Marico Ltd
NSE:MARICO
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Marico Ltd
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Ladies and gentlemen, good day, and welcome to Marico Limited's Q2 FY '23 Earnings Conference Call. We have with us today the senior management of Marico, represented by Mr. Saugata Gupta, MD and CEO; and Mr. Pawan Agrawal, CFO. [Operator Instructions] Please note that this conference is being recorded.
Before we get started, I would like to remind you that the Q&A session is only for institutional investors and analysts, and therefore if there is anybody else who is not an institutional investor or analyst but would like to ask a question, please directly reach out to Marico's Investor Relations team.
I now hand the conference over to Mr. Saugata Gupta for his opening comments. Thank you. And over to you, sir.
Accept my greetings of the festive season. There was little or no change in the operating environment for the FMCG sector in India during the quarter. Except some improvement in the last month, overall consumption sentiment remained largely muted due to persistent macro headwinds stemming from retail inflation holding firm currency depreciation and liquidity pressures. The sector declined in volume for the fourth quarter in a row as per Nielsen, led by a high-single-digit decline in HPC, while foods posted marginal growth. Rural has been underperforming urban for a while, but holds promise of the beginning of a recovery in H2 on the back of government interventions, reasonably good monsoon and higher crop realization. It has not been all gloomy however, as urban and premium discretionary categories fared reasonably well. Moderation in global commodities also bodes well for the sector. However, recent volatility in vegetable oils and firmness in crude should be watched.
Coming to a performance after a temperate Q1, it is reassuring to see domestic volumes in the growth territory in Q2 and the opticals 3-year volumes [ gather ] at 7%. Further, there was an impact of about 1% on domestic volume growth in Q2 due to pack size reductions which we have affected for in substitute of price increases in value-added hair oils.
Delving into the India business, let me give you a flavor of the key trends in our categories and what is the strategy and outlook for the year ahead. We have seen extended sluggishness in loose to branded conversions in coconut oil as copra softened beyond our forecast and corrected even during the off-season months of September and October. We believe this correction in copra is a reflection of the weakness in the overall sentiment in contrast to being predominantly [Technical Difficulty].
As a result, we have been playing catch up in pricing in Parachute coconut oil, despite being prompt in taking pricing calls as suggested by a forecasting model on pricing. While multiple price drops does impact trade sentiment, we are in the midst of another round of pricing cuts. In view of this continuous price drops, copra prices and consumer pricing should harmonize by December given there is a lag of 6 to 8 weeks for these actions to translate in the marketplace. Therefore, we expect volumes to stabilize in H2 as we continue to maintain a stronghold in our market shares and remain comfortable on the margin front as well.
Saffola on the other hand recovered smartly after the Q1 grip as proactive pricing intervention in key packs synchronized with the moderation in vegetable oil prices. On the profitability front, we took one-time hits this quarter as we cut prices substantially at one go and ahead of the market to some extent to avoid multiple pricing changes even while we consumed higher cost RM inventory. We also covered all the ground stock in the market to affect the price cut. The total impact of all these one-time measures was about 75 to 100 bps on EBITDA margins, but led to stable Saffola edible oil growth in Q2 and in October.
Once price stability sets in, we'll balance volume growth and profitability at sustainable levels. Value-added hair oils posted subdued growth as continuing headwind in rural consumption is showing up in the bottom-of-pyramid segment even though the mid and premium segments did relatively better. Volume growth in Q2 would have been flat if not for the pack size reductions done to affect price increases. It is also pertinent to note that the overall hair oil category has been largely tracking HPC growth, and we expect this phenomena to continue. We draw comfort from the sustained upward value market share trajectory and we are focused on expanding our presence in the premium and the super-premium segment.
We'll continue to maintain our competitiveness at the bottom of pyramid, but will not resort to actively downgrading the category realizations by operating at unsustainable or mere gross margins. Food bounced back to healthy broad-based growth in Q2. We continued to log share gains in oats and soya chunk categories. We also expanded our plant-based protein offerings with the launch of Saffola Soya Bhurji and added a new Saffola Masala Oats variant with a crunch to the oats franchise, which also contains millet. This new variant or with millets and crunchiness is based on consumer insight and need gaps in this segment. We'll continue to further expand our portfolio of offerings in the rest of H2. During the quarter, we also restated Saffola Honey with the launch of 2 variants, Saffola Honey Active at a more accessible price, and NMR-tested Saffola Honey Gold at a premium for the enhanced assurance of purity. We expect to aggressively restart our market share gain journey in this category with this dual portfolio strategy. We'll continue to invest in broadening our presence in the Honey category.
2 elements is also scaling up as per expectations. The current revenue run rate of the food franchise keeps us on track to reach the revenues of INR 650 crores in FY '23 and aspires to hit INR 850 crore to INR 1,000 crore mark in FY '24.
Premium personal care has been going at a healthy pace sequentially and is now about pre-COVID levels, Beardo and Just Herbs continue to meet internal growth targets. Our digital branch portfolio is nearing INR 250 crores in ARR, and we continue to chase the INR 450 crore to INR 500 crore by FY '24.
Moving to international business, we have delivered double digit constant currency growth for the seventh quarter in a row, which is unprecedented, and with all markets contributing fairly amidst growing macro uncertainty. Bangladesh has been resilient, admits challenging macro circumstances with healthy growth in the core and sustained ramp up in the healthcare and baby care portfolios. Vietnam has been getting momentum as HPC category growth in region has been buoyant. We'll continue to broaden our play the region. We also have been witnessing stable growth in Middle East and North Africa since the last 18 months. We believe MENA presents a sizable opportunity and we are investing to grow in the region. South Africa and the new country development business, which is primarily exports have been keeping up their tempo as well.
Looking ahead, we remain hopeful of more accommodative macro condition in H2, especially in rural. And expect to deliver mid-single-digit volume growth in our domestic business in H2. While the Y-o-Y volume growth in the core categories does not click exciting this quarter. On a 3-year basis casual basis Parachute has delivered 4% volume growth. Saffola Oils have delivered 8% volume growth and [Technical Difficulty] delivered 6% value growth which are reasonably healthy.
We have also consolidated our market shares in more than 90% of our portfolio on MAT basis, which holds us in good stead once consumption sentiment picks up. We continue to support our channel partners by maintaining the ROI, especially when growth has been muted. We have also not curtailed A&P spends and continue to invest in the long-term health of our franchises and in diversification of portfolio. With a combined annual run rate of nearly INR 1,200 crores in foods, premium personal care, digital-first brands are gaining at an encouraging pace and will continue to channelize incremental energies to achieve our aspirations to diversify beyond our core.
We are taking measured efforts to build a dedicated GTM for foods and premium personal care, which will help us scale these franchises disproportionally. In international business we are confident of maintaining the growth momentum in the coming quarters, even if Bangladesh moderates to some extent in the near term, keeping external headwinds in mind. We are enthused by the diversification initiatives in Bangladesh, MENA and Vietnam paying off. The replication of Bangladesh playbook into Vietnam and MENA has started to show definitive results in terms of uptick in growth every quarter.
Gross margin should improve sequentially from quarter 3 as copra remains on the soft zone while the recent volatility in edible oil keeps us watchful. Having closed H1 at 19% EBITDA, we maintain our aspiration to deliver 18% to 19% EBITDA margin in FY '23. We continue to build fundamentally sound franchises in the domestic and international markets and push for the 4 strategic levels of diversification, distribution, digital and diversity, which we believe will keep us on the path of sustainable and quantitative growth in the medium term. We also continue to make visible progress in our ESG program in each of our focus areas. Creating shared value for all remains the ingrained purpose of our business and will allow us to drive superior long-term performance. We are committed to achieving our net zero emission in our domestic operations by 2030 and in global operations by 2040. With that, I will now close my comments. Thank you for your patience in listening, and we will now take your questions. Thank you.
[Operator Instructions] The first question is from the line of Abneesh Roy from Nuvama.
My first question is on Soya Bhurji plant protein. Of course the protein is a exciting category and more so plant protein. My questions here are how has been the response in the initial pilot phase? Second is, when and what is the plan for larger SKUs? Currently I see the INR 15 SKU. Third is, till now we haven't seen any such offering. So it makes huge sense on paper, but is there any idea why the industry till now hasn't launched given soya is such a large category and Indians are very active consumers? And how do you see the, say, focus between the more mass soy chunks versus, say, this kind of product for you from a medium-, long-term strategy. So focus will be more to create this or to compete and take market share in the soya chunks which is a much larger category but has got 2 very entrants there?
Okay. So let me give you an, I think, an overall kind of flavor. The same way we have worked on basically oats, if you look at oats, oats was a breakfast concept, plain oats was a commodity, but we focused our energies into premiumizing the oats category and providing a value-added offering which converted this from a Western, cold [indiscernible] savory and we converted this category from breakfast to in-between meals. We're just replicating that. We participated in soya, soya is doing very well and it is expected to hit INR 100 crores this year. But we believe that the growth opportunity, just like we have done in oats, is to create innovate in this category and convert it into value added. And oats currently is the center of -- sorry, soya nuggets is currently center of plate. We want to convert this from center of plate into a snacking option because -- and I think while others have done it, I can't say, but I think we have a track record of innovation in food just like we have done in masala oats. We are just replicating this model.
And in terms of the response in the pilot phase in terms of taste, et cetera, I'm sure you could have met, that's why you are taking to new cities, but just want to get some sense there. And second is on the larger…
We have not done a -- this is a pilot. This is the pilot right now. We have just started it a week back in fact. So it's like it's been early days. Now if you notice, obviously INR 15 is a trial pack. As and when habit gets engraved, we move. And this is exactly the same thing which we have done in masala oats also when we then moved it into the larger pack. So we will wait, drive trials, drive loyalty and move to the larger pack. But I think as far as plant protein is concerned, I think in India we believe the growth is at the mass end and not necessarily the top end. Also in top end, #2, a lot of action that is happening at the top end is in the frozen category. We believe that India will behave differently compared to mock meat, which is a very western concept. And therefore, as I said, that we will continue to drive value additions in the plain. And we don't -- we are not interested in participating only in the commoditized space which is plain soya nuggets.
Sure. So my second question is on the India versus Bangladesh growth, 1% versus 10%. How much of this is because of the India rural slowdown? How much is it because of the category. The mix is different, I understand that. But is it remarkably different to warrant a 900 bps difference? And third is, when I see the adjustment areas of Bengal and Assam, then how does it compare with Bangladesh. So because those should converge more versus the 900 bps pan India and Bangladesh [indiscernible].
I don't think it's fair to, Assam, West Bengal versus Bangladesh because similarly U.K. and Ireland might not have the same growth levels, okay? So the way I look at it is this, that if you look at India, a significant deflation has happened because of the price cuts we have taken in Parachute and Saffola. Saffola in fact is around 18% drop from the peak and Parachute we have taken around 8% price drop which is not the case in Bangladesh, okay? So I think that would be the reason. So therefore, if I had an inflation, I would have also delivered with a 3% volume growth.
And I also talked about this one that we had lost out 1% volume growth because we didn't take VAHO price increases, instead of that we took a [ ml-age ] drop. So if you equate that, I think it's broadly in the same zone, I would say. I don't see any difference. And I believe having said that, obviously we have a relative dominant position as far as Bangladesh is concerned. And Bangladesh has perhaps a little more economic headwinds than India at this point in time. But I think given our competitive strength and our diversification into some of the big areas, we have coped with it better.
So the last question is on the VAHO downgrading which you mentioned, and you also mentioned on the overall hair oils that you would not like to operate at unsustainably lower gross margin. So wanted to understand that where is the downgrading happening? So consumer is moving to which products? And when you say unsustainably low margins, what exactly are you referring at?
Okay, so what is happening obviously and if you look at any category in HPC because of the inflation and the current for the this one, both whatever pyramid, whether it's urban and rural, there we are seeing a downgrading happening in terms of because I think in this kind of a category there is not titration in usage. So like, if you look at an MFD or some other categories, there would be titration in usage. In some core categories like soaps, hair oils and shampoos, you don't see titration in usage, but you see a downgradation. And any high penetration category, there is this opportunity for downgradation because there are different price points, different brands play. So we are seeing that happening in the, specially the fact that VAHO has a roll skew as a category. And this is not just here, but some of the other categories in HPC which is happening.
Now coming to the margin thing, what we are saying is that, yes, it could be a very -- lot of players could have a short-term strategy of cutting A&P down-trading and cutting margins to participate in this down-trading. We believe that on the long term, neither if you notice we are not doing A&P cuts, neither we are take -- so what we will say that we will not grow volume or market share at a gross margin which is somewhat unsustainable over the medium term. So at the organization we will not sacrifice the medium- and long-term for some short-term growth rate.
So one last follow up there. So whenever we see inflation in FMCG, we see regional sales coming back strongly. In both of your key categories currently there is a deflation happening. So when you refer to all these kind of, some of the players they're cutting down on ad spend and operating at a low gross margin, are you referring largely to the regional players in both these categories?
No, I'm referring to all competition.
The next question is from the line of Arnab Mitra from Goldman Sachs.
My first question was on Saffola. So you've seen this improvement in volumes. And last quarter you had specifically mentioned that there was a destocking also in place. So is the volume growth, including some kind of a restocking on that destocking which had happened, which is why this high single-digit volume growth may not sustain in Saffola going ahead? And a related question would be, have you had any price changes due to the -- again, the volatility in edible oils, which happened in the end of October.
So on the price changes, we'll wait and watch. I can't comment on it right now. Regarding destocking, and I think there's -- the destocking which has happened, the volatility remains. So the STRs have not increased. And as you know, the edible oil's control limit also stayed on, it was just lifted 2 days ago. So if you look at quarter 2, we have not seen any increase in STRs. And as a practice, given the kind of volatility, we also don't want to increase STRs. But we hope as the price stabilizes, we will also increase -- we will be able to do it, but only when there is a stability in the system.
Understood. My second question Mr. Saugata was on the volume growth, what you mentioned mid-single digit for second half. Now will your price deflation not be significantly higher in the second half? And would that mean revenue growth could actually go down from the current levels to a flattish level in the second half? Or are there other elements…
No, it's very difficult to predict because, see, Arnab, I think there are 2 things. One is the volatility continues. If you look at the last 2 weeks, there has been some volatility. Yes, maybe as Parachute, you will have some deflation. So I would say that there will be certain deflation, but it's very difficult to predict what will the extent of deflation as of now.
Okay. Understood. And the third question and last question was on the premium personal care business, which is Livon and male grooming where you have called out the INR 3,000 crores turnover. How big was this portfolio in FY '20 which was the pre-COVID period? And are the margins in this portfolio better than your average margins? And hence, as this growth will help the overall margin profile? Or due to investments, margins here are also going to be lower at least at the growth rate?
Not really. I think we made significant higher gross margins. The A&P is broadly in line. So therefore, the more we sell of this, it improves not only our gross margin, it also improves the EBITDA profile. As far as the numbers are concerned, we have now crossed the pre-COVID levels. This was the segment which got impacted very -- to a large extent in FY '20-'21 and '21-'22, but we have now crossed back to pre-COVID levels. And the gross margin is significantly higher than the rest of the portfolio. So it actually helps in terms of our overall gross margin and EBITDA.
And just a follow-up question on this. This is a segment also where all the new-age B2C personal care brands are playing, male grooming as well as serum. So are -- is your business also tuned towards that e-commerce-led growth? Or this is still largely a general trade kind of a business which it used to be earlier?
So if I look at it, I -- the good thing is that we now have a portfolio of brands in male grooming. So Beardo plays in the far more skewed towards digital. And in fact, I mean, 90%, 25% is digital, although we are starting to do the crossover into general trade. [indiscernible] a significant portion is still driving penetration. So our job is to drive penetration, although we do participate in e-commerce. So they have a very, very significant presence in GT. And in fact, GT, if we look at in the last 5 to 7 years, a significant portion of the growth has happened to the INR 10 gel pack. So we have a penetration task to do with it as far as styling is concerned. And therefore, this is a secular-based growth and not this one growth. Having said that, I think both in the serum and the male grooming category, we will continue to participate aggressively through innovations in the e-commerce and modern trade space. And with the either brand extension or a portfolio of brands.
The next question is from the line of Percy Panthaki from IIFL.
I just understand in the foods portfolio we had some issues with Honey. So have those issues sorted out? What are our market shares now? We had lost some market share. Do we continue at that or have [Technical Difficulty] picture there?
I am not sure of what issues we have. Normally, if the issues are happening, we will know more than others. So I'm not aware of any issues. The only market share loss which you might allow to is in the month of September we phased out the old and phased in the new. So there is no market share loss. In fact, with the current strategy, what we are doing is we are just replicating the Saffola edible oil strategy. As you know, in Saffola edible oil, we used to have only Saffola Kardi and Saffola Gold, and we introduced Active and Tasty in affordable prices so that we give the consumers choice, which also led to increased penetration and increased market share. What I can tell you, with this kind of a thing, which is a far more affordable pricing, a superior quality product, we expect to aggressively gain market share.
Okay. So basically, the market share loss which you experienced, that was more of some sort of change in the pipeline issue or what was the reason?
There was no market share loss. There was [indiscernible] no, there was no market share loss. All I am saying that, see, we can take one data point. So in the month of September, when you -- when we phased out the product and phased in this product, we started selling in October mid, you have to flush out and therefore we didn't sell these new things. There in 1 or 2 places there could have been a market share dip. So there is no market share, huge loss or something, at least what is -- what we are seeing from Nielsen or something like that. I don't know where the market share…
My question was more on -- my question was more on your which is the Q1 call where you did mention that there was a market share loss in the Honey segment. Correct me if I'm wrong there.
The GP in the last quarter we had said about the market share loss. That was in previous quarter. What we had said is that in MT and e-com, we continue to maintain the whole share. That was in the last this one. But if you are referring to last quarter specific market share loss, nothing has happened. This was compared to the peak. I talked about -- what I talked about the last call, there was a slight market share loss in GT, which happened in Q1. And as I said, in September, when we did the phasing, there could be a market share loss. Now that September data will only come in -- whatever data which are indicating there is some slight this one loss in MT and which will pick up because we know how much is the numbers in October. So -- and I believe strongly that we will actually drive market share gain with this dual strategy.
Understood. Understood. And on the other segments within foods, the noodles and all the other sort of smaller products, any commentary you can give on which of them are sort of performing better than expectations, which of them leave some room for improvement, et cetera?
So I think in terms of scale up, I think soya nuggets has happened. In terms of the smaller ones, I would say that we are now starting to sequentially grow significantly in noodles and in peanut butter. I think we have a job to do in mayonnaise.
Okay. And we stick to our earlier guidance for FY '25?
Absolutely. I think the current run rate is trending towards INR 650 crores, and that INR 850 crores to INR 1,000 crores, including -- and you will see a lot more innovations coming in the next 6 months. It will be -- I think we have got an operating model in food. What also is there that we have established, we are now slowly in the first top 6 cities, our exclusive food GTM, which will now expand. Our gross margin continues to improve as quarters go by we get scale. And therefore, I think we have a very decent playbook as far as foods is concerned.
Okay. My second question is on the digital brands, where also we had a target of, I think, INR 400 crores to INR 500 crores by FY '25. So any kind of progress you can share on that?
Yes. So if you had -- I think we have circulated in the presentation, we are now at -- alluded to in the last this one that if we can get INR 250 crore run rate by quarter 2 and then a INR 300 crore run rate by the end of the year, we should be in line. So we have hit that INR 250 crore run rate. And all the 4 brands are in line with the acquisition assumptions. We also continue to look at inorganic opportunities in this area. So a mixture of that, we are pretty hopeful of again hitting that INR 400 crore to INR 500 crore mark.
And of the 4 brands that we have here, what is your comments in terms of which ones are really doing well and which ones are sort of yet to be scaled up?
So I think Beardo is, I think, on a virtuous cycle of growth, and both Just Herbs and True Elements are scaling up well. And we believe that [indiscernible] oil is something which has significant potential now that we are going into gummies and all that. But True Elements, to be honest, is a food brand. But if you talk of digitalizing Just Herbs and Beardo has scaled up. And we believe that Fittify is another brand which has the potential for scaling up.
So just to clarify, Percy, this INR 450 crores, INR 500 crores will not include True Elements because True Elements, we are including in foods. It's not part of digital business. Prely from a numbers perspective.
The next question is from the line of Prakash Kapadia from Anived Portfolio Managers.
One question from my end. Historically, in this inflationary environment, FMCG companies were relatively better, but this time around demand seems to be muted for quite some while. So what is happening? Is it just rural? Is it the continuous rise in inflation beyond few months? And what is happening on the LUP side. So what was the LUP contribution for us pre-COVID? What is it now? What is happening especially in rural India, if you could give some thoughts, that would be helpful.
I'll give you a broad flavor. I think -- see, in the past, yes, you are right that some -- when there is moderate inflation, sometimes the brand, the leaders gain market share. The difference this time has been that perhaps -- and this happens in the -- when there is significant food inflation, especially at bottom of pyramid, both in urban and rural, you see that people titrating on FMCG, okay? Because they don't want to compromise on food. And this is why you are seeing that what has happened in -- I think, during the COVID time and this one is that this we are seeing only at the bottom of pyramid. And that's the reason, if you look at premium discretionary, whether in rural or urban continues to do well.
And it is just not FMCG categories you see, in auto you see, in jewelry and other things. The discretionary sector continues to do well. In FMCG, what has happened also is that in HPC, since the categories are well-penetrated and you have a plethora of brands straddling price points, you have an option of actually people downgrading from a premium brand or this one brand. So if you look at all HPC or beauty and personal care, you will see that this one is happening.
Having said that, at the top end, which has been basically modern trade and e-com service brands, you are actually seeing that is not impacted, and that is seen in all categories where slightly luxury or premium discretionary has not really impacted. So yes, they are down-trading and LUPs are growing. And the impact is higher in rural than urban. There is one more factor, which was there. If you look at COVID time, the premium discretionary had got impacted higher than the other bottom-of-pyramid or the mass brands. And a lot of premium discretionary brands have a lower base in '20-'21 and '21-'22. And therefore that is also coming back and showing optically higher growths.
Sure, sure. And if you could quantify the LUP contribution, if you have it ready.
No, we are not going to get you into each contribution, we will not be able to provide at this point.
Fine. And in the opening remarks you did mention about you being confident of rural recovery. So is it just going to be government-led or government getting into election mode? What gives us that confidence or visibility? Or now the base is already so bad growth has to normalize and come back?
It's a combination of both, you're right. It's a combination of a both, yes. Because if you look at the rural, that shrinkage started sometime in Q3 last year.
[Operator Instructions] Next question is from the line of Avi Mehta from Macquarie.
Just wanted to check on the volume growth expectations. If I recollect in the last -- in the first quarter, you had shared an expectation of moving back to the medium-term targets of what, 8% to 10% volume growth by second half. But there seems to be some sort of moderation in that expectation. I just wanted to appreciate what has driven that. If you could kind of give some comments on that, please?
So I think when we gave that comment, we expected that the global geopolitical and the situation will have a solution, that solution hasn't happened. We continue to experience that inflation. And therefore, we -- given the current conditions, we believe that we are -- at this point in time, we should be able to deliver a mid-single-digit kind of a number.
So would it be fair to say that your price on an overall growth basis, the mix of volume and price, the price aspect has kind of risen, which is why you're kind of changing the volume aspect. Is that the way to see it? Is that the right way to…
No, not really, not really. I'm giving this on the basis of the current consumption scenario. See, as I said that I think -- and the other reason that I said is that we normally don't have a -- normally, as a know, in copra, the off-peak season, you normally don't have the -- so Parachute, we continue to take price reduction. And every time, unlike Saffola, which is an urban brand, in Parachute, it takes 6 to 8 weeks for the pricing to realize and get stability. So that stability of pricing can only happen in December. And therefore, while H2 will recover, I mean -- and that's the first. Second shift is our assumption on rural growth and overall BPC and [Technical Difficulty] BPC growth and how our endeavor is to better. And this has happened that whatever has been the VAHO, I think the VAHO decline has been minus 6, but we have performed better. So again we have gained some market share. But I think we are estimating that what was our estimate of the category growth when we talked about it in first week of August versus now, there has been a little bit of a change.
Okay. Okay. Understood, sir. Sir, the second part was more of trying to appreciate in the food segment. Now I understand that we have chosen…
I just wanted to add something, even if you do mid-single digits, our 3-year CAGR will be high single digits in line with the medium-term aspirations. So you need to look at the 3-year CAGR. The 3-year CAGR will be definitely high single digits in volume growth.
Okay. Got it, sir. Got it. So the second bit was on the food side. Now I understand you've chosen categories which are large and organized like soya and offer a very strong opportunity for growth. But would -- do you see any concerns that such launches make Saffola a more generic food brand versus the health-focused brand that it currently is?
Okay. So let me just give you the perspective. As far as Saffola is concerned, we are entering into categories which are skilled, but at the same time, which are health-focused, okay. So Saffola is a brand which encourages people to live a healthy life, okay? So if you look at soya, it's a plant protein, and it's a very good substitute in terms of better-for-you products. So I think if you look at the journey of Saffola, it started off in 1990s as a therapeutic brand, moved into a preventive space. And as we entered with roots, it then became a better-for-you kind of a product. And therefore, it's a healthy way of life. So wherever we enter, we'll offer an alternative which is better for you. A peanut butter which doesn't have sugar, which is jaggery. A mayonnaise which is creamy or less fat. Oats, which is anyway into heart health but with masala.
And we will not compromise on the taste. So yes, we are massifying in terms of the -- because if you [ basically ] look at food, if you don't get into categories which you have scaled and operate a niche, then Saffola, the total addressable market would not have got realized the expansion and would have underleveraged the strength of the brand. So I don't think we'll compromise on health at all. But I think it will be better for you rather than just functional. So the other route to Saffola could have been getting into nutraceuticals and functional foods. But that would have not given scale. We believe that Saffola has got very, very underleveraged as a brand for health. And we will enter, continue to enter categories, and this is in line with our ambition of getting INR 1,000 crore in foods.
The next question is from the line of Shirish Pardeshi from Centrum Broking.
I'm reading on Slide 7, where we have given the numbers. So what I see that PCNO, the volume decline is 3%. So just was interested, what is the quarter 2 category volume decline?
Slightly more, it will be because we have gained a little share, so just about what is the shared more, like shared more. So as I said, 2 things have happened given until the pricing settles down and -- but the inflation you have seen, one is that the loose to branded conversion has gone down and maybe what is also happening is that -- but people are what I call in households, which are dual households. The dual household is basically a typical household where there is dual usage of unbranded, branded. Our SOR could have gone down. This is a combination of this.
Okay. Just one follow-up on the PCNO. You said you have taken a drop in price. So is the pack size has dropped or the price has come down from…
Right, absolute prices. In PCNO we don't take [indiscernible] it's absolute price.
So this INR 37 has become INR 35?
[indiscernible], yes?
So 100 ml was priced at INR 37 previously. So that has dropped to further down?
Yes, that's right.
But just one clarification. You said on Saffola you have given the benefit to the trade also for the price drop. For PCNO also you are doing?
Yes. No, you can't, you can't because, say, Saffola is very easy. One is the STR is very low. It is a very, very focused distributed [indiscernible] with a huge contribution of modern trade and e-com where you can even quickly give the benefit to the trade. In PCNO, you can't. And given PCNO is a mass-distributed brand, to give you an example, and we have done this based on Nielsen where the pricing is there. By the time you take a price drop in primaries or in the factory, it takes at least 6 to 8 weeks, especially in rural areas to see that price in the shops because the average STR can be 40, 45 also days. In Saffola it operates on 8 to 10 days.
Got it. My second and last question on the food. I assume that you have done say INR 300-odd crores in food. What is the contribution for non-Saffola product? Non-oat products, sorry.
We don't want to get into this one, but all everybody, everything is getting growth, including oats. So I can't get you a breakup of this, but it is -- everything is the -- oats is delivering growth if you're wondering why.
No, no. I'm more interested because you have taken a lot of interventions launching the subcategories and adjacencies. So how that adjacencies are faring well. That was more interesting question.
No. So as I said that it is a broad-based growth. And out of which, as I said, that we believe that in terms of scale, after oats and masala oats, soya nuggets and honey in terms of scale, they are the biggest.
The next question is from the line of Latika Chopra from JPMorgan.
I just had -- I just wanted some data or some color on 3-year volume CAGRs for Parachute and VAHO. How is that different between urban and rural for both these categories?
We can -- I think we can do that offline because I don't have a readymade this one because what has happened is this rural urban, I think when the COVID started, rural was growing higher than urban. Since the last couple of quarters, it's been the urban which is going higher than rural, so.
So yes, no. But from a qualitative perspective, typically you would aim for rural to drive better volumes for probably both these categories from a volume perspective. So do you think that kind of -- and I'm talking about 3-year CAGR, just taking care of all the disruption or maybe even if you take a 5-year period, has rural volume growth on a normalized basis matched your expectations? Or you feel there is a reason to probably temper the growth expectations for both these segments? I know you're pegging it to BPC, but…
Not really.
The last 4, 5 years.
No, no. So I think rural -- see, this rural phenomenon is of very, very recent, okay? And if you really look at it in PCNO, actually PCNO has -- if you look at PCNO, in the -- if you take a 5-year perspective, we would take -- if you knockoff this year, I would say rural would have outperformed urban, yes. Now it is only this year where we are seeing this phenomena. And the reason also has been that in, see, in the COVID year obviously there were more disruptions perhaps in urban. So I don't think in terms of -- and as I talked about, I think we gave you the number, there has been a 4% volume growth in Parachute in a CAGR period and value-added 6%. So if you discount this year, I think broadly it has been in line with the aspiration. It is this year where it has been a little tepid, I would say.
All right. And the second clarification I wanted was on Saffola edible oils. Are we -- have you seen any further price reductions post September in this category?
No. No, no.
So basically, pricing is now stabilizing as we look into future?
You will never know because in the last few days, so it's very difficult to predict. But I mean, it's -- but what we have said is that we have a strategy now in place based on our learnings from Q1, how to manage volumes and margins.
The next question is from the line of Siddharth Bhattacharya from [ Annual Wealth Research ].
I'm sorry for a feeble voice, I have a bad throat. I just wanted to understand our foods strategy for the HoReCa segment. Are we looking at that segment for our portfolio, if at all? How do we strategize to go about generating sales and getting market share in that segment?
So I think given that we are a small player, I don't think we are now -- we are focusing on that segment at all. See, food for us is something which has to deliver higher margin than Saffola edible oil because we are diversifying and expanding and the total addressable market to Saffola. So at this context and given our size, I think this is a channel of HoReCa, which is not profitable. And only for scale players and certain categories it works. So as far as we are concerned in the immediate future we don't see us participating in that category.
Okay. Because I thought mayo would be a product that would fit well in that segment. So that is why I'm asking this question.
Yes. But if you see, we'll see a significant -- so if you look at the average gross, HoReCa channels to be lower than Saffola edible oil. So the basic purpose of doing food other than total addressable expansion, and improving the Saffola overall gross margin will be defeated if we participate in HoReCa channel at this point in time. In any case, I think given the category penetration of some of the categories, especially oats and all, we have a huge task ahead in the next 3, 4 years. And there is huge headroom for growth in retail itself.
The next question is from the line of Ajay Thakur from Anand Rathi Securities.
Sir, first question was more on the international market where most of the FMCG companies actually had come out with the inflation-led impact on margins and growth. So just wanted to understand how things stacks up right now given the volatility in terms of the currency might have reduced. And also the input cost inflation I believe should have stabilized. So from going forward, can we expect a better traction in the international market from that perspective? Or we can still expect in the coming quarters impact of currency volatility and input cost inflation on the gross margins?
I think 2 things. One is, as far as growth is concerned, I think we have continued to deliver very steady growth independent of all the volatility that is there. Now as far as currency is concerned, yes, perhaps the significant part of the depreciation is over. Having said that, on a Y-o-Y basis, that will continue. I don't see some of them in the markets the currency appreciating versus the dollar or appreciating versus when the rupee. And as I said, I am no export and nobody can predict, but that is the current feel. As far as costs are concerned, yes, you are right. I think as far as costs are concerned, input costs are concerned, that should ease out.
And therefore, maybe international business will add to the little bit of the gross margin sequential improvement we are talking about. Having said that, I think we have a significantly good EBITDA as far as international business is concerned. And therefore, we -- our focus will be also to ensure that given these markets, especially Bangladesh, Egypt and all which continue to maintain, has inflation and currency, some of the currency, one thing is to maximize growth. And that is an important thing. And gain market share, continue to gain market share in each of the franchises where we participate. Having said that, we are lucky because if we look at Vietnam and Middle East where we participant, that is reasonably insulated from all this.
Okay. And the second question was more on the domestic part of the business, wherein if you were to look at our hair oil portfolio, that would be constructing a major chunk of the revenues. And given the last maybe a 3-years period, wherein we have seen the volume growth being slightly softer than maybe the historical averages of around 10-odd percent or in that context. So do we -- how do we kind of see growth kind of being reenergized in this space because we are the market leader? And finally, that will obviously help us in terms of the growth momentum coming back.
So let me address it in 3 segments, okay? So first, as far as Parachute is concerned, as I said that once the pricing settles down, and we have been chasing pricing, once the pricing settles down and we have been taking price drops in line with this one. And while maintaining margin, we believe the volume growth will start inching up. As far as value-added hair oil is concerned, I don't think we can significantly impact category growth. We will continue to gain market share. And this will mirror the overall BPC or the HPC growth. Having said that, we will continue to aggressively grow foods. We will diversify digital brands. And if you really look at it in the last 3 years, and as I spoke about, that we have around INR 1,200 crores of this business, and they now contribute to a significant portion of our budget.
I mean, significant portion of our turnover. As far as edible is concerned, I think it's stabilized. I don't think the volatility is -- well, the volatility to an extent will be lower going forward. And if we really look at it, I think we are -- if we look at a 3-year period of Saffola, we are pretty confident of giving high single-digit growth in Saffola also over the medium term. So in somewhere, the joker in the pack is return of rural, revival of the rural consumption, which we believe will slowly happen. And we are also entering perhaps a little softer base.
Thank you. Ladies and gentlemen, we take that as the last question for today. I now hand the conference over to the management for their closing remarks. Over to you.
Conclude, it was encouraging to see improving trends in our domestic business and a top quartile performance in international business. While we anticipate traction in the domestic core categories to stabilize soon, the positive drive towards diversification of the domestic portfolios through foods, premium personal care and digital are exciting, and we will continue to stage aspirational targets along the way. The show of the strength from each of the international markets is heartening, and we will ensure that we do not take our foot off the pedal here. Amidst volatility in the global commodities and cost pressures, we will aim to deliver stable profitability and remain biased towards accelerating growth while investing towards the long-term health of our brands. If you have any further queries, please feel free to reach out to our IR team, and they'll be happy to address the same. Please stay safe and take care.
Thank you. On behalf of Marico Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.