Do you also worry about from a consumption perspective if the higher oil prices feeds into in the form of higher inflation, does it imply some pushback from the consumers on the consumption of the products in general?
We do not see it, Vivek, because consumption is very strong and we are going through a period which was terrible last year with all the rains. With this weather, we are very happy with what is happening right now, what the sales growths are. This quarter should be rather much better than what we have already had. More than that, we cannot answer on the rain gods, but it is looking very positive.
Last quarter, the realization in India was down about 4%. This time around it is 1.5%. Can you elaborate because I was thinking in the context of new launches that you have done, Rs. 10 higher volumes, this number has actually gotten better. Can you elaborate a bit on this?
Well, Rs. 10 is a very small part and is not going to affect us. We only use it where we feel it is necessary. It will be less than 2% of our total volume, so practically it would not show. We are using it only to make sure our distributors remain with us, we use it only selectively. We have the product range ready with us, if ever we need them we can use them. Also, as we said earlier, once the season is reasonable, we consolidate and cut some costs. With all our new plants coming into effect, we have further reduced our costs, as the new plants are much more cost-effective and larger, with much higher production levels.
Reliance is saying they are now India's third largest branded water player. Can you comment in terms of your standing within the top players and whether market share is changing? And in water, at some stage would you need volume growth initiatives there also?
No, we do not over-push water. We try and make sure our basic margins remain and we want to make sure our exclusive customers and our visi-coolers, which is close to a million plus in the market, are serviced properly. Water is like a commodity, you can increase your sales as much as you want by offering discounts, which we are not in the game of and that is why we can sustain our margins.
There are some supply chain issues, which might have impacted opening of new plants for competition. On the other side, we have sufficient capacities. Wanted to check, can we benefit from this or the competitive intensity that you were anticipating is on those lines itself?
Well, we think competition is there, but there is enough market for everybody to take, as we have said that every time. We are adding about close to half a million and maybe more chilling equipment, which is between Campa, Coke and ourselves and plus the individual outlets are buying 400,000 - 500,000 own coolers. So, there is a million chilling equipment, refrigerators going in the market on a year-to-year basis. That is expanding the market drastically. We think whoever does a good go-to-market and whoever can expand his distribution will win the game. We are trying to do that and are expanding at about 300,000 - 400,000 outlets every year. Hopefully this year we might expand half a million outlets.
For Twizza and Crickley Dairy, what is the revenue and margin run rate that can be baked in for CY26? And what is the expected CAPEX?
Well, our CAPEX is not going to be very large this year because we have enough capacity. We are most probably going to only have one plant. Our CAPEX will be less than Rs. 500 crore - Rs. 600 crore this year for India. It will be very low this year. Revenue was Rs. 800 crore for Twizza and about Rs. 160 crore for Crickley. So, about consolidated maybe close to a Rs. 1,000 crore between the two. On the margins, we think it is a bit too early. Let us take it over properly. It has been 10-15 days only or a month. We are going to correct the margins. With the consolidation of both BevCo and Twizza we have enough room. Twizza has enough production capability which we were struggling in BevCo. So, this will help us give growth going forward without putting too much CAPEX.
On market shares, on a very high base, you have done an exceptionally good number. Given the availability issues which you are able to tide upon, do you see opportunities where some of the other players have not been able to do as well and that could play out in terms of near-term market share gains?
We cannot answer for other people. The only thing we can say, we are fully prepared and we have enough capacity that even if we get a 50% growth, we can comfortably do it without adding any capacity. We are fully prepared, we have the raw material, we have the back end covered. We only hope to God to give us the good weather and then we should get a good set of results.
Is 1.5% realization decline more like what we should build for rest of the year, or because of seasonality this number could fluctuate?
Yes, we think it might even become lower because it depends how strong the season is, or it could remain that. But that gets more than covered as we said, if the numbers start happening, our efficiencies go up and our costs start reducing drastically. So, this 1% or 2% we can cover easily if the numbers are right. And we feel the numbers are going to be good this quarter.
Looking at the standalone P&L you have done 11% sales growth on a fairly high base. The 2-year CAGR has accelerated sharply from about 6%-8% to 14% this quarter. What is the reason for this acceleration? Is it just the summer season being better, or has the rate of market share gain by the new incumbent slowed down?
Well, we think we have never had 6%-8% growth except last year when the weather was really bad and India did not grow. We have been average growing at a CAGR of 23%. We do not know where you are getting 6%-8% growth. Last year was the one exceptional year. That is what we are trying to say. Otherwise, on an average we have been always growing in double digits. And with some new acquisitions, we have grown at more than 20%. But double-digit growths have been there if you look at last 5-10 years. It is only last year, India because of the weather, our growth was lower. That is the only reason. We still believe we can grow in double digits going forward for the next 5-10 years.
On input cost, if crude remains at 100 for several more quarters, at some point you will either have to increase your prices or reduce your discounts or take the hit on the P&L. Do you think you would be able to hold your margins or margins might take a hit a few quarters down the line?
You know, it is very difficult to answer, but only thing we can tell you, we might be the only company which is holding 6 months inventory. We think other people will blink before we blink, we have to wait and see. Either everybody will take the prices slightly up to cover the costs or take a hit. We cannot answer you that, but we do not see us taking a hit because we think other people have a much bigger issue than we have.
With upsizing of 250 ml to 400 ml across the country across portfolio, do you expect any more changes in your pack price architecture? Is there any pack price architecture change that is left in your view?
Well, we will see what the market requires, and we will play with that. And if we had something in mind, we would not be able to divulge it anyway because that is not good for us from a competitive perspective.
What is the sales mix currently as well as the sales mix which is expected in a few years down the line, especially with the traditional core flavours and the new alternatives such as Sting or Gatorade?
Our mix keeps changing on a year on year. Energy is definitely becoming a big part of the portfolio and dairy and hydration are also becoming significant segments. But this will keep changing year on year, so it is very difficult to say. The new Gen Z keeps on asking for something new all the time. We have everything to support whatever is required because it is the same machines which produce it, so it is just the matter of changing the flavours or packaging.
Where you ended on the geopolitical bit, can you talk about the impact that you expect from a near-term perspective, especially on the packaging material and anything else that we should bear in mind across different markets because of higher oil prices?
Well, Vivek. First of all, in our international markets, the impact on raw materials will be practically zero to a couple of points, as we are well-stocked not just for this quarter but for the next quarter as well. We normally carry 6 months inventory in international, our impact will be practically very low, and which actually gives us an edge over our competition because we do not think competition carries anywhere close to 6 months. As far as India is concerned, we will have a minor effect because again we are reasonably covered for this quarter. Still, for the next quarter, we will have some effect, but we are covering that by reducing our discounts and becoming more efficient. We are cutting our costs wherever we can, and this is already showing in our first quarter results. And as long as the volumes continue to come, we do not think there will be any effect on the bottom line.
Beyond packaging material, anything else that we should be aware of?
Well, the only thing which can affect us slightly, which you cannot stock, is the transportation cost. There will be some impact, but we will be more than able to absorb it, and it would not show any major issue on our P&L.
When I look at your inventory build-up in the P&L, it does not look like to be very high compared to what you have had 2 years back. Just wanted to be sure for India business, are you covered for most part of the season for this quarter?
We are completely covered for this quarter, and we are partly covered for the next quarter also.
Realization last quarter minus 4, this quarter minus 1.5. In fact there were worries that this number could actually be worse than what it was in the December quarter. What explains this delta then?
Vivek, in fact, we have premiumized a number of products. New launches, along with the growth of around 60% in our dairy segment, where realisations are nearly 3x of the normal level, have helped. Our focus remains on compensating a major part of the impact through the system itself.
On aluminium cans, you have tied up your inventory for PET and most of the packaging quite well. Is there any shortage which you are facing? And what will be your salience in terms of percentage, aluminium cans?
Well, first aluminium cans sales is less than 2% for us. It is very small. Secondly, we have tied up a reasonable quantity to more than cover up our 2% volumes and even a little higher, so, we will be able to get cans. They are slightly more expensive, but as we said, wherever we are finding a large cost up, we are cutting discounts in the market. There is shortage for everyone and the costs are going up for everyone, and if the demand is there, we will make sure that overall, our bottom line is not affected.
In terms of energy drink portfolio, how has Sting done? And you had also mentioned expansion of that portfolio including the scaling up of mid-priced Ad-Rush. If you could tell us how has Sting cans done, how has Sting overall portfolio done, and how has Ad-Rush done?
'Ad-Rush' has done phenomenally well. We are feeling some pinch because of the shortage of cans, as we had not expected 'Ad-Rush' to do as well as it has. So, there is some pressure there. In can we have launched our new 'Sting Classic' and it is doing extremely well. The demand for both these products is much higher than what we anticipated. So, we will be doing better than what we had planned. We have also launched the Sting classic in PET bottles, which is doing extremely well, but it was introduced in the market only in April. You will see a big response of that in this quarter.
All the FMCG results have been ahead of expectation. Based on your understanding, would you say that there is an uptick in overall consumption trends?
There is definitely an uptick. Overall industry is growing, there is Campa in the market, they are growing the volumes in the market, and even Coke is growing. We do not know if we are growing faster, but definitely market is growing at a huge pace. And we think as there is enough competition, everybody is going more in the market, putting more chilling equipment, more outlets are being opened. We are very bullish on the Indian market, and we believe the growth should continue in double-digits for the next 5-10 years at least.
In terms of new products, can you give us a sense of what new launches have done, particularly around Nimbooz and the milk-based beverages. And is there any risk in terms of unseasonal weather or do you expect summer this year to be very strong?
Well, what we are hearing, summer looks to be very good. A month has already passed, and the trends are looking very positive. If the weather continues like this, there is no reason why we should not perform extremely well. Our products are doing extremely well, dairy is growing at 60%-70%, Nimbooz is also doing at great pace, Tropicana PET at more than 100%. The new mid-priced energy drink we launched at Rs. 60 'Adrenaline Rush', is performing extremely well. Even our energy drink in cans is doing very well. The new launch of Sting Classic, has started only about a few weeks back, the initial response is fabulous, and we feel it could achieve the same success as Sting Red, hopefully. At the moment, it is looking very positive.
In the base quarter, the rain disruption was across all 3 months last year or it was more towards the second half of the quarter, if you could provide some colour?
Well, it was mainly end of April to end of June for sure and even continuing to the third quarter. But for this quarter, we think it was mainly May and June which were really disaster and April end was not great.
Can you give some granular details on how the international has grown? It seems South Africa would have driven bulk of this growth, but if you can give some granular colour there?
No, it is not only South Africa. Actually, all our international businesses have grown. Average is 21% international. South Africa is very close to what the international market is growing. All international markets, otherwise we would not be able to average 21.4%. We think Morocco was the only one which was weak last quarter.
On the food distribution, snack foods first quarter this year is Rs. 112 crore. You will consistently see further ramp-up as well, right, in terms of the run rate?
Absolutely, because Zimbabwe plant has just come up last year, end of last year only. So, there is consolidation and growth coming.
On distribution, for this year, calendar year, that 8%-10% type of addition number is the year panning out consistent with that?
Yes, that is what we had just said that practically this year we have added more than 10% outlets. So, that is why we are hoping to add close to half a million outlets with a base of about 4 million. We are aggressively increasing our go-to-market and that is what is actually giving us the results.
On availability of raw material, particularly PET - have you started to see any visible signs of challenge for the smaller unorganized players? And with this kind of inflation, do you see potential scope for price increases ahead as the broader industry tries to offset the inflation impact?
Well, we see the B-brands and the other players selling water, they have not increased the price, but they have reduced the discounts. So, this we are already seeing in the market because the costs are going up. We feel this will further happen once the gasoline prices go up. There will be some pain, but we are reasonably covered. We cannot say fully covered because we do not know what the prices will be. But at the moment for this quarter we are covered with our raw materials. Now gasoline price is the only vulnerable part which is not such a large part in our scheme of the whole thing. If the prices go up, then we will further reduce our discounting to some level.
On international business also, this quarter there has been a significant acceleration in growth versus what we have seen in the past few quarters. Wanted to understand the reason for that.
When we take a new territory, it takes us a little bit of time to stabilize that territory. Last year South Africa and DRC had just started for us. Some challenges and then you know with the Gaza war we had some other challenges. All those things put together last year was a tough year for us. But if we do not have external issues, our growth should not be less than double digits comfortably outside or in the country.
With upsizing of packs from 250 ml to 400 ml, are you seeing more consumption and hence do you expect industry volumes to be growing faster? Or are you seeing the consumers who were buying larger pack Rs. 40 packs are now buying 2 units of Rs. 20 SKUs? Is consumption going up in liters?
Well, the consumption is going up in Liters as well as in numbers, both ways. If it goes up in liters is not good enough for us, we need the numbers to go up as well. So, both are happening and that is why you are seeing such large growths coming.
Should we expect that you had broadly be able to maintain your margins in India business, so that 250 to 400 ml upsizing has actually not really had any meaningful impact on your India business margins?
This full quarter we had the upsizing, so whatever effect had to come has already come and our volumes and our efficiencies have absorbed all that. And as we said to you, our larger plants are much more cost efficient and our cost of production is considerably half of what we were doing in our smaller plants. Scale is what is giving us the strength and cost reduction. We are able to consume some minor upsides which we can easily absorb.
In terms of the impact of the new plants, is there any kind of material impact from utilization rates? And globally sugar prices have been falling, is there any impact on the Indian market at all?
There is some impact. Sugar prices are reasonably consistent here. Fortunately, they have not gone up, which is the positive side of the international prices. And in the international market, definitely we have had a gain on sugar costs. International prices have come down significantly. But in India, it has been reasonably constant. Fortunately, it has not gone up. Utilization is definitely helping, as our volumes are going up and the plants are getting more utilized. We are using more of our larger plants, and we have shut down a couple of high-cost plants, which were very old and small. Overall efficiencies and cost cutting are helping. Looking at the current situation, with costs expected to rise, we have tried to curtail our costs and make sure we run the operations more efficiently than before.
You are opening new plants and they are much more efficient than the previous ones. What is the expected payback period for these plants?
We need capacity, and for that we need to open new plants, otherwise we cannot keep up the pace with the growing sales. If our sales are going up, they have to be backed up. The only thing we are saying is now we are not opening smaller plants and our plant efficiency being larger plants is much better than what it used to be in the older plants. Just to give you an example, if we had a 200 bottles per minute line, now we have got a 1,000 bottles per minute line and the manpower is the same. It is five times more production but using the same manpower. Normally we work on a 3-4 year payback. 30% RoCE.