With unorganised incense stick players losing share and encouraging response to new products such as the Gold Flash liquid vaporisers.
While sharp sales drop for the unorganised segment during Covid is a positive for the firm, the Street will keep an eye out on growth metrics of the category, which has grown just 1 per cent over FY16-20.
The weakness in HI was, however, offset by the strong performance in the health and hygiene segment — soaps grew 18 per cent aided by price hikes. The growth comes after four quarters of falling sales YoY. After a 17-23 per cent fall in the last two quarters, the company was able to restrict the drop in the hair colour segment to 5 per cent. Analysts believe it will take time for discretionary products to see a consistent uptick in sales.
Growth variance is also visible in the international business, which accounts for 44 per cent of revenues. Its biggest market, Africa, saw 10 per cent growth in Q2 after five consecutive quarters of decline. Even as Africa rebounded, growth in Indonesia was lower than expected because of social restrictions in September and destocking by dealers.
While operating profit margins expanded, led by lower advertising spends and operating leverage, this could be difficult to maintain given rising raw material costs and increase in promotional spends going ahead. The extent of price hikes and sales growth could decide the margin trajectory in the coming quarters.
Analysts at Emkay Research have a ‘hold’ rating on the stock given that growth is not as steady as its peers’. While the Africa turnaround is positive, volatility in HI and weak outlook in Indonesia along with rising input price inflation are keeping them neutral on the stock, they add.