On the Foods portfolio, we have now broadly come out of any concerns. When we look at growth momentum going forward, is it fair to expect profitability plus 25% kind of plus growth momentum? Or is inflation a concern and hence growth could take a hit?
I think, let's take it as a 20% as a base case and then we will see.
On gross margin on the standalone entity - given that sequentially we normally see drops but there has been sharp improvement sequentially. Is it fair to assume that the low-cost base completely starts playing out in quarter 1 only for copra?
That will start playing out from quarter 1. But let me not get into quarter-wise as to what could be the gross margin expansion. But rather, I would want to paint a picture for the full year. And I believe for full year, about 300 to 400 basis points improvement over the exit of FY '26 is fairly possible.
For next year, you spoke about 20% plus growth in Foods. You should potentially be able to do a lot more because organic business also is recovering, you get a full year plus ramp-up in the new business. Can foods growth be higher because of the M&A also adding to that 20%?
I think we took a base case, let's take it at 20% to 25%, I think, but we'll see. As I said that I don't think we have any concern as far as Foods is concerned, at least immediately, and you will see the results coming from quarter 1. That's all I can say.
On Bangladesh - last two quarters have seen very strong acceleration from 22%, 29% and 35% growth rate. Is the pricing cycle on coconut oil there different from India? Is Bangladesh likely to see deflation now on pricing or are price trends different and inflation-led growth could continue in coconut oil business? Should this decelerate immediately or gradual go back to mid-teens kind of growth historically?
I think we shouldn't read too much into the quarterly swings. On a steady-state basis, we expect definitely to deliver double-digit growth in Bangladesh. Specifically talking about the last couple of quarters, I believe it's a combination of good performance of both core and the newer portfolio comprising shampoo, baby, etc. And I think it's also driven by a decent volume growth. So therefore, going ahead, from a guidance standpoint, we would say that at least double-digit growth is for sure going to be delivered. One other thing we are being watchful about is as to what happens on the consumption side, depending on the inflation, etcetera. But over there also, the robust business foundation and strong moats that we've built over the years and the favorable cost structure, we believe that we are in a unique position to sort of whether any of these kind of things play out, and we would be in a position to deliver healthy growth in this market.
On construct of overall hair oil markets between VAHO and coconut - we've seen in last few quarters very strong growth in VAHO across all companies, not just Marico. Has this got anything to do with coconut oil price becoming unaffordable - is there a little market share shift towards VAHO? Going ahead, do you think market share shift could reverse a little where copra price is coming down? Can it bring down VAHO growth? Can it accelerate copra growth and act as a buffer against general slowdown in deflationary cycle in copra volumes?
See, we repivoted our strategy on VAHO. What had happened is that there was a significant focus between the two major players on price points packs, especially in Amla and mustard. And therefore, a lot of spends went from ATL to BTL. A couple of quarters, we decided that we should as a leader, one of the volume share leader in the category, we must invest behind category growth and therefore, in the mid and the Premium segment, which are much more higher profitability. Consequent to that, from Q2, our VAHO growth started accelerating. Obviously, the GST reduction has helped because share from some of the smaller players or some unbranded VAHO to branded VAHO, that has helped. We are extremely confident that we will be able to consistently deliver higher growth in VAHO, including double-digit consistent growth.
On international business - Bangladesh saw sharp acceleration of sales growth to 35% vs full-year growth of 25%. Any one-off? Delayed pricing benefiting now or soft base? With FY27 having a democratically elected government vs fragile government in most of FY26, what's the outlook? Second subpart on MENA - March was challenging for FMCG companies there. In April, are there alternate channels improving the business? Any update on April?
In Bangladesh, we have been extremely steady. Now obviously, there are some pricing which has been taken into account. But I think overall as long as we continue to deliver, Bangladesh has been a critical component and has continued to remain resilient and therefore, with annualized double-digit growth, we are happy. We believe that we have been resilient in Bangladesh and continue to diversify and deliver consistent growth. We'll continue to invest behind brands and diversify. Coming to MENA, March, obviously, there were issues on shipment. So there's a difference between impact on offtake and impact on the primary sale, because primary sale is a function of some of the shipments. There are alternative routes. We just don't feed MENA from India, some of the stuff goes through Egypt, there are alternative routes there. So therefore, the impact is less and we will wait and see how the situation unfolds. But in terms of offtake, we have no reason to have significant concern.
On recent acquisitions - any update on 4700BC and others in India and Vietnam etc.? What is the initial scale-up in distribution? Any initial shocks - because in M&A in India, things look positive initially but when actual business comes up in year one, challenges arise (inventory buildup, channel issues). Any learnings to share on recent acquisitions?
So I think firstly, those challenges happen when there is a 100% sale happens. We now have a playbook of ensuring how the integration happens, how we do the valuation, what are the things we look into. I think it has been a positive start. One of the things we do is we ensure that we partner with fantastic set of founders. In all the cases, the unique set of brands. And therefore, we have had positive starts, no hiccups. And I think the one big change that has happened now that we have a house of brands, we are seeing the impact of synergy at least in the back end, which benefits long-term profitability, long-term traction or even, for example, if you know that like in a brand like a Popcorn and 4700BC, we see a price point pack can be taken over by GT. We have actually started immediate synergies on modern trade. So it started off a very well.
On FY27 perspective - you are one of the unique companies where raw material is deflationary while for most others there is sharp inflation. But of 4 raw materials, 3 are quite inflationary - the big one is deflationary. As a basket, how do things stand? Also you mentioned corrective action - is there an MRP cut also or just select grammage intervention/select promotions being changed in Parachute? And can you cross-subsidize your inflationary part of the portfolio? Because the bulk - copra - is deflationary, can you cross subsidize foods and personal care to give you market share gains?
From a pricing perspective, what we have done is since we have seen that copra prices have come down by approximately 35% from the peak, we have taken price cuts in non-price point and small packs to the extent of about 10% or so. We haven't really taken any call in terms of increasing the grammage. Now on cross-subsidizing, we always take a portfolio approach. Of course, we have to keep in mind in terms of what are the expectations from a profit delivery standpoint. Now coming to a margin, for next year, of course, there are a lot of moving parts. We have a tailwind in terms of copra prices but because of crude where it is at this point in time, we don't know where it will move. Still, if you look at our guidance, if situations were to normalize, we would target to deliver about high teens EBITDA growth, which in fact is slightly higher than what we had guided in the previous call. Saugata added: this is a unique year where we believe that given the supply chain constraints and other challenges the smaller players will face, this is advantageous for us. So therefore, instead of cross subsidizing, we have a kind of a competitive advantage this year if this supply situation and all these constraints continue.
On the rationale behind the upward revision on EBITDA guidance despite new acquisitions which could drag margins, plus the inflation in crude derivatives which is very sharp. I believe in 3Q, you had highlighted mid-teen EBITDA growth and now it's high teens. What's driving the change in assumptions?
So I think two things. Firstly, 2 of the 3 acquisitions, for example, Cosmix and Skinetiq are profitable. Skinetiq is in the mid-20s, Cosmix is in the high teens. And number two, in Plix, which is a large part of the digital business, we are also experiencing an upward trajectory in operating margins. Now we have a firmer view of copra, which is now going to be range bound for the rest of the year. And we have a stress test version of what crude could be. Obviously, we have taken some pricing action in that part of the portfolio where there has been impact in input costs, which we have taken immediately when this issue happened in March. Therefore, we have a firmer view and this is a best case view given the current situation. And there has been far better visibility of what the digital business profitability improvement agenda is. Secondly, one significant competitive advantage which we have honed over the last four years is ability to handle adversity. So we manage the situation far more proactively in terms of supply chain assurance and other things.
On Saffola - both volumes and pricing has seen improvement on a sequential basis. The press note highlighted some pantry stocking up in early March due to West Asia crisis. What is the level of pricing required on Saffola to maintain margins? Any pantry stocking up? What can be the sustainable volume levels for Saffola for FY27?
As I said, we have made it clear in Saffola, we are okay to have a low to mid-single-digit volume growth subject to a threshold level of margin. So wherever there has been input cost increase, we'll pass it on, and we have done already. Now coming to the other important thing we are doing is we are focusing on Saffola Gold, Total and Cold pressed oils, which is the higher-margin portfolio and higher realization portfolio. So there is no change. And obviously, given the volatility, volume and value growth could fluctuate in quarter-to-quarter.
On VAHO - did I hear correctly when you said there was 20-plus percent volume growth in VAHO? Is there any anniversarising of pricing one should expect during the first half of FY27 in VAHO?
So we already have taken about 6% to 7% price increase in response to whatever increase we have seen in crude derivatives. So yes, that's the price increase that we've taken. And with respect to volume growth, yes, in quarter 4, it was 20% plus volume growth in the VAHO portfolio. Saugata added: There would be some pricing.
On supply chain constraints faced by smaller players, especially in Parachute - can you give a sense of where you are, what kinds of constraints they're facing to better appreciate the competitive advantage you alluded to?
It could be all polymers, packaging material, fuel in the factory. Now we don't have such constraints. We have ensured to the best of our ability, these things are managed. And ability to foresee, for example, any smart player would have bought in advance in March, early March because this issue started off on 27 February. Some people had a window of ensuring that you have that supply chain assurance, which gives you both the cost advantage and supply chain advantage. So a smaller player's response times, ability to foresee these would be lower. And also what happens when it's high inflation, they have working capital constraints, they are not able to stock and have kind of a position buildup. So that's the advantage. We have seen this during COVID. We have seen this in highly inflationary times that this is a good thing for us because normally in a deflationary environment, they become active. We have reasons to believe they are no longer active that much even if there is a deflationary environment in copra because all the other things have neutralized that copra impact for them.
Saugata, the advantages started probably towards the start of the conflict - would it be fair that competitive landscape is broadly the same? Despite government trying to reduce gas availability, it's something that could sustain for some time? Is that the right read?
It depends. Obviously, the issue is that today's packaging material, there is inflation and there is some kind of constrained availability. Obviously, a small player's ability to cope with that is lower, and it is going to continue for some time. So that's why this time it's going to be inflation plus availability which gives us more confidence, and hence, the upgrade is what we are essentially setting.
On consumption uptick in quarter 4 - many companies have delivered numbers ahead of third quarter trajectories. What would be your prognosis at a sector level on what's driving this?
If you look at the second half of the year, two things would have happened. One, some parts of the sector were lapping a slightly softer base. But more than that, rural had earlier recovered. We started seeing a recovery in urban. It's a combination of the GST rate rationalization and the affordability factor led to price drops. Also what has happened is that especially in food now that everything is 5%, so unbranded to branded or unpackaged to packaged conversion is going to likely to get accelerated. And we are also seeing in Value Added Hair Oils as a large category where there is some unbranded small players. So the gap is actually pretty small. Secondly, we continue to enjoy good period of very low inflation. Low inflation helps in FMCG consumption. And even now the government has done a fantastic job of containing the kind of a shock which other emerging markets have faced. We believe that the sector and especially the organized part of the sector has a better coping ability.
On tax rate - any sense on FY27 at a consolidated level?
Yes, you could consider around 20% or so.
We've been navigating macro headwinds well over the past few quarters. As we look ahead next year, is our growth confidence primarily driven by internal execution? Or are you beginning to see signs of sustainable consumption recovery at ground level as well?
As I said, in the second half of the year, the sector has started accelerating. Having said that, at the end of the day, we have to ensure that we continue to deliver top quartile performance. We believe that we have multiple vectors of growth, whether the recovery of the Core, SETU has significantly given us a distribution reach advantage, the VAHO turnaround, the diversification strategy, the stable business in international and the significant profitable growth trajectory of digital. So multiple vectors are playing out. And sometimes 1 or 2 are not playing. For example, we had a short term issue in Middle East. But I believe if I have 8 to 10 vectors of growth, and they are in a symphony, 1 or 2 strings not working, even then we are pretty confident of delivering what we are seeking to achieve.
The government's fiscal effort has also been led by state governments in some cases. Are you seeing any divergent growth trend in some of those states where there's a lot of push to put money in hands of bottom-end consumer? Or is it very secular as of now?
I think it's pretty secular. Obviously, it's also a function of where we have got deeper gains because of SETU. Because in some of the states, our distribution, especially the direct distribution was under-indexed, and therefore, we are seeing that. Obviously, because of our portfolio, especially in Food and Premium Personal Care, the metros. But to us, one of the things which is unique to us, we called it out first before others is that we need to get GT back on track. We started investing behind SETU, invested to say that the general trade contributes so much to the country, create so much employment, which is the source of competitive advantage for us because the entry barriers have decreased in OT, but it continues to be in GT. Our systematic investment will help us to grow and consistently grow.
On Foods - if I look at the 16% growth, I assume this includes turnover from the acquisition. How has the organic business done relative to the last couple of quarters? Are you seeing an improvement there and what are the buildings of there for FY27 in the organic part of the food business?
The first good news is that in the quarter, the Core Saffola Foods has grown in double digits. Now why overall foods growth is still not looking all that great in this quarter is because True Elements is lapping up the base quarter, which was a high base. And we've also taken some SKU rationalization call over there for some of the low GC products to accelerate the path of profitability in True Elements. However, we definitely expect teens growth in True Elements in FY27 also. And thirdly, also for Plix, over the last 3 to 4 quarters, Plix is now more pivoting more to Personal Care. And therefore, the contribution of Plix in the Foods growth is progressively coming down. So these are the reasons as to why Foods growth despite inclusion of 4700 and Cosmix is at about 16% - 17%. But going ahead, it will be in the range of at least 20% to 25%, if not more. Saugata added: And it's not the entire quarter of Cosmix, it's a few days. We started doing it and I think maybe 50 days or something.
On guidance of INR15,000 crores FY27 revenues and high-teen EBITDA growth - the margins are actually lower than what you would have done in like 3 out of 5 years in past (FY21, 23, 24, 25). This is despite copra correcting, mix getting better, new initiatives contributing, portfolio mix getting better. Is it just because of uncertainty that you have given this guidance as base case? Or am I missing something?
So one thing which has to be kept in mind, Vivek, is that peak margin was also a year where we had low inflation in all the commodities. Now in this year, while we would have copra tailwind, but where the crude is at this point in time, there could be hit in the crude-led derivatives. Now broadly, what we've said is in gross margin terms, we expect about 350 to 400 bps expansion for FY '27. We would up the A&P investment again from the current levels. I believe maybe 200, 250 basis points can be increased in the A&P, and balance 150 bps to about 200 bps base case in case of 150 bps is the operating margin expansion that we are looking at. The operating margin percentage is also a function of where your revenue is because we have had a significant revenue growth and therefore, denominator effect also plays out. So while we are delivering ~17% in this year, it's also because of significant denominator effect. So therefore, keeping in mind all these things, we are saying about 150 basis points expansion.
In the past, 3 out of 5 years the margins were closer to 20%. This time, your other parts of portfolio mix (VAHO, high-margin portfolio) is doing better. Is there a possibility that the guidance is a bit more conservative sitting today? Or it is just the volatility?
Vivek, I think we would be the only company who would be giving this kind of a guidance in this kind of environment of high-teen EBITDA growth. So I don't think there is a conservatism which has been factored into it. But we also need to be mindful in terms of the environment that we are operating in. And still, we are saying that despite at 110 of crude and crude-led derivatives where it is trading at this point in time, we are still sticking out our neck and saying that we would be delivering 150 bps of expansion in operating margin, we will deliver high-teen EBITDA growth. I think that's more than one can expect, I guess. Saugata added: Let us stabilize also in the sense that let the situation stabilize maybe after 1 or 2 quarters, you will get a better visibility.
What will be the top 1 or 2 things you worry about at this juncture for FY27 and which we should also monitor for your business?
If you look at it, the macro geopolitical situation is important. Fortunately, our Middle East contribution is low. And in FMCG and the kind of portfolio we have, whenever there is inflation, it has an impact in terms of consumers either down trading. The macro factors. I believe as far as internal factors are concerned, the way we are going about doing it, and we are on a momentum on that, I don't see that as an issue. But obviously, we have to watch out for the macro factor because if you see historically, inflation is FMCG consumption is biggest enemy, especially in the bottom of pyramid or in rural. And another monitorable is if it is a strong El Niño in terms of El Nino effect impacting consumption towards the back half of the year, stretching into the quarter 1 of next year. But all these factors are not Marico factors. Right now, there are more of the external factors than internal factors.
On PCNO - what would be the relative price index at this point in time after we've taken the price cuts? Given a firm view of copra, what is the incremental pricing action we are thinking?
As of now, we have taken around 10%-ish on the non-price point packs. I believe copra will be range bound. And if we could manage with this, we'll manage. We'll see, wait and see. We seem to be in a relatively advantageous position compared to the other deflationary cycles because of weaker competitive positioning because of all the supply chain issues.
The 10% cut would still take a premium to loose coconut oil from RPI perspective. Is that something we'll consider in terms of readjusting?
Even last year, when the copra prices increased by more than 120%, 130%, we did not take as much price increase. We have taken about 60% price increase. So from a pricing RPI standpoint, we are not significantly off. We have taken calls on certain non-price if required and depending on copra trajectory, we might take certain call. But at this point in time, the visibility is that we would want to stay with this. Saugata added: I think the price elasticity model has got challenged in the last year because we were ourselves surprised because of the strong brand equity of Parachute that we are able to carry on a flat volume growth in spite of 60% price increase. So therefore, there could be a case of a recalibration of our pricing model over the next couple of years.
On Plix - what was the ballpark EBITDA margin for this year, given you've been alluding to looking at margins and brand did breakeven last year. The second part - when we bought the brand, hero product was ACV and Foods was much larger contributor. Given trends in weight loss, what is it that has changed where focus has now shifted more to personal care, which part of portfolio still has lots of scalability?
Plix currently should be hitting around mid to high single-digit margin. We hope very soon, it will get into double digits. Yes, we started with ACV. What it pivoted towards, and that is a function of Plix stands for plant-based and hair and skin food, and hair and skin food is what we pivoted. If you look at all the Plix play in Personal Care, we believe that the Personal Care had higher profitability. It expanded TAM. The brand could carry itself up. But you will see similarly some of the launches even in the nutraceutical over the next couple of months. Secondly, what we have focused on Plix is, we have a very strong D2C play. And D2C is around 45% of the business in Plix. And therefore, we own the consumer. It's a profitable CM2 D2C play. We have just launched an ACV canned drink. It is available in 1 or 2 quick commerce players. So you will see some of the plays in nutraceuticals space also. Now between Plix and Cosmix, Cosmix will be in the slightly more serious nutraceutical and protein play. So there will be in the vitamin, supplement and nutraceutical play. Plix is a more fun brand. But going forward, we believe the center of gravity of Plix will be more towards Personal Care, which is far more profitable in the long term.
On Plix - it must be coming close to touching INR1,000 crores kind of ARR. Do we see any slowdown just from absolute size of brand? What kind of growth can we expect in Plix as a brand? Food and personal care put together - can it keep growing at fast clip or at some point need new channels of growth?
Without getting into specifics, Plix has the added advantage of a far more broader TAM than some of the other brands because they either play in BPC. This is one of the very few unique brands that play across two distinctive categories, which is nutraceuticals as well as nutraceutical wellness and personal care. As it reaches a certain number and it's INR1,000 crores, you can't be expecting that kind of a growth. But the broader philosophy of our overall digital play - we are here to build to last. We are here to create a sustainable, profitable, consistent growth in the business. So for me, any day, I will vote for a 20%, 25% growth with steady increase in profitability over a 60% growth without any increase in profitability. Plix as a brand and Beardo also, we have shown we can do both. As long as the digital business continues to grow 20%, 25%, 30% and be consistent on the journey to go into the teens profitability, which we have talked about in 2030, we'll be happy.
Do we need unlock of new channels for 20%, 25% growth in the brand?
As I said, we believe in maximizing full potential. Focus is a very important thing. Food is something which we believe has a far better omnichannel potential versus BPC, but we are open to it. I don't think there is any capability or resource constraints to the growth, but we want growth which is mindful as opposed to growth, which is spray and pray.
On the guidance of INR15,000 crores - the growth is obviously lower than what you've delivered. Is this largely a function of deflation in copra prices? Or is there anything else that is why the growth is more conservative than what is delivered out there?
I think delivering double-digit revenue growth is not conservative in any category and any sector. I don't know where you are coming from in terms of conservatism in this. This year, what happened is a significant inflation that was built in. What we have said consistently that we are confident of delivering high single-digit growth in India, kind of a mid-teens constant currency growth in the international business. And subject to that, that leads to a kind of a growth, which is double-digit revenue growth overall blended. As you know, we have taken some pricing correction in Parachute in the non price point pack to the extent of 10% that has been incorporated into the revenue expectations.
Just to check if Parachute price cut - the guidance was similar even earlier. So I'm assuming that you've already factored in that there will be a price cut for Parachute?
Exactly.