Marico Ltd

NSE:MARICO

Earnings Call Analysis

Marico's Consistent Growth Amidst Challenges and Strategic Innovations

Marico delivered robust results, achieving double-digit growth, driven by steady demand recovery, particularly in premium foods and personal care segments. With revenue surpassing INR 1,000 crores in annual run rate for food, the company anticipates continued growth of 20-25% in core brands. The potential for Plix to reach INR 500 crores and Beardo's progression toward double-digit EBITDA margins further bolster expectations. Despite commodity-driven price hikes (up to 15% in edible oils), the firm remains optimistic, targeting overall double-digit revenue growth for FY '25, while managing expected margin pressures of 40-50 basis points for the year.

Market Overview and Demand Landscape

In the recent quarter, the consumption environment reflected stability, particularly in urban markets where there is buoyancy among upper and middle-class consumers. However, the lower middle class faces headwinds due to food inflation and general economic sentiment. In rural markets, improved demand has emerged, bolstered by favorable monsoon conditions and government support initiatives. This strategic demographic segmentation is crucial as Marico seeks to navigate through varied consumption sentiments across different segments.

Strong Performance Across Key Business Segments

Marico's core segments exhibited commendable performance. Domestic revenue growth was strong, significantly underpinned by volume growth and strategic pricing adjustments in its coconut oil portfolio. The domestic revenue increased as pricing growth is anticipated to rise in the second half of the year, thanks to elevated commodity prices. Notably, Saffola oil experienced a favorable pricing cycle after extended pressure. Companies that traditionally struggle in price-sensitive sectors may need to reassess their strategies, as Marico's strategic price interventions effectively protected its market share.

Expansion and Growth Strategies

Strategic initiatives like Project SETU aim to enhance Marico's distribution framework in rural and urban markets. The project is projected to expand the company's market share and drive growth across categories, emphasizing direct distribution channels. In terms of product offerings, the company is pushing into healthy snacking and plant-based foods, with expectations for the food segment to grow at 25% annually over the next three years. The management maintains a bullish outlook, projecting double-digit revenue growth for the second half of the fiscal year.

Goals for Gross Margins and EBITDA

Marico aims for its overall retail business to achieve double-digit operating margins by FY '27. Their guidance indicates expectations of maintaining healthy profits despite potential marginal compressions of about 40-50 basis points in operating margins for FY '25. The focus remains on profitable growth, even at the expense of immediate volume spikes. Products like Beardo are on track for double-digit EBITDA margins this year, while Plix is expected to turn positive or at least mitigate losses. Overall, maintaining healthy profit margins remains a priority for Marico despite inflationary pressures.

International Business and Future Prospects

Marico’s international segment has gained momentum, particularly in Bangladesh, MENA, and South Africa, where double-digit growth was reported. The expansion into new markets is expected to bolster overall growth prospects and enhance margin potential in the medium term. The company is focused on diversifying its revenue and reducing reliance on any single market. The international business is expected to drive higher overall growth through consistent revenue streams, which is encouraging for investors.

Challenges and Outlook

While Marico’s strategic initiatives paint a strong picture, challenges remain in the form of rising commodity prices and competitive pressures in the mass market segments. The company needs to closely monitor its pricing strategies and market dynamics, particularly with price-sensitive consumers. The management is cautiously optimistic but plans to keep a close eye on the economic implications of inflation and sentiment trends in urban markets.

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Marico Limited Q2 FY '25 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.

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 questions, please directly reach out to Marico's Investor Relations team.

I would now hand the conference over to Mr. Saugata Gupta for his opening comments. Thank you, and over to you, sir.

[Saugata Gupta, executive]

Yes. Hi, good evening to all those who have joined the call and hope everyone is doing well. I would like to begin by dissecting the broader market landscape during the quarter gone by, after which I'll touch upon our performance and strategic objectives going forward. The sector exhibited stable demand trends with rural outpacing urban on a year-on-year basis for the third quarter on the trot while pricing growth trended up. For a better read and ongoing consumption pattern, let us break down the performance of each market segment.

In urban, we continue to see buoyancy in consumption in the top end and the upper middle-class segments, which aligns with the growth team in most of our newer portfolios of foods and premium personal care, including the digital first brands. However, among the middle and the lower middle class in urban, food inflation and muted sentiment overall has affected the consumption. In the bottom of pyramid segment in urban, there is a similar situation, although this segment is partially from the impact of food inflation by government schemes.

And lastly, in rural, there's a gradual improvement in demand sentiment, which has been aided by above-normal monsoons, sustained government spending through MSPs and free food grain schemes. Looking ahead, this pattern and trajectory of demand should help in sequential improvement in our volume growth going forward. However, food and retail inflation trend would be key factors to be monitored as we move in the coming quarters.

Moving on to our performance. The sequential uptick in domestic volume growth was led by steading trends across the majority of our portfolios, which also reflected in the healthier trends in offtake growth, and more than 80% of the business either gained or sustained market share and penetration on MAT basis. Domestic revenue growth moved up along expected lines as volume growth was supplemented by price hikes in coconut oil portfolio and favorable reversal in pricing cycle in Saffola oil. Pricing growth is likely to pick up in H2 in view of the sequential rise in commodity prices, which will further aid domestic revenue growth through the course of the year.

From the channel perspective, alternate channels continue to gain salience vis-a-vis general trade. While the share of alternate channels has been on the rising Tier 1 market, we are also taking concerted effort towards reviving growth in our GT business, which we believe will remain the dominant channel, especially in Tier 2 markets and beyond.

After the successful initiation in the preceding quarter, Project SETU extended to four more states taking the tally to 10 states. The execution at state level has progressed as planned supported by robust governance mechanisms to ensure sustainable outlet expansion. Implementing mindset and operating model changes at this stage -- at this scale can be time-consuming, especially when significant consumption tailwinds are absent.

However, we believe given the early trends, this 3-year commitment will structure reset and transform the long-term potential of our GT sales infrastructure, leading to higher growth. In addition to improved direct reach and retail distribution, Project SETU will drive market share gains across categories in urban and rural markets as well as enhanced assortment levels in urban stores, thereby enabling a diversification and premiumization in the domestic business in an accelerated manner.

Delving in the domestic business, we shall touch upon the key trends in each of our categories. Parachute Rigids witnessed healthy pickup in volume growth even after absorbing the impact of MLH reduction in one of the low -- in the key price point that's implemented in view of a price increase. The volume impact of MLH reduction was circa 1% at the brand level. The brand gained 120 bps gain in volume share on a MAT basis. Revenues were moved to double digits aided by pricing intervention mainly at the start of the year.

Given the sequential rise in copra prices, the brand has taken another round of price increases of circa 4%, which will flow through in H2. Flanker brands include Nihar Coconut Oil and Oil of Malabar continue to grow in mid-teens, thereby shielding the franchise for deep discounting competition.

Saffola edible oil delivered flattish volumes, while the pricing cycle for the brand turned slightly favorable after 8 quarters. Building up on last year's Roz Ka Healthy Step message, the brand launched the Step-up For Your Heart campaign to mark the World Heart Day, which reinforced the brand purpose, which is to encourage consumers to inculcate exercise for a healthy heart.

The recent hike in import duties related to a steep increase in vegetable oil prices, and we have taken a price increase of at least 15% in response to the same. However, I hope the duty hike does not spark any volatility in the market, which will lead to trade-led headwinds we have encountered in the past. Value-added hair oil remains sluggish amidst persistent irrational competition at the bottom of pyramid segment.

During the quarter, we have gained 110 bps in value market share as mid- and premium segment of our franchise faired relatively better. While we are the category leader, we also believe that is what ideal for category growth when other key players resort to consistently pulling back ATL spend and employing only trade-led pricing strategies or consumer promos. This diminishes the share of voice of the category. We believe that this irrational competency should ease out given the current situation unless logic doesn't prevail. We will continue to focus on brand and category investment in the mid- and premium tier of VAHO and not deviate some basic fundamentals of category building by matching unsustainable tactics in terms of pricing at the bottom end.

We believe that the trajectory of our franchise has bottomed out in this quarter, and we expect gradually improving trends ahead of the back of visible ATL investments, brand activation leading into the festive season and gradually improve rural consumption and sentiment in mass BPC categories.

Food surpassed INR 1,000 crores in annual run rate in Q2. It is extremely heartening to see that the aspirations we set 4 years ago during the beginning of COVID period are close to fructifying and it has been one of the amazing, I would say, the -- in terms of the addressable market expansion and diversification journey and growth in food.

Saffola Oats recorded mid-teen growth and our newer franchises also fared healthily. We introduced Saffola Masala Millets this quarter to broaden our millet-based range and meet the rising consumer demand for healthier options. This product aims to blend the nutritional advances of millet with enticing savory flavors. Furthermore, both True Elements and the plant-based nutrition portfolio from Plix continue to demonstrate impressive growth.

Premium Personal Care maintained strong momentum this quarter driven by the digital portfolio, which crossed INR 525 crores in annual recurring revenue. In Q2, we expect to clock an exit ARR of circa INR 600 crores this year. Beardo outperformed expectations are on track to achieve a double-digit EBITDA margin this year.

Just Herbs and Plix personal care range also continue to gain traction. We believe Beardo and Plix have the potential to scale the INR 500 crore ARR each in the next 3 years.

Additionally, the company began selling Kaya products in select online channels starting mid-September 2024. The competitive share of foods and premium personal care, including digital-first brands in the domestic business moved up to 21% in H1, furthering the portfolio diversification agenda of the India business. The rapid pace and scale of diversification has enabled us to navigate recent periods of consumption, volatility and post decent volume growth. We'll continue to drive 20% to 25% plus CAGR in this portfolios accompanied by visible improvement in their profitability. We were able to affect the structural shift to improve gross margin last year and expect profitability to inch up as we scale over the medium term. We maintain our aspiration to attain double-digit EBITDA margin at digital-first brand by FY '27.

In our international business, we continue to witness strong double-digit growth momentum. Bangladesh demonstrated visible resilience and robust profitability despite operational challenges that gradually diminished in the latter half of the quarter. We continue to believe in terms -- in times of volatility and adversity, the strong gets stronger and the weak gets weaker. The medium-term growth outlook remains strong in Bangladesh. Vietnam also reported growth on the back of recovery in HPC demand. MENA posted a stellar performance swelled by growth -- strong growth in the Gulf region and Egypt. South Africa grew impressively as well as both the hair care, health care franchises was growing in double digits.

MCD or new country development and exports continue to be another consistent growth driver. Diversifying our international business has not only bolstered our growth prospects, but also improved its medium-term margin potential.

To sum up, consolidated revenue growth is likely to move into double digits in the second half of the year. We're extremely confident of that. We'll strive to deliver double-digit revenue growth for the full year as well. We expect this to materialize if we are able to continue delivering a sequential uptick in volume growth in the domestic business in the second half, given the higher-than-anticipated degree of inflation in copra prices coupled with the sharp import duty hike in vegetable oil, we'll focus on our stated volume-led revenue growth aspiration, while there could be a slightly moderate lag in operating profit growth vis-a-vis revenue growth during the second half of the year.

Last but not the least, we have always prioritized sustainability in our business operations. Our Sustainability 2.0 framework is demonstrating positive progress across each of the 8 key focus areas. We are confident that our commitment to creating shared value for all will drive sustainable and differential growth in the long run.

With that, I will now close my comments. Thank you for patiently listening. We'll now take your questions, and wishing all of you a very, very happy Diwali.

[Operator]

[Operator Instructions] The first question is from Abneesh Roy from Nuvama.

[Abneesh Roy, analyst]

My first question is on the urban demand which you mentioned is stable. You did mention that at the lower end, there is a challenge of food inflation and muted sentiments. Now if I see QSR sector, pizza and burger sector, they have faced 7 quarters of slowdown.

Now when I see your numbers, good set of numbers, foods 28% growth, premium personal care trending ahead of expectations. So in your these 2 segments, which are more indexed to urban, because they're more catering to mid and premium, would you say that the risk in coming quarters is not something you'd be worried on? And second, of course, is in terms of the Plix performance, et cetera, if you could give more details because you did mention that 28% is the food growth, but the Saffola oats growth is mid-teens, which means other segments have also done well. And last point on urban, you said the food inflation and muted sentiment. Now if food inflation cools off, say, in 1 quarter, would you also discuss the muted sentiment, what is the issue there? Those will be the first question.

[Saugata Gupta, executive]

Okay. So I think let me just address one thing, which is if you see our diversified business, which is the premium foods -- I mean the foods part of it, the entire digital brands and then Serum and Male Grooming, a lot of them cater to the top as in the upper middle class masstige kind of segment.

Now we believe that the consumption has not got impacted in that segment. We also throughput a lot through OT, including e-commerce and modern trade where our shares are disproportionately higher and because we have invested ahead of the curve. The other thing which is there is that you must realize that our digital brands, we don't -- unlike some of the stand-alone digital brands, don't have to scout for capital. We are fairly -- in terms of -- we don't have -- I mean substantial lead. In fact, some of them -- most of them are for a very, very low bleed.

Therefore, our ability to invest and grow and also tap into the Marico system has significant cost advantages. So in one way, our call in terms of -- and also food we are challengers. And most of the things we are doing category building, we are gaining share. So our call in 2020 to aggressively diversify perhaps is helping us in this kind of a current situation.

Now coming to the -- if you see the middle class -- this one, I think the two things which are there is one is there has been inflation, the food inflation and general retail inflation. There is a sentiment in a function of sometimes what happens, if you see -- for example, let's look at certain sectors or where there is -- for example, opportunities, how do people in the middle class -- the sentiment increases if there is significant increment, significant job opportunities. Those are the drivers of sentiment. And sometimes the sentiments are slightly muted today, if you look at some of the news that is emanating out there.

Now obviously, as soon as the food inflation cools down, I think urban will recover, but some part of the urban. So if you look at, say, food categories, which cater to the middle class and the lower middle class yes, they may be impacted in the short term.

Now coming to -- you wanted take some color on Plix. As I said that we believe that Plix has the potential to become a INR 500 crores brand. It operates both in personal care and food. Obviously, our food growth -- some part of the food growth is led by the digital brands. Having said that, I think the good thing is that if you look at our organic part of the food, which is essentially the Oats and the Masala Oats business has grown in mid-teens, and they are a significant portion of our INR 1,000 crore ARR, the core business, okay?

And I think we believe that one of the things we have said that today perhaps in the Saffola franchise, for example, food contribute to 30% of the Saffola franchise. We believe over the next 3 years, this number could be 50, and I would really hope in the next 5 to 7 years, food and the Saffola franchise will become more than 60% plus, which will become a dramatic transformation in both the margin and the profile of the consumers and the kind of total addressable market expansion this brand can go to.

[Abneesh Roy, analyst]

Sure. My second and last question is on the Saffola edible oil. So when I see Q2, we have seen the #1 edible oil company, Adani Wilmar see double-digit volume growth. So here, if I see, Saffola edible oil is clearly a premium part of the urban consumption and it is health focused also, which is a very clear theme. So in the second half, what is your expectation on Saffola edible oil because this time, it is flat versus say, double digit for the economy and now the pricing is going up for both.

So -- and there is the challenge of overall urban demand. So if I put all this, where is the issue? Is there some level of now cannibalization, say, from the economy edible oils also having very similar adds to what the Saffola has? Or is it just a transient issue of, say, the pricing, et cetera, changing past few quarters. So where is the issue when you see the volume difference between your growth and say Adani Wilmar's growth?

[Saugata Gupta, executive]

I think firstly, the margin expectations from the brands are completely different. And therefore, we don't want to deliver volumes at any cost. And for us, as I said, ultimately, as long as the food franchise makes much more margin than edible oil franchise, and therefore, that has been our focus.

So therefore, we are not going to -- we are not going to sacrifice a threshold level of margins for getting volumes. Secondly, you must realize that our set of consumers also and as you know, the brand also encourages people to lead a healthy life. And therefore, the average consumption of oil is slightly lower than at the mass end. So it's a combination of those.

I -- as an organization, we are okay in ensuring that we do a certain level of profitable control growth. Now with the 15% price increase, obviously, my revenue growth will be decent. But as long as we maintain margins, we are happy. Our entire focus is to ensure that we keep a threshold level of margins and get measured growth in Saffola edible oil and continue to aggressively grow foods.

[Operator]

The next question is from Avi Mehta from Macquarie.

[Avi Mehta, analyst]

Sir, I just wanted to kind of double click on the margin a bit. Now given that you have taken another round of price increase in Parachute and I'll comment that there is no competitive concerns from price discounters, could you please elaborate why -- whether your comment of being watchful on margins in second half, does it suggest a previous revisit of the earlier expectations of flattish margin FY '25?

[Pawan Agrawal, executive]

Avi, if you look at H1, we've been able to hold the margin at 21.6%. The earlier guidance was that at a full year level, we'll try and improve the margin. Now with the cost pressure it is separately higher than what we had anticipated. If you look at the copra prices, which has spiked in quarter 2, we have spikes in quarter 3 as well.

And also this edible oil duty, which was a surprise. So to that extent, yes, cost pressures are slightly higher than what we had anticipated. Our focus will be, of course, to sort of drive the volume and revenue growth. As far as margins are concerned, we'll still try and see as to how much we can maintain the margins for the full year. At best, there could be a compression of 40 to 50 basis points. In H1, we delivered double-digit profit growth. We'll try to deliver healthy profit growth in H2 also. But purely from an operating margin standpoint, I think at best, there could be compression of 50 basis points.

[Avi Mehta, analyst]

So you mean at worst, right?

[Pawan Agrawal, executive]

Yes, at worst. It won't go below that.

[Avi Mehta, analyst]

Okay. Okay. Got it. Perfectly clear. The second question is on -- I know it's early stages for Project SETU, but would love to get any early insights on how are you seeing the benefits flow through -- in the initiatives to where this was rolled out and where we have some history?

[Saugata Gupta, executive]

So I think I'll give you a very macro flavor to it. I think the approach is, I think, to do direct rural distribution. We believe direct distribution is source of long-term competitive advantage because we have far more control. We are also deploying significant technological tools in order to ensure far better quality of execution.

One -- and now that the fact that the rural demand is improving, we believe that will lead to both higher growth and growth of market share and assortment. I think usually, assortment is something that happens when there is direct distribution, because the wholesaler usually carries high-velocity brands, which are leader brands, which are pull-based. In urban, it will lead to significant diversification.

As you know, we are not present in a number of chemists, cosmetic outlets or specialty food outlets. For example, in South India, there are a lot of bakeries. In West India, there are stores which sell dry fruits and food. Now we were never catering to the store. Now if you have to succeed in our new portfolio, I think that will -- SETU will help.

But thirdly, because right now, our new food business is disproportionately Q2 GT expansion in fruit will also help in terms of margin, also long-term margin protection. And thirdly, this will set up -- this SETU should set up the distribution for tomorrow for our digital brands to experiment with GT.

Let me tell you something, just distributing digital brands, D2C brands in GT can give one-time sales and a lot of people, especially during earn-out and other such events do it. But then they have to take that stocks subsequently. So we are not in a position. We believe that only to sell few SKUs there. But I think our ability to do that once this is done, for example, selling some True Elements, selling some of the Plix, for example, you are selling a INR 20 -- INR 20 coconut water. No, we are selling some of the SKUs, already started to experiment with that.

[Avi Mehta, analyst]

Got it, sir. Got it. So in all clear on this. And by when do you think you'd be able to quantify or give us some better color on the likely benefit in terms of financial...

[Saugata Gupta, executive]

I think in the -- I would say, after Q4 because then you would have had 2, 3 quarters of different sectors because today, we are still experimenting prototyping. We are changing and chopping some of the ideas. And as you know that these kind of things work far better when these tailwinds. Right now, consumption tailwinds are not there. It's just that, at least rural it's improving. Urban somewhat a little volatile. So it takes a little time. We are happy to be patient on it and get it right.

We are wedded to it for 3 years. We believe that will be transformational in terms of reconstructing our GT profitability and having -- creating for long-term growth. So we are committed to it. And we will get it right. We are extremely confident of getting it right.

[Operator]

Next question is from Vivek Maheshwari from Jefferies.

[Vivek Maheshwari, analyst]

A few questions, Saugata. First, again on the industry -- do you -- these are very difficult to forecast. But do you see a scenario for last 2 quarters, let's say, giving last couple -- was somewhat under pressure and then urban was doing well. Do you think that there can be scenarios where rural actually picks up reasonably and continues to show the trends that we are seeing. But urban actually continues to disappoint in the foreseeable future, which again pulls down the overall performance of the sector?

[Saugata Gupta, executive]

So let me just give you a flavor of it. I think if the food inflation, which is -- if the food inflation is not sticky and it cools down, it will definitely improve the urban growth. Having said that, you must realize also some of the last year or if you look at this year also, the urban base was higher. In the case of rural, the base was lower.

Rural I think are combination of MSP, some of the government schemes, the rainfall and all, I think the factor for an immediate gradual improvement are slightly more positive. Having said that, I think, as I said, that at the top end, and I mean we are that way we're little lucky that in the top end, we don't see any impact at all, and if you see our digital brands and most of the premium personal care and even foods where we have challenges, it operates at that end.

Yes, there are also some channel play, like, for example, if you are over skewed, we are seeing much more growth in maybe quick commerce versus a modern trade. So there are -- so it all depends on the kind of portfolio you have, and that perhaps will determine the growth trajectory of different players.

[Vivek Maheshwari, analyst]

Okay. Got it. Got it. The other thing Saugata is again on VAHO, which has been asked you at different points of time over the past few quarters. But VAHO numbers, again, you have gained market share, and I think your number is minus 8. And again, I'm sorry, I'm asking you this directly, but do you genuinely trust the market share number? Because are you seeing a scenario where the market itself is kind of declining?

Or you think that there is some anomaly, there are some regional players who may be copying up and taking away share, because it's baffling to see VAHO actually not performing -- I mean there were periods where it did perform, but through the course of, let's say, 5, 7 years, if you look, the growth is very anemic compared to, let's say, how well you have done in. And there have been business cycles that we have seen in both Parachute and Saffola. But unfortunately, that cycle has also not showed up in VAHO. It has been fairly muted growth.

[Saugata Gupta, executive]

See, sometimes there is -- the offtakes are okay. I think there's always a lag between secondary and offtakes. Sometimes that happened, I have seen last year also in Parachute. I think let me just tell you, I think we believe it's bottomed out. Having said that, there are 2 things. We took this call of not participating in going down the rathole in terms of just trying to do price matching at the bottom end of the pyramid, that is where -- so if you look at it, this value decline also is happening because of the fact that there is higher BTL.

Realizations are going down. People are not spending their ASP. So if I look at NC number, it will be different because what is happening is players are converting ASP into BTL, which is bringing down NR. Now -- we have chosen now to not -- we'll selectively participate in and we have started investing behind the middle, medium -- middle segment. We don't participate in a super premium segment, which is Almond and hair fall. And the share gains are happening there. The reason we are gaining value share is because we are perhaps growing slightly in that end. And there is a significant phase of the bottom of the pyramid.

It's unfortunate that when we face a little bit of irrational competition, there's nothing much we can do. Having said that, our actions at the middle of the pyramid and there are a mid-to-high RPI indicate that this thing has bottomed out. This decline has bottomed out. So I am unlikely to shock you with a minus 10 or minus 11% next quarter, if that's the case.

[Vivek Maheshwari, analyst]

Sorry. So just a couple of follow-ups. So one, you are saying when you say bottom out as in terms of -- there will be growth from this quarter onwards.

[Pawan Agrawal, executive]

So what we meant is that this is the worst as far as VAHO is concerned. We will definitely have better performance going ahead. We would expect to deliver positive growth, but let's see. I think this is clearly the bottom of -- clearly from a VAHO performance standpoint.

[Saugata Gupta, executive]

And the reason is, as I said, that we are now clear on the strategy. Because in the last few quarters, we were into this chasing the wholesaler game, which we are playing.

[Vivek Maheshwari, analyst]

Got it. Got it. And in terms of -- one more thing, Saugata, do you see a period of, let's say, sustain, let's say, 3, 4 years, where VAHO could grow in reasonable double digit. Is that something that you think can be the base case here?

[Saugata Gupta, executive]

Double-digit growth, I mean, very difficult. I mean I would love to do it, but let's think -- let's take a one quarter or a couple of quarters at a time. But I think the immediate task is to get the thing back on track. We believe that as Pawan also alluded to that the worst is over, I mean, in terms of the decline. But I think we need to wait for a couple of quarters on this. And as I said, that if the rural sentiment improves, SETU starts kicking in, maybe next year, we should see a better performance.

[Vivek Maheshwari, analyst]

Got it. Got it. Last question on Plix portfolio again. So I saw your presentation slide, and I know this was always there, but the personal care between Plix as against I mean I know there are examples of, let's say, someone like Himalaya, do you think a personal care and nutrition can be under the same brand umbrella and can be scaled up without having any concrete confusion or whatever it may be?

[Saugata Gupta, executive]

So I think in Europe, if you see the look -- the trend is in a plant-based skin food and hair food, and that is how the brand is moving towards. And if you see anything like, for example, there would be things which will -- help in your sleep, relaxation, rejuvenation and functionality. So whatever we do, there will be functionality. I think what we are trying to do in Plix is, as I said, that hair food and skin food, and that's how a lot of brands are moving. Now fortunately for us, the brand name itself and the positioning allows it to stretch. Having said that, you're absolutely right, we always keep a strong eye on in terms of that we should not overstretch the brand.

[Vivek Maheshwari, analyst]

Okay. So -- and just a small follow-up. So when you think about Plix, is it, let's say, the nutrition brand for -- does it become more like a, let's say, protein brand for you? Or it is personal care? Or do you think it is equally spread between the two, when you think about the...

[Saugata Gupta, executive]

It's a good-for-you brand, which is -- and the source is plant-based and it is in the area of nutracetical hair food and skin food, which nourishes you either way, whether it is hair, skin or body.

[Operator]

Next question is from Arnab Mitra from Goldman Sachs.

[Arnab Mitra, analyst]

My first question was actually on your performance this quarter as well as your outlook seen significantly better than many of the other FMCG companies. You, of course, outlined certain reasons. But I just wanted to check, is it also a factor that you have done a lot of channel inventory corrections over the last like 4, 5 quarters due to this channel shift that is happening. And therefore, you are in a better position in terms of channel inventory, which is helping you like deliver better numbers, while maybe many of your peers set have to correct that. So just wanted to understand, is your channel destocking that you were planning behind us by and large? And are you now well set in terms urban GT?

[Saugata Gupta, executive]

So I think -- see, one of the things that is helping us, if you realize that in the last few quarters, we were facing deflation. Now when we are facing deflation, as you know, in urban GT was anyway stressed. What happens is if you face deflation in your -- and plus the fact that you are declining, your costs go up by x percentage, that leads to a significant ROI stress. Now in places like -- especially in the South and West, which has a significant Parachute skew, and maybe a big metros like Bombay, Delhi, which also a Saffola skew, this inflation is going to help us in terms of managing distributor ROI in the immediate term.

Having said that, we are continuing to be concerned because if you ask me the growth of some of the alternate channels, it's coming at the expense of maybe kirana, coming at the expense of modern trade, we continue to be partnering them in terms of ensuring and it is in our interest that you have a viable duty system. So as I mean the need arise, we'll do it. See, keeping stocks is a kind of an inefficient way of using as your capital. So at the same time, I would say that in the next 2, 3 quarters because we have this revenue tailwind that will help us in terms of managing ROI.

[Pawan Agrawal, executive]

And just to add a couple of points, Arnab. One is, of course, Saugata touched up upon distributor ROI. Given that we have pricing led growth, largely driven by Parachute, which is more in the South and West of our country. So over there, I believe the distributor ROI will be fixed, but there could still be certain region, geographies where ROI could be a challenge.

And therefore, we may take certain calibrated calls to sort of support distributors and ROI. That's one. And number two, as far as SETU is concerned, yes, there could be some stock adjustments on the B2B and wholesale side for us to expand our distribution. So that adjustment might still happen. So it's not that it's completely clear, but depending on how the ROI works out, depending on how SETU expands in certain markets. Some of those costs might still be taken in quarters to come.

[Arnab Mitra, analyst]

That's very helpful. My second question was Saffola, in Parachute we have seen the pattern commodity goes up, you take price hikes, you tend to actually also accelerate volumes given the setup of the category. In edible oil, what is your expectation we are getting into an inflationary cycle, you've taken a 15% hike. Could it have a significant negative impact on volumes because this is an expensive product, absolute price gap is quite large. Any sense of what you expect to happen on the Saffola volumes in the near term as this pricing goes into the market?

[Saugata Gupta, executive]

So our pricing model suggests, as you know that post-Ukraine, we had a pricing up to 230. So I think the yield point on a threshold level where volumes really get impacted is closer towards 200. Today, I think we are 185? We are at 185, we should be comfortable at this level. Having said that, the problem that happens is we don't know because given the fact that this has led to inflation, if there is a some adjustment in beauty or some other those volatility leads to the trade destocking. To me, that is what we are worried about. But at 185 price points for Saffola, we are comfortable. Our last pricing model sensitivity stress test, which we ran suggested anything hitting 200 becomes a problem.

[Arnab Mitra, analyst]

Understood. Understood. And my last question was on Plix and Beardo you're looking to potentially these brands could become very large over the next few years. Fundamentally, what's the gross margin profile of these brands? And at scale, do they make the Marico average EBITDA margins once these brands scale up?

[Saugata Gupta, executive]

Absolutely. I think Beardo, I think, is anyway hitting double-digit EBITDA this year, and we should be able to do at scale, and we are broadly confident because we have high gross margins. And as I said, that one of the things we will not make a mistake is that once we experiment with GT, we will have a very, very limited this one because while the temptation to go into GT can give you short-term top line, but long term without an offtake model and without a mass A&P model, it can be a long term, there can be an issue in terms of profitability.

[Pawan Agrawal, executive]

Just to add on, Arnab, as Saugata said, Beardo will end up with a double-digit operating margin, Plix also will be positive or marginal bleed. And we've also given a guidance that over the next 3 years, we definitely expect the overall GT business to move into double-digit operating margin. As we discussed in earlier calls as well that there will be 2 different models of growth in retail business.

One could be a significant growth of 70%, 80% with a significant bleed. And second would be the model that we've adopted, where we are okay to grow at 25%, 30%, but growing profitably. I think second model works well for us, and we'll stick to that. And we hope to move to double-digit operating margin for the entire retail business as a whole by FY '27.

[Operator]

Next question is from Manoj Menon from ICICI Securities.

[Manoj Menon, analyst]

I've got a few questions, but I'll just start with what my friend asked a little earlier on the digital brands. I recall, around 12 months back, you actually had -- there was an exchange release, which spoke about -- you've got a new EVP digital, which was maybe my understanding the first in the industry. And 12 months later, when I look at the performance, it definitely seems to be one of the important interventions you would have taken, which is working.

Just only one question here -- rather two, I would say. Look, when you -- could you just quantify the online, off-line, let's say, salience, let's say in the D2C brands which you have, may be not D2C anymore? Secondly, I just also want to understand, let's say, the off-line journey which you had in the last, let's say, 12 to 24 months and the learning, particularly in the aspect of demand planning, because when I look at some of the peers who would have -- peers in that segment would have gone from online to offline. One of the challenges which I find they're facing is to, let's say, to increase the demand planning accuracy. So 2 questions. Let's say, you're off-line journey, and point number 2, the demand planning part.

[Saugata Gupta, executive]

No, I think our offline -- I mean, offline numbers are not very high. It's marginal. We continue to focus on online. I think 2 things, I would say, our experience on offline. For offline-line to happen, you need the right price point. For example, I think we are experimenting with ACV on Plix for INR 75, while the other one is I think sellout is INR 200, nearly, am I right? More INR 250-plus.

Similarly, we are doing a coconut product. So the first thing is get the price point right. There's no point trying to sell high AOV stuff out there. Number two, I say learning from not only FMCG for other industries that if I'm discounting heavily income, and there is no point trying to do a GT with the same tax, because the GT guy will then realize or the consumer will realize, anyway I can get it cheaper in e-com.

To create a portfolio with the right pricing and have a limited set of SKU. So for example, in Beardo, we believe that what more than 5, 6 SKU. So the demand generation problem that happens is to get into this display and a beauty adviser model, you need at least a turnover -- I mean, an offtake of INR 75,000 to INR 1 lakh per store to breakeven. And theoretically, then what happens in the BA model, if you are stuck with 100 stores selling 60,000, you can never make profits. In Excel, you might make it; in reality, you will never make it.

[Manoj Menon, analyst]

Understood. That's very clear. And I honestly, I have a follow-up on this a little later team. Just only one thing which I understood on the initial part of the comment is that, so most of the growth is still driven by online, which means that, let's say, the offline piece, is yet to happen in a material way?

[Saugata Gupta, executive]

It's not material, but at the same time, I believe it's growing. And similarly, I must say that especially amongst all these brands, as I talked about these 2 price points, SKUs in Plix, similarly True Elements, especially in food, I think food has a far more better runway for offline than -- while personal care, I still strongly believe that you need to saturate and drive penetration in online. We also have had successful experiment on quick commerce, I think, in terms of some of our personal care brands. So I think we haven't yet saturated it, but our entire GT run will be measured. Just to give you a number in GT amongst the digital brand, it will be right now 15% to 20%.

[Manoj Menon, analyst]

Understood, which is a pretty -- I mean, I would say it's a good performance actually. And lastly, on this aspect, if I move on to the other one, any experiments, anything you have done, let's say -- let me if I can -- I don't know, please feel if you disagree with me. If I consider Marico as an offline-first thinking sort of DNA, trying to, let's say, take a D2C offline. Let's say any experiments you have done where, let's say, you could do far better than, let's say, D2C trying to do offline in terms of, let's say, all your forecast getting right?

[Saugata Gupta, executive]

So as long as it's limited, it's fine, but I think I can't do a model of taking 100 or 150 SKU assortment. I don't have that capability. That's a different capability. See, I think let me just rephrase what the Marico vision is. I think we wish to be seen in the next 3 to 5 years, as a legacy FMCG company is also who has transformed itself to a successful consumer digital company. And I don't think globally many companies have done that kind of transition. And coexist in both models, okay? It's not that one at the expense of others.

[Pawan Agrawal, executive]

And just one clarification, Manoj, the GT is basically offline. So which would be both...

[Saugata Gupta, executive]

Modern trade. It is also includes modern trade, yes. So it is brick and mortar is 15%, 20% includes modern trade, yes.

[Manoj Menon, analyst]

Understood. Very clear. In the interest of time, I have just quickly pushed through two more. Honestly, when I was looking at Slide 7, which essentially talks about 4% volume growth in Parachute, overall growth of 5%. It's a bit surprising that the perception that Parachute is probably, let's say, the growth of Parachute needs to be uplifted with other businesses. One question on VAHO, that's more of an observation. Is that -- honestly, I'm a little confused actually. So where is the consumer going? Is he or she just simply down-trading? Or is he, let's say, prioritizing consumption or, let's say, let's say, per consumption has reduced currently?

[Saugata Gupta, executive]

Significant downtrading has happened. I think also shrink inflation has happened. As you know, in order to keep the price points in brands like Shanti Amla and all, 10 20, we have taken significant MLH cuts. Now -- and this has happened in other categories like soap and including that people don't increase transaction proportionately. So it's been a combination of that, but there is a significant downgrading.

And as I said, alluded to that something which I want to break the mold is that if other players don't invest and get into A&P equal to 0 and put all their monies into trade inputs and running [BOGOs], as a market leader, if I try to do that and say that I want to do that with that, that is long term not good for me. So we have taken this call and this shift will happen over the next 2, 3 quarters is that we'll start investing behind category -- driving category growth. Because if the total spend in the category goes down by 50%, 60%, somewhere it impacts category growth.

[Manoj Menon, analyst]

Fair enough, actually, that's loud and clear. Just lastly, relaying one thought, which I have heard largely from long-only investors about Bangladesh. While the current quarter performance may not fully reflect the changed, let's say, equation on the ground, et cetera, et cetera. If there is a, let's say, parallel when we think about what happened, let's say, to a Burger King in Indonesia. Are there anything -- I know that it's not a statement, it's a sensitive one for you to comment upon that one of the worries which investors have is that this can actually happen in Bangladesh?

[Saugata Gupta, executive]

So we continue to be, as I said, convinced about the medium term, this one opportunity in Bangladesh. And I think we have -- at the same time, I think as a long-term international strategy, we have been consistently reducing our dependence on Bangladesh, and within Bangladesh, of course, accelerating the innovation. But I keep on repeating this, that the strong gets stronger, weak gets weaker. We are a listed company in Bangladesh.

And we have reasons to believe that the medium-term this one is very much impact. And having said that, as I said, that we will continue to accelerate the diversification in both top line and bottom line from Bangladesh. Our -- if you look at the growth in -- especially in MENA, where I believe there is a huge headroom for growth in market share. We are not present in -- Egypt is a large market in hair oil. We are not present at all.

We just launched and we are doing well. We are aggressively getting market share in the Middle East. We are doing well in Vietnam or new country development. So that part of the business, just as we have done a diversification agenda in India, we want the non-Bangladesh business, which to grow by 20%, 25% over the next 3 years. If you can do it, we will have achieved the accelerated diversification.

[Manoj Menon, analyst]

And one last thing, Saugata, gain sensitive one for a public forum. So there is a 2-year extension for the MD and CEO done about 18 months back, still 6 months to go, any qualitative comments -- I do recall...

[Saugata Gupta, executive]

Anyway it is 26 months, 18 months to go, don't worry. And Marico, as I said, I think Marico will continue to grow. So we don't have to do -- it's 18 months. There's a lot of time left.

[Pawan Agrawal, executive]

We will come back and at the right moment.

[Saugata Gupta, executive]

Right moment, we will do it. Don't worry at all.

[Operator]

Next question is from Harit Kapoor from Investec.

[Harit Kapoor, analyst]

So just on the ad spend side, you've seen stand-alone entity, you see in 2 quarters of declining spend. I understand that some of the digital-first brands don't get reflected in the time numbers given that you are part of the subsidiary team, but I just wanted to get a sense on, has there been any ATL versus BTL shift on the core? Or you've not needed to -- you spend competitively, but it's still showing a decline. So any thoughts on that and outlook going forward?

[Pawan Agrawal, executive]

Okay. In fact, if you had discussed this in the last quarter as well, and reason are very similar. So the first of all, we've invested adequately in focused categories of CNO, premium VAHO, foods and to ensure that our share of is intact, number one. Number three, we -- number two, which is from the last 3 quarters, you would have noticed that we have started this master brand campaign on Saffola franchise, and that has helped us to optimize the NPE spend in Saffola, otherwise, we were spending on multiple smaller initiatives under Saffola.

Thirdly, I think in BOP and VAHO, of course, there has been a cut due to intense competitive activity, which we have discussed at length where, of course, some of the monies have been diverted towards pricing and trade mobilization. And lastly, I think we've also rationalized some of the spend in the alternate channels of NPE and e-com.

So this is -- these are the reasons why you will see a little bit of cutting the NPE spend. But going ahead, I believe that you will see an upward strength -- upward trend in NPE spend and should definitely improve. However, at a consol level, if you look at it, we have increased the NPE spend at about 8%, and overall [ A2S ] is about 10.9%, to 11%, which is a pretty healthy number as compared to where the industry is at.

[Harit Kapoor, analyst]

Very clear, Pawan. Second thing was on the food side. So first half growth has been very strong, even if you kind of ex out Plix, if you could just you give us a sense of, apart from where are you seeing the high pockets of growth in the subcategories which you're there now in, any kind of qualitative view also on that would be also very helpful.

[Saugata Gupta, executive]

So I think we have just prototyping a revised version of snacking. We are prototyping millet, masala millets, we believe that is this one has potential. And also Muesli all. So even I think -- and also, I mean, if I look at honey and soya they are steady. They are not giving exponential growth, but they continue to be steady. So I think the total aspiration is food to grow 25%. We continue to be confident this part of the business, which is the core food -- the Saffola part of foods to grow in double digits every quarter.

[Harit Kapoor, analyst]

Got it. One last bookkeeping was on the stand-alone side, while you explained the higher other income on a consolidated level. Can you just give a sense about why the standalone number looks even higher at INR 300-odd crores, if you can help with that?

[Pawan Agrawal, executive]

So this is because of dividend that we have got from Bangladesh subsidiary to an extent of INR 231-odd crores. So that is what is spiking the number. Outside of that, of course, the reasons are the sale of fixed assets and one favorable settlement of dispute. All this if you keep aside, then the growth is in the normal range. The big part is Bangladesh dividend.

[Operator]

Next question is from Tejash Shah from Avendus Spark Institutional Equities.

[Tejash Shah, analyst]

All the major FMCG companies flagging off an urban slowdown, and at the other end, quick commerce guys are again, which are heavily indexed to urban demand are showing strong growth. So just wanted to check if our salience in the quick commerce channel is as high as GT, and the slowdown observation is not the outcome of key channels, which is GT losing market share in overall urban demand shift that we are witnessing.

[Saugata Gupta, executive]

So I think, obviously, there is some transition happening in shift in demand happening. But I think one of the things we always ensure and it is good for us is actually, our OT saliency continues to be higher and our market share in each of the categories, which we participate are higher in OTs than in GT.

[Tejash Shah, analyst]

Okay. Second, just one small observation. If I look at employee cost as a percentage of sales, it has increased from 6.5% roughly that run rate pre-pandemic to now 8% this quarter. Does this suggest that the incremental growth of the nature of growth that we are chasing demands higher, very different kind of talents on employee cost will remain at elevated level than versus what we saw pre-pandemic level?

[Pawan Agrawal, executive]

So there are two things. One is, if you look at we've added a lot of new businesses in the last 2 to 4 years. Over the year, employee cost as a percentage of sales is slightly higher. And again, these businesses are becoming large. So therefore, that is also impacting overall as a percentage to sale. .

Secondly, in this particular quarter, of course, there is an impact of the phantom stock, which is share-based payment, which is linked to the stock price. And since the stock price has done well, there is an impact in the current quarter. So if you were to exclude that, then the growth will be in the range of about 8%, 9%, which is in line.

So largely, the addition of new businesses, which is slightly higher employee cost is skewing the sales percentage number. But again, it's also a function of how your revenue grows. For example, if there is a higher pricing-led growth, the operating leverage will kick in and this number will compress going ahead.

[Saugata Gupta, executive]

So I think just to add, so the moment we start delivering double-digit revenue growth in second half, this percentage will go down. And just to add that one of the reasons is, of course, because of scale, the fixed overheads our employee costs as a percentage of sales in digital business are high, it will come down.

And also another reason you must realize that traditional FMCG company outsource a lot of things. Here, a lot of things is in-sourced. Like, for example, we do a lot of content advertising development in-sourced as opposed to using agency. So that -- which is shown in some other expense comes into employee cost here.

[Operator]

We'll be able to take one last question. We take the last question from Mihir Shah from Nomura.

[Mihir Shah, analyst]

Congrats on a good set of numbers. Pawan, one small clarification first. On the operating margin contraction of 40 to 50 basis points that you called out, that was for the full year, right, not for the second half. Is that correct?

[Pawan Agrawal, executive]

Yes, that's for the full -- that's for the full year. H1 we've been able to [indiscernible]. Now there's a lot of moving parts. That's the estimate that we are giving at this point in time. We'll try to better this number. But as of now, it looks like, maybe is that 40 to 50 basis points, there could be contraction at a full year level.

[Mihir Shah, analyst]

Got it. No, that's clear. Firstly, on Saffola, the import duty hike that was on palms, soya and sunflower, and not on rice bran, does this help in improving your competitive pricing in any way? And when was the 15% price hike implemented? And how should one think about volumes on the back of this 15% price hike?

[Saugata Gupta, executive]

So firstly, the entire market shoots up unfortunately, the domestic oil is also independent of import, it goes up. And I think, I guess, one of the reasons this import duty was done so that better realization for farmers. Now as I had alluded to earlier, that we believe that at the current level, we seem to be reasonably comfortable. Last time when we took a price increase in 2022, we had moved to 230. We had seen the volumes getting impacted. And whatever modeling suggest anything close to 200 and 200 plus, our volume gets impacted. As of now, I think at 185, we seem to be okay.

[Mihir Shah, analyst]

Secondly, on foods again. Can you talk a bit on what is the contribution -- ballpark contribution maybe of your core brands of oats, honey and chunks, because I wanted to get a sense of your -- the journey of foods from 2x to 4x that you're talking about from '24 to '27, which other brands do you see that can help you -- what will be the glide part to that journey basically? How much you think that can add maybe some categories that you are thinking about? I understand Plix is there, but other than that.

[Saugata Gupta, executive]

No, I think the contribution of the core is significant, okay? I'll just give you a construct of the growth rather than -- so if you look at food, I think the biggest one is oats, and where oats and I think millet masala, which we have an adjacency to it, we are obviously participating in now breakfast with Muesli. We have a presence in snacking and immunity and soya. Now soya and honey are obviously not growing exponentially. But the construct is that we want to have the organic core growing in double digits and ensuring maybe the Plix plus True Elements growing at 30% plus so that you have a weighted average of anything between 25%.

[Operator]

We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.

[Pawan Agrawal, executive]

Thanks for listening on the call. To conclude, the first half has largely met our expectations. So far, we have delivered on the key performance parameters as laid out at the start of this year in terms of an improving volume and revenue growth trajectory in the core and overall domestic business, maintaining the global double-digit constant currency growth momentum in the overseas businesses as well as holding up on to the operating margin of the base period, and we've delivered double-digit earnings growth in the first half. .

In the context of current consumption environment and sharper-than-anticipated rise in commodity prices, we will take calibrated pricing actions to alleviate the pressure on margins and stay the course on our stated aspirations. That is it from our side. If you have any further queries, please feel free to reach out to our IR team, and they'll be happy to address. Thank you, and wish you all a great festive season ahead.

[Operator]

Thank you very much. On behalf of Marico Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.