kind of initiatives what is being attempted now was done in the past, I require encouraged by the results that is flowing in now and we attempt to continue that. Sir, my last question is pertaining to the payout. We are sitting on a very large (indiscernible) of 1350 Crores of cash and every year this cash balance is going to go up as we run our working capital negative. Now any thought of raising the payouts because acquisition does not come very easy and also at a price? I am sure you will agree with me that in terms of payout ratios they have been steadily been increasing our payout ratios year-on-year and that will be continuous endeavor and in terms of and also preserved reasonable cash for possible M&A opportunities and also our expansion plans, but answering upon yes, this is being continuous, still not in terms of how do we increase the different payout ratios. Because compared to peers like Lever or Nestle we are still very, very low? You will see that we have been steadily increasing our different payout ratio? Great sir. Thank you. Thank you. We have the next question from the line Anshul Mishra from ING Mutual Fund. Please go ahead. Anshul Mishra: Good afternoon Mr. Ramakrishnan. My question was regarding the growth rate that you mentioned on your base brands and MFD. Are these growth rates excluding the CSD impact? It is excluding the CSD impact. That is right. Anshul Mishra: If on the Horlicks brand if you can mention, what would be the value and volume growth rate for Base Horlicks and Horlicks Variant separately? In terms of the range is more or less similar. I do not see a significant difference. The growth is more or less similar in terms of what I indicated. It is just 4% for based Horlicks and extensions are close to around 8.5%. Anshul Mishra: This is more from the next three to four year kind of point of view basically your view of how do you see Horlicks as a brand growing on a volume basis over next three to four years in terms of Page 17 of 18

18 the White (ph) increasing its market share further within MFD and how Horlicks is trying to increase its market share within Whites (ph)? I would think with the plans what we have in terms of launching and getting into the premium segment, we do believe that we should be in a position to sustain anywhere between 15% and 16% kind of a sales growth. If not garner more share in the White segment, so future is looking good for us next three years definitely, this is kind of growth momentum what we will be maintaining. Anshul Mishra: But on the volume growth front, you feel 5% will be the norm from here onwards on a year-onyear basis? I would think around 7% to 8% would be the kind of volume growth and balance would be around 7% to 8% or 6% to 7% in case of price growth. Anshul Mishra: Thank you. We take the last followup question from the line of Lakshmi Narayanan from Catamaran. Please go ahead. You were giving split of the sachets and 500 grams. Can you just give me some kind of revenue breakup between 500 and above and below 500? What has been the growth if you can just dissect in that? I do not have the numbers right now. Any range of is it like 70% by 500 plus and then below 30%, not accurate number some kind of rate if you can just tell? All that I can tell you the sachets are growing at 45% plus, balance category of growth, I have already told you is around 16%, so contributed around 5%, in the total portfolio. Thank you Sir. Thank you. Mr. Ramakrishnan if you have any closing remarks? In conclusion, all that I could say that we are seeing good performance in domestic market despite number of challenges and we will continue to go for double-digit growth both in terms of topline and bottomline, from both in terms of offering superior scientific innovative products, increasing the penetration for all our categories and also cost containment measures and judicious price increases. Thank you for your attention. Thank you Sir. Ladies and gentlemen, on behalf of Kotak Institutional Equities that concludes this conference call. Thank you for joining us and you may now disconnect your lines. Page 18 of 18