consumer q3 2013 earnings call 7 nov’13 - aceanalyser call/100676_20131107.pdfperformance was...
TRANSCRIPT
GlaxoSmithKline Consumer Q3 2013 Earnings Call 7 Nov’13
Operator Ladies and gentlemen, good day and welcome to the GlaxoSmithKline Consumer Healthcare Limited 3Q CY13 Earnings Conference Call, hosted by Anand Rathi Research. As a reminder, all participant lines will be in a listen‐only mode. There will be an opportunity for you to ask questions after the presentation concludes. Please note that is conference is being recorded. I now hand the conference over to Mr. Aniruddha Joshi from Anand Rathi Research. Thank you and over to you Mr. Joshi.
Aniruddh Joshi, Analyst Thank you, Mallika. On behalf of Anand Rathi Research, we welcome you all to the Third Quarter CY13 Results Conference Call of GlaxoSmithKline Consumer Healthcare. We have with us Mr. Ramakrishnan Subramanian, Director Finance, as well as Mr. Niraj Mehra, Finance Controller. Now I hand over to Mr. Ramakrishnana Subramanian for his comments on the results. Thanks and over to you, sir.
Ramakrishnan Subramanian, Director, Finance Thanks, Mr. Joshi. I also have with me, Niraj Mehra who is our Finance Controller. I will comment upon the performance of GSKCH for the quarter ended 30th September. PAT growth at 14% is lower due to insist effective tax rate. Horlicks grew by 16% and Boost grew by 19% during the quarter. The performance was quiet good in Chocolate Horlicks and Women Horlicks which grew high double‐digits.
The package foods portfolio continued to do well recording a 24% growth. Oats is performing well with significant improvement in market share.
We have improved our gross margin during the quarter, despite inflationary pressures. As you all would be aware, the milk shortage was very much seen in the market and this did put some amount of pressure in the prices and this has been achieved on the back of the strong cost management program across the balance sheet.
EBIT is quiet healthy at 19,000, despite inflationary pressures on fuel and hire costs consequent to recent CapEx. Investment in advertisement promotion is continued a healthy level of 17% of the sales. Robust increase and other income reflect strong performance of our OTC and OHC portfolio and working capital in treasury initiatives which have yield at higher interests income.
I now hand over to you for any questions and clarification if any on our performance.
Questions And Answers
Operator Thank you very much. Ladies and gentlemen, we will now begin the question‐and‐answer session. ().
First question is from the line of Paresh Shah from CLSA. Please go ahead.
Paresh Shah, Analyst Good afternoon, everyone. Thank you very much for taking my call ‐‐ question. My first question is why other expenditure during the quarter hit up so much?
Ramakrishnan Subramanian, Director, Finance
See other expenditure in terms of the enquiries is primarily number of two reasons. One is in terms of ‐‐ we have third party manufacturers, where they do the packaging activities for us. And, as you would have seen in this quarter, we've got a volume growth of close around 12%. And the other expenditure do include what we pay to our third party manufacturers towards conversion charges. So, increased volume and input conversion charges gets reflected there.
The second reason is in terms of the power and fuel and the transportation cost, because of the diesel deregulation, there has been a higher cost in both these areas, both in terms of power and fuel and in terms of trade cost, which has heavily impacted the other expenditure.
Paresh Shah, Analyst Okay. Thank you. Sir, my second question is, if you look at financial income, financial other income, the component of that looks very high on a Y‐o‐Y basis, any specific reason for that?
Ramakrishnan Subramanian, Director, Finance Paresh Shah, Analyst I'm referring to the line, not the business auxiliary income, but the other income, which comes?
Ramakrishnan Subramanian, Director, Finance Yeah. See, one is in terms of obviously the interest income is moving up around 27. And, if you look it in terms of that a few other good initiatives we've embarked upon. One is in terms of that also includes certain export benefits what we bought, which is not in the base. And that line also, items include also the foreign exchange fluctuation and currency benefits what we got on our exports income.
Paresh Shah, Analyst Okay, okay. And, sir my last question is on the share gains which the PPT mentioned on the MFD category. So, could you quantify that for us, is that possible?
Ramakrishnan Subramanian, Director, Finance In terms of ‐‐ if you look at in terms of our Horlicks brand, we've been able to maintain our market share, we'll not gain market share, we are in the region of around 60%. But then we have clearly in terms of the products which GSKCH distributes in terms of wellness category what we called product Eno, has significantly into the market share by 4 percentage point.
And also in terms of Sensodyne, which again we get an income for marketing distributing, where our market share is moved up from 2.3% to 3.1%. As about the foods portfolio which is ‐‐ the oats are range where again we've got to seen a market share in result 3% point from 11.4 we moved to 14.4%.
Paresh Shah, Analyst Okay, sir. Thank you very much.
Operator Thank you. Next question is from the line of Abneesh Roy from Edelweiss. Please go ahead.
Abneesh Roy, Analyst Sir, my first question is on the domestic volume growth which has gone up from 6%, 7% to more like 10%. So, if you could tell us, is there any one‐off effect in this? And do you think this will sustain? And between Boost and Horlicks and between the four regions and between rural, urban, if you could give us more color as to which has grown faster and some numbers if possible?
Ramakrishnan Subramanian, Director, Finance All regions have recorded a good growth and ‐‐ but predominantly the growth is coming from, a significant growth has seen in terms of north and west, where overall sales growth we have seen close to around 22%, 23%. And from south and east because of higher base, we've seen a growth of around close to 14%.
In terms of rural, we have, as I've been talking about, due to specific initiative, we've been able to increase our reads in terms of number of villages, then again we've seen a phenomenal increase in our growth.
Abneesh Roy, Analyst Sir, any numbers you can share with us? Follow‐up on this, how much is rural as a percentage of sales and how much is rural growing faster in terms of say, is it 2X to urban?
Ramakrishnan Subramanian, Director, Finance I would think at least ‐‐ yeah, I would say around 1.8 times of urban, that's kind of a growth what we see in rural.
Abneesh Roy, Analyst And sir, one more follow‐up on this. You are ‐‐ you said north and west are growing faster. So, does this also mean the competitive intensity side, we are seeing more favorable things currently the way competition. There are some changes happening in both the competitors. So is that what is helping or is it the distribution expansion which is helping?
Ramakrishnan Subramanian, Director, Finance It's a combination of few factors, Abneesh. One is in terms of as you rightly said, the distribution reach is indeed helping us. But then we also have a very good marketing campaign which is basically how do we increase the power of the milk, because as you boil the milk, right, you lose all the key nutrition aspects of milk. So, our campaign revolves around the theory that once Horlicks along with milk, right, it enhances the power of milk.
And then adding to that, we have a chocolate variant, right, which is doing extremely well. It is, as I've mentioned in my opening remarks, it has shown a phenomenal increase in terms of growth.
So, in summary, distribution a good marketing campaign and the flavor, et cetera, et cetera has contributed with this kind of a phenomenal growth.
Abneesh Roy, Analyst Sir, my last question is on the foods business. In oats, are we also focusing on more on the value added and if the competition between number two and number three player extremely close, because I think the other players also claiming number two spot. And similar on biscuits, we seem to be growing much faster than some of the other competitors at least based on results which have come out. So, are you gaining share in biscuits and if you could share some insights into the glucose, Boost which you are planning to launch or how serious are you on that part of business, because that's a very low margin business?
Ramakrishnan Subramanian, Director, Finance Now, so biscuits business is indeed doing well, but then I don't have the numbers in terms of market share, because I don't think so it's even what was measuring because we must be lesser opportunities found out. So because we want to play in a range that which makes, which gives us a reasonable margins.
Okay, regarding Oats, yes we've already got very interesting in terms of clewing is what we call as Masala Oats then Southern Spice and various kinds of value added products, which is helping us to kind of gain the market share.
Now futuristic is, we done a lot of interesting products in the pipeline which is ‐‐ we will as when it is ready we will be rolling that at Oats.
Abneesh Roy, Analyst
Sir, just one follow‐up. Oats, West India are you there currently and will ‐‐ are you there in the 10 rupee SKU and will that be the bulk of your volumes?
Ramakrishnan Subramanian, Director, Finance We are not there in West, and currently this is focus in terms of South. And, I didn't understand your second point.
Abneesh Roy, Analyst Sir, if you see now almost all the players are focusing on the INR10, INR12 SKU. So, are we also present at that price point because we've gained the number two spot. So, if that also on the back of the lower priced SKU and if you could tell us how much is that SKU in terms of the total oats business?
Ramakrishnan Subramanian, Director, Finance I won't be able to comment on that. But yes, we are indeed in a INR10 pack SKU, which is ‐‐ we have 28 grams SKU, which is on INR10 pack, yeah, we are there in that price point SKU.
Abneesh Roy, Analyst Right, sir. That's all from my side. Thanks for this.
Ramakrishnan Subramanian, Director, Finance Thank you.
Operator Thank you. Next question is from the line Pratik Biyani from Standard Chartered. Please go ahead.
Pratik Biyani, Analyst Ramakrishnan Subramanian, Director, Finance CSD, because of the lower base has shown a growth of close around 30%. And, the CSG overall contribution is around 7%.
Pratik Biyani, Analyst Okay. And, sir have we taken any price hikes, because we usually take it in June and July, but I think we have delayed it in September, October this time. So what is the quantum of price hikes for planning?
Ramakrishnan Subramanian, Director, Finance We have taken a price hike as of the third week of September, we have taken price increase of around close to INR5 per pack.
Pratik Biyani, Analyst This is on both Horlicks and Boost?
Ramakrishnan Subramanian, Director, Finance Basically in Horlicks.
Pratik Biyani, Analyst
Okay, okay. So sir, would ‐‐ do you think there would have been some inventory buildup in the trade prior to price hikes which attributed to 10% volume growth because there has been slow down in other foods companies and your volume that was exceptionally well in that perspective?
Ramakrishnan Subramanian, Director, Finance No, I ‐‐ see, we have a very capital monitoring of the stocks which had helped our distributors. We have not seen any kind of uplift.
Pratik Biyani, Analyst Okay.
Ramakrishnan Subramanian, Director, Finance Any case, the price hike has taken place during third week of September and stock end September, we have not seen any increase compared to the previous quarter of last year. Okay, okay. And sir, how was your exports been from right exports would have grown significantly this time?
Ramakrishnan Subramanian, Director, Finance Yeah. Exports have grown predominantly in fact if you look at, exports have grown around close to 50%. And, that again I would say, some of it is due to pipeline, due to a pipeline filing because base was not high specifically toward Bangladesh and Sri Lanka.
And, some of it is come through because we have got from middle ‐‐ middle‐east there has been a quiet of good demand coming through. So it's a combination of both pipeline filing as well as in terms of new demands which has come through.
Pratik Biyani, Analyst Okay, okay. And, sir, one last question on milk. You mentioned about milk shortage which has related in some 15% to 20% price hike on milk products in the last six months. So, has the shortage being resolved or what is your view on milk prices going ahead?
Ramakrishnan Subramanian, Director, Finance I think it should, because what happened because of the extended monsoon, in terms of water availability et cetera has been a bit of the problem and it reflected in kind of a milk prices. But, I would think it's a bit of temporary issues, it should get back to normalcy.
Pratik Biyani, Analyst Okay, sir. So, what would be your guidance for inflation in milk for rest of the year?
Ramakrishnan Subramanian, Director, Finance I would think for this next three months and for the balance the first six months, I think we should see in close of around ‐‐ close to around 6%‐ 7%.
Unidentified Participant Okay. Thanks a lot sir. That's it.
Ramakrishnan Subramanian, Director, Finance Okay.
Operator Next question is from the line of Arnab Mitra from Credit Suisse. Please go ahead. Yeah. Hi, sir. My first question well again on the raw material side. If you could just tell us on a year‐on‐year basis, how milk, barley and skin milk powder was up in the third quarter. And going ahead any change in turns you see in the next one or two quarters here?
Ramakrishnan Subramanian, Director, Finance Yeah, we've seen a kind of runaway price increase in wheat flour, it close to around 18%. That was being a phenomenal increase. Milk prices in terms of milk and SMB [ph] put together has been close to around 6%, 7% is the kind of pricing what we've seen. Then as regards to malted barley has been in the range of around 2, 3 percentage point. And sugar, because the base has been very high has seen actually a decline of around 2%.
Arnab Mitra, Analyst Right. And you don't see any major change in the near term in terms of year‐on‐year movement in price?
Ramakrishnan Subramanian, Director, Finance That is next three months I don't see any significant changes.
Arnab Mitra, Analyst Right. Just one question sir, on the premium segments especially ProMind and Gold which you had earlier launched, if you could throw a bit of light on how they have performed and also about your competitor within the super‐premium segment, has that segment continued to grow ahead of the overall malted foods market?
Ramakrishnan Subramanian, Director, Finance Yeah, ProMind is doing well but it's too early days to comment on. I think it is just meeting our expectation, but the volume trend if I may say so is in terms of our premium segment that premium category per say is not growing the rate use to grow. So, while our internal numbers are being matched, we need to just watch the space.
Arnab Mitra, Analyst Right. So the overall premium segment you are seeing of the market is not growing as far as faster it was some time back?
Ramakrishnan Subramanian, Director, Finance Correct.
Arnab Mitra, Analyst Right. And, sir basically on the small packs, if you could just give us how has been the growth in the LUPs and what share of business is that now have? Yeah, LUP is contributed into 6% of our ‐‐ 6% it contributes our business. In terms of growth, it's close to around 36%.
Arnab Mitra, Analyst Right. Just one last question on exports, these kind of new orders of new geographies like Middle‐East where there is a demand, do you see this kind of continue given that the rupee has been weak, how would we look at exports going ahead for the next two three quarters?
Ramakrishnan Subramanian, Director, Finance I would think the exports should growth reach of around 15% to 16%. Because this is a one‐off kind of a situation for this quarter, where we had a pipeline filling taking place, but on a steady state basis around 15%, 16% of growth I would say.
Arnab Mitra, Analyst Okay. Thanks so much, sir.
Ramakrishnan Subramanian, Director, Finance Right.
Operator Thank you. Next question is from the line of Amnish Aggarwal from Prabhudas Lilladher. Please go ahead.
Amnish Aggarwal, Analyst Can, I share a few questions. My first question is regarding the marketing of OCT products, where our income which is reflected as business, your income has grown under very sharp basis. Now my question is that what sort of arrangements and Glaxo consumer has with the parent company with regards to these brands. Is the brand right rest with the GSK in India or is it there with you for certain specific period or they can take it up as and when they like?
Ramakrishnan Subramanian, Director, Finance I won't be in a position to comment on their intent. At this point of time it belongs to a company called GSK EP [ph] and our arrangement is to distribute the products and we do get income from distributing the product and the rates at which this has been fixed has been than at arms link basis.
And the products what GSKC distributes is for Eno, Crosin and Sensodyne.
Amnish Aggarwal, Analyst Okay, that's fine, but is there some definitive period that you will be selling this for next five years or 10 years or it can be changed, any time matter of the parent company?
Ramakrishnan Subramanian, Director, Finance Sure. It's an arrangement which is there, so is a better arrangement that to conclude they can always change it.
Amnish Aggarwal, Analyst But there is no some definitive period which has been granting us for our the next 10 years these would be marketed?
Ramakrishnan Subramanian, Director, Finance No. No, no.
Amnish Aggarwal, Analyst So there is no such arrangement.
Ramakrishnan Subramanian, Director, Finance
No.
Amnish Aggarwal, Analyst Okay. And sir secondly the increase in others which you have given in your PPT is from 5 crores to 14 crores, is it driven primarily by exports?
Ramakrishnan Subramanian, Director, Finance It's ‐‐ one is in terms of the currency gains, and second thing is basically because of export incentives that we've put some special initiatives and that is given us close to around 3.5 crores. So the combination of rupee dollar fluctuation and combined with the export incentive is where we have seen the 5 crore to come in 14 crores.
Amnish Aggarwal, Analyst Okay. Sir the another question is on the CapEx plan. We have I think commissioned one unit last year, so are the CapEx plans for the current year and the coming year?
Ramakrishnan Subramanian, Director, Finance Current year, we should you have the detail here. Is it sort of ‐‐ that's right. Okay, ‐‐ so we should end this year with close to around 200 crores for this year and next year close to around 280 odd crores.
Amnish Aggarwal, Analyst Okay. And sir how much we have done CapEx in the first nine months? We have done around 170 crores are so.
Amnish Aggarwal, Analyst Okay. And sir finally, just one thing on your biscuit's portfolio, you are present today say creams are there, then your digestive biscuits are there, but what's the position of the biscuits would be from these value added products and what proportion would now be the base Horlicks biscuit?
Ramakrishnan Subramanian, Director, Finance We are not there in the creams.
Amnish Aggarwal, Analyst But your PPT actually shows one variant right at the center.
Ramakrishnan Subramanian, Director, Finance We have in the glucose biscuit and we are into the value added biscuits of what we call as Nutribic.
Amnish Aggarwal, Analyst Okay.
Ramakrishnan Subramanian, Director, Finance Alright. So, these are on currently in the range of around 6% in terms of the value added products and balance comes in terms of the
thing. Where exactly is this?
Amnish Aggarwal, Analyst Sir, it's in..
Ramakrishnan Subramanian, Director, Finance Okay. Yeah, in fact that is, we did have a product in terms of biscuits creams and it's no longer we are selling, we have discontinued.
Amnish Aggarwal, Analyst Okay, in cookies also?
Ramakrishnan Subramanian, Director, Finance Amnish Aggarwal, Analyst Okay. But there is one cookies also shown here on the right‐hand side.
Ramakrishnan Subramanian, Director, Finance Yeah, we do have.
Amnish Aggarwal, Analyst Okay, okay, sir. Thanks.
Ramakrishnan Subramanian, Director, Finance Okay.
Operator Thank you. Next question is from the line of (inaudible) from Canara Robeco Asset Management Company. Please go ahead.
Unidentified Participant Hello, sir.
Ramakrishnan Subramanian, Director, Finance Hello.
Unidentified Participant Yeah. Just wanted to know what are ‐‐ what is the smallest SKU in a HFD category?
Ramakrishnan Subramanian, Director, Finance Smallest SKU that's a free category, is a INR5 pack.
Unidentified Participant
INR5 pack for Horlicks?
Ramakrishnan Subramanian, Director, Finance Unidentified Participant And when did we start this pack?
Ramakrishnan Subramanian, Director, Finance We started this last one year ‐‐ last one and half years.
Unidentified Participant Okay. Thank you, sir.
Ramakrishnan Subramanian, Director, Finance All right.
Operator Thank you. Next question is from the line of Pritesh Chheda from Emkay Global. Please go ahead.
Pritesh Chheda, Analyst Yeah. Hello, sir. In our MFD business, how much of the proportion of business is actually the premium meant? And you made a comment that the growth has come down in the premium category or premium meant so. If you could tell us, what the growth was and how much as it come down to?
Ramakrishnan Subramanian, Director, Finance I think the growth is to be in the range of around 30% is now come down to half.
Pritesh Chheda, Analyst So, instead of growing two extra category growth, it's now in line with the category growth?
Ramakrishnan Subramanian, Director, Finance Right, that's right. Yeah.
Pritesh Chheda, Analyst And how much is it as a proportion of MFD? Proportion of MFD meaning?
Pritesh Chheda, Analyst What is the premium end as a portion of your...?
Ramakrishnan Subramanian, Director, Finance It is a contribute around 8% to the total HFD portfolio.
Pritesh Chheda, Analyst Okay, okay. Second, the brand sale of Lucozade and Ribena by GSK, does it have any impact on the auxiliary income in India?
Ramakrishnan Subramanian, Director, Finance No.
Pritesh Chheda, Analyst Nothing, okay. And third, you made an initial comments on your gross margin expansion, wherein cost management did lead to that expansion. Anything else that you want to highlight here?
Ramakrishnan Subramanian, Director, Finance It's a continuous program, right, there we look at in terms of how do we maximize our production from excise exempted zone. We fully utilize the plan so that we get the excise benefit. We look at in terms of continuously innovating in terms of our products. We look it in terms of packaging, we look at in terms of reducing our factory conversion cost. So the combination of all these factors.
Pritesh Chheda, Analyst Okay. And in your CapEx plan, what kind of capacities are getting added vis‐a‐vis current and does it mean that incrementally that outsourced manufacturing component as a percentage of sales comes down ones your facilities go online?
Ramakrishnan Subramanian, Director, Finance See, there are two aspects here in terms of manufacturing. One is in terms of packing, other is in terms of manufacturing Horlicks. We have very, very less component in fact less than 16%‐17% is that we have an outsource arrangement. Balance everything is fair, where it's a company owned production plant.
At this point of time, we are expanding on our company owned plants and it will be the base for around 15% is what is getting added.
Pritesh Chheda, Analyst Can you add this ‐‐ add the CapEx of 480 crores?
Ramakrishnan Subramanian, Director, Finance Sorry?
Pritesh Chheda, Analyst At the CapEx spend of 480 which is 200 CY '13 and 280 crores CY '14?
Ramakrishnan Subramanian, Director, Finance Yeah. 200 is already that is happened in one of our plant called Sonepat. And in 2014, we are looking around 280 crores.
Pritesh Chheda, Analyst So this will add about 15% in capacity, that's what you want to say?
Ramakrishnan Subramanian, Director, Finance No. I would say that for 2013 we have added 15%.
Unidentified Participant 15%.
Ramakrishnan Subramanian, Director, Finance Yeah.
Pritesh Chheda, Analyst And another 280 will bring in more?
Ramakrishnan Subramanian, Director, Finance Another 280, as ‐‐ giving commission will bring in more.
Pritesh Chheda, Analyst Okay. Can you translate this into tonnages?
Ramakrishnan Subramanian, Director, Finance Yeah. We can just look at in terms of tonnages around close to around bring this to put together around 18‐30.
Pritesh Chheda, Analyst 18,000 tonnes will be added in capacity?
Ramakrishnan Subramanian, Director, Finance Yeah.
Pritesh Chheda, Analyst Put together both?
Ramakrishnan Subramanian, Director, Finance No, no each plant.
Pritesh Chheda, Analyst Each, okay, okay. Thank you very much and all the best, sir.
Ramakrishnan Subramanian, Director, Finance Thank you.
Operator
Next question is from the line of Ashish from Elara Capital . Please go ahead.
Ashish Kejriwal, Analyst Yeah. Sir just want to understand on the CapEx, the numbers that you shared is it the cash invested annually or is it the addition to the gross block this 200 and 280 crores?
Ramakrishnan Subramanian, Director, Finance This is actual capital expenditure.
Ashish Kejriwal, Analyst Okay. And ‐
Ramakrishnan Subramanian, Director, Finance Some of it will be lined in the capital working progress, some of it will get capitalized.
Ashish Kejriwal, Analyst Okay. So out of this 200 how much would be capitalized in this?
Ramakrishnan Subramanian, Director, Finance We don't have the details right now.
Ashish Kejriwal, Analyst Okay. Sir on the raw material cost, you said that you don't expect much more inflation going ahead, probably milk would be one of the factors because of it which you expect that it would remain same maybe. So is it absolute prices you are mentioning or Y‐o‐Y inflation rate will probably remain the same?
Ramakrishnan Subramanian, Director, Finance I'm talking about, now this is ‐‐ now this year is almost over, I'm talking about the inflation whatever we've seen, whatever have indicated will continue to be, that remains for transfer.
Ashish Kejriwal, Analyst Okay, fine. And anything to share on the outlook on what is the growth this quarter has been pretty good, so on the outlook can you share something how much you can do on volume growth continuous basis ?
Ramakrishnan Subramanian, Director, Finance I would think steady state around 8% ‐‐ 7% to 8% volume growth.
Ashish Kejriwal, Analyst Sure, sure. And lastly, what is the year‐to‐date price increase apart from the September price increase, anything else that we've taken this year?
Ramakrishnan Subramanian, Director, Finance
No. The September ‐‐ that's only price increase we've taken in September.
Ashish Kejriwal, Analyst Okay sir. Thanks a lot. Right.
Operator Thank you. Next question is from the line of Percy Panthaki from IIFL. Please go ahead.
Percy Panthaki, Analyst Sir. In your PPT you've mentioned that the domestic volume growth is 10%, can you also give us an idea of the domestic sales growth?
Ramakrishnan Subramanian, Director, Finance Domestic sales growth is 16%, Percy.
Percy Panthaki, Analyst 16%, okay. And just a question about next quarter, because just making the estimates for next quarter, I just notice that in Q4 of last year your EBITDA margin was very low, and at that time I think we did not have a conference call, so can you throw some light as to, was there any particular reason why Q4 EBITDA margin last year was very low and therefore should we expect some good EBITDA margin expansion this year in Q4?
Ramakrishnan Subramanian, Director, Finance I won't be able to say this Percy, in terms last year's last quarter, so why the numbers are different, while the EBITDA was low. Often, I'm not able to comment, right. But all that I can tell you that, it will be in line with this current quarter in terms of EBIT and PBT growth.
Percy Panthaki, Analyst Okay, okay. And also on gross margins just again, I wanted to understand, your gross margin is up 200 bps sequentially, that is versus the immediately preceding three months. So, basically what is the culprit in that, is it wheat or is it milk, which of these two has been the bigger mover?
Ramakrishnan Subramanian, Director, Finance Yeah. See, it's a combination of commodities and also set of few depreciation impact which is ‐‐ not depreciation, basically in terms of commodities and packing cost, there because of the commodity inflation in the third quarter has been high.
Percy Panthaki, Analyst Yeah, so sequentially versus second quarter, the inflation ‐‐ the main thing which has moved the needle for the gross margin going down 200 bps, is it the milk which has gone up sequentially or is it the wheat flour which has gone up
Ramakrishnan Subramanian, Director, Finance Yes, give me a minute. Yeah, I think see, I just look at numbers, it's to do with the base effect, in terms of, you really look at in terms of 2012, we've taken a price increase in July 2012 , where as well as this year, we have not taken any price increase.
Percy Panthaki, Analyst Okay, okay. So it is mainly the price increase which is playing rather than the cost on the gross margin?
Ramakrishnan Subramanian, Director, Finance Correct, correct, correct. And also combination of the commodity price being higher in the quarter three is also one of the reason.
Percy Panthaki, Analyst Correct, correct, but between Q2 and Q3 there has been no very sharp movement in the commodity prices, I mean, it has been very sharp?
Ramakrishnan Subramanian, Director, Finance Yeah. Yeah. Predominantly it's a price increase what has been affected in 2012.
Percy Panthaki, Analyst Understood, understood. And also one last question, I don't know whether it works this way, but the festival season has been a little earlier this year and do you think that would probably have been one of the reasons for the higher volume growth of this quarter?
Ramakrishnan Subramanian, Director, Finance I will ‐‐ I'll believe it is not.
Percy Panthaki, Analyst Okay.
Ramakrishnan Subramanian, Director, Finance Okay. So I would think this on normally all September quarter we have a strong numbers coming through. But I would think it's the strong performance while we have got a 16% kind of a domestic growth. The reported numbers is higher because of the higher exports, as I mentioned there is 50% kind of our export growth what we've got. Correct, correct. And one last question if I may. Your other expenses has always been in sort of the reasons, why sometimes your EBITDA margin surprises on the downside? So going ahead, do you think that your other expenses on a high base will also continue to grow in excess of 20% in the next one or two quarters?
Ramakrishnan Subramanian, Director, Finance I would think it should settled around 15%, 16% in line to the sales growth.
Percy Panthaki, Analyst Okay, okay. Thanks, sir. That's all from me. Thanks and all the best.
Ramakrishnan Subramanian, Director, Finance Okay.
Operator
Thank you. Next question is from the line of Binoy Jariwala from Sunidhi Securities. Please go ahead.
Mr. Binoy, your line has been unmuted. Please go ahead. There seems to be no response.
The next question is from the line of Krishnan S. from Fortune Equity Brokers. Please go ahead.
Krishnan Sambamoorthy, Analyst Yeah, hi. Thanks for taking my question. My question is regarding the balance sheet that you've voluntary disclosed for the end of September. There has been a sharp increase in trade receivables, long term advances as well as other current assets compared to December. Can you highlight the factors involved here?
Ramakrishnan Subramanian, Director, Finance See, December what we do is that we virtually bring our pipelines down significantly and so is the case in terms of receivables.
Operator Okay.
Ramakrishnan Subramanian, Director, Finance But during the course of the year beat March, June, September, we just maintain a normal pipeline. Sure.
Ramakrishnan Subramanian, Director, Finance And that is the reason as to why you find in terms of receivables, higher in September quarter compared to the December quarter.
Krishnan Sambamoorthy, Analyst Okay. And long‐term advances and other current assets?
Ramakrishnan Subramanian, Director, Finance Yeah. That's an ongoing business transaction where we're looking at in terms of acquiring some few assets, so certain capital advances has been given.
Krishnan Sambamoorthy, Analyst Okay.
Ramakrishnan Subramanian, Director, Finance Yeah.
Krishnan Sambamoorthy, Analyst Okay. Okay, thanks a lot.
Ramakrishnan Subramanian, Director, Finance
Right.
Operator Thank you. (Operator Instruction) Next question is from the line of Sheetal Bhat from Catamaran . Please go ahead. Ms. Sheetal, please go ahead with your question, your line has been un‐muted.
Sheetal Bhat, Analyst Yeah. Can you hear me?
Operator Sheetal Bhat, Analyst Thank you for taking my question. I would like to understand, if you could tell us a little bit about which SKU size drives sales for us, is it the smaller SKUs or the larger sizes in the HFD category?
Ramakrishnan Subramanian, Director, Finance Yeah. The growth is significantly higher in the smaller SKUs where I mentioned that our LUPs which is the INR5 pack and other one is INR25 pack. It's growing at the rate of around close to 35%.
Sheetal Bhat, Analyst Okay.
Ramakrishnan Subramanian, Director, Finance Right. And so obviously the lower unit pack is growing not that kind of a volume.
Sheetal Bhat, Analyst Got it, got it. And sir, would you be able to also tell us how much of our sales come from these INR5 and INR25 pack?
Ramakrishnan Subramanian, Director, Finance It's around 6% to the total HFD.
Sheetal Bhat, Analyst Got it, got it. Sir, second question, would you be able to tell us a little bit about your sales mix by rural and urban in the HFD category?
Ramakrishnan Subramanian, Director, Finance I would think that around 26%, 27% comes from rural and balance from urban.
Sheetal Bhat, Analyst Got it, got it. Thank you so much, sir.
Ramakrishnan Subramanian, Director, Finance
Right. Thank you. Next question is from the line of Sundar S from Parth Capital [ph]. Please go ahead.
Unidentified Participant Thanks for the opportunity, sir. This is continuation from the last quarter but again North and West has grown by 20% to 23% and Boost has contributed 6%, so what has been leading the group there sir, in the North and West region?
Ramakrishnan Subramanian, Director, Finance I think, I've answered this plan before, if you've not ‐‐ see the combination of three things, one in terms of increasing the distribution coverage, a good marketing campaign around the fact that Horlicks increases the power of the milk, right. And introduction of flavor, so our Chocolate Horlicks has gone phenomenally high, so combination of this factors have helped us to plan and grow North West volumes.
Unidentified Participant I'm just coming to the third factor, so the contribution of Chocolate Horlicks specifically is that, why have been Boost been able to do exactly but Chocolate Horlicks isn't been able to do, it's been during this quarter?
Ramakrishnan Subramanian, Director, Finance Sorry, come back again.
Unidentified Participant No, I said Boost with the brown proposition was always for the North and the West market. So, I presume that the North and the West increase of growth percentage will be ‐‐ Boost would be a cheap contributor to that number. So that's why I just came back to this question as to, why the Boost really not doing well when we are expanding so much when the other initiatives as going well, why is it that the Chocolate Horlicks is performing exceeding the well and not Boost?
Ramakrishnan Subramanian, Director, Finance I would think, it's a combination of in terms of what equity has got, for example Boost has got a very strong equity in South, so we did tried, is not that we ‐‐ we didn't make an effort there, we did try to kind of will be put your Boost in North and West. And very clear call was made saying that, while we make it continue to be reliable, but I think we are putting our best short in terms of Horlicks where we do believe the nutrition's credentials are better in Horlicks.
So, a campaign like this to say that which is indeed proven that it will enhance the power of milk thereby giving a better nutrition to the consumers, is reaching the consumer much better and that's the reason it's doing very well.
Whereas Boost is on an energy platform compared to Horlicks which is based on nutrition aspects.
Unidentified Participant Ramakrishnan Subramanian, Director, Finance No I think, the value proportion and the equity each geography offers in south for example, it has got both in terms of nutrition as well as the energy platform. And in North and West, where I think in terms of nutrition things seems to be doing well.
Unidentified Participant Okay. Sir just confirmation on that, what could be the AMP number, ballpark number that we are looking for the year?
Ramakrishnan Subramanian, Director, Finance We should continue to spend close to around 16% to 17%.
Unidentified Participant Okay, I mean any kind of guidance can you give on the tax rates, which you are looking at or same 33%?
Ramakrishnan Subramanian, Director, Finance Yeah, yeah, we don't have any exemptions from our income tax point of view, so the effective tax rate is 33%.
Unidentified Participant Thanks and all the best.
Ramakrishnan Subramanian, Director, Finance Thank you.
Operator Thank you. Next question is from the line of Hemanth Kabathi [ph] from Canara Robeco Asset Management Company. Please go ahead.
Unidentified Participant Sir, just a clarification, I didn't get properly, the small SKU of INR5 is growing at 35%, did you see that?
Ramakrishnan Subramanian, Director, Finance Yeah. Okay, thank you.
Ramakrishnan Subramanian, Director, Finance Right.
Operator Thank you. ().
Ramakrishnan Subramanian, Director, Finance Okay, if there is no other question, we can...
Operator Sir, there are question, sir.
Ramakrishnan Subramanian, Director, Finance Okay.
Operator
Next is Abneesh Roy from Edelweiss. Please go ahead.
Abneesh Roy, Analyst Sir, a few follow‐ups sir, I will wrap it down quickly. Sir one is as Zubair Ahmed the current M.D. Sir in a recent interview, he pointed towards the growth slowdown. So, was it the same premium product slow down which you mentioned or if you would like to add some color here?
Ramakrishnan Subramanian, Director, Finance No. It's one is premium slow up is there, but even overall HFD category, Abneesh, as again the typical 16%, 17% growth, we see the category growth has come down to 7%. Okay, that's the number which ACNSM [ph] is reporting. So, like any other category this category is also clearly showing us kind of a slowdown. But, what we see is that our efforts, our initiatives in terms of geographical expansion, higher penetration levels et cetera is helping us to kind of get a growth like this.
Abneesh Roy, Analyst Sir, how is the Iodex doing, because of some of the other companies in pain balm, they have reported very modest numbers , growth numbers. So, how is that Eno do, Iodex doing?
Ramakrishnan Subramanian, Director, Finance Iodex is doing a very good strong double digit growth, Abneesh. We are recording, so if you give a minute. Do you have that Iodex numbers here.
Abneesh Roy, Analyst Category growth number also if you can tell.
Ramakrishnan Subramanian, Director, Finance How much is the Iodex this quarter. Just give me a minute. Yeah, it's doing very well ‐‐ it is around 15%, 16% kind of growth what we seeing.
Abneesh Roy, Analyst And sir, category will be growing at much lower numbers?
Ramakrishnan Subramanian, Director, Finance I would think, because you are not seeing ‐‐ our market share has moved up only by very small percentage around 1 percentage or so. So, I would think the category must also be growing around 15%, 16%.
Abneesh Roy, Analyst Sir, in oral care, you had launched Paradontax also. So, that's also rests the queue in terms of sales commission?
Ramakrishnan Subramanian, Director, Finance Yeah, absolutely.
Abneesh Roy, Analyst How is that doing, I'm not seeing much of ads or too much presence now?
Ramakrishnan Subramanian, Director, Finance See, it is basically a product meant for gum bleeding and it's a bit of slow grind. It is doing well, it is meeting our internal standard, but you don't, I mean we can't compare that to Sensodyne, where the growth is significantly higher.
Abneesh Roy, Analyst Sir, I had asked in the previous thing, glucose biscuit, what's the thought process there, because we want to focus on more of health related et cetera and EBIT on more margins, some margin profile here will be low, right? Yeah, glucose biscuit margin profile will be low, but then it will continue to stay up initially. It's not something, while we'll try to improve the overall biscuits portfolio product prospects, but glucose, which gives us a significant volumes and value will continue to be there.
Abneesh Roy, Analyst And sir, last one the other oats player also ventured into mostly , so what's our thought of process there?
Ramakrishnan Subramanian, Director, Finance I won't be able to comment on that Abnessh.
Abneesh Roy, Analyst But you are not commenting in terms of whether we are open to it or you are not commenting whether we want to enter in the near term?
Ramakrishnan Subramanian, Director, Finance See, all the futuristic products, I won't be able to comment that what exactly our position going to be. But, what you are talking about present, a lot of interesting opportunities. And there are good pipelines ‐‐ there are good products in the pipeline which at appropriate point of time will be rolling it over.
Abneesh Roy, Analyst Right. Okay, sir. That's all from my side. Thanks.
Ramakrishnan Subramanian, Director, Finance Thank you.
Operator Thank you. Next question is from the line of S. Venkatraman from Rabo Equity Advisors. Please go ahead.
S. Venkatraman, Analyst Yeah. This question is more with respect to the instant noodles foray. What has been the overall experience and learnings and what is the way forward?
Ramakrishnan Subramanian, Director, Finance Yeah. The instant noodles, we had put this under watch because it was not making any money. So, we had on a continuous basis, we're a kind of positioning this more as a health‐related product, and we kind of we have ‐‐ we are So, while the absolute sales
numbers are not significant, but at least we are not kind of not having a problem from a profit point of view.
S. Venkatraman, Analyst Thank you, sir.
Ramakrishnan Subramanian, Director, Finance Right.
Operator Thank you. Next question is from the line of Pritesh Chheda from Emkay Global. Please go ahead.
Pritesh Chheda, Analyst Yeah. Hello, sir. Can you explain the seasonality element in the business in the December quarter, what exactly happens?
Ramakrishnan Subramanian, Director, Finance See, December quarter, what we do is basically the ‐‐ we scale down our pipeline, we bring our pipeline down, so that we have a good opening for the New Year. So that's the only change what we do. Otherwise, fundamentally there is no change per se.
Pritesh Chheda, Analyst Okay. It's to do with distribution and pipeline and stocks rather than consumer habits?
Ramakrishnan Subramanian, Director, Finance Correct. Correct.
Pritesh Chheda, Analyst Okay, okay. Thank you.
Operator Thank you. Next question is from the line of Ashish U from Elara Capital. Please go ahead. Yeah. Sir, just wanted to understand on the business auxiliary income. Would you expect this to grow at increase at this rate or any normalized number that you would be thinking that it's a better rate to?
Ramakrishnan Subramanian, Director, Finance I would think on a steady‐state this is because, Ashish, see unit products like Sensodyne which is showing a phenomenal growth, it's kind of inflating the business auxiliary income. So on a steady‐state basis, if we try to assume that, we will get a growth of around ‐‐ in this income levels around 20% kind of a growth.
Ashish U., Analyst Okay. And just want to confirm this, you said a premium part of the Horlicks portfolio is only about 8%, because premiumisation has one of the aspects for growth under the value side. So, this include everything Women's Horlicks and Horlicks Lite and everything, is it?
Ramakrishnan Subramanian, Director, Finance No, no. I'm talking about in terms of the premium range with this sales that close to around twice of the normal Horlicks range, this Women Horlicks et cetera, et cetera I'm putting the result, kind of between the normal popular to premium mid, I'd rather call to the mid‐premium.
Ashish Kejriwal, Analyst Okay. So, expect for Horlicks original, how much would be the other various product?
Ramakrishnan Subramanian, Director, Finance 20%.
Ashish Kejriwal, Analyst Okay, fine sir. I'm done with my question. Thank you.
Ramakrishnan Subramanian, Director, Finance Okay.
Operator Thank you. Next question is from the line of Aniruddh Joshi from Anand Rathi Research. Please go ahead.
Aniruddh Joshi, Analyst Ramakrishnan Subramanian, Director, Finance Yeah, so we are closing the books is going to be on 31st March so, we will be doing some time in April, May, we'll doing sometime in May. The dividends would be declared sometime in May. And what's your question on cash?
Aniruddh Joshi, Analyst What is the plan on the cash?
Ramakrishnan Subramanian, Director, Finance We are looking in terms of, as I mentioned we are going for a quite a good expansion we do required money for capital expansions. And, we continued to look for a possible M&A opportunity.
Aniruddh Joshi, Analyst Okay. Okay. Sir. Mallika, can you check for any questions?
Operator Sure. (). As there are no further questions, I now hand the conference over to Mr. Anirudh Joshi for closing comments.
Aniruddh Joshi, Analyst Thanks, Mallika. On behalf of Anand Rathi Research, we thank all the participants for being on the call. Also we thank the senior management of GlaxoSmithKline Consumer Healthcare.
Now I hand over to Mr. Ramakrishnan for his closing comments. Thanks and over to you, sir.
Ramakrishnan Subramanian, Director, Finance Thanks, Joshi. So, one more great quarter, a good profitable double digit growth both in terms of topline and bottom line. And with this we move ahead with greater confidence and hope to have this kind of performance for the next quarters to come. Thank you for your attention.
Operator Thank you very much. Ladies and gentlemen, on behalf of Anand Rathi Research that concludes this conference call. Thank you for joining us. You may now disconnect.