Marico Ltd
NSE:MARICO
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Marico Ltd
Earnings Call Analysis
Q2-2024 Analysis
Marico Ltd
The company has proved to be resilient in the face of market challenges such as price fluctuations at the lower end of the market and aggressive competition, both from local players and larger competitors looking to capture a share in commoditized categories. They are seeing a turnaround in off-takes, which is a positive leading indicator for volume growth in the forthcoming quarters. They expect an uptick in Parachute volumes as they move into the off-season and benefit from their cost-effective supply chain and raw material procurement strategies. Furthermore, proactive cost management initiatives have lessened their dependency on Bangladeshi markets for profitability, with a reduction in overall system spends and aggressive management measures undertaken in anticipation of economic downturns. The firm stance on capital allocation indicates a return to the company's traditional dividend payout ratio of around 80% to 90%, barring any large acquisitions.
VAHO has experienced some challenges due to downgrading trends but is witnessing signs of recovery and anticipates value growth now that the inflation that previously hampered the category has mostly normalized. Meanwhile, moves like the successful scaling of Saffola suggest actionable insights that may guide the company in selecting appropriate strategies for category, channel, and price point for their future products. A clear understanding of customer preferences, such as unwillingness to negotiate taste for health benefits, and relevance of 'Indialization' of products suggest a clever approach to product development and marketing fitting to the cultural nuances of the Indian market.
The company is navigating through credit squeezes affecting retailer stocking levels and subsequent sales recording drops. However, they are seeing promising signs that retailer stock/sales reporting (STR) corrections are leveling out, and primary sales remain healthy and in line with expectations. The operational focus includes refining their distribution models to maintain product freshness and adapt from case-based to piece-based sales as the rearrangement progresses. Additionally, introducing brands like Two Elements and Tomorrow Plix into general trade by leveraging digital presence will increase scalability, especially as these brands are well-positioned for expansion into brick-and-mortar channels.
Despite headwinds in India's macroeconomic conditions and overseas markets, the company has performed commendably, showing resilience and strategic progression. They remain focused on achieving competitive domestic volume growth while ensuring the continuity of the upward trajectory in international business. Even with an uncompromised commitment to brand building investments, they anticipate a profitable year. Their strategic initiatives have been successful so far, and they are resolute in their commitment to improving overall performance parameters. With lessening economic headwinds, the management is optimistic about sustaining growth and pursuing strategies that promise long-term, profitable expansion.
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Ladies and gentlemen, good day, and welcome to Marico Limited Q2 FY '24 Earnings Conference Call. We have with us 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. [Operator Instructions] I now hand the conference over to Mr. Saugata Gupta for his opening comments. Thank you, and over to you, sir.
Yes. Hi, everyone. Good evening to all those who have joined the call, and please accept my greetings for the festive season ahead. I would like to begin by reflecting on the operating environment for the quarter, most which I'll give you a flavor of the performance so far, followed by our strategy and outlook for the year ahead. During the quarter, demand trends remained largely in line with the preceding quarter. Q2 started on a positive note with reasonably encouraging demand trends in rural and urban in the month of July. This give us hope for a better quarter when I spoke to you during the last call. However, there was a noticeable drop in overall sentiment, especially in rural during August and early September, which seem to have been triggered by significantly deficient rainfall in August, followed by a spike in food prices across. We have seen some recovery since the second half of September and we're optimistic about the gradual pickup in consumption with the onset of festive season, range bound retail and food inflation and government spending between now and elections. Amidst the current cost scenario, the sector also witnessed much more active participation from smaller local players in select mass categories. However, pricing cuts taken by frontline FMCG companies to pass on value to consumers should aid recovery in volume growth over the next few quarters. Moving on to our performance in the quarter in the India business, we registered a low single-digit growth across all our core categories while we witnessed a reasonably healthy trends in offtakes, market share and penetration across our key franchises. We believe the divergence between the reported volume and offtake growth appeared to be largely account of the spinal effect of lower realization impacting distributor ROI, resulting in reduced credit availability to retailers, which in turn led to a drop in retail inventory level on STR. This was also evident in the channel-wise growth trend, while GT declined in the low single digits on a Y-o-Y basis, while MTLecom witnessed 20% plus growth. Over the next few quarters, we'll systematically address the GT issue and the deflection tapering off in the second half will also help. Delving further, Paris a muted quarter in the given environment, while the full year volume CAGR was at 4%, just short of the medium target range. The franchise gained 35 bps in market share on a MAT basis. As copra prices likely to inch up as we enter the up season, we expect a gradual pickup in loose to branded conversions in view of our cost advantage, which will add volume growth in the near term. With the anniversarization of price cuts in this quarter, we expect value growth to largely mirror volume growth in H2. The value-added hair oil portfolio reflected a muted trend in a personal care categories amidst the subdued rural sentiment and higher competitive intensity from local players. While bottom of pyramid segment of the category hinge on the awaited pickup in rural, we continue to focus on driving market share gains in the mid segment and growing our presence in premium segment through innovation. In supplyly of edible oils, we registered low single-digit volume growth, steadying on a high base. Volume growth on a full year CAGR basis was in high single digits, in line with our medium-term growth acquisitions. While there is some degree of volatility in edible oil prices, trade inventory continues to remain low. However, optics have remained healthy, and we continue to balance growth and profitability objectives in the near term. During the quarter, Saffola presented 40 under 40, an initiative by Times of India along with Saffola, which starts to inspire young Indians to hit a pause and living a supposedly productive life and recognize the repercussions of their unhealthy and sedentary lifestyles. As a part of the 8-week health movement, young achieve telehealth steps to improve their lifestyle score. The campaign resonated with the purpose of the brand Saffola, which is dedicated to spear heading the core of a healthy India. Foods continue with credit trajectory, and we are largely on track to meet our FY '24 revenue aspiration. The Oats portfolio grew in double digits while Honey and Soya scaled up well. Both these categories are nearing INR 100 crores in annual run rate. Our new launches of peanut butter, mayonnaise, Munchiez are tracking well. We are not chasing growth in discriminately, but we are focusing on driving sustainable profitable growth by strengthening the cost structure, defining the supply chain and GTM capability. Once we optimize these, we'll endeavor to accelerate our food growth next year to beyond 30%. Premium personalcare delivered healthy double-digit growth and is on track to contribute 10% of FY domestic revenue. The digital first brand led by BlastI 450 crores ARR in Q2. There's a significant reduction in cash burn, and we believe that we are in best-in-class in this aspect compared to other digital brands, which are stand-alone. As these businesses scale up, we are simultaneously exploring various synergies between the brands to structurally lift the margin profile and drive further profitability. We are on course to achieve our FY '24 revenue aspiration with food and premium personal care contributing 20% of the domestic business in Q2 itself contribution from these categories are at 20%. Our International business continued its strong momentum and delivered double-digit constant currency growth despite macroeconomic headwinds in some of the geographies. Bangladesh is visibly moderated, but was resilient amidst the current macro challenges, which weighed on aggregate demand. We expect the economic situation to improve early next calendar year, although the currency depreciation issue will remain for some time.Vietnam also produced a steady performance in both the HPC and food categories. In the MENA region, we have been clocking strong growth quite consistently over the last few years on the back of our expanding presence in hair oil, especially in Egypt. Our South Africa region and entity business has also been scaling up ahead of expectations. In each of the overseas geographies we operate in, we have the fundamentals of portfolio GTM constructure and leadership well in place, and we are confident of maintaining the strong growth momentum ahead. On a consolidated basis, our revenue growth was subdued by pricing customer domestic business and currency headwinds in some of our overseas businesses. About 2/3 of the impact was from pricing cut and less due to currency translation. We expect revenue growth to move into the positive territory in the second half of the year as tightening deflation in the domestic business slightly tapers off. We recorded robust gross margin expansion in the quarter and the first half, going to soft input prices and expect 350 to 400 bps of gross margin expansion on a full year basis. We also significantly ramped up A&P spend in Q2 in line with our commitment to invest behind our brands for long-term sustainable growth, which will have impact significantly over the next couple of quarters. A&P as a percentage of sales is likely to be 9.5% plus this year. In light of the H1 performance, we expect operating margin to expand by 200 bps plus in FY '24, and we are on course to deliver our highest ever operating margin on a full year basis this year. At the beginning of FY '24, we had set a clear objective of driving improvement across key parameters of growth, portfolio diversification and margin expansion. With the first half of the fiscal behind us, we have made fairly promising progress along each of the parameters, although we hope to get a higher volume growth, and we'll continue to drive improvement along these lines through H2 on a full year basis as envisaged earlier. Last but not the least, we have always viewed our entire business operations through the lens of sustainability and our sustainability 2.0 framework has been progressing well in each of the 8 broad themes. We firmly believe the value of creating shared value for all will lead us in driving sustainable growth in the longer term. I'm pleased to announce that we have launched a dedicated microsite, which encompasses all ESG-related information and I hope it will allow all our stakeholders to be informed of the progress we're making towards our sustainability goods. With that, I will now close my command. Thank you for your patient listening, and happy to take all your questions. Thank you.
My first question is on VAHO. So you've been taking a lot of interventions in VAHO to ramp up the premiumization. So 2 questions there. One is in terms of the blended oil and shampoo usage by customer, if you could tell within the alternate channel now how much is the propensity of customers to consume both shampoo and oil together? And second is, what would be a long-term 3-, 5-year target within alternate channel to have the premium part of VAHO? VAHO itself is premium, but I'm sure you must be benchmarking that 30% of VAHO should come from premium in alternate. So if you could share some numbers on what's the target and what is the current number?
If you ask me whether it's a little under-indexed in the alternate channels, the answer is yes. Having said that, I think the premiumization journey has started. Obviously, the bottom of pyramid has a bottom of pyramid doesn't exist there, let's say like in shampoo, for example, the entire market is in digits. Now coming to the two vectors of premiumization, one is sensorial and one is problem solving. So problem solving is basically what is hair fall. As far as premiumization is concerned on the sensorial, you have certain ingredients, and also, as you see in the e-commerce, not so much in modern trade, we have certain premium brands, which participate whether it's brands like Nama, Tavaand some of the other brands. The market size -- so we don't participate in 300 plus price point. Having said that, below the 200-300 plus price point, we have a fair share as we have in GT, the only thing we don't participate in, which is hair fall, which is a big category in both modern trade and e-com. Now obviously, we have to disproportionately increase that. Having said that, our market share in modern trade and e-com, and if you take out the premium part of it is fairly in line with what the market share is in the value share in GT. Infact, actually, in certain cases, in certain markets, it is higher actually.
One quick question on 300 plus price. So currently, you're not there, is it because you want it to become a threshold level and then enter? Is that the reason?
No. I'm just giving a broad number of INR 300 to 350. This is occupied by very, very premium hair oils, which are entirely D2C brands. We are present there through just or not with the core I mean, Anil oil from the competitor across the 300-plus from us, it is not 300 maybe. But all I'm trying to say is that this is a market we are increasing wanting to participate. I think as far as digital business is concerned, we now have a working model which operates. Having said that, I think the only market where we are not present in a significant way in hair fall, and that is a big market, not only GT but a significant bigger market in the premium channels.
Sure. My second and last question is on what you alluded in the initial remarks, local players. So other companies are also talking about detergent bars, tea and biscuits also. So if you could discuss in Coconut and VAHO, what has been the performance of local players in your key markets? And do you -- because in these two also, there is a deflation, especially coconut oil, there's a big deflation and there's a down trading, downgrading also. So how long has been the impact? And do you see that continuing for two, three more quarters? And what has been your response? So I understand the market share numbers of instant. But normally, local players are generally taking share in the last two, three quarters. So wanted to understand real on-ground situation in both coconut and VAHO.
Okay. So if you look at coconut oil, I think we believe that some of the conversion from unbranded to branded has slowed down. I will give you an overall perspective in the last 12 to 18 months. If you look at it whenever there is significant food inflation and especially and Copra, there was deflation. Now what happens is that where we have to take price drops and it takes a certain amount of time for the price drops to get affected in the market, we get impacted. Having said that, for the first time in the last one quarter, we are now seeing uptakes ahead of secondaries. So we expect that the volume situation in Parachute will now start improving because most of the -- if you look at it, the most of the SKUs, our pricing is right. In fact, going forward, as we enter the off-season, we believe that there will be a slight inching that happens on Copra. And as you know, because of the way we do supply chain and our procurement, we have a cost advantage of system advantage when this top happens. And therefore, we expect now having seen the offtake in the last one or two months at the Parachute secondaries or the volumes will start inching up. The other thing which I pointed out, which has also contributed to it, and I don't think there will be a media solution is that as you know that in addition to the smaller brands, there is -- if you look at our distribution system, GT distribution system, revenue growth is negative. The costs have gone up. Now one of the areas which is there for creating an impact is what is the credit in the market. And similarly, if credit is squeezed in the market, obviously, retailers will stock less. And therefore, we have seen around three to four tenthss, if not more in certain cases sometimes STR drop, which has happened. Now do I -- will I get that that FCR, I don't know. But certainly, that has also contributed to that so-called gap between offtake and secondary and primary. But I think if I look at the trend in Parachute, the trend in Parachute turn around in terms of offtake and which is the first leading indicator that has happened in the last one or two months. So I believe that now the volume will start coming back, especially as we enter the off season, where we will be at a relative pricing advantage because of our -- whatever the system could stop we hold in terms of raw materials.
And similar thing would be for VAHO also in terms of the stocking?
VAHO is a different issue. I think what has happened is that in VAHO, there has been a downgrading happening because of significant activity of some of the players and the bottom of pyramid. Yes, there could be also because as you know that there is also a small -- but our belief is that they are not only local players playing, but some of the larger players also wanting to play in that commoditized part of the category. That has resulted in, you see almod as category, hair fall category, which are -- So if we look at the -- so there is a 1.1 to 1.3 RPI where value-added coconut oil sales adjustments and those brands operate. I think they are okay. I think where the problem is where 1.3 to 1.6 where almond operate where hair fall operate 1.6 and beyond. So those are the -- those categories have actually shrunk in the last one or two years. And that is where the issue is perhaps. But again, I believe we are seeing some signs of improvement in the last -- this one, I think the worst is over out there, and we will start getting value growth. The other reason VAHO has suffered as a category, although we're reporting value growth is that there have been reinflation which the anniversarization of this inflation is now broadly over.
[Operator Instructions] We have our next question from the line of Tejas Shah from Spark Capital.
Hi, thanks for the opportunity. On the success that we have seen in Safolla or that. I just wanted to know reflecting on the value, is there any playbook such as measures we can kind of replicate in our future launches in terms of category selection, channel selection or a price point selection?
Okay. I think there are three fine learnings. First, Safolla presold on health, therefore, we don't have to push health on Saffola and therefore, you have to make the product deliver on taste as a green. So there for all product test we do have to deliver green on taste because no Indian consumer is willing to compromise on taste for health. That has been the first learning. Second, it doesn't matter if your price point is 15 to drive penetration because for at least 6, 7 years, we were at a 50% premium to our nearest competitor in Masala. The third learning is a playbook is that you have to -- even on health, you have to Indialize the western concept. The biggest play is in between meal snacking because in India, there are two main occasions, which for some it's11 o'clock occasion and for some it's the 6 o'clock occasion, 6 o'clock is the biggest location. And therefore, there, you can substitute anything. -- can we assume it can be a biscuit, -- it can be a cookie. It can be noodles, to me, these are the, I think, a learning. And therefore, ideally, I mean the next category, which is ripe for this is plant 2, because the plan for either commodity, can we replicate this Masala old story on the plan for tomorrow?
But is this plan, or is this playbook replicable, or is it scalable across categories? Or this remains only for two as of now?
No. This -- I think it is a crude this one that you drive penetration, you drive distribution and get scalability. And I think the other learning is that I think it's very important to get into a INR 200 crore plus because then this category, when you start making in food, I think scale is very, very important.
Got it. Second, so whether we are picking up many concept signals and commentary on rural economy and we will pick up from a PC perspective. So what's your read? And if you if you can share your thoughts on near-term perspective also for this year.
I think the situation will gradually improve. As I said that last time when I spoke to you guys in July, things are improving. And suddenly, there was this efficient rainfall, which led to a sentiment issue sometime in August. And therefore, we had a very bad August, very bad early September when things are improving. So I think gradually, it will improve. I don't see a reason why it shouldn't improve between now and in the next two, three quarters. The second thing, as I said, that's why I said there are three factors. One is consumption. There is a factor on smaller players have become active. And the third is there has been a -- I think because of the ROI situation in urban GT, there is a scale up. So that all three have contributed to it. I don't think it's just rural consumption. Wherever we have seen the drop in the all the three have contributed to the fact that we have not been able to improve the volume target.
And any regional flavor you can give within the rural pickup or slowdown? Is there any particular reason which is being relatively better or somebody used to worse off?
So I think it's -- I won't give you a specific city, but what we have seen in the past is that wherever the -- see, again, the concentration of the spread of rainfall and everything is not in uniform. So history has told us that whenever there has been a dumb efficiency, whichever states there, the impact is slightly higher.
[Operator Instructions] We have a question from Akshen from Fidelity.
Just a question on the diversification agenda. You highlighted that the personal care will get to 10% on rate in other for obviously scale up together. This is now, as you've called out, the same by the end of the year. Over the last two, three years, obviously, you scaled the top line very well. Just wanted to get the mentioned view on how are we talking about profitability of food, seeds, personal portfolio of B2C. As in aggregate, how should we be thinking about margins three to four years from now? So you've obviously done very well on top line. I'm guessing today, this portfolio is much inelutiveto your overall India margin despite being at 15%, 20% of shares the next three to four years, how are we thinking about margins through this portfolio? Thanks.
I think two things. First, let me just give you a perspective that if you look at this year, and I started off by saying that while we continue the journey from moving from 15% to 20%, two things we will look at. One is how do you move the food gross margin? Second thing is how do you reduce the cash burn of digital. I think we have made significant steps in that. Now one of the things we have actually restricted our food growth this year simply because we believe we didn't have a working model in terms of scaling it at a certain gross margin, okay? And which is basically our supply chain in terms of lower shelf life, our ability to forecast our ability to -- so therefore, if you ask me over the next six months, our endeavor is to get all these right. And if today, we are at, say, 6 or 10, can we move that on to 8 or 10. I mean, we may be starting to be around 4 on 1. We move to 6 can we move to 7 or 8. When we do that, I think there is no reason why we should accelerate the food journey into say 30%, 35% growth. As far as digital is concerned, again, I think our cash on has been reduced. We believe at least in one or two of the brands we will break even. And if I look at, say, our performance of the edible oils a similar stand-alone brand in the same segment, our profitability or our CARG will be far lower. And in fact, we will make profits. So if I look at -- in the next three years, definitely, the digital business will deliver EBITDA levels of what the India business is doing. I mean, because I said, as far as we are concerned, we might not be the best in the world in creating INR 0 to INR 50 crore businesses indicated. But once we have acquired it, we believe that the scalability journey of driving scaling our business profitably, we will be one of the best in class as far as FMCG companies are concerned in digital business. Now Food will alone a question of when do you want to put the brakes on growth versus -- so if food continues on this growth journey, yes, it will not deliver the company EBITDA and fees. Having said that, anything that crosses a scalable thing like Masala old sale,all those businesses will be able to deliver EBITDA for -- in too, we will always have 60% of the businesses which have matured to a INR 200 crore plus delivering that, and maybe the rest, we are still on the journey to delivering. But I think if I have to get the EBITDA margin of -- but if it's a growth business, the same strategic funding have to do even in a personal case. So I think we are okay. I mean I don't see any reason that we should stop the food because if we correct the food business and get into a special level of profitability in gross margin terms, which is significantly higher than Safolla, and edible oilI think we are fine. And today, we are already -- foodmake significant more gross margin than Safolla and edible oil.
And also, if I can add, Saugata, in digital business, there could be two models of growth. One should we like growing this opportunity at 70%, 35% with a significant beat. And second model could be that grew at 20%, 25% with the keen -- in profitability. So we prefer the latter model, where we are happy with the growth of 30%, 35%, but not to be significantly. That's one. And number two, also, at this point in time, many of these vehicle business are disparate business. There will be a time when we will bring all this business under one umbrella. And we can drive a lot of synergy benefits in terms of supply chain, in terms of CRM in terms of having common digital takes tax. And therefore, at that point in time, it can cut lift the margins up, and that will also improve the overall margin of the business. So that's the overall Kaola business. So once we have all of these, definitely, it can be a sizable business with a decent operating margin.
Okay. Another follow-up was on the international business. Growth, obviously, in Bagulabesh is being impacted this year with volatile macro over there, but that doesn't seem to be having a bearing on your margins. Could you just comment on the margin performance on the international business on a Y-o-Y basis. Is this more to do with Bangladesh margins having done better? Or it's more to do with other geographies sort of starting to their care on the margin front?
So I think the dependence on Bangladesh has reduced on profitability. Vietnam is doing extremely well on the margin front. We have also had significant turnaround as far as the MENA business and the South Africa business is concerned. So our dependence on Bangladesh, although it's still high, it has significantly reduced. Number two, I think in Bangladesh, we operate with a certain amount of scale. Now what happens is that what we have noticed is that whenever there is this kind of economic slightly downturn, the overall spend, SOVs, we can still manage with lower spend. So overall system spends have gone down. And number two, given that we were foreseeing this because we knew this was the election year and a combination of election and obviously, the things that are happening, we have taken very, very aggressive cost management initiatives in the Bangladesh business so that we ensure that we don't, at least in constant currency terms, we don't dilute our profitability there.
Okay. One last question if you would indulge me was around capital allocation. So last year, obviously, we had pulled back a little bit on dividends because we'll be looking to make a couple of acquisitions. We acquired something in Vietnam, we acquired Plix this year. Clearly, diversification is a clear job atthe management. Any broad areas and how are we thinking about capital return policy? And how much would we want to retain in terms of cash reserves for any future acquisitions?
So I think we should revert back to our old this one. I think last year was an aberration, but we should return back to our old policy, which is there.
So we've been maintaining a ratio of about 80% to 90%. And unless there is a big ticket acquisition, we would hope to maintain similar kind of ratio for the year.
We have our next question from the line of Amit Rustagi from UBS.
Could you explain us like how much is the difference between the uncertainty and the primary growth and when we see adopted about the second half of the year, how much should we think that we can catch up in the second half of this year in sales?
No. I don't think we alluded to a secondary primary growth, what I alluded to as an STR correction, which is optics are ahead of secondary. Secondly, in primary always got in line. I don't think I -- well, anyway, we don't want to get into the secondary, I think what we alluded to is if you look at the reels numbers versus what is the volume growth reported by most of the companies, you will see a difference. And we believe a lot of it has got to do with the combination of two things. One, maybe smaller players our gaining share is not all is not picking up, right? And the combination of SCR reduction. So I don't think if the primary set is a fact that offtake and what I alluded to, therefore, is offtake has started growing well in the last one or two months, especially what we are seeing in Parachute, volumes will follow therefore you will follow. Because STR correction is not -- that doesn't happen every month at one time that has happened in ready.
So just to clarify, when you say spares about the retailers...
Retailer STR, notistributors. And that has happened because as I said, that the credit in the market, people are -- I mean, people are not willing to give more credit in the market, which there's a demand. So by the end of the day, I mean, we have the distributor or to manage the ROI also.
Okay, sir. Got it. Thanks all and wish you all the best, and happy to all for giving me the time.
We have our next question from the line of Sheela Rathi from Morgan Stanley.
Hi Saugata. My first question was with respect to your comment on the GT decline and low single digits. I just wanted to understand your -- is it any specific category or specific market where we are seeing this decline? And what is our expectation in terms of the trend going ahead, especially in this quarter?
So I think if you look at it, the reason is the entire rural obviously goes to GTN therefore, rural is one place where there is obviously an issue there. The second is also, as you know that in the top urban towns, if modern trade and e-com continues to do well, there is a steady erosion of the GT contribution which has happened in the last two, three years, during COVID, obviously, GT had an advantage because modern trade was not functioning and therefore, because of movement from modern trade to GT, which has got reversed or modern trade as one. So these are the two resorts. I think what I alluded to is ultimately that we have to invest and this is we have been talking about have we done a great job yet we haven't because if you look at all the new categories we have launched, we are disproportionately high market share in modern trade and e-com where you have done a great job. Having said that, I think there is a scope for this one to do a better job in chemist, cosmetic and food outlets to drive our diversification. At the same time, Rural, we believe is a source of competitive advantage because direct rural distribution is is an barrier for others. So therefore, that is something we have to keep on doing it because our rural portfolio also makes a good gross margin. The second thing is, I think we believe that wholesale as a channel is going to reduce its saliency. And in India, there is no viable alternative scalable, profitable cash-and-carry model which have emerged. And therefore, there is no reason why we should not. We should push ourselves to continue the journey as far as rural is concerned. And in fact, in some of the rural markets, we are under-indexed, say, if we look at some in the north and on and therefore, that is how the GT growth has to be recentebecause it's Ithink, important that GT growth. And even if I look at a 2030 kind of outlook, will will continue to be in India tuned growth and not a growth.
Understood. So will it be fair to say that the GT growth is worse off in rural India versus the last quarter?
No, not really. I don't think there is any movement, I would say, because it's a similar kind of a level. I mean, I don't think -- if you look at our volumes are also broadly similar, channelizers are broadly similar.
Understood. Just my last question is we have called out in F '24, we will be -- we are targeting 20-plus percent margins. But what I noticed is from a medium-term perspective, we are talking about 19% margins. So get any particular reason why we feel that the margins would be slightly lower?
I think we give an overall isone that we will envisage to do a 19% to 20% margin. As you know, sometimes we have experienced volatility. Having said that, once we have it, we try to ensure that we are in that level. But there could be years of volatility where number two, also, you must realize this year, there is also some kind of a denominator effect because of the fact that when revenues because of deflation, the revenues have been depressed. So in an inflationary year that reverses. So I think that is a band that we should operate within 19 to 20 every year that in long term, we have been creeping up. That is something which we have delivered.
Understood. One final question with respect to Copra prices. How do we see that panning out in the course of next six months? That's it from me.
So level based... I think a marginal moves up. So it will move up a little.
We have our next question from the line of Amit Purohit from Elara.
I just wanted to get some insights into the go-to-market strategy on the foods that we initiated any feedback on that? And can that be leveraged or is this helping us to increase our overall distribution reach?
So I think food outlets, what we are doing is mainly in urban specialty food outlets. They are essentially a mixture of open format outlets in the south of India, it could be what we call bakeries. So this is basically outlet, which have a food scheme. It was not that there are -- that we were not present in some of the outlets already present. The reason we have put a separate food GTM in these outlets, if you look at the rest of the portfolio versus food, the products, which we have the selling norms, the merchandising, the replenishment model is completely different. We wanted to give it a focus. Secondly, we want to create what I call a demand generation for non-advertised food brands.So in Saffola, we will ultimately move too much advertising, maybe things like Honey, oats and Soya, but there are a lot of other categories that could be present without mossadvertising. And if you look at a lot of food start-up brands, we don't advertise. We have not seen some of the food start-up advertising, okay? So that is the model. I think it is -- we're still to get our act right in terms of maintaining stock freshness replacement because a lot of us are used to selling in cases, we have to now sell in pieces. It is a work in progress. And once we achieve that, our ability to launch new products to that system will be better. Secondly, even a brand like Two Elements and Tomorrow Plix can come into that GT and SM leverage the manicassociation and scale up because essentially, new banks are primarily now digital, but I believe as far as food is concerned, the route for digital or new regrants to scale up is brick-and-mortar because opportunities are far higher because food AOVs are low. Personal Care is a far better scalability opportunity in digital compared to food.
Okay. And just to check, this does not include the chemist at all, right?
We haven't been able to, as I said, that food, we have done reasonably well. I think in chemists and cosmetics, something has been backward and we have been being -- we need to do a better job there. And that is something which we will now take up because we now know how to do food. So therefore, we have some experience in opening up a new channel. So this is the second one we have to do. It's not that, again, we are not present in chemist. But are we correctly indexed, I will say we are slightly under-indexed in both chemists and cosmetics. And that will help in our premium personal care journey growth in BT.
So actually, sorry, I wanted to check whether the team which sells the food, does that also take cater...
No, no, no. That will be a different channel. Again, as I said, the skill set in selling beauty and the skill set in selling food is completely different.
No, I'm saying that because some of the chemist channel do keep these foods portfolio as well.
That's fair because as I said, it's not that our existing distributor salesman is not reaching those outlets. So for example, oats and honey is available and chemicals. But if I have to really disproportionately do demand generation like selling hair fall, selling, serums, selling, suppose are prototyping baby, for example, in one market. So those are the kind of things you have to sell, you have to get a specialist this one to drive that. So in that process, that guys if they can sell honey and oats, so be it.
And lastly, on the VAHO we have, I mean targets to have a double-digit growth. But when I look at from a channel perspective, we would right now be more salient on the GT side, right? And that's on...
Yes. Absolutely.
So if that's the case, then double-digit growth would be driven by that because when you launch any new tax you would expect...
With broader participation. I think, as I said, that we are not present in a lot of segments. It has to be driven through border participation because currently, if I look at VAHO, it is reflective of all the HPC growth, okay, and HPC category. And as I said that in addition to that, given the high inflation that happened in year, it became a victim of significant inflation. So the journey to the double-digit value growth will happen through far better participation in the premiumization and gaining value share, which we have been gaining, but it has not been gaining at a rate we would have liked to because our volume value share gap still remains.
And these new launches are largely on the digital side, right, the...
Not just digital. It has to be marked. It has to be scalable. So for example, hair fall, if we have to successfully if we look at hair fall are significantly present in GT also. But we might have a bias towards chemist channels or something like that.
We have a next question from the line of Latika from J.P. Morgan.
My question was around some of the brands that you've acquired or launched over the recent years. So Two Elements or something that was quite about a year ago, and then, of course, you recently got Plix inyour portfolio. What's been your reading of these brands has -- particularly Two Elements have start been able to meet your action standards? And at what level do you think these brands will be ready for more LIBOR rollout in the general trade? And similarly, on your digital first portfolio, your experience with just hubs and presence and Cocosol. How are these faring? And how should we think about organic growth rate for these portfolios going ahead?
I think as far as organic growth rate is coming like to answer that, I think Pawan alluded to it sometime that we have chosen a model where it grows perhaps by 20%, 25% organically, but we will also focus on profitability. Now if I have to give you an overall digital business, has it made aspirations with the net aspiration? Obviously, deordorant performed extremely well. We are also extremely dumb on the business model of Plix. Just again, it is meeting aspiration. We should -- again, we will be the third brand to perhaps cross an exit run rate of nearly 100 and get into profitability next year. Bois should get into profitability this year. And as you know, Bois INR 150 crore plus. We believe it also is INR 150 crore plus. So that's sizable as much. I think as far as 2 element is concerned, while it is close to acquisition assumption? We believe that we have to -- in order to approve a startup brand to be scalable, we have to bring it significantly into brick-and-mortar. So therefore, that is the job we are doing. The second thing on M&A, obviously, perhaps we have to Indianize some of the offerings because currently, most of the products are extremely Western and Western English. So that's the journey we have to do. We are also working with 2 elements to improve the gross margin because gross margin is extremely important in mood -- so once we do all that, again, crew element will be the one which also cross INR 100 crores. I mean, we believe that is all in line to INR 100 crores exit against this year. And also maybe Two Elements will need one more year to breakeven because compared to the others, I mean, that's where we see it. As far as Cocosoland Pure Scentsis concerned, I think they haven't still not rich critical mass, and we have a job to do. Having said that, have they improved on the burn rate and they have improved. But do we have the -- are we on a INR 100 crore journey right now? We have to wait a couple of years for the 100 crore a year.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thanks for listening on the call. To conclude, we've been fairly resilient in the first half of this year amidst challenging demand conditions in India and macro headwinds in core overseas market. In the quarters ahead, we will be focused on driving competitive domestic volume growth and maintaining the strong momentum in the international business. We are likely to have a good year in terms of profitability, even though we have been uncompromising towards investing behind brand building of our franchises. We've also fared reasonably well on the strategic imperatives that we have called out at the start of the year, and we remain committed to exhibit an improving trend across each of the key performance parameters as seemingly transitioned conjecture headwinds in the operating environment subside, we look forward to keep growing from spend-to-strength and driving our strategic endeavors that will enable sustainable and profitable growth over the medium term. That's it from our side. If you have any further queries, please feel free to reach out to our IR team. They'll be happy to address. Thank you, and have a great festive ahead.
Thank you. On behalf of Marico Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
We have a first question from the line of Abneesh Roy from Nuvama Institutional Equities.