Prataap Snacks Ltd
NSE:DIAMONDYD
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Prataap Snacks Ltd
Earnings Call Analysis
Summary
Q4-2024
Prataap Snacks demonstrated resilience in Q4 FY'24 despite challenging macroeconomic conditions, achieving sales of INR 387 crores. Urban areas outperformed rural ones, but rural spending showed early signs of recovery. EBITDA surged by 87% YoY to INR 35.5 crores, with margins at 9.1%, the highest in 26 quarters. The company's FY'24 revenue was slightly down at INR 1,610 crores due to softer demand, yet profitability improved significantly with EBITDA growing by 126%. A dividend of 40% per share was declared. Looking ahead, Prataap Snacks targets double-digit growth and continued margin expansion, aided by Salesforce automation, modern trade channels, and new product launches.
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Ladies and gentlemen, good day, and welcome to Prataap Snacks Quarter 4 Investor Conference Call hosted by Systematix Institutional. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Himanshu Nayyar from Systematix Institutional Equities. Thank you, and over to you, Mr. Nayyar.
Thanks, Renju, and good afternoon, everyone, and welcome to Prataap Snacks FY '24 and Fourth Quarter Call. From the management today, we have Mr. Amit Kumat, Managing Director and CEO; and Sumit Sharma, CFO of the company. We'll start with the opening remarks from the management, post which we'll take up Q&A. So I'd like to hand over to the management now. Over to you, Mr. Kumat.
Thank you, Himanshu. Good afternoon to all the participants, and thanks for joining our Q4 and FY '24 earnings conference call. I trust, all of you have reviewed our earnings documents, which was shared earlier.
We have reported a resilient in Q4 '24 despite the challenging macroeconomic conditions and persistent inflation, which have impacted consumer behavior. We reported sales of INR 387 crores in Q4. Urban areas continue to outspend rural areas during the quarter. However, there are initial signs of revival in rural spending on a sequential basis.
Two key highlights of the top line performance are maintaining of the leadership position in the category as well as continuing to drive robust growth in the Namkeen category, which remains a primary focus area for us.
These accomplishments have been driven by initiatives such as and expanding of retail reach. I'm most pleased to share the EBITDA performance in Q4 '24 EBITDA was INR 35.5 crores, a robust 87% increase compared to Q4 '23. We have delivered an EBITDA margin of 9.1% in Q4, the highest in the last 26 quarters.
We have been very focused on our margin performance and undertook many steps to structurally improve the margin. Additionally, a decline in some input prices, coupled with process optimizations contributed to improved profitability.
The improvement in EBITDA is also filtered down into PAT. In Q4, PAT reached INR 12.4 crores marking a 30% year-over-year increase compared to the adjusted PAT of INR 9.4 crores in Q4 Q3.
Please move the one-off in the past last year, which are explained in note 1 of Slide 32 of our investor presentation. If we look at the full year performance, revenue was INR 1,610 crores in '24 compared to INR 1,642 crores last year, impacted by the softer demand environment. However, there was much progress on improving our profitability as the company reported the highest annual EBITDA on INR 141 crores in '24, which is higher by 126% on a year-to-year basis.
Towards '23-'24, the EBITDA margin was consistently above 8% each quarter, and we have reported a margin of 8.7% for the full year, indicating the structural and sustainable improvement in margins. This margin enhancement is due to compression of the distribution structure over the last 2 years as well as a lot of efforts on process improvement, cost optimization and yield enhancement.
There has been some support from lower prices of certain input. Profit after tax has grown 52x from INR 1 crore to INR 52.1 crores in '24 on a like-for-like basis despite higher depreciation. In light of this performance, the Board of Directors has reminded a dividend of 40% per share with a INR 5, amounting to INR 2 per share.
We have taken several steps to accelerate the growth. This includes the implementation of Salesforce automation, which is already rolled out across a substantial proportion of our market. We now have access to richer and real-time data, which will lead to improved productivity of sales stream, identification of gaps and also help to improve the overall strategy and decision-making ability. This will be extended across all locations this year.
We are augmenting our sales channels by entering into modern and quick commerce channels, which will complement our comprehensive presence in traditional distribution channels. We're already on voted into some of the leading supermarkets and chains and now are in advanced of discussions with several good commerce platforms.
In terms of our product portfolio, we will look to continue to perform well in extruded with focus on snacks. Another strategic initiative we remain increasing the share of Namkeen in our revenue mix. The initial progress on increasing Namkeens will receive further momentum from our initiative of Salesforce automation and entry into modern trade is commerce.
Further, we are undertaking efforts toward more comprehensive coverage across select market and we look into a great pockets of under penetration. We believe that will help us to further enhance our reach. We are also working on including some premium offerings under the better-for-you range of products. This will help us to drive the objective of large pack size and will also benefit from our entry into moderate trade and quick commerce.
As part of the ongoing upgradation and enhancement of product range, we plan to launch new sizzling hot, which is expected level across product categories of extruded and These are the new offerings lined up for launch in the extruded and categories.
We have recently commissioned new facilities in Jammu and Rajkot. The Jammu facility will help us to expand our reach in region, especially across J&K and Punjab. In Rajkot, too, we will be manufacturing and which will help to expand our product range. Looking ahead to FY '25, we are optimistic, given the initial signs of improved rural demand, the projections at our normal monsoon will provide further momentum to this trend.
We are confident that our initiatives across Salesforce automation, reselling entry to modern quick commerce as well augmentation to our traditional product portfolio will help us to drive accelerated growth in top line.
On that note, I conclude my remarks, and we can open the floor for questions.
[Operator Instructions] The first question comes from the line of Deepan Shankar with Trustline.
Congratulations on strong profitability and return ratios. So firstly, from my side, so what are the challenges we face in reporting the strong double-digit growth in revenues. And how do we see industry growth per se, in the past year?
So if you see overall, the rural market and the urban market with a low income has been a big problem for all the companies. We don't have the exact number of our competitors, but there has been -- definitely, there has been pain for most of the companies in rural segment and the income. But seeing the current scenario and the months which have passed on, the things are improving a lot. We think that this year probably we can deliver double-digit growth.
Okay. Okay. And sir, can you please throw some light on each categories like extrusion and then potato, sweet and Namkeen segments, how do we see growth over there?
So extruded segment, we are the leader in the extruded segment in the country. And we feel that most of the growth in the near future should come from [ extruded ] like mainly pellets and Namkeen category. Namkeen and Yellow Diamond has done very well for the last year also. With almost 0 growth also, the Namkeen category grew almost 16% for the year.
The contribution was 16%, right, sir, our growth?
The growth inventory. The contribution, exact number of product wise -- the contraction over 16%.
Contribution is also 16%, but growth for Yellow Diamond nuke. So akin is Yellow Diamond and our kind of portfolio is primarily a regional targeted to Gujarat market and why the name is more national We are driving the So the outlets we are available, but the Namkeen range is not available. We are pushing Namkeen on existing outlays, which is helping us to drive the Namkeen growth.
Okay. So if we are seeing a strong growth in Namkeens, so any other segment which is facing negative growth as such?
I think that all other factors are basically there were muted growth because volume wise, we were at 0 growth last year, so not much significant difference, but Namkeen has done better than all other products. Coming here, we are looking more growth from the extruded snacks and Namkeen.
Okay. And how about this portfolio, sir? We had a higher growth ambitions on the portfolio earlier. So are we still hoping sweet portfolio to increase substantially in the coming years?
Sweets per as well seen a muted growth, we don't see any much significant growth in the sweet segment right now. different forward for the sweet segment, but
Okay. Okay. And how about this offtake on larger packs we were discussing last year, sir? So is that segment contribution improving overall sales?
Yes. That sales contribution is also improving. And with getting entry into modern trade that contribution is substantially improve in the times to come. We have got listed ourselves on the Dmart and Reliance, and there, we are selling a INR 50 pack compared to the INR 5 pack that we sell with them.
Okay. So what is its contribution last year, sir?
The entry into modern trade and we book with commerce, I think the large MRP pack contribution will definitely increase.
Okay. So what is its contribution currently? And what was it last year, sir?
See, it's different for different segments, I think partnership is as close to 25%, 30%, more than INR 5 pack for extruded net and other packages mainly So overall contribution out say, probably close to 12%, 13%. And I think that can go up to 25% or 30% in 2 years time.
Next question comes from the line of [ Prakash Kapadia ] from Spark PMS.
A couple of questions from my end. Typically, what has been our rural and urban mix to total sales, if you can share that in FY '24? And secondly, Pepsi is trying to change the base oil from palm oil to a blend of sunflower oil and palm oil. So what impact does it have on the industry and a player like us and what do you think will be the consumers' reaction? I have a few more questions. Should I continue or will you take that...
Yes, let me answer the first 2 questions, and to third and fourth one. on the mix side, it is almost 50%, 50% for the rural and urban market, not much different. But in urban market, also, since we are in the INR 5 segment category, we are majorly getting to lower state income people. So I think there have been there also last year, which we've seen is improvement from this current year.
On the oil side, basically current and cotton seed oil and we believe they are 1 of the best ones for the prime medium across the world. But since their consumer behavior were done when launches and the launches and they advertise a lot, I think we will have a few varieties in sunflower also in times to come. But I don't see any health benefit out of coming out of it.
Okay. So the positioning need not be a healthy product to what you are saying?
Yes, I don't think so, yes. So there is a lot of debate going on across the world on the quality of oil. I believe most of the oils are not that good for health.
Yes. Understood. And if you could help us understand the PLI scheme? There was some delay last year, what were the challenges? As of now, where are we in terms of the PLI scheme? And if you could help us understand the road ahead on that. And in your remarks, you mentioned about the J&K plant, so given that it is started, what is the annual benefit, what kind of CapEx we have done, when do some of these benefits come to the P&L? If you could give some insights that will be helpful?
Sure. So PLI, there was an obligation to invest almost INR 105 crore for CapEx and the deadline was to complete that investment by end of March '24. So we have completed our investment before the deadline, and we commissioned 2 new plants, and there were some brownfield CapEx. So with regard to that investment, we have commissioned to new facilities, 1 is Jammu and second is the new unit in Rajkot.
We need to achieve some sales threshold to get the PLI benefit. So we are aspiring for that. We are targeting to achieve that number. The benefit is available till FY '27. So another 4 years, the benefit will be available. As far as Jammu is concerned, Jammu plant was commissioned by end of March, and it's operational, the overall capacity for Jammu facility is roughly about INR 160-odd crore at a full capacity utilization.
The idea to use Jammu facility to develop the nearby market like J&K, Punjab and Himachal because those markets historically were not that strong for us because of logistic issues. We were not able to supply earlier. So Jammu facility will help us to maintain the consistent supply to these markets.
The products we are planning in Jammu are extruded will be manufactured at more locations and of the items will be supplied from other locations. So we will also have a Jammu to maintain the full range of all the products. In addition to PLI benefits, there are another benefit linked to Jammu investment.
Jammu's a total investment was about INR 22 crores, INR 23-odd crores. So as for the Jammu incentive scheme, whatever is the eligible investment, we will be able to get 300% of that investment. That's what our calculation, the eligible investment is about INR 18 crores to INR 19 crores. So 3x, that means about INR 56 crore, INR 57 crore kind of benefit will be available over the period of 10 years. And this is basically the GST-linked incentive. So whatever GST charge in the invoice, will be getting equivalent to that benefit subject to the maximum cap of the amount which I mentioned.
Okay. And you mentioned there is a sales threshold for the PLI scheme. So how does that work? Is there an absolute number or a certain growth number which you have to achieve year-on-year till FY '27?
So there is a CAGR, which has to be maintained over the base year. So the base year was FY '20, and we need to maintain at this 10% CAGR from FY '20. So that's how the sales is calculated. All the products are eligible under PLI in our case, except the potato chips. Potato chips is not eligible under the PLI scheme for the incentive benefits.
Okay. Okay. So if I understand this correctly, going forward from FY '25, some of these benefits will start accruing to us.
Yes, that is what we are targeting.
Next question comes from the line of [ Arman ] with [ Bluesky ] Capital.
Yes. Sir, before we told that we will be targeting around INR 500 crore top line, however, in Q2 earnings call, you clarified that it may take 2 more quarters. So already we around Q3 and Q4 already have been over. So what's the time line over there? When can we see a top line of INR 500 crores now? That is my first question.
And the second question, which you have already answered, but just wanted to clarify once again that like PepsiCo, one of the previous participant has asked about the palm oil and sunflower oil. So our stand is clear that, that will not -- that doesn't hold any other health benefits. So what we are using is the best what can be possible. Is that so, sir?
So I don't think we can say it's the best is that all the oils have different kind of attributes and people see it with a different lens for frank medium stability wise, we believe Pamela is the best oil available in the world today. And all the majors left in the country, you just only during winter, we have to use cotton seed oil, because of the low trading point for.
As they start giving some over and they market it, I think it might give a different tangent to the market. So we are going through trials that of a laboratory to see what can be done. So current sunflower oil available in the country is not good for frying. So you need a different kind of sunflower oil to be used in frying.
On the first question of revenue, we haven't hit that mark basically what we said last time. But with the current 10% growth momentum, what we see for this year, hopefully, this year, we should see this number in probably Q2 or Q3.
And these margin levels are sustainable, sir, at this level since we are already increasing our share of the Namkeen segment, which are competitively better for us? So what kind of margin we can assume going forward?
I think the margins are sustainable on a full year basis. However, there will be some ups and downs in the commodity pricing. So the quarterly you may see some fluctuation. But for the full year, we are confident that these margins are sustainable because over the period, we have a lot of structural changes in terms of completing the distribution network in terms of other process reengineering, including the change in recipe, residing the packet, resizing the prorogated boxes, et cetera.
Those are permanent in nature. So those are still with us. So for long term, for a full year basis, yes, we are confident. But there may be some variation on a quarter-on-quarter basis, subject to change in raw material pricing.
Next question comes from the line of [indiscernible] India.
Sir, congratulations on the operational efficiencies extraction in your business. How are you so confident about the sales hitting INR 500 crores per quarter? What are the specific initiatives you've taken to drive sales across categories for the organic business and incrementally, what will come from a Jammu and Kashmir
So on the first question, basically, it grew by 10%. The sales is almost close to INR 1,860 crores. It can grow better than the probably then Q3, we might be able to hit that number of INR 500 crores. If you see historically, because Q2 and Q3 normally better than -- the initiative that we have taken is basically getting deeper into distribution and with the Jammu facility, we are targeting to cover a whole of Punjab, Srinagar and Jammu market, which was currently very weak in those markets because it was very difficult to supply from Indore and other locations. So with the more focus on Jammu plant and 2 different products from Gujarat and getting deeper distribution, we might be able to hit that number. .
What Jammu plant at [indiscernible] in terms of sales at the utilization? .
Jammu can probably deliver sales of INR 10 crores a month. but there will be some sales we basically are currently getting from Hisar and Karnal plants, which has the third-party operations. So some of that production might shift to Jammu, but we can needle sales of INR 10 crores per month from the Jammu plant.
Next question comes from the line of Shah with [ MK Ventures ].
Yes. Congratulations on set of margins. Sir, my question is what kind of new business initiatives are we looking for the next 1 or 2 years? Can you just elaborate on some of the initiatives?
Yes, yes. So first, basically, as I told in also. So 2 things -- major things what we have done in the last 1.5 months this get enrolled into ourselves into the modern trade and e-commerce. We have already started supplying in Reliance and DMart. And we've got enrolled with quick commerce all the major 3, 4 big agencies. That supply should probably strive within a month's time from now.
So these 2 initiatives Plus we are also targeting to get into export market. We recently got a few orders from the Middle East from the Oman market, and now we are getting into -- there is a conference in Dubai in September we are covering that conference also.
And we are hopefully with these 3 initiatives, we should get definitely a decent number probably in a year's time. Plus, basically in the current market that -- this as a new initiative that we are taking, plus basically, we are also targeting to get deeper distribution with more range selling in the similar markets, like the -- if you see the extruded snacks is available or most of the where we cover, but if you see the Namkeen is still available only 25% of the outlet. So we can make Namkeen available in all the outlets, it can definitely increase sales considerably.
If support theoretically, we are availing to 2 million outlets that for the number, Out of that 84% outlets, they have extruded snacks. Only 35% have chips available with them and 25% has Namkeen available with them. With using technology and getting into if we can increase this number, sales can increase considerably.
Right, sir. Sir, what kind of opportunity does export have like we can see an export market?
I think probably in a year or 2, it can go another between INR 50 crores to INR 100 crores. [indiscernible] call it, we have just started the role we have to learn a lot in export market started that, but I think the potential is to [indiscernible]
Next question comes from the line of [indiscernible].
This is Alisha. A couple of quarters talking about with RM prices, local payers have become more aggressive and demand being weak, it was impacting our growth. So any comment on what is the competitive intensity like? And is there a particular segment, say, potato chips which is witnessing maybe more competition than say, Namkeen, any comment or color on that?
I think the completion there is a lot of competition in the market, no doubt about that. But personally, in our few markets, we have seen more competition in the chip segment. A lot of plants basically come out in UP basically, they are trying to sell very cheap. But since the commodity prices have already gone down from last 1 year, now they're increasing a little bit.
I think the completion intensity won't increase from here. So if you see number, the local competition has taken almost 3% market share in last 1.5 years. And I think that would be the peak according to me.
Why do we feel that maybe with these lower prices and because they also set up the capacity, they'll try to expand a little bit. They can't maybe take away some more of this?
Hello?
Please go ahead with the question.
Am I audible?
Speakers, can you go ahead with the question?
Okay, Alisha, we got disconnected. Can you please repeat the question? .
Sure. Sir, just wanted to know that you said that local competition some 3% market share in 1.5 year is in the shop for them maybe to expand a little bit and continue to hit us at a lower price point or maybe where distributions weak for the rest of the market, and they can eat away a little bit more into everybody's market share?
I think it is difficult. If you see history of the also the whenever the raw material prices comes down, all the smaller players will pop up everywhere across the country. But they have that certain level, and I think they've already reached that level, probably they can go up by 0.5 or more, but I don't see any significant change from here in the local competition. That's my take on it.
And how is the competition in Namkeen? Because I believe last time also we were saying that Namkeen the competition is aggressive.
The competition is definitely existing Namkeen, but with our presence available in the market, I think there's a lot of scope. In spite of 0 volume growth last year, we grew Namkeen by 16% of Namkeen And currently, we are only available in 25% of the outlet where Yellow Diamond is available. So the [Foreign Language] I think there is enough scope for us to get Namkeen at a bigger range.
Understood. And any aspirational target that -- where do we expect now that we've completed the rejig of a distribution network or model, this 20 lakh outlets that we are present in, where do we expect this to go? And what outlet reach can Namkeen reach by the end of the year?
I think we can definitely increase the outreach by 50% for Namkeen by end of the year. And overall outlet, basically, we're already on 2 million outlets or 2.2 billion outlets. It will be much better for us to get deeper into these outlet. .
So the aim is to basically get deeper into this outlets rather than increasing the outlets with help of SAP and DMS.
And with the Jammu and Kashmir plant, we're saying that it will help us cater to the demand of Jammu and Kashmir Punjab maybe a little bit more of the north. Will that not also lead to some amount of expansion and distribution reach or this is covered in the [indiscernible].
I think they're almost covered into [indiscernible] There will be a slight increase, but the company focus is more to get basically more sales from also the current outlets.
Next question comes from the line of [ Naitik ] with [indiscernible].
Sir, my question is you mentioned about entering the Oman market. Can you talk a little bit about which are the other countries that we are looking at apart from Oman?
Yes. So the middle is basically -- there is a lot of Indian dysphoria in the Middle East. So 1 of the bad just came from Oman, which is the visitor plant and they give out of a few containers -- so they are talking to a few more companies in Middle East can take distribution of our products. The only problem in export is basically you need a lot of time in labeling and all those things. But I think we can open all Middle East countries in probably in the next 6 months time. In our own brand, Yellow Diamond only.
Okay. Okay. Sir, my second question is regarding a deeper penetration in Jammu, Kashmir and Punjab Jammu facility. So I just wanted to ask what would be our current sales number in this region. And you mentioned it could go until go to 160 at peak, but what was the current contribution?
I think the monthly sales of J&K Punjab and Himachal market put together is close to INR 3.5 crores currently -- yes, probably it can double from here. The 10 includes basically the and plant, which will benefit using from plant, so some product will be shifted from Jammu to there instead of getting the 3P operations because we already have the facility.
But in the current scenario, probably we can double -- it will take some time, but we can double the sales from -- in these 3 states. [indiscernible] what I am talking about.
Got it. My last question is, it doesn't already in file outlets out of, say, 20 lakh outlet. So my question is, why is it taking -- I mean, was this on previous calls also. So why is it taking us longer to make it to, say, 8 or 10 lakhs, what exactly is taking time?
There are 2 things, basically. For Namkeen, if you go into different regions the taste change quite a bit. If you go to South India and East India, probably the flavor changes seen changes. So we are developing to seasons from the local market.
Secondly, we are producing only in Indore right now, but distributor from Indore to Guwahati and not the The poll is taking more time. The first step is to get the product right for the different markets. and then probably get from Indore first and then start the production in Eastern India, which is giving very good attraction right now. Because all other products are manufactured at many different locations, like chips is manufactured in 4, 5 locations, available from 10 locations.
The proximity of production to market plays a very important role. These are the 2 reasons we have not been able in Namkeen across the country.
Next question comes from the line of Kunal Patel with Equiligence Capital Advisors.
So my first question is regarding PLI steel. What is our base for FY '25 PLI benefit?
FY '25, you're asking or FY '20, the original base on which the...
No, so to avail benefits for financial year '25, what is our base revenue base on which you have to grow and to get the benefit?
Yes. The revenue base for FY '25 is about INR 1,575 crores, excluding [indiscernible].
Okay. And we need to grow by 10% on that, right?
No, no. This is the base. This number -- this is the threshold to be achieved -- this number is to be achieved.
So if I exclude potato chips revenue from our base, which is INR 1,610 crores, so our revenue is close to around INR 1,240-odd crores. So you're saying from 1,240, we have to achieve 1,575 to avail the benefit. Is that right? The calculation is right or not?
Yes. Yes. Yes, that's right.
So essentially, INR 1,600-odd crores revenue, assuming there is no growth on potato should reach INR 1,900-odd crores in FY '25?
Yes, yes, mathematically, that is correct.
So where do you see this growth coming from, INR 300-odd crores incremental?
And experiential the major growth whiteware expecting from extruded net pallets and Namkeen, these are the 2 categories which we can go maximum for us.
But most of the categories are not growing more than 10%, 15%, 15-odd percent. And how we are going to achieve 25% growth?
So I think the exact number is now 25%. The growth in the sector probably would be close to 20%. We don't have the exact number right now. It should be 20%. And I think with all the initiatives that we are taking, we are trying definitely to hit that number.
So we are certainly gunning for this. We are aiming for this and we are working in the direction in we will accrue incentive only at the end of the year once we are able to hit that number. So we are not on a quarterly basis like what we did earlier.
I'm just trying to understand your previous statement where you were assuming INR 500 crores of top line in Q3 and Q4 to come. So if Q3 and Q4 base is INR 500 crores, then you have to grow significantly higher in Q1 and Q2 for this year to achieve INR 1,900-odd crores of revenue. Is this growth achievable?
So I think, as I said earlier, basically, we are very confident of the double-digit growth. If we can grow by 18% to 20%, we're definitely gunning for it. We can't commit right now. We're definitely gunning for it.
Okay. Okay. Sir, coming to my second question, which is on margins. So how much more operational benefit is available from all the initiatives we have taken in over the last few years, assuming stable all So we are at 9.1% this quarter. So what should be our exit margin for FY '25?
I'm not commented specifically on FY '25. I'll more give you some color on what it will look like in the next 2 years, 3 years' time on a sustainable basis. So there are few areas still we see some potential that includes distribution channel cost. Initially, the channel cost was higher when there was a super stock and when we shipped it from 3-tier to 2-tier distribution model, we increased margin for our existing distributors because we didn't want to have any hiccups during the transition.
So that potential is available over the period the channel margin for the distributors will be reduced. So that will give some realization benefit and that will also help improving the EBITDA margin. So that one is available, especially on the distribution channel side.
Another lever is available in the operational cost, there are some line items where we are driving some efficiency program and cost-cutting program. We are also taking external help to drive this program, and those includes essentially the labor cost, logistic cost, logistics is a big cost, which is about 7%, 7.5% of the overall revenue.
Stores and consumable spare consumption. So these are few line items, especially on the operations side where we are driving cost cutting and efficiency drives. So this will help us to get another 2% to 3% savings over the next 2 years' time.
Okay. And finally, sir, we are talking about exports. So does export also gets included in this PLI or not?
Yes, that is included.
Okay. Okay. And what is the current utilization -- capacity utilization?
Utilization level is about 55% after having the additional capacity in Jammu and Rajkot unit 2. So there is enough headroom available to drive the growth. So I don't think the capacity would be a constraint. And going forward, we won't have, I think, the investment pretty lower, which is already in place.
Next question comes from the line of [ Tushar Bohra ] with [ MK Ventures ].
Sir, a couple of points quickly. We highlighted the initiatives that we want to do on modern trade and some of the new commerce delivery sites. Can you just explain a little bit more qualitatively what kind of initiatives we are taking there? And what kind of revenue potential it has, even if it will take maybe a few quarters to achieve it, but what kind of potential we think this channel has?
Secondly, what kind of growth momentum we can hit if we are able to take the, let's say, double the penetration of outlets for Namkeen? And also with the efforts on modern trade side, what kind of numbers can come from there also?
So first, on the modern trade basically, if you see in the country, 60%, 70% volumes come from only 2 guys, DMart and Reliance. We were basically not working with them. Probably we stopped working them last year with the prices increase and there we problems at our end. We have just opened these 2 outlets. DMart has started in Indore and Reliance has started in few locations. I think the potential could be close to INR 50 crores a year in these 2 outlets.
The e-commerce, all the they are already in the process of registration. I'm not very sure about the numbers we can achieve from those places, but probably it could be INR 50 lakhs a month. [indiscernible] Reliance and DMart.
So you're saying INR 50 lakhs a month to start with is the immediate potential...
The potential could be much bigger. It's still to be explored, but I think the potential with these 2 guys basically we have already seen earlier, is much, much bigger in modern trade in Reliance and DMart.
And if you are able to double the penetration for Namkeen, let's say, were 50% also, if you are able to increase like you highlighted for this year? How much does that impact the change on a full year basis?
So if the increase include the 50% outlet in Namkeen it should give additional sales of 4% to 5%. On the under business for the whole company. On the overall basis, right, on the overall basis.
Okay. And you said that for us to increase penetration in Namkeen, we have to get the product placement right in terms of the seasoning and taste, et cetera, as well as be able to ramp up manufacturing. Do you have any time lines on would these initiatives and whether it is going to happen all at 1 short or in a staggered way. What is the strategy that we are adopting, sir?
So product, basically, we have already developed the products probably like 2, 3 months, we'll launch the products across East India and South India because normally, North and West India taste is very similar. Once the sales movement can get up in Eastern India, I think the second facility of Namkeen probably we might have to put next year in Calcutta for the Eastern market. But it's very difficult to supply continuously from here, seeing the from here Guwahati so getting the right product at the right time and not easy.
Okay. Are we not looking at any manufacturing in the Southern states, sir?
No, not yet. Because Southern market is very small for us in the category right now, East has grown quite a bit last year. So probably we start with Eastern India. We are already talking to 1 or 2 3P facility in Eastern India. Let us ramp up the Eastern India and then probably we can look for the Southern India market for Namkeen.
Right, sir. One last, if I may. We -- in the presentation, we mentioned certain products being pruned out as well as some new product innovations that we are working on. If you could maybe share more detail, sir, around this end?
So in the extruded snacks segment, we have added a few products, something like a creative product basically in the tomato side. we have added a few different levers in If you see the trend worldwide across basically the in vogue across the world. So there are 3 new flavors in potato chips that is chilly cheese Korean chilly flavor. Similar thing we did with So these other product range what we have added in the chilly range across the category. .
Secondly, we are working on some few healthy products, the better-for-you products, in which we are doing makhana. The product has already been developed. So this product like makhana Protein puff and peanut puff, which can go into modern trade also e-commerce also and export also. So these are the 2 ranges we are currently working on.
For the regular market, the lower income and the BCG market, we have deleted chili flavor and few flavors for modern e-commerce and export markets, mainly in makhana protein puff and peanut flavor of puff has already been developed, is still working on packaging, probably it may take another 2 months to put this product into the market.
Next question comes from the line of Harsha Shah with AMC.
Sir, if I'm not wrong, the PLI base for FY '26 is FY '22, right, not FY '20 or FY '26?
Yes, absolutely right, Harsh. So for FY '26, the bank would be FY '22. So our FY '22 sales of eligible products was similar to FY '20 because of COVID there was no growth, unfortunately. So for FY '26, the base will remain the same. What is for FY '25. .
So how much will in FY '26 to be eligible for PLI yet like you gave INR 1,575 crores net of...
Almost similar number, INR 2 crores, INR 3 crores here and there. Otherwise, largely it's a similar number like FY '25. Yes, close to INR 1,575 crores.
Next question comes from the line of [ Arman ] with [ BlueSky ] Capital.
Yes, just a bit of clarification because once before when I asked the margin been told about like 8.7% what we have maintained for the full year will be maintained for the current year. However, when another participant as the can question we told I can't comment on that. But however, for 2, 3 years, you are seeing 200 to 300 basis points improvement. So I just wanted to clarify what's our take on margin?
Is this level of 8.7% maintainable? Also, when we said that our higher products like maybe for large packets for which we have currently 12% share, which will increase potentially in 2 years to around 25%. Doesn't that add more to our margins? And can we assume that 8.7% is the base case that continues on overall basis for the full financial year, it should either maintain or it should improve from
So [ Arman ], I'll read that margin, what we have got FY '24, these are sustainable on a long-term basis, and we don't see any issue. However, on a quarterly basis, there may be some variation depending upon the commodity pricing. But for full year basis, we are confident that these numbers are sustainable. I think there was another question, which was related to a fixed percentage of EBITDA margin, which I said, I cannot comment on the 6 percentage.
It was double digit. But yes, we are aspiring for that. But this level of margins are sustainable on a full year basis. For quarterly, there could be some variation, again, depending upon the raw material pricing. As I also mentioned in my earlier answer that there are a few levers available for margin expansion, both in distribution side as well as the operations side on which we are working. And those levers will help us to expand our margin further from here. So that gives confidence to get double-digit EBITDA margin on a sustainable basis.
Next question comes from the line of Himanshu.
I just also had just 1 key question. If you could talk about the marketing and promotion spends for the year? And what's the outlook on this? Because I believe to boost growth and in light of competition, we might have to increase our marketing and promotion spend and any impact in case you would see on margins on that side, sir?
Last year, the marketing spend was close to 1.25%. This year, we are targeting anywhere between 1.5% to 2%, and I don't think that will have any impact on the margin because that can be definitely taken a excessive what we generate through advertisement. So no significant gap should come because of increased advertisement costs.
And any changes in the promotion that you are seeing maybe by the unorganized or local players, which you need to match? Has there been any significant change in the channel margins or promotions that you need to give out?
There has been no change in channel margin. We have definitely reduced the channel margin like we discussed earlier. But at the retailer margin, it depends from area to area and market to market, we might have to give through schemes depending on the competition, but not significant enough which can change anything.
Understood. Understood. And sir, finally, just 1 point on the overall. You said you are running at about 55%. So there is no CapEx, I believe, and cash flow generation remains strong for us. So in terms of capital allocation going forward, I mean, have we sort of, what is our plan? Like, I mean would we be thinking of I mean returning more cash to the shareholders? Or maybe are we looking at some inorganic opportunities as well?
We have our policy for this, and we will use this capital in the best possible way to maximize the shareholders value. No concrete plan yet, but we are evaluating the best possible utilization of the
Next question comes from the line of in [indiscernible] Capital.
I wanted to check on the pricing environment that you've seen with the competition and for the coming 1 or 2 quarters, are you also looking at any sort of price increases from your end?
We are not looking at any price increases right now, because there is a lot of competition in the market if we can sustain the same pricing, that would be better for us. But with the few products that we are launching in the premium segment and probably this or next quarter, we might get a better realization.
Okay. And sorry, I was a little late, so I might have missed this. Have you shared any sales and EBITDA margin guidance for the next year?
We are targeting double-digit growth and EBITDA from
We are just starting to maintain or slightly enhance the margin for full year. And going forward, as I mentioned in my earlier remarks that there are 2 levers available, especially on the distribution and operations side, which will help us to further expand our EBITDA margin from here.
Thank you. Ladies and gentlemen, that was the last question for today. We have reached the end of question-and-answer session. I would now like to hand the conference over to the management for closing comments.
Thank you, everyone, for joining us on this call today. Very interesting sets of questions. We look forward to interacting with you again. Thank you.
Thank you. On behalf of Systematix Institutional Equities, that concludes this conference. Thank you for joining us. You may now disconnect your lines.