Would it be fair to say that whatever was the 1Q EBITDA growth, the growth logically should kind of improve as we go forward given that VAHO is improving?
It is difficult to give quarter -on-quarter guidance, Avi. I n fact, Saugata touched upon in his opening commentary that while we had given a double -digit profit growth guidance earlier. In the current scenario it looks a little challenging, but we will still strive for high single -digit growth in this year. But typically what we have seen is that inflationary years get followed by a deflationary year, and we have been able to make up for more than what we could not do in the previous year. Therefore, from a two year perspective, we are fairly confident that we should be able to deliver double-digit profit growth CAGR.
On margins - how should one think about margins in the near term with copra inflation? VAHO is margin accretive; when can we start seeing margins expand, can it be in two to three quarters?
So, see, from a margin percentage standpoint, very honestly, it is very difficult to sort of gauge because there are multiple moving parts in terms of the commodity inflation, price increase that we have taken etc. B ut as I mentioned earlier, in this kind of inflationary scenario, what is important is to look at the profit growth, because margins will definitely look compressed because of the significant denominator effect. And as you would have heard, Saugata said that we are expecting even higher revenue growth going ahead. Therefore, margin percentage guidance is difficult. But yes, we hold on to what I just said a while ago in terms of the profit growth.
On VAHO, what would be the volume growth including Shanti Amla? And does that mean volumes for the remaining 30% of portfolio (other than Parachute, Saffola, VAHO) would be sort of north of 25%?
All I can say is that we have indicated that Saffola is mid single -digits, we would not get into individual category-wise growth. But yes, the premium part of the business, and diversification of business, would be higher growth.
On VAHO - one competitor mentioned they have gained the most market share in oil category. They compete in Amla. Is that the right inference that they are gaining share because of BTL?
I cannot comment on this one. We have gained 140 bps value share. We focus on value share.
On copra - how much do prices have to drop before you have to take price drops? Do you expect second half there may be need to take price hikes?
So, it all depends on the situation. What we will do is, we will always balance volume and margin. And I think, we now have a broad pricing model which has been developed with around 15 years of data. So, we will not be greedy about margin. At the same time, we believe that usually in the deflationary cycle we have been able to increase our margins.
On long-term path - doubling revenue by 2030 implies mid-teens growth. How much from organic vs inorganic?
Yes, I think when we talk about a five-year number, it's an aspiration. We now put the building blocks in place to do it. It's very difficult to say inorganic vs. organic. I have never believed inorganic to be a substitute for organic growth. Inorganic is always an accelerator therefore for us, and in today's uncertain world, there always has to be a Plan B and a Plan C. So, I do not see any inorganic component in that kind of a plan. Given that we have started the year on a good note and have the building blocks in place - diversification, getting VAHO back into double -digit value growth, international business getting into teens, our ability to deliver 14%-15% growth which takes us to that goal is possible.
On the India Hair Oil business: First, copra, how is the supply side now looking? What kind of correction do you see in the next two, three quarters? Second, VAHO has seen a smart recovery; with urban recovery being talked about and rural continuing robust, would you expect VAHO volume growth to accelerate from here?
Let me first address your question on Coconut Oil. As far as copra is concerned, as I said that the correction has started, we also need to understand that we being a significant buyer of copra, we have to also manage the entire supply chain assurance as well as pricing. We are now in a state where we believe we have much more control of the situation. Because, as you know that copra and the overall coconut demand titration happens in these kinds of inflation, the normal supply & demand imbalance adjusted itself because every consumption point gets titrated. And given our supply chain and other advantages, along with our position building, I think we are in a far better control. So, we believe that things are much better. And therefore, I do not see any further inflation at this point in time. But we will be able to give a much better kind of a feel in the second half. But, as I said that in spite of taking such price increases, we have actually in transaction terms still delivered a slight growth of 1%. And given the outlook on Parachute, we should be under control. Coming to Value-Added Hair Oil s, we took a conscious call over the last two, three quarters because we faced unreasonable competition where a lot of spends went from ATL to BTL in the bottom of pyramid, especially in Amla segment that we wanted to defocus. And what happens normally if competitive spend falls, you can maintain the same SOV at half the spend. We said that it was a suicidal strategy, as it does not make sense, so we had re-pivoted towards investing behind medium and premium brands which make better margins. In addition to that, we are getting the first benefits of SETU, especially in rural, because whenever you do direct distribution, the second and third brand distribution increases and therefore we are extremely confident of maintaining this double-digit value growth in the Value-Added Hair Oil business. And if you take ex -Amla, actually the volume growth is in double-digits.
On the coconut oil business - whenever we see such sharp inflation, we see local players lower their intensity. Could you talk about local players in the core market? And on the consumption side, have you seen any consumer change to other oils?
So, I think as you know that our entire growth model is based on unbranded to branded and getting market share from other smaller players in the coconut oil market. I alluded to two pieces of statistics, in 2014-15, we had taken a 35% price increase and we delivered a 6.5% volume growth and as well as market share gain. Over '17 to '19, because it was over an 18 to 20 month period, the average price increase was again 35%, and we had delivered a two year CAGR of 5% in Parachute. So, I believe that we should be able to hold on to the volume. There could be titration, but all I can tell you that we are taking certain steps in terms of our strategy which will ensure that the volumes are not impacted. Yes, the smaller players and other smaller branded players will be far more impacted.
On the International business: In terms of the Gulf and Egypt, with regards to 42% CCG, is there some base effect? Is this sustainable? On South Africa, what is happening, why have you not changed the full year guidance? And Bangladesh, are you getting volume growth?
Okay. So, let me address one by one. As far as MENA is concerned, the growth is being fueled by two things. One, growth in the core in terms of market share gain. As you know that we never participated in VAHO in Egypt, we had launched VAHO in Egypt two to three years ago, and then we launched a full portfolio of VAHO in Egypt, which is Herbs India, we have got Fiancee and we have got Amla as well. Similarly, we have got an aggressive distribution and investments. And, we have launched shampoos in Egypt and Middle East, in addition to shower gels and body lotion. So, the NPD contribution has been significant, and all the NPDs are doing well, as well as we are getting share in our core. Hence, last year we grew 30% plus, and this will continue. I think your second question was on South Africa. Sometimes in quarters we do some certain readjustment of strategy, so we are pretty confident that we could start getting back on track from Quarter 2, and then we have visibility of July on growth returning back. And over the full year we should be able to hit double-digit growth which has been our consistent delivery. Now coming to Bangladesh, Bangladesh has two components as a volume growth in the core, there is significant NPD performance as you know, we have done very well recently in shampoo, and we are doing well in baby. There is some part of inflation and price increase in Bangladesh which has been far lower than India, because international copra has not got ten impacted as much as Indian copra.
On ATL versus BTL - at consolidated level advertising spends are up 25%, but India business is down 20%, the lowest in the last five years. The percentage at 3.5% is also the lowest. Can you elaborate?
You are right, Vivek, it's incorrect to look at ASP percentage to sales because of the denominator effect. Having said that, yes, of course there has been some cut in India ASP, but let me just tell you two three broad counters for that. #1, we have not cut in the focus categories of premium, VAHO, Foods and PPC. So, in these categories we have invested adequately. Also, Saugata touched upon the fact that we have ensured that our share of voice is higher than our share of market in focus categor ies. Secondly in BOP of VAHO we have definitely cut down due to competitive activity at the trade and therefore we have rationalized ATL spends towards consumer beneficial pricing in that segment. Additionally, I think in this quarter we have cut down lot of non-media spends, like we have rationalized the frequency of Nielsen subscription data, we have deferred some of the new film shoots which was discretionary and hence reduction in utilization of celebrity time cost. And additionally, we also extracted lot of inefficiency out of media and non-media spends and hence getting more bang for the buck for the same dollar spent.
When I subtract standalone from consol, the advertising spend is up 60%. Bulk of this will be on India business and international movement will be lower, right?
Yes, you are right, so it is largely on the new businesses and also international business also has gone up but not to that extent.
On M&A - in the existing geographies or new geographies, that is more in international business context. On D2C in India, are there still wide spaces or are platforms ready? How do you think about India acquisitions from here?
There are one or two spaces which I think are still available. See, we are clearly going into not only market attractiveness but a right-to-win which are adjacencies. So, we believe that there are one or two spaces which are available whether it's in Foods or Personal Care. In addition to that, I mean, as you know, Foods is an interest for us, so therefore we will continue to be looking into these acquisitions. Our track record for acquisition has been good. We now have a good playbook. And we also believe that we see ourselves as a strategic investor of choice, because given that we have multiple brands; the kind of synergies, and the kind of cost, and the kind of knowledge we can give and help a Founder to grow his or her business is I think significant.
On copra - how is current copra versus the 1Q quarter average? Is it ahead of that or below?
Yes, yes, 12% down in the last few weeks. So, that 107% was for the quarter on a year on year basis. But yes, if you take a point today it's 12% down from the last peak.
On Parachute - you highlighted consumer pricing of about 60% that translates to closer to 30%, 31% for the quarter. After this 31%, what is the incremental pricing yet to come through?
So, we have taken additional 30% price increase in Quarter 1. We do not intend to take any further price increase, as I just mentioned. So, the full effect of this price increase will be visible in Quarter 2, where the value growth probably could be even higher on the Parachute franchise. But again, from Quarter 2 onwards, or later half of the Quarter 2, we will also start anniversarizing in the base. So, in H2, your pricing growth will progressively come down from the peaks of Quarter 2.
After such sharp price increases - how confident are you on the volume growth? Can one expect a sharper decline on volumes of Parachute?
No. So, I think there are two things. One is, obviously, we will take steps now and I cannot get into details of what are the steps we will take to ensure that protecting some of the packs which are much more sensitive to pricing. We are taking steps. Secondly, as I told you, is that during such times the small players are really stretched in terms of their presence. Also some of our branded large competitors who have been doing unreasonable kind of pricing, which was lost last year I think will not do that. So, I think there will be market share gains. So, combination of that we will be able to hold broadly the volumes. I do not see any reason to be stressed out. And I think the other thing is that, what I believe is going to happen is that, the peak has been reached and therefore as we go towards the second half I think there will be a little bit of stability as far as pricing and other things go.
On VAHO - is there any element of channel filling or is it largely Project SETU driving this? What is the core driver and sustainability?
I think we have a very high confidence level on sustaining double -digit growth in VAHO. And two things, one is that, as you have seen, we are seeing also a significant increase in market share. See, what happens is that normally wholesalers take a high velocity item. To give you an example, a Parachute or a Shanti Amla will be a natural choice which will go through the wholesale system or the indirect sales system. Now that we are over a three year period adding 0.5 million set of outlets, invariably it is the second or third brand that goes into the range selling. And that is the advantage we are getting. Therefore, we must, not only taking share from the organized players, we will be also taking share from some of the smaller players. And the second thing which we are doing is that, because we have said that we are not going to get into the BTL fight at the bottom of pyramid, but instead invest behind equity building, we are significantly investing behind equity building. This also means that our share of voice is increasing, and we are investing behind it because it is my job as a category leader to drive category growth.
On Parachute - with 60% YoY pricing, do you think it is possible volume might touch a negative double -digit kind of number? Or is that out of the question?
First of all, I the 60% is a point-to-point. And as Pawan alluded to, as we move towards second half, this number will go down drastically. It could go to between 35% to 45%, if there is no pricing action. And I gave some piece of statistics that this has happened twice in the past, we have taken 35% hikes earlier. That time, India might have been the 11th largest economy, today we are far bigger, and the aspirations have grown accordingly. Number two is, this 60% is a one-quarter phenomenon. It's not a two, three-quarter phenomenon. And as I said that there has been stabilization happening on the copra prices from the peak. Thus, this kind of supply -demand mismatch, was a function of some speculation as well. It is not a structural or major issue. So, it will get sorted out. Now, obviously, you will only see proof of this as the second quarter ends. But we are not unduly perturbed by this one. There could be minor volume pressure here and there. But I mean, a doomsday scenario is unlikely to happen. I do not think anything like that will happen.
What led to the copra price drivers - what is the reason that the inflation is so high?
I talked about this in my opening commentary. So what happened was there was a slight drop in coconut productivity, of around 9%. Now as I mentioned earlier, some of the demand for coconut which is used for consumption and religious purposes are inelastic. So, Copra is the end of that entire supply chain. What also happened was there were some unseasonal rains in April, and copra needs dry weather for conversion, that conversion cycle got delayed and since all the other demands were met with a certain pricing, the availability for copra further shrank because of 9% overall productivity drop. As demand remained at certain level, it led to some speculative activity in copra. Now what has happened, given all the pricing changes, demand rationing has happened automatically. As a result, we are seeing first signs of demand rationing happening, and we are still in the season.
On VAHO - you are focusing on mid and premium because the lower end does not make profit. We have seen consumption is under pressure, and consumers go for cheaper alternatives. Is this the right time to focus on premium?
I do not know. We have not noticed. See, first of all, the indexation of RPI is not that massive. So, even within VAHO, in brands like Amla category, we are not focusing on BTL. That does not mean I am not going to invest behind Shanti Amla, mid and large packs. It is about that Rs. 20 price point, BTL driven strategy. Once we have now got VAHO, the rest of the things, I might invest in Amla also and grow the category. What we are saying is, we do not believe that by converting ATL to BTL, that does not necessarily lead to consumption. The question is if I give 10%, 20% BTL, am I getting increased offtake? My hypothesis is that increase in BTL does not give you long-term off-take.
Focusing on Foods - there has been moderation from 40% growth in Q4 to 20%. Any specific parts you want to highlight?
On a quarterly basis this happened because last year there were some launches. So, we are fairly confident about delivering 25%-plus growth in the Foods business. There is nothing to be worried about. We look at two things. One, we look at is if the core of the Foods portfolio, which is the Saffola Oats, Masala Oats, Honey etc, are growing in double-digits. Yes, they are growing in double-digits. Sometimes, parts of True Elements, or some part s of Plix can cause some fluctuation. So, I do not think there's any cause for concern. Maybe 40% would have been a slightly higher number because we have always been talking about a 25% plus kind of growth.
On profitability of Foods - what would be the EBITDA aspirations by FY27 for this part of the business?
So, I think two things. One is, as far as the Oats plus Masala Oats, the core of the business, which is a significant part of the portfolio, we are almost touching the company EBITDA. Now, what we have realized is that as long as you concentrate on the value-added part, we breakeven in any category at Rs.150 crores to Rs.200 crores, and then we can hit Rs.300 crores to Rs.400 crores. So, our objective will be to get some of these categories into that range. Having said that, over the last two years, we have improved gross margin by 1,000 basis points. It's still a work in progress. We need to continue to do that. And what we actually look at is the blended gross margin of our NPD versus our current portfolio. The blended gross margin of our NPD is higher right now than that of our current portfolio, and this will progressively move up.
On the Rs.20,000 Crores number by FY30 - more clarity on different segment contributions?
It's very difficult to give an exact breakup of that Rs.20,000 Crores, but the idea is that on all the core categories, we have given some guidance. For example, let's say we are talking about Foods 25% plus growth, D2C 25% plus growth, VAHO we are expecting to deliver double -digit growth. A combination of all of these, plus of course international business, we also expect mid-teens sort of a number. With a combination of all this, this Rs.20,000 Crores can be achieved.
On SETU - it's almost a year and a half in your three-year journey. How much of the 500,000 direct have we covered and any target for this year?
So, to be honest, while we kicked off SETU sometime around one and a half years ago, but the impact has just started because we were prototyping SETU. I would say that we are seeing the first signs of growth of SETU, and you will see perhaps better, impact of SETU as we go into the second half of the year. There are two parts to it. One is the rural, where we are not only doing direct distribution, but also converting some of our indirect to direct using far more technology and getting control of EBITDA ranges. The second part of the SETU is urban, where we will increase our presence in food specialty stores, cosmetic as well as chemists, which we will unfold as we grow. So, this will lead to two things. One, it we will certainly see a GT improvement and GT growth as we move from quarter to quarter. This process, while we said has been around for three years, I would knock off the first six months because we were trying to get the model right. I would say it has been one year and there are two more years to go.
On VAHO - non-Amla brands have grown in double-digit, share has come from those brands. Who are the players you have been gaining share from? Is some coming from D2C-led players in premium space?
So, I think mere distribution or placing a product does not lead to market share. I am alluding to some D2C brands. And I do not think Nielsen captures them at all. So, whatever share we have got would have come from the large, organized players. So, I do not think there is any concern with respect to D2C players. As I said, I think the biggest gain has come because of our SETU initiative, which is involved in direct distribution availability and weighted distribution. Secondly, because of the fact that we are now investing behind some of these brands, it is leading to overall brand preference.
On the Rs.900 Crores to Rs.2,000 Crores journey for the four brands in digital space - is this pertaining to digital-first brands overall or these four brands? Is there an acquisition element?
No. So, I think as of now it is the four brands, but we will be happy to acquire some and ensure that this number is definitely achieved or crossed. What we want to allude to in this chart is the potential TAM expansion for each of these four brands.
On digital brands - 2.5x aspiration with margins going up sharply. In other digital companies, pulling margin up affects growth. What's giving confidence you can do both?
Okay. I think I covered this last time. There are two cohorts. Beardo and Plix have broken even. In fact, Beardo is close to double-digit EBITDA. Plix has broken even too. They are now on an accelerated growth path, and obviously they will continue to perform, because of cost and scale synergies. So, in order to make them grow at an accelerated pace, I do not need to sacrifice margins. Actually, EBITDA will also increase. As far as Just Herbs and True Elements are concerned, we are okay with moderate growth and get to a path to breakeven within the next 18 months. The biggest one, is that I think we have a unique opportunity for all these brands to have access to the entire Marico cost structure, whether it's procurement, whether it's supply chain. Take for example, digital media buying – we are buying as One Marico, which gives us structural cost advantages that standalone digital brands don’t have. And those are the things we are tapping. For example, in Beardo, when we insourced one or two of the hero SKUs into our own manufacturing system, we straightaway got a 500 bps to 600 bps improvement in gross margin.
On advertising spend - in other digital brands it becomes a variable cost (performance marketing). Will there be operating leverage on advertising in your case?
So, let me give you a construct. As far as advertising is concerned a good digital marketing leads to lower ROAS. Number two, if you look at say D2C part of the business, as long as the AOVs are high and your digital marketing spends are better you actually get a better profitability. The second thing that happens is that we also believe that it's just not about performance marketing but also off-platform spends that needs to also drive, and as I alluded to us as one Marico buyer, off-platform spend efficiencies are far better than standalone brands. So, unlike some of the standalone brands we are also getting economies of scale as far as A2S is concerned and as you look at it, it's not that we make super obscene gross margin, Beardo is the fact, anything between Rs.250 Crores to Rs.300 Crores level, I can make double -digit EBITDA.
On copra - drop of around 12%. Are there concerns about pest attacks hurting yield? And as import of copra is banned, can we import finished goods from Bangladesh?
No, we cannot import either copra or oil. We can only import to the extent what we can export. Now, the representation is from the independent industry body. So, again, we do not have such information of pests etc. damaging the crop in a wide scale manner. Yes, there could be some limited impact. But again, it's an industry body which represents the industry as a whole.