Honasa Consumer Limited (HONASA) Q3 2026 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Honasa Consumer Q3 F526 Earnings Conference Call, hosted by JM Financial Institutional Securities Ltd. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing start then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rajat Kukta from JM Financial. Thank you, and over to you.

Good evening, everybody. Welcome to the 3QF526 earning conference call of Honasa Consumer Limited. Today, on call, we have Mr. Varun Alak, co-founder, chairman, chief executive officer, Ms. Gertel Alak, co-founder and chief innovation officer, and Mr. Ramanpreet Sohi, chief financial officer. I now hand over the call to Mr. Varun for his opening remarks. Over to you, sir.

Hi, thank you so much, and thanks everyone for joining me. Welcome to the Q3, FY46 update for Anasa Consumer Priority Limited, and as customers, we'll start by sharing a key trend that we have been witnessing in the UK and personal care industry, which is a trend in men's skin care. We believe men's skin care is an infection driven by evolving consumer preferences. Men's grooming has been talked about for quite a long time, but we saw, at least in the last decade, largely action on the shaving or beard care side. Last two years, we've specifically been noticing a strong inclination towards skincare, which is specifically designed for men. We've seen these specifically in the search data that we track, like in a sunscreen category, consumers are specifically searching for sunscreen for men. In a face cleanser category, they're searching for face wash for men. In this form, many call-out has been increasing multi-fold over the last two to three years. We've also seen significant increase in male skin care influencers almost six times in the last five years. All of this is happening because of rapid premiumization, awareness, and evolving the self-care mindset. And this is making us feel that this is an interesting space which will get shaped and will grow very well. And this is also a space where Onasa has made an acquisition that we will talk about during the course of the presentation, which is Reginald and Maddox. But over to this quarter's financial snapshot, I'm delighted to share that we have delivered our highest ever quarterly revenue. The company has grown by 21.7% in terms of revenue growth. This is also led by volume. Our UBG is at 30% growth. It's our highest ever EBITDA, which has also substantially grown. We've almost doubled our path, which is, again, our highest ever path, and we continue to be negative on our working capital cycle. So the core engines that we have been talking about for the last three quarters are the flywheel around making our core stronger, which is mama art, that's back into teens' bio-mai growth, And continuing strength of our young brands, which are now growing at 25% plus in terms of growth, has led to us delivering this competitive marketing growth. And also, in line with the scale, as well as the effectiveness coming in our marketing, we have consistently seen improving EBITDA margin trajectory for the company, which we have been talking about and have been able to deliver. If we sort of again call out, we had mentioned this in the last. I have a quarterly meeting as well, that there is a revenue recognition impact, which has happened on account of Flipkart Group changing their revenue recognition loss, because of which there is a 28 crore impact that we are seeing. But if you also correct a basis, then the growth continues to be at a 21% level, and like to like, like this, 21.7. If you were to see hence reported numbers, we have delivered 602 crores in terms of reported revenue. Imeda is at 10.9 cents, the same 66 crores. And this revenue recognition impact has not led to any impact on bottom lines. It's just a recognition impact that we see in our revenues. And double-clicking on the business, I think from a channel perspective, what is With heartening to see now is that all All the channels are actually doing quite well. E-commerce is at a 20% plus growth. Modern Trade and GT now is also delivering 25% plus growth. These are off-take growth and secondary growth, which is a great sign of the brand traction. Our strategy of focusing on our focus categories has also clearly paid off. Our focus categories continue to grow ahead of the company's overall growth numbers at 25% plus. These are the categories which are getting 90% plus of our investments, and we continue to focus on strengthening our share in these categories. MAMAD, which is back to team's growth, it's been, it's taken some time, but focus on fundamentals has really helped us deliver this. Started with superior market-beating formulations. We have consistently been talking about how we've been increasing. We've also worked a lot on our communications to make them more aspirational to the new Gen Z consumer. And we are now back to double-digit growth, right? And we are winning in our value share as well as share among sandlers. Share among sandlers actually has moved ahead of our value share, which means that now we have We have a great job to do on our distribution front. And if you do that, that will give further growth in the offline ecosystem as well.

And as we do that, we are also building other categories like

moisturizers in offline. Our young brands of course continue to sustain their momentum. We've launched with focus on hair color, arco-logica with moisturizers and this being new categories. Dr. Sheth with premium sealer. And of course, you know, the star in this portfolio continues to be which is continuing to not only deliver strong growths, but has also achieved a double-digit EBITDA profile now in the spot. And we have entered hair care with the peptides and replacters. Our formulations have become even better with new generation 3. So, we have continued to be strong in our core categories, which is demonstrated with the searches and the sharegain that we are seeing on the brand. So, continued successful momentum on our core. Another area of focus in the last four quarters, of course, has been offline execution, where clearly our shift to direct distribution has started to pay off strongly. Our current reach has expanded. Our direct distribution contribution has expanded to almost 80% revenue contribution now. Our major distributions are healthy. And our inventory holding days are now optimized at about 30 days, which is very healthy for a complex inventory system like ours. In modern trade, also, we continue to grant reach. This is an amount of the off-takes that the brand sees and the share game that the brand is seeing. All in all, offline is in healthy shape and ready to service the brand's growth trajectory future as well. So to interrupt, renovation, and innovation, again, we have got multiple new formulations, which have delivered blind test winning performance with international leading brands and their core partitions. And we are very happy to see the performance that these products continue to deliver and what our R&D team continues to deliver. This is a continuous process, not a one-time activity. It's a muscle that we have bent, and we keep deploying these muscles to make our products even better for our consumers as we move forward. I think, you know, from a future perspective, what we talked about, we keep looking at white spaces in the landscape and keep building hypotheses around those white spaces. And sometimes we come across the brands which completely fit into those hypotheses. I think Reginald Men has been one of those brands which completely fit into our male skin care womb hypothesis, and the brand has done extremely well in the last two years of its existence. Based on a multi-man effect proposition, which men like, they don't want to get into multi-regime, but, you know, products which can do multiple things in one. Thank you. In terms of the talent that we're able to get here, but now having presence in Heisman Park, we'll actually be able to hire and attract more talent, which can help us strengthen our presence in South India.

And it also, of course, is additive to

Onasa's portfolio, where we did not have any brand that was focused on. So, all in all, I'm pretty excited about this acquisition, and I think overall, you know, we've been focusing on refreshing our playbook, right, or flywheels, so to say, and we're feeling quite confident that now the principles that we have come up with, and we start by focusing on identifying the right partition building. A product which is a blind test winner in that partition, focusing then on investing sufficiently behind that hero product, right, through the right content and media, you know, mixes, right, and providing data distribution supercharge across both e-commerce, quick commerce, as well as offline landscape, followed by, again, key. An eye open for future growth engines where we can deploy the same cycle is giving us strong confidence that we'll be able to sustainably use this cycle to deliver market-beating growth and gain share across categories of our interests as we move forward. Of course, we continue to build purposeful brands which not only grow but also contribute to the society. Mama Earth has now planted over a million trees. On its birthday, this year, we ran anti-smog guns across NCR to help reduce pollution, and Dermaco continues to educate children through science classes and science labs that we set up. We have touched almost 40,000 students' lives, and We Blunt continues to certify women in haircare and styling over 15,000. Aqualogica is providing fresh water to rural households by deploying new plants where we can get access to fresh water, and Dr. Sheth, you know, is running health check-up camps, and now almost 45,000 plus individuals touched by this. So, all in all, our hands grow, and the contribution to community. And that's what we would like to sign off with, and we're more than happy to answer the questions that you have.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We'll take our first question from the line of Abneesh Roy from Novama. Please go ahead.

Thanks. My first question is in sunscreen, we have seen the market leader become a bit more aggressive past few months. How has been the market share? And I'm asking about the real market share in your sense, not the official third-party market share data because that may not give the true picture many times. What is the sense on how is the market share shaping up in sunscreen?

Hi. So, honestly, there is no other indicator of market share that we get for online. The only place that we get is from Nielsen, which is offline, and honestly, we believe 60 to 70% of the market lies in online. We did get a Euromonitor indication last year, which has declared that Dermaco is now the number one sunscreen brand in the country, ahead of the legacy branch. So that's one external piece of data, which is based on external interviews that we have. Otherwise, our brands continue to be strong, our brands continue to be best-seller across sort of, you know, platforms, you know, and are focused on using multiple brands to win in the sunscreen portfolio, where we have something in Actives, in Dermaco, in Hydration, in Acologica, in Naturals, with Mama, it continues to be an area which is delivering well for us. So, thanks.

My last question is, it was a strong quarter for you, and even your core brand of Mama Earth has seen good growth come back. Your distribution expansion also has been quite decent. So, my question is, how do you see coming quarters, this kind of a good uptrend will continue, or there was some kind of a one-off, any GSP kind of a positive impact you saw overall in the quarter?

So, we're feeling quite confident that our flywheel and our fundamentals have started to clearly deliver in terms of strong outcomes for the company, both in terms of top line and bottom line. We are very confident that this trend of delivering strong growth and continuing to improve on our margin profile year-on-year is something that will continue. And we don't think it's one of these impact. It's actually share gain that we have seen that we've also shared. So, if it was not share gain driven, then one could have said all types are, you know, everyone's rising, but we have seen strong share gains in our core categories, which clearly points to the fact that we have done significantly better than other brands, which is why this has happened. And the playbook and investment sort of, you know, playbook that we have built around media and content continues to become even better. So I think we're feeling quite confident on being able to continue this project.

Thank you. Thank you.

Next question is from the line of Vivek Maheshwari from Jefferies. Please go ahead.

Hi, good evening, Varun and team. A few questions. So first, continuing with the earlier one. So, you know, team's growth in case of Vama Earth, basically you are saying this is something that we can, let's say we can build for the next, let's say for the next five quarters until F527 end.

Vivek, that's going to be our plan, and we are feeling confident that we should be able to deliver the same. There is so much opportunity, like I said, in terms of just the gap between share among candlers and market share, and hence the potential distribution gain that we can do, as well as the brand now strengthening, So, I think we are feeling confident that we should be able to continue with this momentum. Good morning.

Got it. Interesting. And, you know, for the last few quarters, and more specifically, this quarter, you have been, you know, highlighting and talking a lot about your distribution, right?

Now, Warren, historically, you know, there has been a curve that you have followed.

And again, I'm just, you know, putting some, let's say, random numbers, so to speak. But let's say, if at 500 crores, you started going online, and you thought that you will go online, do you think that milestone or that threshold comes down because your distribution network is So, therefore, you know, you don't necessarily have to wait for 500 close. You can start early and if so, what does that imply for the growth primes?

To be honest, I don't think that milestone has changed significantly. What I can qualify is that it's not a brand size milestone, but more of a category into brand milestone, right? So, I mean, if you are in a category and you become a sizable share within that category, even if you're not 500 crores, but let's say if you're in sunscreen and you become 200 crores just in sunscreen online, then also you have the right to go into offline. But the offline play for brands in our mind is not just about distribution. It's also about pull. And only when you reach a certain scale in online that you see that natural pull in offline, because of which you are able to then execute better. I mean, now when Dermaco was taken offline, actually, our retail margins in Dermaco are lower than what the retail margins in MAMAC are, because it has gone offline when we have already established MAMAC, and the Dermaco pull was also established. So, it allows you to build the brand more effectively, as well as it allows you to build more confidence amongst retailers. So, in my mind, those benchmarks haven't changed. In fact, in future, those benchmarks might go up because the online market itself is expanding. And what you can achieve in online in terms of benchmarks, every three to five years, that benchmark itself will keep increasing.

Wow, that's interesting, Goran, because I thought, you know, the entire thing about traditional FNCG companies always was that, you know, there is a massive pull, let's say, for their hero brands and products, which is significant to the overall revenues. And then, you know, they will push, you know, or the new brands will ride on the pull factor. So there is a pull and then you have a push. I would have imagined with Mama Earth also having so much pull, you could have probably accelerated that migration or that duality, but you don't think that's going to be the case. Because, just really because your distribution quality and scale has gone up.

Yeah, if we want, we can put it in stores. But that doesn't really help. Today's consumer has got multiple sort of choices in every category. I mean, 10 to 15 years ago, also, that phenomenon wasn't as diverse. And they largely know what they want to buy. So just because the brand is available in stores doesn't give the brand a right to, you know, win in offline. In our view, brands will win, then they can create a traction and pull. And that takes its own journey. If you've not been able to establish it in online, then ideally one shouldn't extend it offline because you will just create high STRs for the brand. And in general, your retainers and distributors' capital will get stuck in wrong kind of inventory, which is not moving, which will not allow you to put the right kind of inventory, which can move fast. So, we are being very choiceful, and we are taking care of the fact that there should be high-velocity SKUs which should be put into GT. And even in Damako, it's only, you know, set of 20 SKUs that we've taken into offline, which are the highest-velocity SKUs. So, I think that's our philosophy. We will continue to execute like that.

Got it. And last question, which has two parts, both from a top line and margin perspective. And I'm sure you will say that markets have always been competitive. But, you know, when we talk to the traditional legacy FMCG companies, I think there is a renewed focus and impact us to drive growth in online because of e-commerce and, you know, whatever is happening on the landscape. So, two parts. One is how do you think about the entire competitive density from your growth perspective as well as from a margin standpoint because, you know, a lot of companies are happy to spend much more to drive growth. So, can you just, you know, talk about both these aspects?

Good morning. I'm happy to address that, Vic. I mean, honestly, this focus change and aggression has been there for now six plus quarters, I think, where it was clearly recognized and a lot of folks restructured and clearly announced their focus to build this and also have used multiple levers, including deep discounting, et cetera, in these channels to, you know, drive sales. And in spite of that, we have seen our trajectories only improving, you know, as we also build the organization, I think our DNA and the fact that we are digital first, right, our understanding of Gen Z content engines and the way the organization is tuned towards that will always provide an edge in terms of us being able to be faster in terms of And we're feeling confident that if we could, you know, ride the aggression which has been there in the last one year, even if it goes up, I don't think anything is going to stop our kinds of performance. We'll continue to find ways to ensure that we are ahead of the curve.

Thank you. Thank you.

Next question is from the line of Percy from IIFL. Please go ahead.

Hi, Varun and team. Congrats on a great set of numbers. I just wanted to sort of zoom in into the margin delivery. So, the margin has come at the cost of some cut in the ad spend and even other expenditure is on the lower side. Just wanted to understand, is there any quarterly phasing issue or whatever reductions that we have seen are sort of structural in nature and likely to continue?

Hi, Parsi. So, I think I've always called out that there are three key buckets from which the company will see EBITDA expansion happening both in short and in long term. Those buckets are ANP leverage, those buckets are, you know, payroll leverage and other OPEX leverage, you know, and the combination and contribution from these three might vary in different years, but these are the three key buckets that we know our leverage will come from. Even this quarter, if you look at just the A&P part, actually value A&P sequentially has gone up. And hence, it's not a reduction. We continue to be strong, continue to be fully funding our brand and marketing plans. But we've become more effective. The same plans focused on certain core categories consistently and focused on sharper media and messaging And are now delivering much better outcomes, right, because of which the percentage is going down. Of course, there are quarter to quarter phasing pieces also which continue to sort of exist, but I wouldn't honestly worry them because if there is phasing in one, in the other buckets, you can see that sort of, you know, benefit that can come in. But all in all, I think that trajectory of A&P in value actually increasing everywhere, But still, you know, giving us leverage benefits in percentage, right, is something that we are confident will keep happening as well as the combination of payroll and other OPEX, right, sometimes because of others and sometimes because of payroll will continue to give us that benefit year-on-year, right, is how we see that.

And how do we look at margins going forward? Like in FY27 on a full year basis, should we like look at 100 basis points, YOY expansion every year for next two, three years? Is that like a fair expectation for us to have?

Yes, Parsi, that's a fair expectation. That's the plan that we have talked about in the past as well, that every year our goal will be to improve the margin profile by 100 basis points.

Got it. Second question is on the newer brand. So, we know that Dermaco is doing very well. Can you give some information on Aqualogica? Is that doing equally well? Are the growth rates similar, lower, higher, etc.? And also related question is that now that we have the ME portfolio back on track, on growth, what could be the next Dermaco or Aqualogica? We have now three brands which probably constitute 90-95% of our sales, and while there is still scope for growth in Dermaco and Ecologica, we obviously have to build ahead of time. So, what can be the fourth pillar apart from these three brands where you can see some initial signs of success or which you think can sort of become big or drive growth over the next two, three years where you have confidence?

Firstly, on the first part of the question, I think we always talk about our young brands together. So, the young brands have delivered 25% plus groups, and we continue to be very bullish on the future of our younger brands. And from a perspective of what would be the next rising star, honestly, it's a race to be the next rising star. I mean, Reginald can itself be a 500 crore brand in the next four to five years that we require. Dr. Sheth has a very strong sort of right to win, like the Italians and actors as well. Be blunt, in professional hair care can become, you know, a sizable opportunity, stays with a young brand, but is playing in a color cosmetics business, which itself is a very large strategy and could also be a saving star. So I think in our view, there is a race to become a whole product of 500 crores, and we would like to see that happen.

I'm sorry, you're sounding muffled.

Yeah, better now. Is it better? Yeah. So, Varun, while I can understand you don't want to give the numbers separately for Aqualogica, Dermaco, etc., and I'm not asking for that, just want some kind of reassurance that Aqualogica is also performing sort of well and is in line with whatever targets that you had put in, or is it sort of falling short of them?

By its own plan.

Okay. Okay. Got it. That's all from me. Thanks and all the best.

Thank you. Next question is from the line of Vidisha Shait from Ambit Capital. Please go ahead.

Yes, hi. A couple of questions have been answered. Just one more in case of Mama Earth. We've spoken on product superiority and sharpened investments driving back growth from mid-team. But to understand the impact from these interventions, is it also possible to share any further color on as to how has the cohort retention or repeat rates or, say, productivity and distributor level changed for whichever channel available?

I think, you know, when you see this kind of growth, which is happening across channels, and it's not just happening in primaries, but in optics in modern trade, in AC News and captured share, in securities in general trade, across e-commerce, it just points to the overall consumer franchise becoming stronger for the brand. I don't think we're at this size and scale, we're looking at, you know, numbers like, you know, rate of cohort, et cetera, because that becomes too small. And at young PMF level, it makes sense to sort of do that. Overall, brand love, affinity, consumer feedback data, NPS, everything is moving in the positive direction. Our spawned Tom on the branch is also moving in a positive direction. So all of that is put together, making us feel confident that the actions that we have taken and which we continue to apply on the branch are in the right direction.

So, and the second bit, too, is in continuation to the earlier participants' question on the other brands. So, do you think that there are further interventions in terms of either innovation or brand repositioning which are required for upcoming brands like Apologica, Dr. Schiltz, or Vbrand?

So, honestly, you know, every three to four years, we look at our brands, right, and we re-look at the positioning from the future TG perspective. And we've done that on MAMA twice now in terms of packaging and communication launch. And we have done that on Dermaco once already in its life of six years. And similarly, Acologica, actually, you know, we've already done a lot of work, right, to make it more appealing to Gen D and Gen Alpha, and there is a new refresh, which is coming up in the summer season. Similarly, Dr. Shait will also see that journey. I mean, honestly, that's a continuous exercise that we will do on our branch to make them more relevant and exciting to the new generation. So I think we would see continuous action across brand sales.

Thank you. Before we take the next question, we would like to remind participants to ask a question, please press star and one on your phone. Next question is from the line of Nihal Mahesham from HSBC. Please go ahead.

Oh, yes. Nihal? Hi, am I audible?

Yes, can you speak a bit louder, please?

Hello.

Yes, Nihal, please go ahead. Nihal, we can't hear you.

I'll just come back. There's an issue.

My name is Radhika. We can hear you now. Please go ahead.

Sorry for that. Hi, Varun. My first question was just again asking on the margin bit. I do understand you mentioned about three levers of optimization and on the advertising bit, it is absolutely clear in terms of the focus of the book that you've been mentioning. Just if you could just dive down on the other expenses, but just for an understanding perspective that what are the initiatives you are taking and also on the gross margin side. I'm not sure if I've adjusted for, you know, the reporting change of last year, but I do see that this quarter there has been a bit of a contraction. If Raman could just highlight that, what is maybe the reason why the gross margins have adjusted and what are the initiatives you're taking on the X of advertising side to keep margins improving.

Yeah, so actually, if you look at life on a life-for-life basis, a gross margin is the irony of flat. And I think this is in line with our gross margin guidance that, you know, we will continue to sort of look at 70% and 70% plus range. And of course, there are other factors in gross margin, which is category mix, season category mix, brand mixes. And of course, you know, so that's one piece on the gross margin side. I think on to other question on other expenses, I think largely other expenses are global in two parts. One is, large part of it is our supply chain distribution. And then there are, of course, typical fixed overheads, admin, and process-related expenses. So, when we see other expenses as a percentage are improving, there are two levers there, one, of course, given the scale of the business, eventually year and year has increased, I think that's leading to leverage in our fixed overheads. And, of course, as we become larger, you know, and also as certain channels like B2B offline channels become larger, you know, supply chain mix is also improving, that's also leading to better other expenses as a percentage. So I think those are the two large levers. And as we mentioned, as we continue to sort of scale, I mean, we continue to dive some efficiencies across some of these levers.

Got that. And this improvement of 100 bps that you are targeting, most of it will be given by the optimization and advertising spend. Is that the better way to think about it or just other comments around it?

Well, actually, it's a mix, right? I mean, some years it might be skewed towards NP, another year it might be... But the combination of that, you know, should help us achieve the goals that we set for ourselves.

About that. One of the last questions was that over the course of the last few months with the two acquisitions that you've done, potentially, we are now having a business which has eight brands. I know there is a big skew of how much Mama Earth and Dermaco contribute. But just as an organization, somewhere, you know, the thought would also come in that how do you then give the focus to each of these brands so that they all scale up? There is obviously a discussion happening about how the brands X of Mama Earth and Derma are also scaling up. But how do then we keep our focus to see to it that, you know, all these brands get the right element of growth. And given the fact that even Mama Earth at this point in time is in the midst of a transition where you're more or less done with the offline strategy, but still there is an effort that is required to get that in place. So how are we sort of aligning to get the focus right given we now have such a wide portfolio of brands already in place?

I think we would want to keep our goal in front of us. You know, make sure that we construct and structure the organization to achieve that goal, you know, rather than, you know, keeping our current situation in place and set our goals accordingly. So I think that's our thinking. And in line with that, if we want to make sure we reach our long-term goals of becoming the largest and most loved BPC country, FMCG in India, we really need to make sure every category, every proposition, you know, We have a brand that's actually a market leader, right? And to get to that, whatever organization structure will help us serve that is what we will build, right? And which is where there is separate ownership of each brand, right, of each channel, you know, which exists within the company, right? Where someone is losing their sleep over their own, you know, part and partitions, right? And that's what we would like to sort of, you know, because our long-term goals are pretty hefty and we wouldn't want to shortchange them based on where we are. Thank you.

Thank you. Next question is from the line of Pratik from Bandhan AMC. Please go ahead.

Yeah, I have three questions. One is, just on Mamat, could you confirm that the 10% growth is also coming from, let's say, the same distributors also growing, and the penetration-led growth is in addition to that? Is that a fair understanding?

Yes, actually, I mean, 90% plus of the growth is from all current distributors only. It is not because of new distributor appointment. It is all on the back of the top 100 cities where we have our distributors in place. Especially in GT. And then, of course, in modern trade, it is on account of the same large customers like Reliance, D-Mart, Apollo, which continue to exist, right? And we're gaining share within those customers. And same as with e-com, actually, it's not. In Utah, it's the same customers which have existed.

That's all repeats, right, Varun? That's a fair understanding, right? Most of it, 90% of it is repeated.

Repeats in the sense that, you know, I mean, we are, of course, getting new consumers to buy us. I meant, yeah, yeah, yeah. Yeah.

The second question was, look, on a sequential basis, the employee cost, although you talked about employee cost being a leverage item, on a sequential basis and maybe short term, employee cost has risen very sharply. Any one-offs to call out for, or that's the steady state run risk.

Yeah, I think I'm on the side. So, I think, you know, the... It's higher sequentially, primarily because you actually had to do a ESOP provisioning, and it's basically, you know, there is a larger leadership ESOP pool, you know, and there's a certain milestones aligned, and we had to pre-pone a milestone this year, and the allocation of that is actually in H2 rather than H1, given the visibility of a certain milestone internally. So, that's why it's showing on the higher side. It will be similar, broadly similar in H2 and then, of course, after that, it will move back to the normal levels.

So, the entire delta is coming from ESOP cost, is it? About close to 100.

The entire delta, some part of it is because of ESOP cost, some part of it, again, because of the better than planned performance of the enhanced variable also that we see happening because people have done better. And we could see the visibility of that only towards now, so we've taken that in Q3 and Q3.

And last question, if I see a focus brand, they've grown at 25%, whereas overall sales have been slightly lower, right? What's the share of non-focus categories, sorry, not brands, non-focus categories now as a percentage of sales?

It's still at 25% for the company. So, 75% is focus categories and 25% is non-focus categories.

So, despite being non-focus, it looks like they're still maintaining space with the overall growth, is it? That's why the share is not moving a lot.

In the sense, it has gone up from a contribution perspective, but yes, the non-focused categories are growing much lower relatively compared to the focus categories, right? And we see that to be the phenomena. The contribution over the year has come down by 500 basis points for the non-focused categories, which is something that we expect every year to move potentially.

And in the next two, three years, does this become quite immaterial for the company in the sense, is it a fair understanding that in the next three years, focus categories kind of become like 90-95% of the business?

I mean, honestly, with the current pace of contribution increase, we expect it to get to about 85 to 87% over the next three years.

Thank you.

Thank you.

Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone. The next question is from the line of Sukrit D. Patan from iSight Pintrade. Please go ahead.

Good evening to the team. I have two questions. My first question to Mr. Varun is, as Honatha continues to expand across categories and geographies, what will be the key priorities under your long-term and short-term goals? How do you see the balance between scaling new brands, deepening distribution, and sustaining profitability evolving over the next few quarters? That's the first question. I'll ask my second question after this. Thank you.

You've, uh, um, you've just, uh, um, um... Just elucidated on my business plan, those are the three priorities that we continue to have, which is continue to make sure our core mammoth grows in double digits, continue to make sure our young brands deliver market-beating performance and build new categories, which can be future engines of growth for them, and continue to make sure our distribution, be it online or offline, is excellent and builds base for our brands to grow. I think we will need to balance all three together to make sure that growth and profitability both fall in line for the company, and we're quite confident in our team's ability to do so.

My second question to Mr. Sohi is, as the company plans forward, what financial guardrails will guide your decision on cost discipline, capital allocation, and margin protection? How will these particular set of guidance influence the long-term and short-term earning stability and create shareholder value? I want to understand your plan of action on this particular thing. Thank you.

Yeah, sure. Thank you. So, I think, like Varun mentioned, I think the focus is to ensure that we continue to deliver a market between. And given our cross-margin profile that we have, as we continue to scale the business, improve our distribution metrics, and deliver that, I think every year we will continue to unlock certain margins in the business, which we spoke about. I think our endeavor is to unlock at least 100 BIPs every year. With a mix of both A&P and overheads, I think that will ensure that we continue to improve and deliver the right value to our stakeholders and deliver the right profit growth as we sort of move along in building this spot. Thank you, and best wishes.

Thank you. Next question is from the line of Akshay Krishnan from ICSA Securities. Please go ahead.

Hi, team. Good performance and great set of numbers. So, I just wanted to understand on the competitive intensity. So, over the last two, three years, we've been seeing that the science-led and the active-based positioning has becoming more of a mainstream among the peers and the large FMC peers. So as you scale deeper into an offline and become more an omni-channel brand, how do you see the competitive game shifting on an agility-led disruption to scale and then distribution-led competition? So I just want to understand how is your strategy evolving in this context?

Oh, I'm so sorry. I did not understand the question completely.

I just want to understand like you've been, now you're scaling more into an offline, and I just want to understand how the competitive intensity is shifting on the agility-led distribution to scale and the distribution-led competition. So what is strategy on this context on this?

So, I think firstly, our offline and online both continue to grow strongly and deliver 20% plus growth for us. So, it's not one or the other, but both are channels that we want to win it. In one case, which is online, we're strong. We need to continue to hold and gain shares. In other case, there is opportunity to just build a distribution and be present in more updates, which we are doubling down on. And hence, we are largely looking at the opportunity and not the challenges as much because the opportunity seems to be so big that, you know, that's what energizes and excites us.

Because since you, I just wanted to double click on this because you have this early mover advantage and it's a bit more towards on a margin or a volume profile. So that's why I just wanted to double click on this.

No, of course, you know, in general, as a system, our margins are better than the legacy competition, and our pull is better than, you know, the younger DTC brands, and I think that combination is helping us grow fast and gain share in offline, both general trade and modern trade, and we will continue to use that to our advantage to deliver competitive. Perfect, perfect.

The second thing is on the other brands. Now, with Mama Earth also stabilizing and Dermaco also scaling up strongly, the younger brands are growing up and with new initiatives like the Prestige and Oral Beauty. Now, how are you internally practicing the capital and the management bandwidth to ensure that the focus doesn't get diluted across much and you have the growth levers of the engine coming up?

Well, I think firstly, it's important to structure yourself right, right, where there are clear accountabilities, and that's an area where we continue to work on. Every year, we have new learnings around how can we structure better to give focus and impetus to our areas of growth. So, management bandwidth actually goes firstly into the right organization design. Because if you can design right and put the right people into that design, then, you know, the design gets scared of the outcome. And that is what we spend a lot of our management bandwidth on. Investment allocation is more based on the chessboard. I mean, there are years where there might be tailwinds in a certain category or a certain type of proposition or a brand where you would want to use those tailwinds and gain disproportionately. So that's the decision that you would take. So that depends more on some of those externalities as well, based on which we take active decisions on allocation.

Okay, okay. And one final, if I can squeeze in. So now with Mama expanding deeper into the GT and also the chemist channel, how do you preserve the brand premium? So while you scale up, on a long-term perspective, do you intend to be a mass-penetrated brand or structurally move up on the value chain? So I didn't want to understand the unit economics into this.

So, we've maintained and we'll continue to maintain, you know, brand premium versus mass brands. That brand premium is visible in the PTML of our pricing in the market. And it is also visible in the fact that we do not participate in the FMCG-defined LUP spaces, Right, which is the less than 20 rupee price point kind of spaces. Access into Mama really starts from 100 rupee onwards, which is why there is that aspirationality maintained. It might limit the expansion opportunity that we'll have from a gross general perspective, but our long-term view is that premiumization is going to be a mega trend in the country. And brands which are able to hold aspiration will be able to gain much better share in long term.

Perfect. And good luck in all this. Thank you. Thank you.

Thank you. Next question is from the line of Jai Prakash from Accela Advisory Services, LLP. Please go ahead.

Hello. Congratulations on the good set of numbers. So, I wanted to understand, in increasingly competitive categories like sunscreen, some brands rely on indirect or ecosystem-driven narratives rather than direct-branded communication. How does the company ensure that any extended marketing ecosystem agencies, affiliates, or influencers operates within a defined compliance and reputational REST framework?

There are clear guidelines, briefs, which are in line with the ASCII guidelines that at least, you know, our company works on, whereby every brief issue has clear guidelines which are provided. Everyone who we work with, aware of those guidelines, and we haven't been flagged by the agency also on any such violations. So I think, you know, the content that we are at least doing must be in line with those guidelines, which is why we're not both. And then we continue Thank you to absolutely follow.

Okay, okay. So, there are oversight mechanisms within the company to monitor that, right?

Absolutely.

Just another question. Can you break down what percentage of sunscreen growth is organic versus repeat, organic repeat versus influencer driven first-time conversion?

We don't track that.

Okay, so HUL is acquiring new-age companies like Oziva and Minimalist, so does that possess a threat for the business going forward? On their business or our business? On your business, as those traditional businesses are modernizing very rapidly and they have all the guns out there to pay it, right?

No, honestly, we have always had competitive threats in the past as well. We, you know, were born in a category where there were much larger competitors than ours when we launched Mama Art. And hence, competition is not new to us. But we have always also taken a stand that it doesn't sort of give you any joy or delta by focusing on competition. The real value gets created when you focus on the consumer and where the consumer is moving in terms of their preferences, be it product preferences, be it communication preferences, be it media preferences or distribution preferences. And I think for us, That's been a core focus area, and I think we will continue to focus on that, and we'll rely on the fact that if we focus on that, consumers will reward us with choosing our brands.

Okay, thank you.

Thank you. Ladies and gentlemen, to ask a question, please press start and run on your phone now. As there are no further questions from the participants, I now hand over the call to the management for closing comments. Over to you.

Thank you. Thank you so much for asking these questions. It's always refreshing to hear you. We continue to, as a team, execute our strategies to the health. We are very confident that we will continue to delight you as we get into this year as well. Thank you so much.

Thank you. On behalf of JM Financial Institutional Securities Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.