Agro Tech Foods Ltd
NSE:ATFL
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Agro Tech Foods Ltd
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Ladies and gentlemen, good day, and welcome to Q2 FY '24 Results held for Agro Tech Food Limited Conference Call hosted by Anand Rathi Shares and Stock Brokers.
[Operator Instructions]
I now hand the conference over to Mr. Ajay Thakur. Thank you, and over to you, sir.
Hi, everyone. I welcome you all to Agro Tech Foods Q2 FY '24 Results Conference Call hosted by Anand Rathi Shares and Stock Brokers. From the management side, we have with us Mr. Sachin Gopal, Managing Director and Mr. K. P. Srinivas, CFO.
Now without tasting much of our time, I would like to hand over the call to Mr. Sachin Gopal for his opening comments and followed by a Q&A session. Over to you, sir.
Thank you, Ajay, and good afternoon, everybody. Thank you for taking the time out to join us today. We'll follow our standard process where we'll walk you through the presentation. We have had one of the comments in that we might be running shy in terms of -- we need more time in terms of Q&A. So I'll read about 5 minutes if you could just let us know if we need to give another 10 minutes or something like that for the question.
So I assume that all of you have got access to the presentation that we've posted on our website and that allows you to be [indiscernible] going to do it. So that before, we can go straight to Page 4, okay, page 4 for the presentation.
Overall, I would say it is a short quarter for us. We did not have any [indiscernible] given below our expectation. And we saw on margins stable. So we'll look to through and be constructive what exactly is in the business and therefore what actions we are taking and what do we expect.
So to start with some quarters with no good growth, most likely due to unusual [indiscernible] in the quarter and prior year. Quarter 2 last year, the food was higher than quarter 3 by about 7%, which is very different from the pre-COVID times. There is some amount of, I would say, ups and downs in our basis. That doesn't mean that the growth is what we want. But the trend between quarter 1, quarter 2 and quarter 3 was decent last year as compared to the pre-COVID years.
So overall, we think it's probably better to that 6-month data rather than 3 months ago, right? Because the longer the data points, the more accurate, the greater accuracy that you have. And food volume growth definitely was about 6%, which is about 4% in revenue. We're probably more representative of current growth rates.
Now we sell need to get it into double digit very quickly because our client is in the region of 18% to 19% improved. So we talk you through what are the actions that are currently underway.
In terms of gross contribution, this was actually very good, RMP. This came out to be about 40% for the total company. And food is still now pretty much back at the 46% level, which is the level that we've had historically. That's a good proposition because, as you know, in the food business, the best-in-class today is meat, over between 48% and 52% depending on the quarter.
And that includes into nutrition and coffee. So clearly, I'd say it's 48%, 49%. These are kind of very, very good gross [indiscernible] to look at. We indicate that the core of our P&L is right. Now we have to see how to manage our expenses in that in terms of manufacturing supply chain as of today. Before [indiscernible], we improved their gross margin as we reported by about 500 basis points. So we've moved up for 19% to 24%. We generated an incremental INR 4.5 crores. And this incremental gross part in be largely invested in A&P across 4 categories, which is also the first quarter ever that we actually have advertising being invested and all the 4 categories are ready to go. Spread at [indiscernible] and shortlist.
And it's kind of a sort of vision or the painting of the future where we see ourselves as multi-category, multi product line company, which is able to support advertising profitably across categories. The increase in other expenses is largely due to higher freight in travel, right? And core profit for tax and PAT is lower than [indiscernible] because we did earn margin, but we also invested a significant amount in A&P, right? And therefore, A&P is lower. And year-to-date PBT and profit upsides are higher, significantly higher than prior year, but that's obviously because quarter 1 of last year was a very low base because of the commodity price inflation that we saw.
So we will -- today's presentation, we will not spend so much time on margin. We will talk to you about margin and EBITDA progression when we talked to you in the November analyst call, which is a member of meeting. If you remember last year, we had talk to you about how are we going to get to a INR 1000 crores of food. And this year, we're going to spend a little more time on how -- what is the road map to get into that 15% to 20% EBITDA margin, which we feel subsidy we have because we have a good gross contribution, but we working through what are the actions in that when we meet in November.
Okay. So if I could request you to go to Page 6 now. On the ready-to-cook category, this is the core of our business, right? And as you can see, in quarter 2 of this year, we had a revenue was almost flat at about 1% and revenue was down 4%. On a year-to-date basis, low single-digit revenue growth. This comprises of a low single-digit revenue growth in ITV perform, which is driven by a mid-single-digit volume growth, both in instant popcorn and some pricing in microwave popcorn. The reason that I'm deconstructing for you is that I would say this is the largest part of our business, and we need to see this growing at about 8% to 10% in terms of our overall growth [indiscernible].
And the good news is that instrument offer, which is the mass product is already in that 5%, 6% range in terms of volume growth, right? So that means we are coming out of COVID, right? And we are -- be we keep doing all that we are doing which is continuing to invest behind the expanding distribution, we should get back to that 8% to 10% level, right? And in Magna top 1 volumes are actually flattish, but we have some pricing. So that is giving -- the combined is that in ready to put [indiscernible] getting on low single-digit revenue growth.
What has happened however is that we spent a lot of energy in the last 12 months because our popcorn business was not growing, right? And we spend a lot of energy to get it back and we divested a lot of demo -- retail demo resources, so on and so forth and away from [indiscernible] business. That was a conscious choice that we had.
One of the consequences of that is that if you look at point #5 in this chart -- point #4, you can see the non-profitable businesses are currently drilling prior year that been [indiscernible] and pasta. We won big [indiscernible], right? And so now that we brought the popcorn business kind of going towards our growth engine, we are going to start increasing purpose on that part of the business as well.
Meanwhile, coming to point #2, we are investing in steady levels of media, and you will see that in the competitive spend charts behind instant popcorn. Microwave popcorn will also benefit from the launch of the pop-up box, which is already in market in some parts of the country, and we fully [indiscernible] in terms of [indiscernible]. It's an interesting concept.
It's basically, it increases the convenience of the microwave popcorn -- of the consumption of microwave popcorn. It doesn't -- it's not game changing that it will certainly change and everybody will move from a microwave to a microwave box, but because we also have a [indiscernible]. But the [indiscernible] putting supply chain challenges with the pop-up box is held [indiscernible], right?
So it is certainly going to be new news for the category and would that expect to help our overall performance. And in terms of the nonfood business, we are once again putting efforts which winter -- or coming on sweet festive season in winter behind these products, and we expect to be able to turn that around.
I mean later in this presentation, we have a chart on historically how a different lot of categories behave as we build them. And you see there that the businesses tend to go a little up and down in the early [indiscernible]. We still -- we get our full business model right for that category. We've also told you that we'll be launching planted in specific products in quarter 3. This is on schedule and in the next couple of of weeks.
We will be running off these products. And when we meet in November, we'll actually be able to attract some people in the meeting. So that's it on the ready-to-cook category, overall headline. Based of the category, which is instant popcorn now at mid-single-digit volume growth, revenue lower because we have taken pricing up last year, we did some correction as the commodity prices soften because we wanted it to be correctly priced to be able to secure our ongoing volume growth objectives. And basically, the category being down the brand down by the month business.
[indiscernible], please go to Page 7. Overall, on the ready-to-eat category, all looking good, getting a growth of about 23%, 24% in volume and value. It's very ready-to-eat popcorn which is driving the category growth. And across that size, the net was challenged across channels. [indiscernible] continue to make very good progress. [indiscernible] sweet share is R&D of about 8% compared to 4%. If you recall in the back half of last year down to 11%, obviously, because our winter come and festive seasons coming, I mean the sweet part has a greater advantage, and we expect to continue to make progress on this one. We are also rolling out dispatch to leverage our suite portfolio. So that has started starting with Diwali -- excuse me. This is in the market now. We are also strengthening our INR 5 portfolio. And I want to make a mention of it because there are large parts of consumers in the country who really -- for whom INR 5 is the main price point. It is very important for us to create a snacks portfolio between stack, breakfast figures and [indiscernible], which will enable us to have a profitable times portfolio. That's what I think is more or less under development right now.
But we've made a lot of progress over the last couple of months. And as we move on, we have a coverage of a little under 0.5 million stores. As we look from 0.5 million to 1 million so, we expect this to be a very critical driver. It could be new areas. It could also be used for this is an over right, within the current. But either way, a strong robust [indiscernible] portfolio is important. Whatever means we want to be a INR 5 company, but we do need it to be to support the expansion coverage plan. And we will continue to leverage the scale of [indiscernible] and the merger to sweet set to create a profitable sweet and salty snake business.
Overall, the category is doing well, both in volume, margin improvement is also very, very significant in this category as we get a better portfolio and a more profitable portfolio. So all looking good here.
[indiscernible] Actions that we need to talk to you about. In terms of spreads, as we indicated to you, probably 2 or 3 quarters ago that we were possibly losing some share in this category because the volumes were not coming as we wanted them. We've taken the actions there over the last -- over the last, I would say, 3 to 4 months, right? We've launched a 300 gram pack at INR 99, which is very good. That's consistent with the strategy that we followed in the large 924 grams per 1 kg pack, where we really, I would say, dominant category.
And we are now going to do the same thing with this 300-gram pack in the midsize pack. And therefore, any loss of share that we may have had 100, 200, 300 basis points, whatever the number might be, we think we should be able to address that and then again, get this also a nice diversed segment. The rollout of the new tenets underway. As we mentioned, this is the first -- I think [indiscernible] outside of North America as first any company or country is doing it. And acceptance is very good.
In this month, for example, in terms of transaction, it's probably in our general trend because it's still to get fully listed in the modern trend. That process is underway. We probably have more transaction on the [indiscernible] we have in any of the [indiscernible] in the [indiscernible] trade. That makes only 2, 3 months in the market.
So this will do very well for the business because it will enable us to get new consumers. Some people may stay with it, some people may come to a bigger pack, but this is -- these are very, very strong acceptance. And as you can see from the photograph on this chart, it's located on the contrary offer, it's closer to [indiscernible]. So it's really perfect. It's a perfect vehicle for us to drive consumer acquisition and bring new consumers in global categories.
You would see from the comparative chart that our significant spending competitor has spent about INR 140 crores so far. We obviously on right rate. So if you take whatever the strong wave, you'll have to reduce it by that, not over that number might be, right? It's a fairly significant spend by any circumstance.
Now we are, as you know, a few options, where do we deal with it, and we have a large corporation coming into -- what is relatively a small category and willing to spend that more money, we could have tried to compete with them on advertising dollars. The future is not going to do that because that would have went a lot of money invested shareholder money, right?
And so we have to compete on size. So we have taken some hit on margins on peanut butter. But the strategy is saying. For the last 3 years, our CAGR on the peanut butter is 17%, right? Now as you know, if any business grows by 16% per annum, driver in 4 years of a business service, right? So this is up to last year. Obviously, this year is not coming at the same rate at 17%.
Right now, it's minus 2%, it will get into positive space. But if it's not 17, it could be 16 or 15, right? So bottom line is exit more in 4 years after the launch of [indiscernible] and payment, we'll be about 2 of our 3 loss and other was whatever was our volume when we launched when they launched the peanut butter, our volumes for 4 years will be a right? So that puts us in a happy situation, right? Because after that, the spends are clearly not sustainable, right?
Because on a INR 150 crores spend our estimate is the revenue in [ 24 ] maybe [ 22, 23 ], so more margin about that, right? So it's not an -- it's in and it cannot pay for them. The strategy cannot path. We are in a very, very strong situation, right. We're already there in the 1 kg pack.
Many of the track, I think, have been relisted in some of the customers. And we are not in the large factor. I think it's not customers across or maybe on assumption. I think we have a very, very power situation, right? And once you get the share back in the mistaken we expand the small pack, in this situation. As and when the spending -- high level of sending stocks, it will give us a pricing opportunity, which we will then apply to volume, which are double of what we were 4 years ago.
So some impact on short-term margin, but overall strategically as the right thing to do. We continue to work on the protein segment for peanut butter. We are working with [indiscernible] and so forth. For chocolate spreads, we're getting our act together. I'm going to return more to softest when we come to the category of new businesses. On the [indiscernible] and we will -- certainly than we -- although we have not really tracked to this business so far, but I think there are clear indicators that some of the things that we are doing in the peanut butter business is applied to this will actually give us a good position.
Okay. With that, I would request you to please to go to Page 9, the [indiscernible] where again, like the ready-to-eat snacks business going well, 41% growth, 35% growth, [indiscernible] is clearly powering the growth for ATF1 and we are benefiting from the R&D net supply chain.
From a supply side, supply side, actually, the sense to supply side is common, right, because of facilities. I would say, when we think of scale, probably we've always said we need about INR 200-odd crore business to get a good margin in the category. Probably industry, when we look at cereals, we could combine cereals with snacks and that would be the desired level from a scalability perspective.
Our rewired architecture of option has been well accepted and total serious distribution is therefore reflecting steady growth. We've spent -- we have 4 months of continued investment behind pops, which is now completed due in September. And we are launching 2 new products in quarter 3 quarter, which will complete our portfolio in breakfast cereals.
So we believe that we can continue delivering strong category volume growth and achieve segment leadership in centers [indiscernible]. As you know, we have set out there in [indiscernible], and we also have [indiscernible], but we believe we are uniquely placed in this category. We have a distributed supply chain. We have 3 plants across the country. So our freight is good. Our product is outstanding and frankly, very difficult to compete with. So we expect to continue to see good growth in the category.
Page 10, chocolate. So chocolate is looking a little lower than what we would have like it to be, but we did have to test out to see how far we can go with that having support. So we had mentioned this to [indiscernible] and so continues to sell gain distribution. We started there for media, we could see, as you know, there were some tapering without advertising. So we started media investment in August among others to support the cost of consumer acquisition. Out of the INR 5 pack is also underway to further expand distribution.
We will build on this and we are working to increase our share of the INR 1,000 crores listing market at the moment [indiscernible], which is priced at INR 100. So we think it is a big part of shopping, depending on what data point we use the number of the share, the existing market at consumer price we evaluate anywhere between INR 800 crores and INR 1,000 crores or INR 1,100 crores. It doesn't really matter for us. These are large enough number for us if we get a reasonable share of it.
So we are, I think, close with -- we've launched our most aggressive gifts so far at INR 100, and I think it should do well. At the time that we launched actually, there was only another Only capris had INR 100 pack. I believe they have also moved the pricing right now. So they may be the pricing depending on are looking at our book, but I think it's a nice pack and we'll test it out. Obviously, lifting the master in existing business takes time, but I'm sure we'll get there.
And we are on track for capacity expansion in FY '24, which is capable of supplying volume for INR 100 crores business. That is only about INR 100 crores next year, but we wanted to have the capacity for that type so that will give us some flexibility. Chocolate is a difficult product to make, right? As I mentioned to very often, a similar impact on appliance may [indiscernible] 250 over a period of 2 days. As one of them lands in our products, we got a challenge. That is why it's a high profitability business. You could survey and access to NCA the P&L statements of Mondelez or [indiscernible] and Mars, you will see Cadbury with 60% gross retribution. 50 to 60 is very much part of the course. So everybody would like to do it, but to be actually able to build the manufacturing capabilities and to build a supply chain, which can and with that is incredibly difficult.
I think we've done a large part of it. And we know that we need to be very, very careful because we have a lot of things at stake in the future in this category because if we want to drive our gross contribution from 46% to 48% to 50%, chocolates has to play a very significant role on that. we need to be very careful as we progress this for industry growth.
If I could request you to go to Chart 11. Now this is a chart which is useful and may have to answer a lot of questions as we think about new categories, okay? What we've done is the last year in each category is FY '23. So Tier 1 of peanut butter is FY '23. [indiscernible] '24 for popcorn if FY '23. We have 5 records in FY '23, and you have 4 [indiscernible] chocolates in FY '22. Now you can go backwards and arrive whichever is real.
We did want to give precise data and volumes in terms of revenues, right, because that will be -- that I think would not be good from a shareholder standpoint. But we wanted to give you a perspective on how long it's taking for us to build new businesses. This is a comment of person actually that is often asked to to companies by the Street because everybody wants to know. I saw a refined with some of our investors are and that we have somebody from apostasies, they say, but you are building these businesses, but they're very small and securely answered the question. So look businesses are small today, but we need to have multiple businesses which are going to grow so that when the time for investment is right, we can invest behind this business and see absolutely profile, right?
So if you see here, in the case of peanut butter, we crossed the INR 15 crore mark, somewhere around year right? And you can see in the early years for the under INR 10 crores, approximately. So we don't need the precise number.
In [indiscernible] popcorn, also it happened around the same time. It happened about -- after about 8 years because it fall over to INR 15 crores. And if you see the prior 5 years, the first 3 years, it was hovering. Now what is that number, I mean, I wouldn't be able to recall exactly what it was, it was in the region of INR 4 crores, INR 3 crores, INR 5 crores, something like that. And somebody was asking this question. I remember on chocolates front. This is such a small business that that we're doing with it. The answer is that we need to continue to manage these small businesses, refine it, address the product issues that we are having it could be anything. It could be less invested it could be fat, it could be sugar, it could be ingredient. It is time to figure out businesses, right?
They don't come out of an excel worksheet with the linear formula, right? That is why the CAGR is the CAGR because it has a mixture of many things, right? So you can see here, we co-create in IT platform around the [indiscernible] year. And in breakfast cereals, it looks like we crossed INR 15 crore mark in about 5 years and in chocolate, we processed it in about last 4 years, right? So overall, historically, we were doing INR 15 crores in about 7 to 8 years, and now we've been about 4 to 5 years.
Now come to the INR 50 crore. If you look at peanut butter. We reached it [indiscernible] probably around year on right? And if you look at [indiscernible] popcorn, also we reached at about the same time. There were 11 years or 12, right? So what this means is that each of the new businesses that we are building up, we're building faster, the earlier ones to pass it out INR 50 crores to reach if it is at 11 to 12 years to reach INR 50 crores in the case of peanut butter and popcorn, we certainly look like we're going to do a lot faster when it terms to breakfast cereals and chocolate, right?
Part of that could be due to the fact that our distribution reach is now much side, right? At the time when we launched peanut butter, our coverage is probably less than 100,000 stores, right? Today we have the 0.5 million stores. Part of it also beat are branded, our manufacturing bandwidth, portfolio bandwidth. It's far greater today than what it was 10 or 15 years ago, right? So overall, the trends are looking good. Having said that, they definitely need to be much faster because as our revenue grows, to have an incremental growth in our revenue, we need the new products to go faster and faster, right?
In other words, if we are at INR 15 crores, we are doing in 5 days or 4 to 5, we would probably be able to do it in 2 to 3 crores. But having said that, 2 to 3 years, right? But having said that, it has to be done profitably, right? So if I tell you some examples going forward, money is not necessarily the answer, right?
So if you look at our competitor in not better, there's been INR 130 crores already, right? And probably the turnover is in the region of INR 20 crores, INR 25 crores. That's our estimate. Maybe it maybe it's wrong, we don't have access to meet some data, right?
And so it's -- is it by our model, the profitability the answer is right? Similarly, if you look at one of our other competitors in breakfast cereals, there was INR 40 crores, INR 50 crores already, right? And after a couple of years, the business is still probably in the region of INR 5 crores, INR 10 crores. We certainly don't want to have an unprofitable business because we need to build our 15% food EBITDA margin business, right? And we're building it from scratch, okay?
But we need to do it faster. So the good news is the new businesses are going are growing much faster than the older businesses did. And obviously, we don't have to be satisfied with it, and we should speak to do this even faster. But this will also help to answer that chocolate spread question, right? which was I asked to me some of the growth, which is, yes, some of these businesses are going to be a INR 3 crores, INR 4 crores or if you look at pasta, we go to a 7%, 8% share of category in the stores that we were, but we have to change our resources and we had popcorn.
So is it -- these businesses are going to be initially a small level. We'll gradually get the business model right. And then we have to get to those opportunities and those opportunities come. You can see in peanut butter, the opportunity came suddenly in [indiscernible] was a [indiscernible]. If you look at ready-to-eat popcorn, the opportunity can be years and we are doing well, right?
So there's a whole I think Chinese saying in this that the opportunity will come, but we have to be prepared for that opportunity. We have done all our homework and be ready. And that's exactly what how we are working to be ready and then in time, we will have multiple businesses, which will be INR 10 crores, INR 15 crores, INR 20 crores.
But the good news is we don't have to then acquire money and spend money to buy businesses to drive. We would have already -- these 3 packlines would have been planted and there'll be smaller fees by them and ready for AMP support. Okay. And I hope that has had to answer many of your questions on new product.
I request you to go to Page 12. Total stable volume is flat to prior year, supported by mass rates and agencies. We also did some rollout of money, but we had some product issues. So we ended back and we just had a very good day, and we'll put that out. At the FMCs is of [indiscernible] support both increased efficiencies and procurement and the health of our distributor network, right? And we have significantly mitigated the impact of lower edible oil prices on total ATL and distributor revenue.
Distributor revenue isn't important for us and [indiscernible] the question because you said that you will exit assets or bring it down to about 5%. It is in the region of 5%, 6%, 7% of our business, right? But we do need to ensure that our distributor health is important because in India, the most visible thing is to build up a distribution infrastructure, and you need to manage it very carefully because that is the future of the company, okay?
All right. So I would request you now to go to Page 14 of the presentation. Max competitive spend. You can see here that spending [indiscernible] INR 1 crore a month, right? And so we are spending back in the INR 9 crores, INR 10 crores region. Last time we spend about INR 10 crores. There is one interesting data point that's coming out from this chart. If you look below the yellow diamond level, right, in the start, [indiscernible] Balaji, [indiscernible] people, we all agreed on those, lot of you, right? And even coming at we used to spend a lot more money when the money right now.
So this is a trend that we are seeing in multiple categories. right? And I'm not sure what is the reason for this, right? But it is clear that basically the smaller players, I think the segment are not spending the way that they used to do. What would be the reason for that over time, I'm sure will better understand. But there is some messaging which is messier from our side, we have continued to spend at the rate of [indiscernible].
All right. If I could refer you to go to Page 15, you can see comparative spend there, obviously, the spend is dominated by [indiscernible] with Dianne. We continue to spend at a very aggressive spend. We continue to have steady spend at much lower level. But again, here, across segments, we have spent smaller players are less visible. So if you look below, let's say, the other [indiscernible] level, you see a few of [indiscernible]. There is INR 150 million, INR 1.4 crores, which was spent in Agro. Otherwise, everybody got, right? So there's clearly some spreads in the system, and we will -- as I said, we seek to understand this better.
In responsers, primary spending continues to be by Kellogg's, but we have obviously signed our spending in June this year. And we spent about INR 2 crores. So the September figure is not here, but we spend another INR 50 lacs here. Nestle has moved the advertising investment to spend INR 20 crores in total, but we move the investment from those [indiscernible] I think is the brand being used in Southeast Asia too much, which is a tougher plan. So presumably that is to try and get some benefit of the months brand, right? And we'll see how this goes on. But overall, I think the primary spender still in this category of Kellogg's.
We will continue to invest at our levels to be appropriate. Okay. In chocolate, comparator spend primarily dominated by notes by far, by far, the leader in this category. We have started investment behind the world. And again, across some [indiscernible] chocolates, all players are [indiscernible]. So if you look at the spend that people like purchase, we look at by even to an extent Ferrero, if you look at Mars, definitely spend levels are lower rates. We see a lot more there, right? And including when you look at the last 2 days, which is [indiscernible]. So let's see, as I said, some less being there, which is indicated.
At least at this stage, we can see people that are spending that work, why they are not spending that course something that we'll seek to understand. And otherwise, pretty much this quarter, at least a 0 spending by the premium ratable oil share. We were already at [indiscernible] also now at 0 and compared to 100% a decade ago. So when we told you in earlier years that look for [indiscernible] businesses is not a great category, and that is why we want to build out the food business. Then if you told us a while we don't really agree. The proof of the pudding is in the eating today. When the category has 0 share of spending, then the answer is in your face, right? Bottom line, not a great category and I think we did absolutely the right thing to be able to soft.
So overall summary, therefore, year-to-date food volume growth reduced to 6% due to a fourth quarter [ 2 ]. All the actions are in place, particularly in ready to put constraints so that we can get back up to double-digit levels. Gross contribution starts with 30% out the total company. But more importantly, food is at a historical level of 46%, right? And that's the one that we need to track because we know that or over time, we need to get migrated to the 30% to 50% range. Impact of lower edible oil prices partly offset to growth in food, adjacencies and premium staples and higher shipments of nations.
And we are working towards enhancing the food growth by executing our actions, particularly in ready to cook, right? So that, I think, completes the overall review by category, we would have already seen the P&L results, which I touched upon, I think, before.
So as you look at the retail in the P&L, with some increase in employee benefits, right? But I would say not that significant. And Advertising and promotion, certainly, we have increased versus prior year. So you can see the impact of that. like last year for the half year ended 30th September.
If you look at this chart, our results, it is INR 21.92 crores, which is about INR 11 crore, which has now gone up to about INR 15-odd crores, right? So we added about INR 4 crores and a lot of that is in this quarter, right? And yes, on a per-day basis [indiscernible] departed, we cover that in the quarter [indiscernible]. Okay.
So I think with that, Ajay, we've completed, hopefully, we haven't taken 30 to 35 minutes of total call time. So if you manage in 5 minutes, I think maybe we can do this for. But I'll go over to you and what we do. Thank you.
[Operator Instructions]
The first question is from the line of Daniel Desai from Tata Capital.
Sir, I have 3 questions. The first 1 is, this quarter, we have seen a sharp change in ad spend and in one of the earlier calls, you have indicated that because of the PR constraint, spend of around 4% to 5%, which eventually to 7% of our food business. I think we have roughly impact range. So should we expect this kind of a 7%, 8% has tend to remain -- and kind of does it also mean that the incremental gross mountain will get out back into the money. And a question related to that is that if we spend more money on the advertising. But it means that whatever historical growth that we were having around 20%, 18% CAGR. Will it add to that? Or we need to spend this money to kind of get to that 18%, 20% growth? So that's my first question.
Second question is the chart that you have depicted the results, very informative. As to how many years it takes for the product to go to INR 15 crores and INR 50 crores. So in this life cycle of a product, how does this typically work? After a certain critical threshold, do we see any [indiscernible] effect better the threshold is INR 50 crores, INR 100 crores, any thoughts around that? Any observations from your experiences concept?
And the part question is on oil business. So oil business, we are clocking around INR 70 crores gross margin on the [indiscernible] business and we had said that we would want to maintain a number around that. The only country that I see that is that if we are going for maintaining the gross margin. then essentially, we become slightly less competitive to our peers sometimes we lose volume. Then if you lose volume than again, getting back that market shelf-space is very difficult. So even to the catch [indiscernible] situation where it becomes difficult to cling on to a steady state, gross margin, in our commodity business. Those are my 3 questions.
They are all awesome questions. I want to confirm you for your thorough understanding of the business, okay? So well done. And by the way, some of these questions are also what the Board of Directors asked me to [indiscernible]. Okay. Why don't we do on this? But we will take it in the order of the period. So if you look at our year-to-date A&P spend, it is in the region of about 7.5%. If you take 6 months later, okay? For quarter 2, it will make higher, but by 6 months is 7.5%. We remain committed to say 7% to 8% is what we required. That's the way that we've always delivered for the last many years, and it remains happen because we will evoke an EBITDA margin out of 15% out of 12%, 13% A&P business. It's just not possible.
And there's enough data, you can look around at other companies. Take it doesn't work, all right. The underlying assumption is that our CMS should be able to support it. right? So when we talk to you later in November, we'll talk about this, right, which is that we see 7% to 8% is a reasonable range for us to support that 18-odd percent growth. That CAGR of 18%. So that answers the first part of your first question, right?
It is required. Because remember, as we become larger, the impact of innovation as a percentage of total right? Today, when you are a smaller business, you can do an innovation, let's say, INR 5 crores, INR 10 crores, right? It will make a delta impact, right? But when you are at INR 2,000 crore business, a INR 4 crores, INR 5 crores business, you are not going to make any impact, right?
So you are going to need to spend those advertising dollars. Probably over a period of time, our share of business coming from media, which is advertising driven relative to share of innovation will change.
Today it is about 50-50. But we cannot expect that INR 3,000 crores or INR 4,000 crores, it will be 50-50, but that's why we are building up all these other small businesses, which at that time will be INR 20 crores, INR 30 crores. So they are already advertising grade businesses, right? An example could be chocolate spread, an example will be pasta. Okay. The key underlying assumption, however, for us to maintain the key risks, we are able to maintain the 7% to 8% is what's happening on edit margin. As you can see right now, our edible oil margin is pretty good, right, okay?
And we are definitely tracking higher quality than that quality or number be kind of number that we gave you. But it's a commodity at the end of the day. It's a single commodity, right? So they have challenges.
And therefore, wherever we have got if we look back historically, whenever we had the opportunity, the first thing that we did was we invested behind that, right? But that doesn't mean that there are more rates. If edible oil margin comes from the pressure, it is not that we will not be able to approach the 8% at a 7.5% level. But we [indiscernible] far so, okay? I'll do the question number 3 because that's related, right, on oil to the [indiscernible] then we'll come to that cash-level question.
On the volume impact very much so, absolutely. This is our expertise on a day-to-day reciting, which is, okay, what's the volume impact, how much margin because at the end of the day, it's not a market which is only [indiscernible]. There's a lot of competitors in the market, right? And as you can see, many of them some big break advertising books right. Of course, they are all the [indiscernible] and natural category, but they can be money. Maybe they don't see themselves goes back, maybe they feel themselves also as premium, right?
So we have to keep an eye on it, and it's -- it's an ever ongoing work in progress, right? I think the only answer to this is that our food to dominate the total gross margin contribution. One [indiscernible] contributes 75% to 80% of our total gross margin. Then I think the impact of that edible oil margin will reduce. So that is the answer to your third question because we just need to keep doing the food, right, invest behind it to distribution, make it 75% to 80% of the business because that editors is always going to be that, it's always going to go, right, because it is a commodity, okay? And lastly, on your question on threshold, so this is the question actually [indiscernible], which is [indiscernible] in the [indiscernible] we showed the similar tacts in the now meeting we had all the detailed numbers, but it is the same staff in the sense.
And you said, so what's the sale, what do we expect, the INR 50 crores, where do we expect INR 100 crores, INR 200 crores, and so, I think at INR 50 crores business that has become viable. It's no longer it's no longer leading money, but it's cross the threshold of where the company investing a lot of time and money.
The margins have to come through everything. We are obviously for the same categories when we were discussing at the way we have the margin data also, right? So we are looking from that content. And then as I've already said, INR 100 crores, the businesses are in profitable right at INR 200 crores, we're incredibly comfortable.
So we are ready to popcorn business here, right? Excellent business, a great business. And so INR 50 crores, I think, is the first milestone when you say, okay, I'm now out of the -- if you will base investment phase, I think I've got my business model right, everything is working, right? And 200 is where it probably -- it's a great business. And that's why INR 1,000 crores, we need to have about -- business above INR 200 crores. Now for them, [indiscernible] used to consolidate. Like I said, on IT periods, maybe -- if I want to say on these 2 categories in the plants format, maybe I'll combine these 2 for calculating the scale at the INR 200 crores and et cetera, et cetera. So there'll be -- it won't be as simple as black and white, but it will be there, right?
And yes, I think that hopefully answers the person. That doesn't mean that 150 to 200 is always a smooth ride. On popcorn, we had 30 competitors, right, like the right now in peanut butter. We have a competitor spending a lot of money, but we've also done our last.
We know that solar volume and say because maybe we can spend money indefinitely. When the money [indiscernible] up the pricing. Our margins will come back to where they were.
I would say, yes, INR 50 crores a [indiscernible]. INR 15 crores is another important milestone because you remember, many of you have asked me at what level do you start to invest some media behind the product. and INR 20 crores as have always given you.
So if you see both chocolates are in the [indiscernible] period and heading towards that -- it's in that INR 20-odd crore mark. So that is why we have started investing. We will not be investing in rise at INR 5 crores or INR 10 crores. That's chocolate spreads right now. We'll get our business model right, we'll grow them. We'll have a decent distribution and then we evaluate what is the stage at which media support is required, okay? I hope that answered many of your questions, but thank you, they were very good.
We have our next question from the line of Vivek Kumar from Bestpals Research and advisories LLP.
I also have 3 questions. Like our Food growth is -- as of now. I'm not talking about when we are at INR 2,000, I know they are dependent on spreads and to popcorn growth. So first, is this may be a wrong assumption, but maybe could factor is it because of the COVID days, that we are having a small growth? Or is it there are some new competitors and we have to -- like what we are doing in spread, we are [indiscernible] up other things and strategizing so that we will get our growth back. That is my first question on the ready-to-cook popcorn. If it is because of this COVID growth and because it's the most distributed product among all food products. So when will we start seeing the growth because the growth is mostly dependent on that also moving then.
Second is when will we start having the flywheel that you are trying and you've been explaining for the last 5, 6 years of how you are introducing, why you are doing at probably INR 5 crores product and when do you think will become a company where I think you slightly answered the previous answer of that puts gross margins becoming 70%, 80%. Then we'll have a flywheel that will have a continuous -- at least the basic growth would be 10% to 15%, and good times will grow 25%, 30%.
And when we leave -- and what factors do you think will lead us there? Will it be some picture on how companies will look like, should look like for us to have that. So let's the questions.
You're spot on. And this is a comment that Jim had asked me yesterday [indiscernible]. Only discussing the finance. Obviously, the new categories are going to build up over time, right? But for now, we are very dependent on ready-to-cook popcorn. And so where do we go from there. So I'll try and give you a number, okay? If it helps, okay? Because I can't give you. But if you look between April '19. So there is a big over growth impact there, right? I mean, then I talk you through the commission of what Jim and I had during the COVID. April '19 and United today, our relative volumes are okay?
So over a 4-year period, we got a doubling of volume, which we [indiscernible] 16%, a 16% in 34 years. Now as COVID most 2 companies had a first, right? We were sitting on elevated consumption, right? And therefore, we -- it produced more profits, right? And at that stage, we have a choice. Allow that profit to so down the shareholder or do we recognize the fact that these are elevated basis and they can come down dramatically if we don't actually expand our consumer base in that period. And for that read investment in advertising and reinvestment in if you will, distribution. All the distribution going to [indiscernible] disinvesting because there was so much work that obviously we were not in a position to drive that completely. And that's exactly what we did. So Jim and I talked about it, I think we're going to invest, right? And a lot of CEOs in North America didn't do that, right?
We allow the profit too, right, but the consequences are clear. We've got a business, which is today to as what it was 4 years ago. And that way, if you look at our competitive payment so on 2, you will see that in FY '20, we were at INR 4.5 crores on active. [indiscernible]. The plant stage. And in FY '19, we had come down to INR 3.8 crores because there was a lot of pressure that I was saying just [indiscernible] by the edible oil margin, et cetera, et cetera. And we took that at 1 day, [indiscernible] to INR 10.4 crores, INR 10 crores in FY '21, INR 10 crore in FY '22 and INR 9 crores in FY '23. This, we believe, has enabled us to actually continue to grow, meaning have this stagger of 16%, 17%, right? And avoided possible fall in consumption because we were able to expand our consumer. And I read is that for companies who didn't do that, we didn't invest going forward, and this is very visible examples in North America. So volumes are actually down today, right?
So that's why we are very comfortable. That's why I talked about the instant popcorn growth. I needed to do such for a of it at that 5%, 6%, 8% to 10% is what we need. So we just keep investing. This should be okay. We need to understand this for ourselves as well, so that as management, we know we're making the right decisions. okay?
On spread, I think it's a very simple that explain very simply. You've seen the numbers. We've seen that [indiscernible] significant investment by somebody to spend INR 10 crores in a category, which is just a few hundred crores, right? And we have to take the best management actions that we could take, which was taken.
I believe these come up very well. And honestly, if we double our volumes pre their launch, our manufacturing cost structure will be much better. We have a good share and we will be able to take some pricing. When exactly do you stop spending. That's a question I can't answer, you say put. All right, okay? So it could take more time, a lot more time, let's see. Let's see how it is, okay?
Right. On your comment on the flywheel if you will. I think to an extent, [indiscernible] question also was in the same space, as we've also mentioned. I think, look, a meaningful -- I've always said a meaningful size of category. So that is about INR 200 crores. If these categories worth about INR 200 crores, I think each 1 of them is very price sensitive, right? So multiplied by size were in size categories that INR 2,000 crores. Now it won't happen exactly because ready to put is already that much larger, right? Peanut butter is are ready-to-eat are also larger than chocolate and breakfast cereal. So we can make projections. But broadly, I think INR 200 crores, INR 1,000 crores is where the whole fee should fit in.
At that level, if you assume a INR 250-odd crore oil business, for example. That means about 80% of our business is [indiscernible]. At 80%, that also ties in to Anil's question, that we are much less reliant on the oil business for margin and also the overhead of one SG&A adoption. We'll talk more, I think in the numbers when we talk to you about what the road map from EBITDA to get to that 15% to 20% range, which structurally we have our business for that. That's the time we can ask more of these questions.
We have our next question from the line of Vimal Sampath, an Indian investor.
So I've send the questions by mail. If you have received them, it will save that much time. So we don't just reply.
I think sometime want to have to be respected [indiscernible] on the call. So I was out some perspective.
No, no, I read it out for you.
I'll read it. okay. Using the highlights by time there is technically no growth in the segment. Are we on track with our CapEx plan and are still expecting to get INR 100-plus crores. So answer I think I covered this, I thought that levered, but obviously, I did to your expectation.
Because I put it before the presentation.
No worries. No worries. Obviously, we got a year-to-date growth of about 20%. We have said earlier that we will see at what level it just leads advertising support because the business is already there in that INR 15 crores, INR 20 crores range, and that's why we started advertising. As far as the capacity expansion is concerned, that will take place. That doesn't mean it to INR 100 crores of chocolate sales this year. It just means that we have that capacity and then we'll be able to meet the growth effectively. Building out the supply chain best of time, particularly for this complex category, there are lots of people who would like to chocolates. Anybody would like to chocolate to the 60% gross contribution, right? But to make it work, is not so easy. It's extremely difficult, okay?
So we therefore to make sure that we don't stumble in a hurry. And we are building out the capacity. We may be obviously running in the early stages at lower capacity utilization, but it will allow us that we are never under pressure. We do all the right things. And obviously, as we invest more, it's a great category for us.
Experience growth is -- it's not due to displacement. I think overall, the portfolio sees is the time, there are good and there are bad times in any business. You can see even in the 15-year chart. There are good years and there are not too good years. So the question is, overall, are we on track for those INR 50 crores, INR 100 crores level. And I think the answer is yes. matters, we have certainly the visibility of that is possibly less today because we're also focusing on on building out the factor brand on the mass segment side, that enables us to get multiple price points.
And also, if you know -- I mean, you're aware we do say [indiscernible] royalty on the use of the active brand we expect in our mind that there is a certain minimum margin that we would make on anything that is going to be branded F2.
It's not we're always going to exercise the choice of moving to subtract, right? Because it has to make sense for everybody. It has some more sense for our talent, it has to make sense for us. And in ready-to-cook -- sorry. I think the question was -- sorry, thank to [indiscernible] is not as decided, Okay. And then I think I've already talked about this past fall. You can see from the -- it takes time to build up once your business model is fact year 2, okay? And spread also, I think we are able to. I think the answer is, are we able to match on in pricing? The answer is much more, but we are very, very strong in terms [indiscernible]. So really, we talked about what is our strategy to [indiscernible] to 20% growth. And on that table, I think I covered it in my conversation that we are not moving back to [indiscernible], but we do need to take care of our distributor revenues first, and we have some problem there.
Have our next question from the line of Saikiran, an Individual Investor.
For some of these detailed questions. Just just want to ask you, sir, for the last 10 years, the gross margin of the company has not seen any growth rather is more or less range bond. I appreciate that the composition of the foods business in the gross margins have moved from 20% deployed. The around 55%, 60% now. But as we've seen in the last 10 years, we have not seen any gross margin growth coming at all. How do you see this if you have to look backwards and how do you expect this to move for the next 5 years, probably, especially on the gross margin growth? That's my question number one.
And the question number two, if I look at the operating cash flows, Finally, there is a meaningful CapEx, which has gone in for the past 10 years ago, but building up 7 plants and then all that stuff. And there is reasonably large CWIP, which I can see 523 [indiscernible]. So what is that you have in your mind when you generate the cash flows? And how do you expect these to be utilized for the next, again, maybe 4 to 5 years.
Start on as far as the gross margin is concerned, and we've covered this in our annual report also in the directors' report. I think it's been in the region of about INR 170 crores, INR 180 crores thereabout for some years. And the reason is what we said exactly that, which is that we've chosen to move away from the regularized business, right and to focus on nonobecause that's a great business. That's a business where we can get to a 15% to 20% EBITDA margin. We don't think any business in our 15% to 30% EBITDA margin. So that change it, right? Now what will be the trigger for increase.
The trigger is really then the dominant share of food is actually their food starts to dominate the share of gross margin, right? Along with that growth rate, we will automatically get [indiscernible], okay. So of course, we are also you are seeing gross margin improvement, but a lot of that is also due to in this year. probably, if I look at the gross margin improvement this year, it's about 2/3 or 1/3 group.
So over time, obviously, it will have to be more and more foods and it will be foods, okay? So I would say that would be the first answer to your question. On the cash flow, see, we work on an assumption that all CapEx we spend in the region of about INR 45 crores a year, right? So that's about the number that we've been spending. And we feel that, that's additive for us. Remember, we've not done and had a huge CapEx in 1 year, we spend whatever INR 400 crores, INR 500 crores over the last years.
And we built up the our plants. We built up for [indiscernible] plants, put them in a lot of categories, at a very, very low cost. Now we have this at [indiscernible] continue that level. So I would say, if you work on a INR 45 crore capital expenditure every year, probably that's a reasonable number to look, okay? Okay. So I think that's it.
Thank you for asking the question. Appreciate the very good questions and things that we also have to keep asking at least the -- thank you. Thank you, everyone. Akshay, over to you.
Thank you. Ladies and gentlemen, as there are no further questions from the participants, I'd now like to hand the conference over to management for closing comments.
Okay. Thank you, Akshay and thank you Ajay and thank you all for taking the time out. We look forward to talking in more detail when we meet in the end of November in our analyst meet. And I would say, clearly, the food growth is less than we expected, right? We are cognizant of that. And clearly, the 2 areas that we are working on and working hard on the ready to put an [indiscernible] think which are in good shape here. So we'll update you more, not about the quarter in November, but at least about the question on profitability in [indiscernible]. So thank you so much. Thank you for joining us.
On behalf of Anand Rathi Shares and Stock Brokers, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.