Marico Ltd
NSE:MARICO
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Marico Ltd
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Ladies and gentlemen, good day, and welcome to Marico Limited Q3 FY '23 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]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 now hand the conference over to Mr. Saugata Gupta for his opening comments.
Yeah. Hi, everyone, and good evening to all those of you who have joined the call. And I would firstly like to wish all of you and your loved ones a wonderful and happy 2023. I will start off by giving you a flavor of the operating environment before delving into our performance during the quarter.After the FMCG sector grappled with the dampening effect of inflation for the better part of 2022, we believe that there are indications of the start of a gradual improvement in consumption trends, following the sequential moderation witnessed in commodity and retail inflation. CPI has come down from the levels of 7% plus earlier to sub 6% in December 2022. We have also seen visible softening in prices of some key commodities from the unprecedented levels brought about by the geopolitical tensions and the supply chain constraints earlier during the year.Amidst this evolving context, the FMCG sector recorded a marginal volume decline in December quarter, its lowest in the last five quarters. Amongst categories, food stayed on the growth path, while HPC recorded mid-single-digit volume decline. Urban continued to grow in low-single-digits. Rural remained a weak link, although its trajectory appeared to improve. Easing inflation, a healthy Rabi sowing season and indications of higher farm income all go well for rural growth prospects. Also increased budget allocation and these new initiatives announced in the Union Budget should provide the much needed impetus in this direction.Coming to performance in Q3, we are enthused by improving trends seen across most parameters. Top-line growth was underpinned by 4% in domestic volume growth and 8% constant currency growth in the international business. If not for the pack size reductions in value-added hair oil, volume growth would have been at 5% plus. On a 3-year CAGR basis, domestic volumes grew by a steady 6%, which I believe is in the top quartile amongst all companies in the peer sector. And international business constant currency growth stood at a robust 11%.In terms of profitability, gross margins seen Y-o-Y and sequential expansion owing to a stabilizing raw material and consumer pricing environment and a healthier broad mix in the India business. On a 3-year CAGR basis, A&P spends were up 6%. And we delivered revenue growth of 11%, which has validated our strategy to optimally invest in long-term brand building despite transient cost pressures along the way.Diving into the India business, I will now take you to trends we are seeing in each of our categories and some color on the strategy and outlook for the period ahead. After seeing some sluggishness in the branded coconut oil over the last 4 quarters owing to the extended deflation in copra prices, we have seen a revival of volume growth since the month of December in Parachute Rigids.Loose to branded conversions picked up with copra prices firming up favorably in the off season. And it is a first instance when we are able to establish the right pricing in the market at least by mid-December. As a result, the brand gained 30 bps in the volume market share during the quarter. With copra prices expected to be reinformed in the near-term, we expect to clock volume growth in line with our medium term targets going forward.Saffola oils further its growth momentum with low-teens volume growth. That's driven by stable trade inventory and consumer pricing. Overall, with the commodity prices softening, the revenue growth was subsequently lower. While international vegetable oil complex needs to be observed in the near-term, we will remain focused on balancing volume growth and profitability in a sustainable manner in the coming quarters.In Foods, we remain on course to achieve the FY '24 aspiration. The segment was led by superior growth momentum in the oats category, which grew at 20%, and maintained its strong leadership position in its category. Our newer offerings under Saffola and Fittify ranges continue to gain traction. During the quarter, we entered into the ready-to-eat space under our brand, Saffola Munchiez with the launch of ragi chips and roasted makhanas in multiple flavors.Post-COVID, as people have become more health conscious, the industry has shifted from indulgent snacking to bill-fee snacking. Saffola Munchiez combines the power of healthier grains along with delightful flavors to provide better alternative in the healthy snacking category. We'll continue to drive meaningful innovation in the Foods over the next few quarters. And some of the innovation will elaborate the goodness of Shri Anna or Millets in line with the government's focus on establish India as a global hub for millets.In value-added hair oils, we were unable to tide over the weakness in rural consumption, which has witnessed in most mass personal care categories. On a 3-year CAGR basis, however, value-added hair oils delivered a reasonable 7% value growth. We continue to see better traction in mid and premium segments also reflecting the 80 bps gain in value market share. After some degree of commoditization and increased competitive activity in the bottom of pyramid segment, we are expecting better volume growth and market share gain now that there has been substantial price increase taken by other competitive brands. With inflation easing and rural slowdown showing signs of bottoming out, we expect to see pick-up in growth in line with the other HPC categories.Premium Personal Care maintained its strong momentum and registered double-digit growth. We have seen a remarkable recovery in this portfolio since the pandemic and aim to deliver 20% growth consistently over the medium term to drive lower penetration and our market-leading position in this category. The digital-first portfolio is scaling up well in line with internal targets. As we focus on scaling up these brands in the digital-first portfolio, we are also charting a sustainable path to profitability along the way.Coming to our international business, we are able to continue a healthy momentum despite macroeconomic uncertainties and currency devaluation in some markets. The business at Myanmar, which declined due to ForEx-led challenges, registered 11% constant currency growth. Bangladesh is witnessing some macro headwinds, though the severity is not any different compared to those seen in some of the emerging economies in Asia, Africa and Eastern Europe. However, we have been resilient even in the midst of a challenging macro environment, which goes to showcase our portfolio strength, distribution strength and consumer belief in our brands.Our Vietnam business further strengthened with both HPC and Foods exhibiting continued growth. During the quarter, we also entered into female personal care Vietnam by acquiring brand, Purite and Oliv, which offer a range of premium and differentiated hair care and skin care products. We're upbeat about the growth prospects in Vietnam and look to significantly expand our play in the personal care category. Our MENA and South Africa business have also displayed significant growth momentum, while the NCD business, which is new country development, is also growing in line with internal aspirations.Looking ahead, we are confident of maintaining an upward trajectory in volume and earnings growth in the quarters ahead on the back of stabilizing raw material and consumer pricing environment in the domestic business, coupled with consistent market share and penetration gains in our 4 categories, while we expect macro headwinds to gradually recede along the way. We believe that the worst of inflation and volatility is over. Moderating inflation and measures in the budget to enhance disposable incomes and spending will gradually reverse the flow and accelerate unbranded to branded conversions.In coconut oil and Saffola oils, pricing has taken some time to settle in and our consumer pricing is now more stable and in line with the market. We also expect competitive pricing actions, which has taken place in a relatively lower inflation to reverse the commoditization [Indiscernible] to a significant extent. The diversification journey to foods and digital-first is progressing in line with expectations. Now that 2 of our brands are hitting critical mass, we're also focusing on improving cost structure of both foods and digital.In the international business, we are confident of continuing the double-digit growth trajectory as the business have been relatively more resilient despite external challenges in some of the markets. Gross margins should remain steady. And here on with an upward potential, EBITDA margin should remain in the 18% to 19% range as we close FY '23 and move above the threshold of 19% plus next year. We continue to build fundamentally sound franchises in the domestic international markets and progress along the 4 strategic areas of diversification, distribution, digital and diversity that shall enable us to deliver sustainable double-digit growth over the medium term.We also continue to make credible progress in our ESG program in each of the focus areas. Creating shared value for all remains the ingrained purpose of our business and will allow us to drive superior long-term performance. We are committed to achieving net zero emissions in our domestic operations by 2030 and global operations by 2040.With that, I will now close my comments. Thank you for your patient listening. And we will now take your questions.
[Operator Instructions] The first question is from the line of Percy Panthaki from IIFL.
Just wanted to ask on VAHO segment. So we understand that there is an overall slowdown in the industry, but is there anything that you can do from your side to sort of improve the growth in VAHO? And if at all, when do we see the results of this coming through?
So firstly, I think VAHO, if you see, largely mirrored some of the mass segments in the HPC categories. I mean, secondly, if you look at VAHO, compared to other categories, it's more rural and rural has seen some stress, and some of the markets, for example, in the East or UP and all that, which have specific areas where we have seen this one. So I believe two things are happening. People within the category are downgrading and also maybe the unbranded to branded journey, there's a reverse flow that is happening.Now with two things that have happened. One is the entire input costs which have gone down and the inflation going down, I believe that this reverse journey will get corrected. Secondly, I think interestingly, what has happened in the category is that there has been significant activity at the bottom of pyramid where perhaps some players were not taking price increases and they were perhaps operating with unsustainable margins. A lot of players have taken the price increase. And therefore, we believe that is good because that keeps us to focus on I think investing behind the category in terms of ATL and actually growing the mid-segment.We are focused on actually gaining value share [Audio Gap] gap between [Audio Gap] share and volume share. And therefore, if some of the players, which was -- see, what was earlier happening was significant down shift of money from ATL to BTL that was witnessed by other competitive brands. I believe that will also change. That is good for the category because everybody then invest behind category growth. And I'm pretty confident that as we move towards the next 2, 3 quarters, this growth will get -- this decline will get reversed.
Secondly, on this launch of Munchiez, see, the overall snacking category in India is huge, right? So unorganized, organized put together, everything might be lakh crore or even more. So just wanted to understand how you are looking at the opportunity size here for yourselves?
You're absolutely right. I think it's a vast segment. Having said that, I think we are offering a better for you healthy brand. We have learned one consumer insight that the Indian consumer will not compromise on taste for health. And therefore, we have actually managed to deliver a product with all the goodness of millets, and of course, the fact that in terms of other things like fat and other things which is far lower than other competitive and a very tasty product.Obviously, it's priced slightly higher. If you look at, we will now participate in line with our strength, which is modern trade, e-commerce, and e-commerce again, we are doing what I call quick commerce and a significant amount of food outlets. As you know, we are rapidly scaling up our food GTM in at least 8 to 11 cities. And we now have a critical mass of any segment we are participating in which covers 50% plus weighted distribution of the premium part of any of the segments we're participating in.So we were going slowly. I'm not giving any numbers. The product is beautiful. And in food, if you ask me, if the product is good, if you can generate trials, automatically repeats and scale-up happens, and I think we will go up gradually. I think the best thing we are doing is we are coming our products. We deliver on text. We are investing significantly behind distribution. And I believe we'll get a multiplier effect on this. And as I said, in overall foods, we're more or less on track to meet our aspirations.
And what I noticed in bag snacks is that typically the INR10 price point is very, very important. I mean, even for premium products, even let's say, for products where the rupees per kilo is higher than, let's say, the normal product in the industry. Just making that product available in the INR10 price point really drives the sales. So I was just curious as to why you do not have a INR10 price point in these products yet?
So I think various categories are actually vacated the price point. And I think, yes, it takes -- you take bold and courage to vacate that price point, if you look at noodles has vacated that price point. If you look at the history of masala oats, we despite competition, I think we're present in the price point of INR10 or INR12, we entered at INR15. Today I have a INR300 crores business. So I think, ultimately, if you offer consumer value today, I don't think that is an issue, because at the end of the day, as I said, that if I have to invest behind the brand, I have to start with the GM that is sustainable. And therefore, given the fact that we have a superior product like Millets and a certain offering, I don't think in INR10, we will never have made a sustainable margin on that.
No, for ragi, for example, which you have launched, I think it's INR25 price point, if I'm not mistaken. I mean, keeping the gross margin constant, I mean, can't you reduce the grammage and make it available? The reason I'm asking is the examples that you gave of Maggie and oats and all that, they're not exactly in the same category of bag snacks. Bag snacks, INR10 price point is probably one of the most selling price points.
No, but at the same time, I don't want to name brands, but there are brands which have operated higher and has got critical mass.
The next question is from the line of Avi Mehta from Macquarie.
I just had one clarification on the gross margin comment where you said that you expect gross margin to remain steady. Now is this -- how should we -- this is because you're expecting currency depreciation in international, which is what is the worry? And because India margins are still what, much below that 45-odd percent average that we used to historically see. So would love to understand the reason for this comment.
So what we're essentially saying is that gross margin will remain steady, which means Y-o-Y it will definitely improve. And therefore, there will be some upward bias as compared to where we are at this point in time. Avi, the point to look at is that we should be looking more from an operating margin standpoint because there's multiple levers that we'll be paying out. From an operating margin standpoint, what we are saying is we'll be maintaining an 18% to 19% for the full year.
So you're essentially saying that it is sequentially is what you're looking at and that whatever that 41-odd percent level that India is at is what you are essentially saying will sustain even in India. It's not a mix -- geographical mix that we are talking about over here which is the reason for the consol number?
Don't expect any further improvement in the international because the currency situation has not improved. And in fact, there's a translation hit that's happening on the Bangladesh depreciation. So whatever improvement will happen will largely happen on the India business side.
The next question is from the line of Vivek from Jefferies.
Two questions. My first question is a follow-up to what Percy asked. So on the value-added hair oils side, is there a white space that you can target? Basically, that portfolio has been -- I mean, there were like 4 or 5 quarters where it grew double-digit, but for a long, long time, it has not or it has barely grown. So what is your thought process on -- is there a way out to gain market share more aggressively, a white space that you can target or you just need to wait for the market to pick up?
So firstly, I think the 3-year CASR is still 7%, which is healthy, if you see compared to any -- our performance compared to any BPC category. I think 3-year CAGR is good. Yes, there is one or last -- as I attribute it to two things. One is there is a far more rural SKU in this category. Number two, within rural also, some of the markets in the country are witnessing a little more sluggishness and VAHO has a higher concentration in that. You're absolutely right. The two things we are doing is that we are clear -- as you know, we have continued to gain value market share. You will see more participation in mid and premium segment to drive that.We are also, as I said, happy at the fact that there has been competition price increases because that gives relief at the bottom of pyramid that as -- see, what was happening was that you are maintaining a share of whites at lower spend. The overall category spend, this will help, if also competition and others convert money from BTL to ATL because converting money to BTL and doing unsustainable margin is not good for the category. I think that change is happening I believe. And therefore, that will also lead to overall better category saliency and driving the growth of the category.As such, the other thing that has happened, which is specific to this category, unlike other categories in HPC where there is only downgrading, a significant portion of the people have also moved back to loose mustard. And to me, with inflation going down, I believe a reversal is going to happen and also increase in rural income because people want brands, people want aspirational brands.The only white space we have started doing is two things. One, we have now started taking onion oil to GT where we believe we have a better right to win than some of the so-called digital-first brands. The second thing is, we are also going to be a little more exploring some of the place in the mustard area because that's an area which has given growth. So both at the bottom of pyramid. And at the mid end this one, you will see a little more of this one.So we are just waiting for the category to grow. There is no point investing. And you know, we will also get a significant gross margin play to invest given that there will be a decrease in the price, input cost table. So we are waiting for the sound tailwinds to come to invest and gain that market share.
And Saugata, another -- it's an observation, I don't know, correct me if I'm wrong. But if I leave aside your digital-first portfolio, organically speaking, it looks like that your energy is far more towards new launches on the food side and lesser on the personal care side. Is that observation correct?
No, I think it's in line with the fact that I think -- see, I'll tell you. Let me just give you the perspective. If you look at COVID, and this is a story from 2020, we believe that there was a significant move towards in-home consumption. Now the -- if you look at the opportunity that was there. To expand the total addressable market to Saffola, we actually leveraged it. And if you believe that the strategic funding to sales multiple in food, you can quickly get scale. And therefore, in food, it is very important to quickly get scale because that also has an importance on cost leverage. So we are focusing on energies on that.During that time, two also things happened. One, while there was growth in digital space, there was significant contraction in a lot of premium categories in HPC. There was also a contraction in value-added hair oils. So therefore, when there are headwinds in the category, trying to invest behind new products is not the perhaps the right strategy. We invested and put all our energies behind categories where there is a tailwind because that is not climbing up, that is going with the tide. Having said that, going forward, we shall see -- I think in the next 12 months, we will see I think equal number of innovations also in this part of the business.
So that's interesting. So let's say, you mentioned 12 months. So if it take a 3, 5 years out, my impression is that increasingly -- I mean, I know food still is smaller part, but increasingly, the launches will be more on the food side and steady state it will keep seeing a expansion in its -- in the mix from an overall portfolio standpoint. Is that a correct view?
Not really. If you look at it, I think in Bangladesh, we have exhibited our ability to expand the total addressable market in Parachute Advanced. So therefore, we have -- so I don't think we can't do it. Similarly, I believe the premium personal care, which is categories like CRAM, male grooming, which got impacted during COVID or I think we just attributed to in VAHO, some of the things like onion oil and others, I think there's enough opportunity.Having said that, I think the fourth part of the business is digital, yes. The new part of the business, it will continue to increase in contribution. I see in the next 2, 3 years, it will get into mid-teens what I call the diversified part of the business. And this is in line with our overall strategy to diversify our portfolio. I think what is equally important is that the fact that as I think alluded to during my opening remarks, having achieved scale, we are also looking at improving the margin structure of foods and the profitability of digital brands because that is also important because they will become perhaps a higher contribution to the overall portfolio.
And if I may -- if I can add third question, if okay, on the digital brand side. So in the context of all that is happening to, let's say, Internet franchises or the profitability focus and all. Two parts to this question. One, are you looking aggressively to acquire more assets? Because you were the first one I think or at least among the first one to take a shot at this opportunity when I don't think there were that many competitors or that many players who were thinking about it. Number one. And number two, in a scenario where there is a paucity of capital, isn't that a good time for you to actually be more aggressive and gain shares given that competition will in a way see a pullback in spending, et cetera, et cetera?
So we don't want to make it -- see, I know it's not -- we want to ensure that we want to go with -- we will look at acquisitions. Having said that, I think we like basically brands that fulfill an unmet need, that delivers good -- I mean, that delivers on basic unit economics. And we like to work with founders who have a mentality of building to large versus building to sell.So therefore, we will not acquire dud assets which have no potential just because it's available cheap. And I believe that, again, we will continue to look at assets which have growth potential. And I think there are perhaps assets in the market like that. And we will see some acquisition. But just because it's cheap, I will not buy, because there is no point buying things cheap which have no value of future potential. And as I said, we not only look at the brands and the headroom for growth and the unit economics, we also like to work with founders who have a certain amount of what I'd call a cultural fit and this one mindset fit with us.
And on the second part, Saugata?
What was the second part?
Sorry. What I meant was basically in a cash crunch environment, do you think there is a case for you to at least whatever acquisitions we have done and your own -- Marico's initiative, is there a case to be more aggressive to go after market shares or whatever build categories at the time when competition is under, let's say, stress?
Yeah, right? Having said that, we also then -- therefore, the onus is also on us to accelerate the path to profitability journey. Because see, if you look at it this way, that it is very important that now that food and digital business have a certain scale, we have to also look at profitability. Because at the end of the day, as I said, that while we don't have -- I mean, our businesses don't have that much cash burn compared to a lot of start-up spaces in the digital field, but at the same time, we will look at market share, but at the same time, we're looking at both right now.
Sorry. Saugata, my point was -- I'm sorry, if I'm extending this a bit. But my only point is that, let's say, you have already have a, let's say, investment in Coco Soul, for example, right, or Pure Sense. Is there not a sense in supporting those businesses and letting them go aggressively after market shares at the time when digital-first companies are under stress because of...
Obviously, but we will not do something which is unsustainable in the long-term. See, I will not do something to shore up short-term turnover, which is not sustainable, which doesn't have -- if the unit economics of the business is fundamentally not right. See, for me, I don't have to show valuation. So I'm not going to do something which is I know in the future is not sustainable. So yes, I will continue to invest. I don't have a cash crunch. Having said that, I'll be equally prudent.
The next question is from the line of Shirish Pardeshi from Centrum Broking.
So just two questions. Just a little more depth, if you can provide. You said that you are going to relook the cost structure. Would you be able to help me understand what is the current gross margin or is there any aspiration that you will do? And what exactly we are trying to do? Are you going to relook the entire supply chain and the channel how we distribute or it's more on the -- at the back end, you will get yourself into manufacturing?
No. I think I'm just giving you a generic this one without getting into specifics. All I said that these two businesses, we were driving growth. Having reached scale, I think it's a good opportunity for both the digital and the food business to look at and improve profitability. That's all.
My second question is on PCNO. We have taken a few rounds of price changes. Is there any further price decline which has happened in this quarter?
Not this quarter, but I mean, as I said, that next year, if there is again if some deflation in there, we will be taking price drops if necessary. But I don't see -- right now copra is range-bound.
The reason why I was talking to someone in the South and he gave me a classic reason that the loose versus pack, the difference is now almost INR14, INR15 per liter. So maybe in that context, the relevance for the end consumer, and obviously, I'm comparing this in the highly penetrated market, which is South. I mean, coconut is a very strong brand equity there. So that's why I wanted to check with you that is there any such vibes you are getting on ground?
So we have a very robust pricing model. As you know also, we have a significant -- our current pricing model indicates that the pricing is extremely right. And that's what I alluded to during the opening remarks that finally we have got the pricing right, because as you know, there is a 6 to 8 week lead time for the price to be discovered in the market by the consumers because of all the stocks you have between factory, CNFA, distributor and retail. So our pricing is absolutely right. That's the reason we are seeing a bump up in volumes in Parachute. That's the reason we are despite so-called high inflation and a rural stress, we are seeing an increase in market share in Parachute and that gives us the confidence that we will be able to deliver the medium term aspiration of Parachute volumes in the immediate term.
[Operator Instructions] The next question is from the line of Harit from Investec.
So I just had just two, three questions. One was on premium personal care. So I just wanted to understand with Livon and [Indiscernible] it's been a fairly volatile journey and it seems like the brands are now kind of growing at a fairly good clip. I just wanted to get your sense on how do you weigh these brands over the next 2, 3 years? Any learnings that you've got from your digital-first portfolio that you see could apply to these -- you have been applying to these? Just an outlook.
Sorry to interrupt, Mr. Harit. Your audio is not coming clear from your line now. Please use your handset.
So I've heard this. I think -- okay, let me respond to this and then -- so if you look at the premium personal care portfolio, I think there is male grooming, there is serums and there is our participation in body lotion and skin care. Now yes, I think it was a volatile journey because of certain reasons and especially during COVID, so between '20 and '22, the entire category because it was discretionary and it was -- some of it was linked to outdoor the fact that when we move out. So that I think has stabilized now.In the case of Livon or body lotion and all, we have crossed the pre-COVID benchmark in male grooming and aligned with almost the pre-COVID benchmark. I think we now have a broad operating model. There is a significantly robust demand generation model and the channel mix which is there. And we are pretty confident that in this part of the portfolio, we should be able to deliver 20% plus, if not higher growth in the next 2 to 3 years, I think because we now have what I call kind of a model which is a repeatable model of growth, which is now embedded into the system.Also, I think as we scale up our portfolio, I have been -- as I have mentioned earlier in the past that in the cosmetic and chemist are the channels which we were under leveraged. We have started our journey in terms of having a larger presence in cosmetic and chemist in the urban area, just like we have done in food. Food obviously has been a far higher and a more aggressive play as far as the food GTM is concerned.And thirdly, you're absolutely right. I think some of the learnings that -- I would believe that our expertise today in digital marketing or a digital cushion of our brands given our experience in our digital brands, and therefore, the learning that has come from them into the mothership, that has also helped in delivering the sustainable profitable growth in these brands.
The second question was on the international business. Maybe we can -- maybe Pawan can help with that. I was -- you see 3 quarters of pressure on the margins. Based on your outlook on how the impact of currency depreciation in some of the markets will play out, till when do you see some of these pressures kind of alleviating? Will it take a couple more quarters for it to kind of pan out?
So it's very difficult to sort of project currency trajectory, but last quarter deflation happened starting from quarter 2. So at least we hope that till quarter 1, there will be some hit. And subsequent to that, there will be -- that will be coming in the base. And largely, it is on account of Bangladesh where we have seen a very, very sharp depreciation from the levels of 85%, 86% to about 105%. And that is what is leading to two sort of it. One is in the transaction hit which is impacting the gross margin of the business over there. And secondly, when we translate that into at INR level, that is giving a second level of it. And in fact, at overall level, it's approximately 2% to 3% of profitability that is getting diluted on account of this translation hit of Bangladesh currency.
And the last question was on a slightly longer term one on the margins at a consolidated level. So it seems like there are -- obviously, one of the key focuses over the long-term is diversification. And in that structure, you have growing foods portfolio, which is growing faster than the overall business as well as a digital-first portfolio, which is growing faster than the overall business. Both these have inherently lower margins to start with at an EBITDA level. Is the best way to look at this business from a -- at a consolidated level over a say, 3, 4 year perspective is you're happy to keep margins in the broad range and to strive for revenue growth to improve diversification? Is that the playbook we should look for?
We look at it. What we are saying is that by FY '24, in Q3 it should be about INR850 crores to INR1,000 crores. And we're also saying that digital-first brand is about INR450 crores to INR500 crores. If both these lands weather, then the dilution in the food business will be made up more than what is required to the digital-first business because gross margin of that business is very, very high. So if we are able to land this together by FY '24, we don't think there's going to be any stress on the margin side.Secondly, also on the foods, whichever products we are coming up with, those definitely have margins which is better than the existing portfolio. So just to give you a sense, when we entered into foods, foods has a better margin than oil. When we entered into value-added foods, those foods has the potential of having gross margins better than those. So whenever we are extending our portfolio, gross margin is only accretive. But from a portfolio perspective, of course, gross margin is lower. But if both the portfolio of digital-first and foods we are able to achieve our aspiration, I don't think that's going to be a challenge from a margin standpoint.
So also I want to add to that is that if you look at the premium personal care portfolio, which is also expected to grow at 20% plus, that's also high margin. So if you look at -- if I just want to address the question directly that there is no concern that our blended gross margin of a business will get diluted just because our food journey has got accelerated.
And having said that, we also have a task in terms of improving the gross margin in the foods also, which Saugata alluded about in the previous question. So therefore, if all these things land together, I don't think there's going to be any stress on the gross margin at the portfolio level.
And how about that translating at an EBITDA margin level? I mean, my question is more from a slightly longer term basis. Is the idea to drive sustainable kind of revenue growth, get the diversification going as you have so successfully over the last few years and keep that EBITDA margin band in that 18% to 20% range plus-minus something in the 19% in the numbers? Is that the longer term playbook or you'll keep driving operating leverage and still see an improvement there? Because at a standalone level, your overall margins are lower than the international. My thesis was that you could see -- you could continue to see expansion over the longer term. But just wanted to get your sense on how you're thinking through it.
Yeah, Harit, If you look at it from an operating margin standpoint, we used to guide about 17% to 18%, then you'll get to about 18% to 19%. And as we speak, we believe that this year we should be ending anywhere between 18% to 19%. Now having said that, if you ask me from a 2 to 3-year perspective, is there a possibility of a further improvement in the operating margin? Answer is rationally, yes, because there could be an improvement in the mix of the portfolio in the India business. Secondly, also in international business, there are some territories where we expect that the margins can go up further.So if I were to take a view 2 to 3 years out, yes, there's quite a possibility of operating margin going up further. But having said, in the near-term, we would rather focus more in terms of our volume growth and market share. And therefore, if we have to invest more, to get that, we would do that and really not chase short-term margins, which would be less say in FY '24, if I talk about. But 2 or 3 years out, definitely possible.
See, I think if you look at the international business specifically, there is a significant profit pool to be had in especially Middle East and North Africa where we were marginal players, but we are now growing very aggressively. And therefore, while Bangladesh is maybe at a certain margin, but both in Vietnam and this one which are growth businesses, I think there is enough opportunity. And as I explained earlier that, ultimately, once we get scale businesses in the diversified portfolio, the blended margin is no way going to be lower and with economies of scale. So as you move from -- I think someday, I mean, it will move from 19% plus and then start moving ahead beyond that.
The next question is from the line of Sheela Rathi from Morgan Stanley.
My first question was, Saugata, do we have any revision with respect to our food business target, say, over the next 3 years? What would be that number being now?
No, I mean, given the F '24 aspiration, we are going on track. I mean, it's fine.
By F '26, is there a number?
No, no. So Sheela, we first want to reach FY '24 target of INR850 crores to INR1,000 crores. And from there on, we'll recalibrate FY '26, FY '27.
The second question again was on the digital-first brands. I actually came across a Beardo store at Ahmedabad airport, and it was very interesting to see the kind of SKUs which have been brought up there. So is there any other incremental plan with respect to the physical expansion of the Beardo stores and also the other digital brands?
So I think as far as the Beardo store is concerned in Ahmedabad airport, it's a prototype. It's a quick haircut as an idea and for you to also experience the brand because we are merchandising some of the products out there. It's still in the prototype stage. We are looking at various prototypes to expand, because the way we look at Beardo, it stands for a certain cult. It's the Harley Davidson of male grooming. That's how what the brand stands for. And therefore, just as the way the journey of that brand happened in our own small way because we know that we are a very small brand. We will basically chart the path for it.As far as the other brands are concerned, which is Just Herbs and all, we are prototyping -- each of the brand is prototyping with beauty advisers in GT, some of the -- in some outlets in some markets, one or two markets. And we will see if that model works well, we will expand that model.
Understood. And my third and final question was, this particular quarter, what percentage of the portfolio gained market share? Just an aggregate number there?
Most of the brands gained market share. There was nothing -- none of the big brands lost market share.
[Operator Instructions] The next question is from the line of Vishal Punmiya from Yes Securities.
Just two questions. Firstly, on other income this quarter. Any specific reason for a sharp jump from INR22 crores to INR40 crores?
There are largely two reasons. One is with the rising interest rates, the yields on the surplus has improved by about 230 basis points. So because of that, the investment income has gone up. And secondly, there is FX depreciation gain on the receivables on the balance sheet. So these are largely two reasons because of which other income has moved from INR22 crores to INR40 crores.
Understood. And secondly, just a data point. If you can also share the value-added hair oils, volume market share for this particular quarter? You have shared the value share in the PPT, but if you can also share the volume market share?
So as you know, the last two years, we have moved to our internal and external KPIs on value. The reason is, as I said, that our objective was to bridge the gap between value share and volume share. And therefore, that's the only KPI we measure.
But we wouldn't have lost any share in terms of volume, right, this particular quarter?
We haven't.
And just lastly on this -- the new launch, the Saffola Munchiez. I noticed that the manufacturer is also a player -- a very active player in the market, has its own brand for that particular product and they are also becoming very aggressive in the FMCG space. So how do we kind of basically set areas of distribution for this particular product, because they have a very similar product? While that product might not have Millets in it, but it's a very similar looking product that they have.
See, by that logic, let me tell you all 3P players manufacture their own brands. Ultimately, I am delivering a product under the Saffola brand name. I will not invest till I get critical mass in my own manufacturing. So it doesn't bother us. And that's happened in all categories. If we look at some of the other food products, whether it's honey, whether it's -- there would be mayonnaise. For example, the guy who manufactures mayonnaise, also manufactures for another player. So it's a standard practice, operating practice in an entire global FMCG world. So we have our own quality system. We have our own IPR, and therefore, it's fine.
So there is no parameter as such in terms of online or offline reach, whether it's e-comm or whether it's general trade for this kind of set-up, right?
I am getting somebody to do as a third-party, that's fine. I mean, absolutely, there's nothing to do with this one. I am -- when we -- I mean, I don't know whether which brand you are referring to, but we -- then whoever is manufacturing, manufacturing as a third-party, that's about it.
The next question is from the line of Amit Rustagi from UBS.
And so, team, I would like to know that you have mentioned rural recovery I think several times in your opening remarks. So have you seen any incremental data points in last one month apart from the budget which support our thesis on rural recovery? And if you have to measure some pointers for the next 3 to 6 months, what should be those pointers on that? If you can help us with your thought process on this?
So I think the first thing which we are looking at is, if you look at the last 6 months, every month there was sort of a sequential decline month-on-month which has got arrested. So therefore, all we are saying is the worst is over. Now if I look at some of the external factors, if you look at it, one is, overall inflation. As you know that whenever there is high inflation, food -- especially food inflation, people tend to titrate or downgrade on FMCG. So I believe that we are coming out of that worst high level of inflation.Secondly, I think the rabi crops is okay. The government is committed to investing behind rural infrastructure. So if I look at these indicators, should indicate some kind of recovery. I'm not saying it's going to be hockey stick. It's going to be a gradual recovery. But what I believe, just like I'm saying, the worst of commodity inflation and volatility is over. Of course, in today's world, you can't say anything because of any black swan can happen anytime. All trends point towards a better gradual recovery.
And apart from the inflation cooling off, do you see any trends which support higher income for the rural people?
That's the agricultural yield and also the fact that there is a significant -- going to be significant if you look at the budget, the government continues to invest significantly in infrastructure and also in rural. So I think these are all positive signs. Now it's very difficult to say that when will the recovery, what is the extent of recovery. But I think, if I look at it, the positive drivers outnumber the negative drivers as far as consumption is concerned.
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.
To conclude, the sequential improvement in domestic volume growth and earnings delivery so far this year is encouraging. With emerging green shoots on the demand front, we expect a stable growth in core and we'll continue to drive accelerated growth in foods, premium personal care and digital-first portfolios. The international business has remained robust in a challenging environment, and we are very confident of maintaining a healthy growth trajectory. Going ahead, we will ensure that we optimally invest and stay focused on execution and aim to keep inching up the pace of growth in volumes, top-line and profits in the quarters ahead. If you have any further queries, please feel free to reach out to IR team, and they will be happy to address the same. That is it from our side. Please stay safe and take care.
Ladies and gentlemen, on behalf of Marico Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.