Sundrop Brands Limited (SUNDROP) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Sundrop Brands Limited Q1 FY27 earnings conference call hosted by Anandrati Shares and Stock Brokers Limited. As a reminder, all participants will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on a touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ajay Thakur from Anandrati Shares and Stockbrokers Ltd. Thank you and over to you, sir.

Hello, good afternoon, everyone. We welcome you all to Sundrop Brands Ltd. Q1-F27 Earnings Call for School, hosted by Anandrati Shares and Stockbrokers. From the management side, we have Mr. Nitish Bajaj, Group Managing Director, Mr. Ashwish Kumar Sharma, CEO and Executive Director. And Mr. KPN Srinivas, CFO. Without much of an ado, I shall like to hand over the floor to Mr. Nithish Peddar for his opening comment, followed by Q&A. Over to you, sir.

Yeah, hi. Thank you, Ajay, and good morning, all. Very happy to be with all of you. I would just like to make one more addition here. We also have on the call Abhinav Kapoor, who is our CEO for Del Monte Business, and Amitosh Kumar Banka, who is our CEO for Del Monte Business. So that's the team today available for all of us on the call. I will, as I go along the presentation, I will keep referring to the slide numbers so that you can relate from where I am making certain comments. So starting with my set of presentations, I am moving straight to page number three. A quick recap for some of you who may be joining for the first time with us. On our vision and mission, as an organization, we stay true to our mission of bringing joyful food experience to the modern world in consumers, which means that we would work on a portfolio which has a broader than India or a greater India view. Of course, we shall continue to deliver it through bringing innovative, delicious, and convenient packaged food solutions to our consumers. Also, as a key part of our thesis of why we are a very good platform, Sandra Brand has gradually started to emerge now as a platform with reasonable scale and, of course, a very strong profitable growth opportunity in the periods ahead. We have done it through addition of Del Monte Foods business to our portfolio, which happened in February 25. As a combined organization, today we operate in categories which have high growth and also have reasonably strong margins. We have brought in a very intensive focus on our core portfolio, so we have made strategic choices around portfolios which we have been investing in over the last 18 to 24 months, and those sharp calls are also starting to show dividends in the way our growth trajectory has shaped up over the last. One and a half to two years. We do have very strong and growing salience in emerging alternate and fast-growing channels, which is specifically to call out modern trade and e-commerce. Their salience is also significantly increasing. As a management, our team is focused on profitable growth as a key thesis. We are working strongly to improve our EBITDAs, leveraging the scale benefits, leveraging the platform benefits of the organization, and also consistently looking at cost efficiency and value improvement opportunities for our products and portfolio and the way we operate business. The overall thesis has seen a little bit of change. Historically, we were more driven with capexes within the organization to drive growth as a thesis. We have changed it over the last two years to say that we will follow a capital-efficient approach, which means we will use a mix of... Good manufacturing platform available outside of our own ecosystem also, and use third-party systems wherever available and of high-quality order to drive innovation and growth, and, of course, expand the efficiency and utilization of our own capital assets. And we are also driven to look at both. While we grow organically on the portfolio, we are actively also looking at inorganic opportunities, which could help us accelerate the growth momentum of our business. As a platform today, I'm moving on to side number five. As a platform today, we have three key brands, Actu, Belmonte, and Sundrop. Just as a quick reminder, ACTO and Dalmonte, we have Perpetual. We have licenses for Greater India Geography. When I say Greater India Geography, it covers India, Sri Lanka, Nepal, Bangladesh, and also Myanmar-Kutan geographies. So we have a perpetual license for these two brands. For larger geography, we are also affiliated with the parent companies, and we have exclusivity to be having the first right of anything which they would want to bring in these brands in this part of the country. We, of course, have global rights for Sundrop brand, and these three lines put together form the bulk of our business as we operate today. Coming to quarter one numbers, I'm on page number, slide number six. I'm very happy to share that we have consistently been delivering accelerated growth projectly, and in this quarter, we have closed a quarter with a 15% consolidated revenue growth. Some key insights to this, of course, sequentially, we have grown 11% over last quarter, 15% over previous quarter last year. Within the mix, if I have to look at, our B2B business has continued to be a shade better than our overall business, growing at 18%. Our e-commerce, which is very important, Future Growth Channel for us, has maintained a strong trajectory ahead of industry growth rates at 32%, which means we are gaining share there in most categories that we operate in. Our investments, we have been upping our investments right from quarter four of FY25 in central business and quarter one of FY26. In Del Monte business. So as we have moved on that journey, we have also understood much more sharply as to which initiatives are giving stronger outcomes. And hence, today we operate at a much healthier level of AMP spends as a percentage of total sales. And we have been growing them either sequentially or quarter on quarter. But overall, our levels are significantly higher than previous years. We have been looking at expanding our margins. Of course, last year we had seen rapid margin expansion driven by specific initiatives where we had got external partners to look at our cost efficiencies. We have been able to maintain and sustain those and also build on to those. So in this quarter also, while the environment was very inflationary, and we are all aware we have seen significant inflation in certain commodities, significant inflation in packaging material side, but despite that environment, we have been able to further improve our gross margins by about 110 basis points. And as we have closed the quarter, we have closed the quarter at a very stable, healthy EBITDA margins of 7%, which is what we also have achieved, a very similar number in quarter 4 of last year. Moving on to slide number 7, I will give you some flavor of the two businesses inside. Sandra Business is about 56% of our total business, has grown in quarter 1 at about 16%. Thank you. We have accelerated somewhat from our 14% growth in quarter 4, 15% growth in quarter 1 last year, and a full year growth of 12% last year. Similarly, if I look at Del Monte business, which is another 44-45% of our total business, has accelerated to 14% growth. Same number in quarter four was about 9%, was in quarter one last year at about 8%, and full year last year was about 9%. So as a group, we have accelerated growth. The important point I would want to make is whatever we are doing is driving our growth sustainably. So you are continuously seeing marginal accelerations, but fundamentally we are wired to drive capital-efficient growth as of the last week. So, we are continuously working to up the intake, but you would only see on a quarter-on-quarter basis marginal improvements, which you would have seen over the last year, where we moved from, let's say, From about 4-5% growth, which we had before we really took the investment thesis on this business, to about 15% growth now. On the choices we have made, and now on slide number 8, our core category is where we invest. That business is, of course, showing greater acceleration overall, and today contributes to about 60% of our total business, up from about 53% about 3.5 years back. This may have gone down a little versus quarter four, which was very excluded, about 62, because we are seeing some of our initiatives taken on staples or our premium staple oil business continuing to do well for us and driving growth in line with our overall business growth. So, while that is still not from an advertising set of investment, A growth portfolio for us, but whatever we are doing on PACT, commodity side management, cost side management, is helping us maintain a good growth rate even in our oils business. I'm moving to now slide number nine, which is where our core category and staple business is covered. So, on the popcorn business, very happy to say that we have been consistently maintaining over the last full year and also multiple quarters a growth rate of close to 18%. And this is backed by a very strong volume growth of 12%. And hence, this is a very strong growth hero, which is driven by our investment thesis for the business. On culinary, which is a mix of ketchup, mayo, and dressings business, we have seen acceleration of growth, with growth moving to 15% versus about 10% last year. On the volume side, the business has been growing at about 8%. So I think our volume growth has been stable. We have been able to increase the pricing power. Also, of course, some of the pricing decisions were necessitated by the commodity environment in this business. Which we were able to pass to the consumers while maintaining our wanting growth momentum. Moving on to premium staples business, again, very strong growth trajectory of 16% in value, 7% in volume, versus quarter 4, it is a shade lower on value at about, which was at about 20, but from, if I have to look at full year last year perspective, we have maintained the growth rate of about 16%, and from a full year trajectory, our growth has expanded to 7% this year versus about 3% last year. The Italian business, which I have talked about, which is a mix of our olive oil and pasta business, again, very strong, and this is the first time we are returning to value growth in this business. We had talked about our commodity environment, which has softened in this business in last year, which we had passed on to consumers, because of which, while we were growing volume, we were seeing value decline last year. As we enter into this year, We are now seeing the choice rectifying into both value and volume growth. So our volume growth has been more or less maintained at a last year level of 16% to 17%, while we have returned to an 8% value growth. And this value growth should further expand to closer to 15% value growth if we are able to sustain our volume growth of 15% in the quarters ahead. Peanut butter or our spinach bread business, that has been a spot of water for us. We have taken certain calls. I would say we have some. So, some quick signs of recovery on this business, but it still continues to be negative. So, while we were about 8% to 10% negative in value, last year, value and volume last year, we have been able to bring it to about a 3% decline in this period. I will give you some flavors as we get into category on slides ahead. Moving on to slide number 10 on the popcorn business of ours. Both ready-to-eat and ready-to-cook formats are showing very, very strong growth. Ready-to-cook business, which is the historical business, continues to grow at about 9%. This is the way the business had originated for us. Along the journey, we had also expanded our presence into... We have convenient, ready-to-eat formats, and that business has been accelerating growth year-on-year, quarter-on-quarter, and we are now running at about 39% growth, up from about 33% growth we had last year. So the momentum is further strengthening. This momentum, which is expansion in ready-to-it business, is driven a lot by distribution-led penetration in the general trade because we see there is a very strong opportunity to expand the penetration of ready-to-it category. In west and south, and we have already been able to demonstrate that in north followed by east. So north followed by east, we have been able to establish this category very deeply in terms of distribution, and we are working to expand that in west and south as we go along the growth journey on ready-to-eat business. All ready to cook business. Again, it is a mix of driving new trials through distribution expansion, where a repeated price point plays a very critical role. But as we have gone into, we are seeing the evolution of quick commerce channel in the country that is also helping us drive consumption of in-home, both through ready-to-cook formats and also ready-to-eat formats. In high-tech sizes and high-tech coins. So, Quick Commerce Channel is actually helping us drive consumption at home, but that is coming through a mix of both ready-to-cook and ready-to-eat formats. We are working to expand our sweet popcorn and cheese portfolio because in these, we see strong growth opportunities. So in quarter one, we did some launches specifically in the sweet popcorn area where we do see strong growth opportunity as our country is a sweet tooth country. And this is one segment which Act 2 has historically not exploited. So we are starting to work in that area as well to drive our growth stronger. Moving on to slide number 11. On edible oil business, as I said, our growth momentum has been sustained. We are very happy to share that we are now growing in volume. Historically, we have had situations where lack of focus on this category had led to volume declines. But now, by maintaining a very selective, sharp focus in certain geographies of strength, channels of strength. We are able to now get both volume and value growth in this category. Value growth, I must say, is linked to the inflationary environment in this category. Generally, this category is price sensitive. Our stated position on this category will be to protect volumes, and going forward, we will want to at least grow 4% to 5% on volume terms, outfacing the category growth or at least be in line with category growth in this business. What we have also done is we have looked at selective innovations, selective channel focus, new pack size introductions, etc., where we found growth opportunities and growth initiatives are helping us do well in this category. Moving on to Peanuts Spreads Business. We do face headwinds on this business in modern trade and e-commerce channel because market moved from plain peanut butter formats to more value-added formats like chocolate-flavored variants or higher protein fortification variants. We were late to do innovations in those categories, and we have seen the impact of that in share. Over the last nine months, we have been able to beef up our portfolio with a full fidget range in these high growth variants, whether it is high protein segment or a chocolate segment, and that is now starting to see some results in e-commerce quick commerce channel, where we have returned to a growth of 16%. And that is what is helping us. Arrest the decline in this business from an 8% to 10% decline last year to a 3% decline as we close Quarterback. We are very confident that this strategy will help us return back to growth in this category. Our overall ambition would stay to get our foods business to go at mid-teams to higher-teams level, and we would stay focused to get our peanut butter business also in this dimension as we move along our investment journey on this business. Moving on to slide number 13 on the culinary business, which I said is a mix of tomato ketchups and mayo business. This business is a fairly distributed business in both retail and B2B side. We are seeing very strong growth in B2B, which is helping us expand this business stronger. But of course, our B2C business is also growing. So, combination of B2B strong growth and specific high-intensity channels like e-commerce, modern trade in the retail. are helping us drive very strong growth in this business. We are also seeing exports growing on back of some key accounts we have in Southeast Asia, which is helping us grow. So overall, this business remains a high investment focus because we do see a opportunity to drive growth on the rising consumption of Western foods in the country as also on the back of very strong distribution footprint opportunity we have in this business. Thank you. Moving on to slide 14 on our Italian business, mix of olive oils, pasta, and ready-to-eat olives, that business is growing both in volume and value terms at 15% growth in volume and 8% growth in value. Only while, which is the hero product, which is the core equity driver for this, which is where we are going to, we have started high investment and are only going to up the ante of investment in the period ahead, has seen very sharp growth of close to 20% in volume terms, driven by even stronger growth in e-commerce channel, where we are increasing our investment. But this is, of course, a category where we will drive both from consumer saliency and channel saliency point of view in the journey ahead. Similarly, pasta business is again growing by 10% with strong growth in e-commerce and full-service channels. Moving on to slide 15 on our e-commerce business. This is the highest growth area for us from a channel point of view. We have significantly shifted the focus of organization to invest ahead of curve in this channel. We are also using this channel to drive our... Innovation or certain new category increase, and that combination of investment plus innovation-led growth is helping us deliver 32% growth in this channel. Very strong growth we have always talked about in QuickCommerce channel, which was historically also driven with the expansion of QuickCommerce in the country. But very happy to also share that hybrid platforms have also started to grow strongly for us in this area. More importantly, some of the new categories which we started investing on in the last one year, now we are seeing that business going three to four X of that nature as we invest to gain shares in those categories. Of course, we are still very small players, and that's why the growth today is looking aggressive. But as we build the base, the absolute quantum of increase on that business is also looking very promising. Overall, our spend, brand spend, and I would want to nuance it for you among slide 16, have grown from last quarter at about 49%. You would be well aware, and many companies in our ecosystem have talked about reclassification of spends, which is linked to how the trade visible is in spends, which we would do in modern trade were accounted for. They were typically being included in marketing spends. Now, as per the new guidelines, we are reflecting them as trade spends, so they are being necked off from the sales. So, as an outcome of this, we do see a sharper growth visible over quarter four, but if I do like-to-like comparison, our spends are growing at about 12% versus quarter four, and are about 5% lower versus quarter one last year. To nuance it from a definition of 5% lower versus Q1 last year, we had, as I said, gone into investment journey in Sundrop from Q4 of F525 and in Del Monte from Q1 of F526. So, at that stage, anyway, we had significantly upped our investment. As we have understood the various investment initiatives, today we are in a very strong position to do ROI-centric marketing investments, which is what is the overall thesis on which we will try to go for this. Moving on to slide 17, our automation of Salesforce, which was a very critical tool for our productivity of sales organization. That project had worked well. I had talked about us reaching the point where we have the larger retail universe of Sundrop. So that, of course, has continued. But in addition to that, we are now seeing significant fraction of entire billing history generation, data generation. of our outlet sales coming through this platform. So roughly about 80% of our outlets are today getting billed on this platform. End of last quarter, this number was about 75%. And this will, of course, will be a very strong initiative for us to optimize our coverage costs for the organization or the platform put together as also drive productivity improvement initiatives in the channel ahead. On the margin improvement side, I'm on slide 18. We, of course, have seen very, very highly inflationary environment. Despite that environment, we have been able to continue and sustain our initiatives where we had led improvements in our patent act, manufacturing and logistics costs. So, overall, on the material side, despite inflationary environment, we have seen 40 basis points improvement versus last year, where we had seen significant improvements on the nature of 200 to 300 basis points, and on other expenses, also seen another 70 basis reduction in margins, and that is translating to about 110 basis points improvement in our overall margin. Moving on to slide number 19. Innovation, we have talked about, has been now central to our work thesis. We have been expanding our innovation portfolio over the last years. 12 to 18 months. And if I look at now, what we have launched in the last 24 months, we have launched close to 100 products, and we are getting about 4% of our overall sales through this portfolio. If I also talk about sequentially how it has built up, in quarter one, it's sitting at about 6% of our overall sales. And hence, we are seeing increased traction. We would want roughly about 6% to 8% of our sales. Growth, which is, let's say, 40% of our growth ambition, if we have to talk about growth of mid-teams or higher, to be funded out of innovation, and that journey is shaping up very strongly. Moving on to slide 20, that is our consolidated P&L statement. As I talked about it, growth of top line, 15%. Material size, we have grown a shade lower, and hence material size efficiency has improved by about 40 basis points. Our cost side controls are stronger, which is what is helping us improve our margins further. A&P, as I talked about, looks about 12% lower here, but in real time, this will be about 5% lower. More importantly, I think we need to keep in mind that we are today going 5% to 6% of our top line being invested on media and promotion. If I look at core portfolio where we invest, That number now actually, because 60% of our business is core where we invest, that number transmits close to about 8% of our investments going in advertising and promotion, and that we are going to maintain or build as we go along in this journey. As an outcome of this, our EBITDA has improved sharply, grown strongly versus last year, and we are sustaining the 7% EBITDA levels, and these are, of course, normalized net of ESOP costs. which we have shared always in the past. So, we have sustained the numbers of amounts. Moving on to slide 21, I'm just coming for all of us. Why Sankar Brands is a very strong portfolio to look at. We do have a portfolio of stable, well-known brands which cater to the needs of evolving Indian consumer who is getting more effluent, who is getting more open to Western food choices. We do, as a platform, rise on all consumer megatrends, whether it is increasing consumption of out-of-home, whether it is increasing exploration of new food choices, and, of course, our categories are sitting in areas where penetration continues to be a strong driver of growth. These categories also offer significantly stronger margin versus commodity size, and in some of them today we have leadership position, in some we have a challenger position, but overall, given the context of penetration, going growth of category, and the share gain opportunity, we do have a very significant headroom for sustainable growth in these businesses. We will continue to deliver that through investing, making right choices on portfolios, which we have already done, but also right choices on investment vehicles, which we have sharply understood over the last one and a half years of journey, and that will ensure that our growth always remains more capital efficient. Last two points on this. There is still complementarity on January and manufacturing strength. We have started to make some moves in this direction, but there is significant headroom, and over next one, one and a half years of January, you will see that also panning out to drive better improvements in margins and also, of course, continuing or strengthening our growth momentum. So, that's all from my side. I would like to now close the session from presentation point of view and open it for Q&A. Thank you so much.

Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchstone telephone. If you wish to withdraw yourself from the question queue, you may press star and 2. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Naveen from i.PMS. Please go ahead.

Yeah, good morning, sir. Am I audible?

Yes, please go ahead.

Yeah, congratulations on a good set of numbers. So first question is going to be on A&P spend, right? So sequential increase, year-over-year dip. So a little bit more on just two things about this, right? So one, have we become inherently a lot more efficient with our marketing? Or have we changed, you know, area of focus from maybe a particular brand or a particular segment to another? Has cost kind of this change, you know?

Thank you, Ramin. So, I'll just nuance it a little more for you. See, we started the investment journey on portfolio, both in Sandrop and Del Monte, in quarter 4 of FY25 and quarter 1 of FY26, respectively. And when we got into, we took calls on certain categories to invest. Largely, our focus has remained on those categories, but having said that, we did, for example, take an investment call on Juice's portfolio in quarter one of last year. We are saying it is not so core, we have not seen good results, so we are dropping that call. But fundamentally, whatever we have called as a core portfolio in Sundrop, there we continue to invest, and in Sundrop Brands as a business, we have only expanded our investment in quarter one. If I talk the same in the context of Del Monte, we started with certain categories. We have only taken a call not to invest in food juices business. NetNet, I also qualified by saying, while you see a 12% decline, if I take the impact of reclassification of trade spends. It's actually 21.4 versus 22.9, which is just about a 5% decline. And that is just the optimization. Overall, I think the confidence you need to have is investing in portfolio remains a key pieces for our work, and as a management, we'll continue to do it. We did have some learning, and these are a very smaller set of optimizations, which have been done in one specific portfolio. The core categories which we have been talking for last one year have remained strong on investment and they will continue to be strong on investment.

God, that's very clear. Just a couple more questions. One question would be like popcorn, right? So with Ready to Eat specifically, we're entering categories like cheese and popcorn where like, you know, admittedly some, a brand like 4700 BC has been thriving so far. So like, could you just help me understand, like, you know, post the acquisition of that brand by a bigger company? Are you seeing some more aggression on the mark, like, you know, on ground? Are you seeing more distribution in GT? Would you like to highlight any difference between like our Act 2 offerings and those offerings that have been very successful for them?

Yes, so we constantly review portfolio evolution. See, we are a category leader in popcorn business. We constantly monitor how the portfolio has been evolving. And of course, as more players come in category, you see greater dynamics of innovation and investment, which in generally I would believe is good for the category. We today would hold closer to 85% share of the category, so we are a very strong dominant market leader. We haven't yet seen any significant shift. From the way Category was operating pre-acquisition of Addison & B.C. by a large player, from our context, we have, of course, significantly upped the investment, and we have understood which are the choices in portfolio which we could ride on and expand our share further and, of course, continue to grow. So sweet popcorn, I talked about it. We did see that we have an opportunity to be stronger share or bigger share, and that is what we have picked up and starting to focus on invest behind. Cheese popcorn in some pockets, we saw that's a flavor which, let's say, we were not really leveraging in e-commerce general. So we brought that also into e-commerce portfolio so as to expand our growth. I would still say constant innovation, constant new opportunity of growth, either by doing category-first initiatives or also some initiatives which will help us drive share gain.

God, it's a perfect.

Sorry to interrupt, Mr. Naveen. May we please request you to rejoin the queue, sir, for the follow-up. Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the question queue, please limit yourselves to two questions only. Should you have a follow-up question, please rejoin the queue. Next question is from the line of Pritesh Cheda from Lucky Investments. Please go ahead.

Yeah, hello, sir. How are you? Could you call out the volume and value growth of core and non-core as blended, blended core and blended non-core, what will be the volume and value growth?

Yeah, so, see, overall, if I look at, we have talked about 60% of our portfolio is core, and that is growing at about 14 to 15% in value terms, and about 9 to 10% in volume terms. In the non-core, the oils, which is growing a shade faster in value at about 16, volume is about 7, and then in the non-core, outside of oil, and oil is about 20% of our business, edible oil is about 20%. So, contour-wise, you would say that 80% of our business today is growing at about... 15% to 16% on value and about 8% to 9% in volume. Balance of the business, which is another 20% of our business, is seeing a very similar or homogenous growth because we are seeing our CP manufacturing business also seeing good volume traction. We do make energy drinks for certain companies. We are seeing good volume traction in that business, so blended that business put together. It's still continuing to grow at about 59% in value and about 8% in volume. But core portfolio where we invest, I would say our growth is 9 to 10 in volume and 15% in value.

My second question is, you know, around your key pillars of, if you could call out the key pillars of your growth strategy, not at the brand level, but generally, you know, at the overall level. And what will it lead or translate into value and volume growth for the four categories?

Okay, so in the key categories, very interesting one, popcorn, ketchup, mayo, and let's say Italian. So I will first talk about popcorn, ketchup, and mayo. There I would say there are three key pillars for growth. First is, of course, distribution expansion because categories have opportunity to either gain share by category penetration expansion, like popcorn, or gain share by distribution expansion, which is mayo and ketchup. Second area is, of course, investment, because as you want to either gain share or you want new consumers to come in, so your media investment needs to go up. So we are going to invest ahead of course on these categories. Third area specifically for these categories will be in the area of innovation or new product through which we can do certain share gain strategies. Coming to Italian business, and Italian business, I would say there's still more top-down, metro, and new channel like e-commerce focus. There, the growth will be driven not so much by distribution, but more by innovation and investments. And on peanut butter, again, I would say innovation is something which will be very central to drive growth for us because we had a catch-up to do. We have already done the catch-up, but we will also want to do certain innovations to drive stronger growth and share recovery in that business.

What will it lead to value and volume growth for core categories? Will we see improvement from what you are doing or what you are recording today in volume?

So, see volume growth intrinsically if you look at in most categories we are seeing 4 to 5 percent volume growth. You are today already... Ahead of curve in the volume growth, which means we are able to gain some share in most categories. Of course, popcorn-like category, we are the ones who define category. But outside of that, I would think sustaining 10% kind of volume growth is what we would really pivot towards. And value growth, we would want to add another, let's say, 4-5%, and innovation-led growth could be another 4-5%. So, in a longer term, if I can go to high-teams growth, it's something we would aspire for, and broader mix will be 50% through volume, 25% through price, and 25% through innovation.

50 volume, 25% price, 25%.

Hello, Mr. Shidam, may I ask you to rejoin the queue? Sorry to say, when I said 25%, I'm talking about 25% of mid-team growth to high-team growth.

Yeah, I got it, sir. Thank you very much. Thank you. All the best. Thank you.

Thank you. Next question is from the line of Balaji Vedianathan from Nafa Asset Management. Please go ahead.

Good morning. Thanks for the opportunity. I have a couple of questions. One is on the Italian portfolio. It seems like we've had a fall in realisation to the tune of 6 to 10%. Is it fair to assume that it's some kind of quick commerce discounting that we are doing on this portfolio?

Sorry, I couldn't understand. Which portfolio did you lend in Italian? Italian portfolio. Abhinav, you want to answer this?

Hi, good afternoon. This is Abhinath. So, see, if you look at the Italian portfolio, Nitish talked about it during his presentation. If you look at the entire of last year, we've been in a commodity deflation cycle. So, essentially, when we buy it, we've been buying it at lower pricing, which we have passed on to the end consumer. And this is that while we did see volume growth, we did see a value decline last year. Now this year, for example, with the growth, I would say the price is stabilizing in the market. We have now started to see a value increase which is coming through. But last year, quarter one, the price passed out only started from, I would say, quarter two onwards. Quarter one, we were still running on higher inventories with the old pricing. So that is the change that you're seeing right now. This will stabilize going onwards from quarter two. So, currently, there is a significant...

It's not any mass general e-commerce discounting, correct? No. Fair enough. My second question is, you know, you've seen that B2B is roughly growing at about 18% and e-commerce is around 32% percent. So, is it fair to assume that the GTNT number is probably low single digits?

You are talking for Del Monte or Del Monte specifically or overall business?

No, overall portfolio, overall.

Overall business. So, see, we have shown you the flavor of various categories, right? Now, popcorn is a dominantly retail business. We have actually no business of popcorn in retail, in the B2B side. That, we have said, is growing at about 18, so it is dominantly a retail-led growth. Similarly, Italian business is, again, dominantly a B2C consumer retail business. That business, volume-wise, is growing at about 15%, again a retail growth. Culinary is a business, sorry, staples or oils, is again a fully retail business for us, growing at 16% in value. Culinary is the only business which is a mix of retail and B2B. So yes, when you are saying, we are saying the growth is around 18 to 20, B2B growth would be sharper, and retail growth would be a tad lower. But max is very simple for you to say, if one is growing at 18, the other may be growing at 10 to 12 in that range.

My last question is just a short one. In terms of this edible oil, you know, the 15% growth that we have seen, how much of that is price inflation passing?

So, Naraji, you see that it shows we have a 7% volume growth and 16% value growth.

Sorry.

So that's about 9% is the price that we have been able to pass, right? What we normally look at in edible oil is we are trying to pass the per kg price increase in absolute terms so that in the longer term, we manage the absolute profit margin that we make from our staple business. Percentage margin passing, price increase passing on in staple business is little more difficult because of the commoditized nature, right? So we are slowly passing on. So we passed on almost the entire per kg price increase in staples to the consumer, leading to a 9% price increase. And we got a still a volume growth of 7, taking the total to about 16% value growth.

Got it. Thank you so much. I wish you all the best. Thank you.

Thank you. Next question is from the line of Siddesh Deshmukh from IIFL Capital. Please go ahead.

Hi, sir. This is Percy Pansaki here. I just wanted to understand the situation on the merger of the two organizations. So, things like having common distributors for Del Monte and Sundrop, things like merging the internal sales force, and so on. So, what is the situation there? What are the kind of timelines, etc.? And when all this is finally completed, how many basis points of savings do you think that this can expect?

Yes, so broader picture, we have been very cautious about it because we want to make sure that we do everything the right way. Now, fundamentally, the only area of overlap, if I see strongly, is the general trade retail coverage. Modern trade is anyway account team structured, so it is fine. E-commerce again is account team structured, we have already consolidated it under a single operation team. So as we stand today, e-commerce we have already operationally, while account managers could be different, but we have consolidated it under a single team. Fulfillment of channels still remains CFA-led. We have talked about the fact that CFAs, we are already on the journey of consolidating. So, right now, Del Monte has 10 unique CFAs. About three of them, two are already consolidated. Third one is underway. And by end of this year, we should be able to complete larger, let's say, about eight CFA consolidations between SunDrop and Del Monte. So only two unique CFAs will remain for Del Monte Pira end of this year. So that is already going on. Coming to your question on sales team. Now sales team, only in the context of general trade, we need to do it via first the backbone, which we call as the ERP fulfillment of this thing. We are in the journey of ERP valuation, and very soon we will also be thinking on how do we want to go about delivering ERP migration to a single set of ERP for two organizations. Post which, and I would say that within the next 12 months, we should be able to get to that stage. And post that, we should also see how we can gradually bring the sales organization to be more cohesive. We have done one experiment already in East, where today for the entire East of the country, Delmonter Business is being distributed through Suntra team. Coming to the last point on what is the kind of value maximization or synergy benefits we see from this exercise, I would say about 200 basis point improvements could be seen from this exercise, but this could be delivered over a period of next 18 months.

Good morning. My second question is on the overall margin journey, if we have to move from, let's say, a 4% to 5% EBITDA margin to, let's say, a low double-digit, let's say, around a 12% kind of margin over the next, let's say, about three years or so. So that's about close to about 700 basis points kind of expansion. 200 basis points can come from these measures that you spoke about. What would be the breakup of the remaining 500 basis points?

Yes, so Parsi, I'd just like to first clarify. As we stand today, our adhika margin is close to 7%. Of course, there is a ESOP, which we have not baked into those numbers. If I was to bake in the ESOP number, the number would be close to 5.66% in that range. So we are a tad higher, I would say sharply higher also, than 4%, which we used to be about an year and a half back. So that's first thing. Now, journey from 7% to 12%. ESOP is a front-loaded cost in the P&L. It will continue for about next, I would say, 18 to 21 months at the level where it is. After that, the next two years, the ESOP cost will be marginal to the P&L, and hence that in itself should see 100 basis points improvement in delivery. You have to talk to us. Non-ESOP adjusted number. ESOP adjusted number, I've already told you, is 7% as it stands today. Taking this 7% number, which is ESOP adjusted number, to 20%, about 200 basis points, I've said, could come through how we leverage the synergy of operations alone. The balance is, of course, the growth momentum, value maximization through premiumization of portfolio. Overall, our endeavor is to improve our margins by 300 basis points every year, of which we would want to deploy half back to the business and half back to the shareholders. That's the broader thesis, and I say back to business, that is to ensure we sustain our growth momentums in mid-teens to high-teens level. So that will give us the scale benefit, margin expansion of another 100 basis points as we improve our scale and we leverage our assets better. This year, as we are talking about 401, this is largely a scale benefit because cost side, as we have talked about, it has been an adverse cost environment. We have yet taken price increases to minimize the cost impact. In most areas, we were able to address the cost impact. In few areas where we have contracts, we have been gradual, or let's say they haven't followed the curve of price increases. They are, of course, part of constant negotiation with accounts. So, overall, one is we see strong strength in portfolio in terms of pricing power. That's one takeout. As we build scale, we do see 100 basis points improvement every year coming through scale. As we improve premiumization, that could also yield another 8,200 basis points every year. And through synergy over next two years, we should get another 100 basis points every year. That's the way you should look at it for next two years. Yes, that is the number we would want to get to in three years time from now.

Got it, sir. Got it. That's all from me. Thanks and all the best.

Thank you. Next question is from the line of Suresh Pardeshi from Mutilal Oswal. Please go ahead.

Hi, Nitish Ashish. Good afternoon and thank you for the opportunity. I'm quite impressed. The trajectory is improving. I was more curious with the 10 rupees price point on popcorn RTC disruption. The growth is looking better, but how do you manage the supply chain and what is the contribution this 10 rupees is going to give? Which are the markets which we have put this product? And similarly, in the e-commerce, what kind of RTC contribution we are getting?

Okay, actually, the same version. In the popcorn section, if we look at the RTC, which is the autumn fresh to be made, 10 rupee, we continue to expand geographically across the country in all the regions, right, because we were already leading there with our 10 rupee packs. So that part continues. Our facilities which are in Kashipur and Kothur continue to produce more and more efficiently because we had headroom of capacity. And as capacity utilization is increasing, that is adding to our profitability on the instance of one business. Now, coming to the ready-to-eat business, there the 10 rupee expansion till about last year was predominantly in north, and so we expanded and have now made some inroads in east. West and south, we are working on it and gradually expanding. Okay. Now, the key of a... 10 rupee product lies in two-fold. You have to have assorted manufacturing because two biggest components of cost in packed snacks in 10 rupee is basically your packaging cost and your freight cost. Now, assorted manufacturing is ensuring that our freight costs are under control and as capacity utilization of those plant is increasing, it is becoming better and better in terms of margin. Now, with assorted manufacturing, we are also able to optimize packaging costs because we don't have to have a very, very long shelf life of a cross. So, with a very efficient four and a half to five month shelf life, we are able to give fresh product in the market. The third, to build a supply chain efficiently, we use a model which is that we ship a large part of it to the customer or our distributors directly from our factory. So they receive as good as four or five day latest manufactured products only for our bags max. Now, there are some distributors who are at a much smaller volume, which we continue to route through our CFA. But as the volume builds up, we move them to direct shipments. Now, that is the third leg which is adding efficiency in our 10 rupee parts.

Yeah, and just to add one more lever to this entire thing, on e-commerce side, we are also seeing premiumization of bigger pack sizes driving the growth. So while we are seeing retail being driven at a 10 rupee price point, in e-commerce, it is 25 to 50 rupees price points, which are driving the growth. And off-date, our focus is, of course, on expanding our… Towards 50 MRP packs. It's not only our focus, it is also the channel team's or account team's focus to drive greater growth towards 50 price point packs, and that is also helping us improve EBITDA. One very important thing which I would like to share is, Historically, our ready-to-eat rupee 10 was a dilutive to margin business, but over the last 18 months, we have actually made it accretive to our margin business. So today, when we see the growth, and of course, it's very similar to the business profile now, but today, our ready-to-eat 10 rupee price point pack or ready-to-eat total portfolio does not dilute our margin as it keeps going. It will actually be accretive or the very same dimension as our core business overall.

Also, here is 35% RTE growth, right? You will find that the bigger packs, as we do, which is more than the 10 rupee price coin packs, are growing at 42, and the other ones are growing probably at 33. The better part is that e-commerce, which is larger, is now growing at almost 55%. So, the appearing bigger pack, more profitable ones are growing faster than order, but definitely the expansion in GT is key to keep building saliency and make an unbeatable mode of distribution.

This is what I wanted to just check, just follow. If you're selling 100 rupees popcorn ready to cook, ready to eat, in that, what is the share of 10 rupees and what is the share of beyond that 25, 30 rupees? Because if I look at the e-commerce channel, it's also showing a lot of growth. And even this retail is also showing the growth. So I think if Nathish is saying that it's margin attractive, my only worry is that it's... In the medium term, it's just why it is sustainable.

So, I think this is the, first of all, what Zedish talked about was the margin of the 10 rupee also. That is also improving, right? But the overall margin is what it has come where it is accretive now, right? In the accretive margin, the bigger part, today the ratio, last year the probably the ratio would have been one third, two third. It has probably moved to 64.36 now, with the faster growing. Now, the bigger bag business is about one-third, two-thirds. So, even if it is growing by, say, 10-15% basis points faster, the ratio would change in only a 1 or 2% regularly. But what is happening is, the 10 rupees profitability in absolute is also improving.

Yeah, and I think they're ready. As Ashish said, our capacity utilizations are also rapidly improving. So while we may have headwinds in the form of category, commodity inflation or packaging cost inflation, which we witnessed last year, we haven't seen any impact of that in any way. Our margins are only marginally ahead of what we are doing. The situation of packaging inflation came in. So we have been able to tide over that impact without any kind of marginalization because we have growth, capacity utilization, the way we manage distribution freight, the way our larger, bigger packs are growing. All of these are also helping us. So I do not see this to be in midterm becoming a lost leader. We do not really have a 5 rupee portfolio. I think that is also a very important point to consider. Our business is dominantly rupees 10 or big packs in the ratio of two-thirds to one-third.

My second and last question on the premium steppers. It's looking at the price and the volume mix is really doing good. But my only fear is that if the price escalation happens, will this 7% volume will fall to zero? Because the price equation is the driver for this business.

Yeah, so there is one part which is the entire price table of all the commodities, right? Now, we do understand that the sunflower is really running a little ahead of others, but just to give you an idea, in our premium staples, we also have sunroof heart. Now, we have launched one another variant in it, in Sundarhar itself, with a different blend, which is allowing us to make sure that the least inflated commodity is where we are able to offer our consumers an attractive price. So while we are passing on per kg, will there be a contract? Not so much at a consumer level because we have two different things. But yes, if it happens, we have a safety net below it. We have two variants, one in the form of center of light and another in the form of center of heart plus, which we have aggressively priced. And changing the formulation that we had there. So, we have an approval for those, and that is how, in the longer run, we will play at both levels.

Right? Also, Shirish, see, if you look at the recent history, we are actually talking our volume expanding in the context of commodity inflation. Right? I do understand when the commodity depletes, the value growth may come down. But volume is intrinsically showing good signs with whatever we are doing, even in the context of inflationary environment. So, I would leave it at that because our endeavor would be to grow volumes by 4% to 5% in a sustainable way in this category. Historically, we had said we would want to hold volume. With more recent experiences over the last one and a half years, we are now coming to a position of saying we would ideally want to grow volume by 4% to 5%. Inflation in category can go in either direction, but our endeavor will be to make sure that volume-wise we keep gaining share. And I would say 4% to 5% will be somewhere in the nature of the kind of growth because this category is growing at about 3% to 4% year-on-year in volume terms. So we want to at least play the category game and continue not making this business a loss in margins or decline in margins as a business. Okay.

Just one quick follow-up on this. No, no, I'm completing. This is in connection with the Sundrop only. So, Nitish, the Sundrop hard jody pack will continue throughout the festive season, or it's a tactical offer?

It will continue throughout. It's something which we had as a more, or let's say, a friend in our center of light, super light business. We thought it's also an opportunity to make the same proposition and get some trade pull for a proposition which is already successful in our super light business. So it will continue.

Okay. Thank you, Anandabas.

Thank you.

Thank you. Ladies and gentlemen, in the interest of time, we will take the last question from the line of Nachiket Kalyo from NK. Please go ahead.

Yeah, hi. Thank you, sir. And thanks for the great insights at the start of the call. So, the sectoral insights, segmental insights are really helpful. I just have one question on the peanut butter category. I realized we have run into a little bit of a headwind there. So, could you emphasize what's the strategy to, I understood the quitcom and ecom is doing well, but as a category, there's intense competition even from some DE funded separate brands as well. So, could you just elaborate further on that?

Sorry, I would like to understand, when you talked about TNL has got into some headwind, what is the specific concern you are picking up, if I could also nuance it or answer that better?

No, that's why. Headwind being competition in the peanut butter category. Oh, you're talking peanut butter. Sorry, I don't know. That question is on peanut butter.

Got it, got it. I'm so sorry. I somehow heard it at PNL. My apologies. On the peanut butter, I think India is seeing a very strong protein wave. When we launched peanut butter business in the country for the first time, and this year, somewhere in 2010, that time there wasn't any protein wave. So, we had built our category on the proposition of strength and immunity, and as a table spread, the family can consume. So, it wasn't really in the domain of protein as a promise. It was overall good health as a promise, which is what Sundrop as a brand stands for. So, we thought Sundrop as a brand stands for good health. We bring another variant, which is all about good health for the family in the form of peanut butter. And that journey has thus established this category in the country. Somewhere in the post-COVID era, we have seen protein waves becoming very, very strong, and many players brought in two, three innovations in this area. One came in the form of higher protein variants, where you fortified by adding whey or other forms of protein. Second came in the form of natural protein butter, with which you are not adding any stabilizer, so that your proposition is 100% natural. Third came because peanut is not a natural taste for Indian palate, came in the form of chocolate, which is a more acceptable taste. And all these three innovations really took off in the e-commerce channel. We have lost out that race because we did not have any of that product in the portfolio. Today, the market is about 15% in the form of standard peanut butter where we operate in e-commerce and 85% in the form of value-added peanut butter. We have about 33% share in the standard peanut butter market. We have a 3% share in the value-added peanut butter market. We have brought in now the innovation. Our endeavor will be to get to strong double digit and then maybe take it to our natural share over a period of time. We intrinsically believe that we have a quality ecosystem, a manufacturing ecosystem, and a brand power to be able to do that shift in this category and get improvement in our share significantly to get to double digit in near term and possibly go for Our natural share in the longer term. And so that is, of course, what we are talking today is catcher. We are also working on the side of certain new innovations, like the way the category codes were changed by bringing some new tests, by bringing some new fortifications. We are also working at our own side on certain new innovations, which could help us further expand the value added offerings in this space. Through these initiatives, we are very confident that we should get to our growth ambition or our share levels in the longer term and immediately get to stronger growth recovery in the next few quarters.

Yeah, true, sir. As a customer also, I got introduced to this category through your product. But it feels like there are multiple subcategories in that segment where you could expand your share. So, thanks for the insights on that front. And any insights if you could share on how would you be looking to market it? Because especially the newer brands, as you rightly said, were taken up this way. They are a lot more on the digital front, and we keep seeing them spend a lot, and they are not inclined towards making profits anytime soon. That competition is tough in that sense.

Yes, sir. See, we are cognizant of the operating model. We have already put in very strong team in control of our e-commerce business. And that is what we are seeing in category after category. Our e-commerce growth is sharper or better than our growth overall. And it generally is ahead of market growth. And that is what we would want to hear also. We would, of course, invest in consumer acquisition and grand equity through new age digital channels. So we are also putting a full program in place on investing in digital ecosystem for peanut butter recovery. So, we will have to play the games as it is being played, that we are cognizant of. We do, of course, have our own manufacturing, so we do have ecosystem to do it in a sustainable cost basis as we go ahead. So, from the cost side or margin side, we aren't really worried here. We think the value-added offerings anyway offers a premium pricing. And hence, as we intensify our effort on gaining share in the value-added file, we can do it profitably.

Thank you so much.

Thank you.

Thank you. Ladies and gentlemen, that was the last question for the day. I now hand the conference over to the management for the closing comments.

So, I know we have already exceeded the time, so I would like to thank you all for your questions. If there are any set of questions which we have not been able to answer, I would request you to reach out to our company secretary, Carissa, and management and all of us will be happy to respond back to you and address your questions and queries. Thank you so much, and wish you all the best.

Thank you. Thank you, sir. On behalf of Anandrati Shares and Stock Brokers Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.