Wanted to understand your view on margins, given that you indicated that the RM costs are going up, fuel costs have gone up, Ad spends also, you had indicated that you were stepping it up after you've come in. How much material step-up that you are indicating on ad spends - any percentage growth or percentage of sales? And how should one think about the pressure on the margins because of the RM and fuel cost?
So let me answer the second part first. So the inflation on LPG was very real and the price inflation in the month of April and May and Venkat can confirm, really went up about 2.5x, that has come down. From an index point of view, it is at about 1.5x, but it is still far more than what we had in February. Now how does this play out going ahead? We don't know. Currently, it is at an index of 1.5x. If it remains there, obviously, it is something which is affecting us. At the same time, you can see that the input price of sugar, and we use a substantial amount of sugar, and the input price of palm oil has also gone up. Palm oil is at close to INR 140 and the increase in palm oil is also upwards of 20%. So from a commodity inflation, the reality is that it is there to stay, and we have to use that to manufacture. Although I think compared to other manufacturers, our ability to buy and hedge and manage the forward is better. But the fact is this inflation is a reality. But we also know that these are cycles, and this is also accelerated because of events which are beyond anybody's control. So you should not hold it on to the P&L like a permanent phenomenon. So this at some time will definitely correct. On the ad spending, yes, we have upped our spending, but I think that's also because I think last year and the year before on the base, we had kind of reduced our spending. So what we are spending is, I think, the correct amount, which we have now gone back to. I wouldn't want to give a number in terms of percentage of what we are doing. But yes, our spends on brand building are ahead of sales growth, definitely is what I can tell you. And I think what we can already see as a result of better investment in media over the last 7, 8 months is that many of our brand tracking health parameters in terms of recall, most often used brands, are showing an uptick. So investing in those is absolutely important. We understand that these are there. And like we said, we are committed to deliver top line growth along with healthy sustainable margins, and that is what we will target to do.
Britannia always aspire to be a total food company. So any thoughts around new category introduction, any thoughts around M&A? Also, if you can share your thoughts around -- in the past, we have tried out Salty Snacks & Protein Bar launch?
So if you go back to the slide, which talks about our strategic priorities, you will see on the third pillar, we are talking about future platforms. And I think in one of the earlier calls, I had shared that how we will develop a strong platform also for health and wellness and also for -- to leverage the adjacencies that we have. So that obviously remains. There is work at an internal level happening in the company. And the company is extremely committed and serious to expand its portfolio beyond the kind of bakery products that we have today. So you have to wait and watch. The company is committed and internal teams are already working on that.
Which states are performing better than your internal expectation and which ones are still lagging behind? Secondly, what percentage of the sales from the new launches come as a percentage of total sales for biscuit?
So I'm not going to get into state-wise details, but we are seeing healthy growth across many, many states. And obviously, there are certain states which are doing extremely well. There are some states which are a bit behind, but there is no state which is behind in the sense that it is not growing. So I think it is for us to help drive the states which have the momentum even faster and how do we start to get healthy growth in states which are growing slowly. Bihar, as you specifically pointed out, is a very strong market for us. And yes, we continue to do well there. In Bihar, we also launched the variant of Marie, which is called Doodh Marie focused on those markets, which has all got a very healthy response. On new launches composition of sales, that is more or less the same.
As we focus on driving portfolio diversification and demand environment is remaining healthy, do you see for the full year FY '27, an ability to grow operating profit or EBITDA ahead of sales growth similar to what we saw in 1Q? And the second bit, just a bookkeeping, if you could kind of share what was the volume growth in 1Q?
So the answer to the first question is that while the demand environment is strong, I think it's only 1 quarter which has gone by, and we see that the trend is good. Whether this holds good for the rest of the year, we will have to see. But internally, the team is very confident that the plans that we have and the focus that we have and the momentum that we have is taking us in the right direction. Now if there are uncertain events which happen, which are not under our control, I won't be able to comment on that. But as a business, we are confident of looking at a good year. So the volume growth that we had for the quarter was close to 9%, which in any respect is a good volume growth. Now how do we define a good year? If we believe that the year is good, it would mean that our triangle, as we say, virtuous triangle of volume, value and profitability should all fall in a healthy range as we have been doing in the past. One should not overtake the other. So while we will deliver volume value, but we should also deliver the margin, not at the cost of one.
How are you thinking about high-protein products? Any update on ready-to-drink protein drinks, which you are evaluating? Also, you have a large dairy business. Would you explore new areas such as whey protein, greek yogurt, high-protein milk?
So Kunal, when we talked about future platforms on health, so protein is a part of the health platform. And we believe that if we have to address these problems and opportunities, we have to address them at a platform level and not a single product level. So you will see in the near coming future how we address them at a platform level. And protein is an important platform, which will get covered.
Healthy snacking has become talked about for a while and the regulatory direction off late seems to be kind of going in that direction. When you look at our portfolio through the lens of both relevance to the consumer and also the regulatory risk, how do you assess? And what path and how fast do you think we'll have to take to kind of derisk from that angle?
So Tejash, I think in my very first analyst call 6 months back, I had indicated that creating the future platform of health and wellness is absolutely important. So let me make a few observations on that. Number one is that the demand for regular products, indulgent products and tasty products will also keep growing because there is a huge gap in the market and our per capita consumption is still very low. So you can't discount the fact that the routine cookies, biscuits and cakes that we talk about are not going to go out of fashion anytime soon. In fact, there is enough moat for growth there. At the same time, the reality is that the awareness at the consumer level in terms of healthy consumption is growing by leaps and bounds. There are multiple channels by which he's informed. And I think Britannia is committed to develop a portfolio to be able to address that in a very smart and agile manner and in a very fruitful manner where it addresses those consumers in a very specific way as we are a snacking company. So there is work which is happening there. But we believe that both these portfolios, the health-based portfolio will grow parallelly and we will have to develop a franchise which adopts that. But at the same time, the core portfolio that we sell and the more indulgent and premiumization portfolio that we will develop also will keep growing. So we will have to work on both those tracks.
On distribution. Are there any specific initiatives that you plan in the medium term? Where do you see us under-indexed today on that front?
See, if you take a look at what are the channels we operate in, we operate in e-commerce, we operate in modern trade, we operate in alternate channels, we operate in GT. We are doing well in all of them. Yes, and we also operate in institutional channels like CSD, etc. If we look at it internally, yes, we are under-indexed in some of them where we need to improve. If we look at ourselves compared to market, we are actually strong in all the channels. So I think it is for us to internally focus where we believe there is opportunity. We believe that there are opportunities in General Trade also. I think instead of looking purely at numerical distribution, the share of handlers that we can develop, the kind of visibility that we can develop in General Trade, the relative dominance that we can improve. I think it's more important for us to look at it holistically in terms of how do I make myself more effective in the channels where I operate is the question. And we are working on that. Even for example, modern trade is expensive. So we'll be careful that we want to grow at modern trade, but we don't want to grow by diluting our margins. We want -- you will have to spend, but then we want to make the money that we need to make for modern trade also. So those choices are there. But I think internally, we know where to work. But at a competitive market level, I think Britannia's position in all those segments is very strong compared to the market.
Wanted to understand the comment on the quarter ending with mid-teens growth. What is driving this shift? Was it the dual pricing issue that is getting addressed or is it completely addressed that is aiding this? Or was there a weak base in June or any kind of a quarter-end filling that is driving this? Or it's just genuine volume growth that you are seeing coming back as you had indicated? And can this volume growth sustain?
Firstly, I would want to clarify that Britannia is a very disciplined sales system, and we largely do sell-in based on sell-out. So a question like quarter building actually does not arise in our company. So we don't do loading. Secondly, yes, if you recall in the last analyst call, we did indicate that there was a bit of disruption in the rural channels and in wholesale because of the dual pricing, which was reducing. And we saw that the impact of dual pricing was there to a certain extent in April and maybe marginally in the first half of May, but that actually kind of came to an end in the month of June. So your question that what is the reason for June being a double-digit good month, there are 2 answers to it - that yes, the elimination of the dual pricing logically brought back some of the buyers or some of the smaller retailers who were buying on a temporary basis, some other brands. But secondly, we also saw that demand is holding up. So it was a question of organic demand coming from the ground, which was holding up and also for this discrepancy, which was happening because of dual pricing going away. Now whether we are able to hold up, so I'm not going to give any future indication of how we will do, but we see that the demand environment continues to be strong. So we have exited the quarter on a very positive note.
I was essentially trying to understand the mitigating factors or price increases that you would take to tide over the RM and fuel cost.
So yes, we did take -- but you see many of our price increases is actually what you call is shrinkflation. So in the INR 5 and INR 10 segment, the consumer -- end consumer price doesn't change, but the content of what we give to them actually goes down. So if you ask me what have we done in the quarter, I think at best, we have been able to mitigate half of the inflation through price increases. The other half, we have not been able to.
On Slide 11. So Croissant, are you now the number one in the country because Bauli also is doing quite well. And you had given an earlier number of around INR 100 crores ARR with this 30% kind of growth and overall buoyancy, what would be the ARR currently? And will Croissant margin be margin accretive to the company at the gross margin level?
So Abneesh I think if you're quoting a number of INR 100 crores ARR, I think you should just double it and it's growing at 30% plus. And the overall margin that we are making in Croissant is kind of equal or slightly accretive to the company margin.
Coming to the slide where you have given key states versus other states. 2 years back, key states was growing in line with other states and then started underperforming. What will be your expectation? Will this grow at similar level or even it can grow faster? And on the other channels which you have given, basically e-commerce, quick commerce, etc, the earlier number you had given was 6% of the sales comes from e-commerce. And out of that, around 70% is quick commerce. Any update on those numbers?
So Abneesh, I think I will need to give you a small clarification. As I understand, 2 years back, when we used to use the term focus states, these focus states were generally the states which were from the Hindi belt, where Britannia was not the market leader. And hence, there were issues. And hence, there were initiatives which are continuing even today to how to capture share from competition. When I'm using the word key states this time, I'm actually talking about the set of states which are our largest and most profitable. So by and large, the highest in terms of net sales, but a mix also where we sell profitable portfolio. So the context is different. So like I said, Q-com is now literally 80% to 85% of overall e-commerce. And for us, it is growing in very, very healthy double digits. And like I said, the investment and focus with even sharpened portfolios will continue. And you will see more things in the near future. Eastern India is doing well for us, and we are growing in double digits.
My first question pertains to the execution team with multiple execution team shifts following your appointment. Are we done with the changes or should we expect some further enhancement? Additionally, like could you comment on the Phantom stock accounting impact for this quarter?
So I think the management team is more or less over. You would have also seen that a gentleman has joined us to head our Strategy and Corporate Development earlier this week. From that point of view, all the changes are done. If there are many -- if there are any other changes which happen, which will happen more in the course of normal business where if somebody is retiring, he will be replaced, etc. But otherwise, from a team construct point of view, the team is now complete. On phantom stock - that's hardly about INR 1 crores is what I'm told by finance. For the quarter.
First question is on GT channel - what structural changes are being implemented to offset the competition impact, particularly in linkage between market, which is maybe 15% of the business and the Eastern region, which might be closer to 20%?
So let me answer this at 2 levels. So from a sales organization point of view, yes, I think there were certain markets where we needed to add some headcount, which we have done. But apart from that, the structure of distributor -- the distributor who serves what we call is the rural dealer or the sub-stockist, that structure continues. We have also taken an exercise where we are trying to convert some of the sub-distributors into direct distributors because we have certain advantage there. And we have also done that. But fundamentally, the change has been brought in, in terms of the target portfolio, the empowerment that has been given to the regional teams. The focused media spend and the influencer spend and the number of local regional influencers that we are putting, along with product innovation, which is happening specifically for certain clusters of the Indian market. So while the overall skeleton of the GT team and the GT structure is not going to change, but the way they act and behave and the way they are being empowered, helped by marketing and local activation and product portfolio is undergoing a change, which is now causing the impact.
The revenue contribution from the non-biscuit portfolio has remained range bound at around 25%. So is this because the performance of the individual categories tends to be offset by the another category. By when should we expect all the non-biscuit portfolios to deliver healthy and broad-based growth?
So okay, sorry. So you please go to the slide in the business, which talks about other adjacency business. So you will see that cake, rusk and wafers delivered double-digit growth. So that is growing faster than the average. Also in our dairy business also grew at double digits. And our ghee business there, along with cheese slices is doing very well. So if you ask me the question, although the proportion is less, but at an overall level, the non-biscuit portfolio has actually grown in double digits also.
Was there any benefit of older inventory which you had this quarter? And therefore, you expect sort of Q2 margins to be a little weaker? And if input costs remain where they are today, are you confident of maintaining full year FY '27 EBITDA margins at, at least the same level as FY '26?
So Percy, thank you for asking. The answer to the first question is no, there was nothing of that nature. Now the second question is interesting if the input cost remains, whether we will able to deliver. So just let's go back to the last question that we said. I think the input costs at the moment are at a higher level compared to what they were in February. So we will have to manage. Like we said, we will have to manage between value, volume and margin and which we will do. So how do we exit the year is something that we will have to see. But internally, as a business, we are quite confident that we are able to keep the levers in check.
What is the amount of PLI that you will book in FY '27? And since that will go away in FY '28, will it hit the bottom line to that extent? Or would you fully be able to mitigate the impact of that through some other measures?
So, we didn't book any PLI incentive even in '25-'26. And nor have we booked anything in the current year because we have not been able to achieve the threshold growth that they had prescribed under the scheme. So there's been no amount that's been recognized in the last financial year and in the first quarter of the current year.
In terms of adjacent categories on e-commerce and especially on quick commerce, any sense on if you're getting a lot more traction for these categories from some of your competitors or peer group companies, we've also heard about them launching sort of exclusive products for these channels. Is that something that's being extensively done at Britannia or something you plan to accelerate further?
Absolutely, yes. You will see it in the near future. So there is traction in these categories, as you could see. These are also relatively new age, more impulsive. And we are also quickly working on doing something which is focused on this channel. There is a fundamental difference. A vast value of what we sell in GT sells at INR 5 and INR 10. The contribution of INR 5 and INR 10 on e-commerce is -- Q-com is very negligible. And hence, what you end up selling is, firstly, the larger packs, the more impulse consumption adjacency categories and some of our best sellers. So the construct of the sales on this channel is a bit different, as you could understand. So yes. So it could be that we sell maybe the proportion of non-biscuits that we sell, especially items like Rusk, which goes with morning tea. Croissant, which is also more impulse consumption, products like Jim Jam and Little Hearts, which are favorite with young Gen Z teenagers, you see much higher traction for these categories of e-commerce.
My first question was on your volume growth number of 9%. That essentially implies you had only 1% pricing in the quarter, which seems actually lower than what you had last quarter. Have you put in more pricing through the quarter? Should we expect the pricing growth to be higher going forward? Or you expect this level of pricing growth to be only there?
Yes. So like we said, our pricing growth, which we put in the quarter was what we call is shrinkflation, and that takes a bit of time to execute because you need machinery changes and packaging changes on which Britannia has a lot of expertise because this is something which all biscuit companies need to do. But going ahead in the quarter, yes, you will see something more coming in. So if the overall impact was 1%, you will probably see maybe another 1.5% to 2% coming in.
On the mid-teens exit growth for the last quarter. With the dual pricing issue getting over, is it possible that some of the acceleration is coming because of a natural destocking in the channel? Or are you seeing recovery even in mainstream direct coverage or modern trade e-commerce kind of channels?
No. So I think -- I don't think it's because of stocking that we are building in those channels. So the wholesale channel and the rural channel, where the dual pricing had an impact is now over, and we see that the throughput, both in terms of selling in and selling out is very good. Our stock doesn't last long at the retail shelves even of wholesalers. So I think it's fairly clean. We don't see any of this as a result of any inventory buildup. It is a result of demand buildup and the fact that the retailers who had kind of shied away a bit have come back to us in strong numbers.
There have been quite a few tailwinds for the category and you with GST rate cuts, unorganized to organized, price hikes, which are now being taken, general recovery in consumption. Is it fair to say that the benefits were not fully visible due to dual pricing issue? Or was there more to it? And does it mean that unlike some of the peers who've already seen the benefits of GST rate cut, for you, the benefits will be visible going forward?
So Kunal, I think if you take a look at Britannia's portfolio and for that matter, any large biscuit company, a significant portion of what we sell is sold at INR 5 and INR 10. In Britannia's algorithm, it would be upwards of 60%. Now when there is a GST cut, how does the consumer differentiate? The consumer is still paying INR 5 and INR 10, what he's getting is an extra or a couple of cookies more. So from a consumption point of view, the elasticity of volume or the number of packs would not be visible very soon. Unlike in categories where you are selling packs at INR 100, INR 120 and INR 130, where you actually pass on the GST cut and you see a drop of INR 15, which drives demand and you see elasticity of consumption going higher. So to say that the GST impact on Britannia is going to be instantaneous, I think it is going to take some time. So the real consumer impact will happen gradually, but it is not going to be as pronounced as you would see in some other packaged good companies where the impact of price drop is visible on the shelf, which encourages people to buy more. Yes, we have taken some price drops on our larger packs, but the contribution of that is minimal.
First one on your volume growth of 9%. Is it right to think this is the growth in number of packs sold? Is that what you meant adjusting for shrinkflation?
No, this is the total tonnage growth.
Q2 had a low base because of the GST transition impact. When you comment something like mid-teens revenue growth for the month of June, if it was for the full month, just to get the right way of thinking about how growth really behaves in the coming quarter, I just wanted to get a sense check whether this was also benefiting from a low base impact?
So Latika, June was anyway in the last quarter, and I don't think we had a low base there. But yes, in Q2 of last year, which is July, August, September, the only month which really had a challenge because of GST price transition where market was a bit shaky about buying old price products was in the month of September. So there is going to be a base impact in September, which I think will apply to a lot of other companies also, which will apply to us also. But July and August last year were pretty normal months.
Any color that you want to share on market share trends in terms of subsegments within the biscuit category? Also, any incremental color on how should one think about growth trajectory in the overseas business?
Yes. Okay. So on market share, what I would like to comment is that when the dual pricing was on, there was a bit of challenge where the capture of sale value was being done on the full price, while actually the price printed on the back was at INR 4.50, and Britannia was anyway selling at INR 5. So that was slightly challenging for us because competition was selling at INR 4.5. And our belief is that at many places, it was being accounted INR 5. Now that the dual pricing is over, but not only as a result of dual pricing, I think the focused interventions that we have done, the continuous presence and media, the sharpness in the sales team, we see that there is sales market share gain across a large number of biscuit categories on a sequential basis, which we are seeing, and we are positive, and we will keep investing to see that keeps happening. On the international business, yes, I think we have seen 4 months of turbulence and there were challenges. We are hopeful that stability has happened. If you know, we have a new head of our International business, who joined us 2 months back. So our ability to execute and come together is better. And we are expecting that our international business from this quarter will be back on a growth track.
Are there any such opportunities in foods at large for inorganic D2C brands and then back it up with a lot of marketing and distribution muscle? Or you will have to kind of do this organically from scratch?
So you see the assets available in the personal care case or the skin care case, there might be more. But there would be assets available in the food space where we operate. But we have to be very careful that you always have the option of creating something organically. If you're doing something inorganically, what is the reason? The reason you would do it is either for a strong brand, which already operates there or for speed or for a capability or a segment technology, which will take time for you to develop. So we are looking at that, but we will be careful if we do something to do it which really is accretive, both from a number point of view and from a capability point of view for Britannia. We will -- for example, we will just not buy another cookie company, which is doing well because we know that we can do that ourselves. So we'll be selective and smart in doing it. But like we said, inorganic agenda is there on the table, but we will be careful to evaluate.