Marico Ltd
NSE:MARICO
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
490.05
709
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Marico Ltd
Earnings Call Analysis
Q3-2024 Analysis
Marico Ltd
The company's traditional stronghold products like Parachute continue to firm up their market positions, with Parachute achieving a 0.40% boost in market share. There's an expected gradual incline in volume growth looking ahead, indicative of steady improvement. The food segment, captured by brands such as Saffola, sports a promising trajectory with a forecasted resurgence to 30% plus growth rates. This segment, underpinned by products like Honey and Soya Chunks, is predicted to make substantial scale gains in the upcoming year.
The company is actively working on expanding its digital brand portfolio, which includes its acquisitions like True Elements and Plix. These brands are being integrated into the company's existing distribution systems, which is expected to unlock additional growth. The digital business, in particular, is anticipated to contribute significantly to top-line performance while moving toward improved profitability. Internationally, there's a resilience in performance despite macroeconomic challenges, with expectations of returning to robust growth, especially in Bangladesh and Southeast Asia.
Despite a persistently challenging environment, operational margins are on track to hit record highs, facilitated by a notable 450 to 500 basis point expansion in gross margin. The company is not just banking on margin expansion but also doubling down on a balance between volume-led growth and strategic priorities to nurture sustainable progress. Furthermore, improvement in operating margin is anticipated in the digital and foods business sectors, contributing to a low teen profit growth prediction.
Sustainability remains integral to the company's ethos. The company believes in creating shared value, a principle it is embedding throughout its operations. This approach is expected to drive sustainable growth, maintain its competitive edge, and ultimately feed into the long-term success of the business.
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to Marico Limited Q3 FY'24 Earnings Conference Call. We have with us the senior management of Marico represented by Mr. Saugata Gupta, MD and CEO; and Mr. Pawan Agrawal, CFO. [Operator Instructions]
Please note that this conference is being recorded. 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. Thank you, and over to you, sir.
Yes. Hi. Good evening, everyone, to all those who have joined the call and my best wishes to all of you for a happy and prosperous year ahead. I would like to begin by reflecting on the operating environment during the quarter, post which I'll give you a flavor of our performance and followed by our strategy and outlook going forward.
During the quarter, the operating environment was largely in line with that of the preceding quarter with no discernible uptick in consumption. FMCG volume growth on a 4-year CAGR basis remain in low single digits with rural mass and HPC categories tracking lower than urban Premium and Food categories.
So far, while the pace of recovery in consumption has not been on anticipated lines, we remain optimistic of a gradual uptick in consumption trends over the course of the next calendar year in light of improving macroeconomic indicators, continued government spending, lower inflation and substantial cuts in consumer pricing implemented by large organized players in response to an accumulative and stable input cost environment.
The prevailing consumption growth pattern, which appears to be more K-shaped, has also led to a continued divergence between how General Trade and organized retail as said, with the former contending with low business growth and rising cost resulting in profitability and liquidity challenges in the trade.
Given the heft of traditional trade and its structural and -- significance in a market like India and they employ, a lot of people. We have taken concerted steps to elevate the strain faced by our partners and revitalize the channel, which is very, very important to rejuvenation of the growth and especially in the core.
We expect these initiatives to our gradual and positive impact on sentiment in the channel and in the quarters ahead, while the pressure on our pricing going to -- which impact realization also subsided -- subsides over the next couple of quarters.
Coming to our performance, organic domestic volume growth stood at 2%, which was about 200 bps lower due to a voluntary reduction in primaries to bring down inventory levels at the distributor and enhance their ROI. Despite the impact of this move the performance of the 4-year CAGR and core portfolios conveyed signs of some improvement. Volume growth on a 4-year basis was 5% and even sequential growth -- secondaries improved far as the core portfolio is concerned. More than 3/4 of our business continue to gain or hold market share and penetration levels.
There will be further volume growth and Parachute improved sequentially as used to branded conversion appear to regain some pace with the brand running consumer advantage pricing and copra prices exhibiting some upward bias. As a result, Parachute further strengthen its leadership position with a 40 bps gain on market share on a MAT basis.
We expect a gradual upward trend in volume to sustain in the quarters ahead as we move into next year. Saffola Edible Oil has an optically weak quarter with a mid-single-digit volume decline and a high base of teens growth. During the quarter, trade remained watchful and continue to operate at lower inventory levels of at least 4 days, the brand also exercised discretion and billing across channels as it did not want to operate below a margin threshold. Looking ahead, given that offtakes remained healthy during the quarter, we expect the brand to revert to growth from the next quarter.
Value Added Hair Oils also improved sequentially with mid- and premium segments going in mid- to high single digits and driving mix improvement in the portfolio. Growth continued to be impacted by extended weakness in demand and sustained competitive pressures in the Bottom of Pyramid segment.
Moving to the performance of our new business Foods maintain steady growth trajectory should close the year with at least INR 750 crores, which would be about 4x of it scale 4 years ago. Saffola Oats anchored the growth and maintained its position as the #1 brand in oats category. Honey and Soya Chunks continue to scale up well and should reach a scale of INR 100 crores each in the coming year.
Both our acquisitions, True Elements and Plix continue to meet our expectations. Premium Personal Care sustained its double-digit growth momentum with the digital-first portfolio, surpassing INR 400 crores an exit run rate in Q3.
The healthy scale-up of Foods and Premium Personal Care keeps us close to 20% of our domestic revenues from these portfolios in aggregate this year. We are also actively working on steering brands that are gaining scale towards profitability. For instance, Beardo will be EBITDA positive this year and similarly Just Herbs and True Elements should be close to breaking even in the coming year.
Our international business was resilient in the transit macroeconomic challenges. Bangladesh exhibited some momentary weakness at persistent inflation and uncertain business conditions leading into the recently held general elections. While the core portfolio had a soft quarter, new portfolio shampoo and baby care fared better, now the elections have been completed, we expect business performance to normalize and we should revert to devaluing, healthy growth in quarter 4 itself, and the January trends are encouraging. Southeast Asia also had a modest quarter marked by sluggishness in the HPC category in Vietnam.
We expect to hold strong, given the strength of our portfolio. The MENA business continued to grow impressively as both Middle East and Egypt business, flourished. South Africa and our new country development and export business also registered solid growth. We have embarked on a journey to strengthen and diversify our international business. While the journey is still underway, we have developed fundamentally strong businesses in each of the regions who are focused on getting to have the right portfolio, GTM cost structure and leadership, right? The year has been characterized by a persistently challenging operating environment, but we do positivity from the improving growth trajectory in our core portfolio, although the growth has been slight as well as the degree of success achieved in our diversification journey, both in domestic and international business.
We have also initiated corrective measures to reignite growth in the GT channel, which will be the most critical aspect to get better, not only growth but also diversification of our portfolio in chemist, cosmetic and food, and rural expansion. We are determined to get GT back on track, which we believe will be instrumental in restoring the pace of volume growth in the core mass consumption categories, better offtake trends and market share gains in our key portfolio also keep us in good stead.
We believe that improving trajectory and offtake growth across categories will be followed by a similar trend in secondary and primary growth in the quarters ahead. And we already started seeing Parachute exhibiting this trend. Top line growth continued to be dragged by erstwhile pricing interventions and domestic portfolio and devaluation headwinds in certain international geographies but we expect this to taper off further and revenue growth to turn positive in Q4.
On the profitability front, we will be delivering record high operating margin this year led by gross margin, which are set to expand by 450 to 500 bps and even after ramping up brand building investments behind both core and new businesses. While we aim to maintain a resilient margin profile in the quarter ahead, our focus will be also to deliver sustainable volume-led growth and by reinforcing our strategic priority.
Last but not the least, we have always viewed our entire business operations through the lens of sustainability and our sustainability 2.0 framework has been progressing well along with each of our defined focus areas. We firmly believe the value of creating shared value for all will aid us in driving sustainable growth in the longer term.
Our dedicated microsite captures all ESG-related information and successful projects and hope it will aid all stakeholders in gathering all the relevant updates on the progress we are making towards sustainability goals. With that, I will now close my comments. Thank you for your patient listening. I'm most happy to take all your questions.
[Operator Instructions] We'll take a first question from the line of Abneesh Roy from Nuvama Institutional Equities.
My first question is on True Elements. So here, you said that next year, you are targeting breakeven here, if I see the category is very attractive, and we are seeing many large companies also quite interested here, plus there are a few D2C brands. .
So my specific question is, what is the distribution scale up here done till now? And where do you see distribution in the next 3 years because another listed company in similar space took distribution 10x post-acquisition. And in terms of the differentiation in strategy, pre and post-acquisition, once you have taken over, are you changing the strategy in terms of the positioning or in terms of pricing, et cetera? Anything meaningful versus pre-acquisition?
So I think, as you know, packaged foods has significant opportunities. And especially True Elements operate in the, what I call, healthy space in breakfast, they are into feeds and snacks -- both breakfast and snacking space. And the opportunities are endless. Normally, what happens and this has been seen even in Beardo is that once Marico takes over 100% trajectory of growth improved because we also continue to leverage our existing GT distribution, which we haven't done as far as True Elements is concerned, but we have plans to do that.
And I think once True Elements and Saffola have this unique ability to have a 2-brand play where True Elements also plays in breakfast and snacking at a premium end while Saffola continues to play at the masstige kind of an end. And therefore, I believe that the potential of True Elements is significant. Now one of the other things we must keep in mind is that we have been extremely mindful of the fact that while our digital businesses makes good gross margin, True Elements is food, so we have made effort to also ensure that there is gross margin improvement, that overall, our digital businesses, which are right now [ 500 ], and we expect it to grow that in the next 2 to 3 years, hit double-digit plus EBITDA in that -- the overall digital businesses because that is very important because if there are growth drivers. So we are mindful of the growth and the profitability together. And I think -- I believe that there is enough GT potential. We have started in a small way with Beardo, and we expect to do that with all the brands in the future.
Two more small follow-ups on Foods business. So one Plix looks very attractive and very differentiated opportunity, very attractive packaging. So what are the initial learnings, what are the initial finding. And second is on Masala Oats, another listed company entered a few quarters back. They're trying a slightly different position, which is millets plus oats. Millet has become, in fact, quite normal by most FMCG companies. So I wanted to understand in Masala Oats, how is the competitive intensity and you have enjoyed extremely good run there. Do you see some risk of market share loss -- next 2, 3 years?
Okay. So what was your first question? Sorry, I...
Plix, Plix.
Yes. Yes. So I think, Plix operates in the overall wellness space. And I think compared to some of the other brands, it's a very, very young vibrant brand. Now wellness, there are different opportunities. If you see at wellness there are multiple vectors of wellness there is -- which is cardiovascular, there is diabetes, there is weight management, there is bone health, there is gut health.
So therefore, Plix offers huge opportunities to operate as a full spectrum wellness brand. The good thing about Plix is, I think, the innovation velocity, strong consumer insights and the quality of digital marketing is extremely best in class. And if you look at Plix, I see a INR 200 crore plus opportunity even next year, the way the run rate is. And therefore, I believe and also the -- compared to the other brands, including in this space, the bleed is extremely low.
So I believe it's a very holistic business and it can obviously grow along multiple vectors and set for itself as the wellness brand. So if you really look at it, we have -- we'll have the 3 brand play where Plix plays on wellness -- True Elements plays on overall both snacking and breakfast, but a little bit Premium and Saffola plays on masstige and then Saffola also can get into some other categories, which is plant protein, immunity, which are already presented. So therefore, it will be a comprehensive food play.
Now coming to Masala Oats question. See, I think the penetration of the category is very low. So it's good that multiple players are investing to grow this category. Yes, you might lose share, but at the end of the day, I think what is most important is that Indians now have a choice of having far better, healthier in between meals snacking. We also have millets in some of our variants already, and we are very, very focused on ensuring that millets is a success.
And therefore, even in oats, as you know, there is a variant which has millets in some of our Masala Oats also and therefore, I think the position -- it's not about the positioning. I think -- it's okay to have multiple players expanding this category because there is no reason why this category shouldn't have double-digit penetration in the next couple of years?
Sure. My last question will be on the traditional Kirana channel. Growth has been very challenging across most companies here, and you did speak of the stress here. You also spoke that you'll be taking -- you are taking a lot of proactive steps here to get a gradual recovery. My specific question is India's largest consumer company. They are moving towards an alternate structure where more a variable component and lesser fixed components. So what are your thoughts on that? And if you could give some more color as to what exactly you're doing because there, the shelf space issue remains there, regional plays issue also remains. So the intrinsic issues, how do they change because the competition with the online -- the quick commerce, that also remains -- are the problems changing? Or will it be more of the market share gains, which will help you?
I will give you a more overall holistic view about this. I don't want to comment about anybody's margin profile and all the plans. So if you look at it, and there is something slightly unique to Marico. We have -- in our organized trade at urban, we have a far more [ skew ] on Saffola and Foods, while coconut oil and hair oil dominates our urban, mass and rural. We also don't sell sachets.
So therefore, our gross margin and our profitability of the mix, which we sell in GT Mark and rural is far higher. Number two, what has happened is that the entry barriers to organize trade has reduced. Therefore, you can buy perhaps volume share or you can buy this one by spending. There continues to be a significant entry barrier for creating distribution infrastructure, and therefore, rural distribution or a strong urban distribution is a source of competitive advantage. Having said that, obviously, when you are a challenger brand, it's easier to get market share in, say, OT compared to GT because in GT you have to make that systemic effort.
Like, for example, if you look at honey, for example, as a category, we have far more share in e-comm or modern trade compared to GT. But having said that, I think one of the things we have realized is that there needs to be some kind of a systemic effort to drive 2 things. And the urban, a far better quality of distribution in food, chemists and cosmetics that drive our diversification because that diversification actually driven at a higher gross margin.
And the second thing is rural -- our rural distribution. Now for that to happen, these are costs -- now what are the things which -- and the other, which is the other issue that has happened is that in the absence of revenue growth in that channel, especially in urban, till last year, because of Saffola inflation, obviously, there was revenue growth during COVID, there was revenue growth because modern trade was not working at full potential and also the smaller players were not there, and therefore, large organized players, including us had a significant growth in GT, which has now got absent.
So I think this problem has started -- got accentuated from Q3 in the last year. Now there are 4 or 5 levers. One is a stock, one is credit, because ultimately, we want them to give more credit in the market. We want higher STRs in the -- because we have lost STRs in this one. Now margin is something -- we have to take a call, how we give the best possible margin for ROI. But if we are looking at all the levers, the easiest one to do is a stock reduction or a stock -- it's not a correction, but a reduction because that we can make up by better and nimble-footed supply chain.
So we are doing at a host -- full of initiatives we will do one by one. We are doing it in a resource-neutral way that there are wastages in the system, and there are investments we want to want it to be done. So we'll do it in a fair manner such that the ROI of the partners improve. We can invest behind growth in distribution -- direct distribution, not only in rural but in urban, in these channels. We get back the STRs gradually because we have lost STRs.
And we ensure that we facilitate higher credit to retail, which they can do and they say and improve the ROI. So this is going to be done in a phased manner over the next couple of quarters, but we believe that will lead to core growth, and that will also lead to better diversification of our portfolio in GT because a lot of our diversification of portfolio today has happened much more OT led.
We have a next question from the line of Avi Mehta from Macquarie.
I just wanted to follow up on the GT comment. Would -- are you looking at these changes in supply chain margin changing the level of inventory, is that the thought that keeps in the channel? Or is it more -- because you target about nimble supply chain. So would love to understand what do you mean by this?
And could you just clarify or give us some examples of what are the changes that are being done to change -- to kind of dry growth?
Again, I'm just giving you a structural way, I'm not getting into specifics. But if you look at it, ultimately, I give my distributors a certain margin. There are certain costs, I give them a certain credit. They give certain credit in the market and the wholesome inventory. Without getting into permanent hit to the P&L, what are the things we can do in terms of our efficiency to further drive ROI of the distributors. I think that's the philosophy which we are following. So that they make ROI. We ensure we have resolved our distribution expansion, and we also ensure they pass on -- we can pass on better credit to trade so that the trade STRs go up.
I think -- see, the margin is something, it's a one-way street, okay? So that's the last resort we will link to -- and even in margins, -- we can look at things like high-margin brands, which has some diversification on this one. But there is no need, similar if you look at wholesale distributors, they don't need. So I think margin is something which will tackle later, but there are enough other ways to manage it. For example, I'm prepared to keep reducing inventory such that -- inventory is the cost of -- carrying that inventory doesn't drive offtake. We have to ensure all our investments to -- driving offtake.
Sir, just a follow-up. Could you kind of help us understand how this inventory has changed, say, 4 years back, what the channel inventory was, what is it now? And probably 5 years ahead, how should we look at that? Just to get a sense on -- because it seems you're targeting more channel inventory, trying to modify that.
No, I think channel inventory is the only one step. The reason I shared about channel inventories, we have done it. As we do some more initiatives over the next 2 quarters at the end of the quarter -- I mean, in the quarterly call, the quarterly note, I will share with you, what are the initiatives. Right now, we are not in a position to share the initiative. .
Now coming to inventory, I think what happened is if my -- if GT was, say, 100, the revenue, okay. And as you know, in some of the urban [indiscernible] there's a deflation plus there's a volume decline, if that has become 90, obviously, for that revenue and the fact that STR has also gone down in trade, the holdings have gone up -- so therefore, we have to start ensuring that holding keeps on coming down. And I think that's the framework which we are doing that -- now as I said that this is the first initiative, there are other initiatives, which we will intend to do which -- also, for example, we may be running certain trade schemes which are inefficient in the market. We can be running certain promotions, which are programs -- retailer programs, which are [indiscernible] in market.
So we are looking at the entire gamut of trade spend, which are huge, that investment. And looking at the resource allocation so that all the resource allocation is done towards viability of our distributors, profitability of the margins in the trade so that they deliver better service, they are in a position to expand distribution because distribution means more feet on street, there can give more credit, and that all leads to more offtake and better [ RAIN ] selling and better assortment.
Got it, sir. Got it. Fair enough. Sir, my second question was on the comment on resilient EBITDA margin, especially if we look at FY '25, with our portfolio composition now changing, would you see this move to 21% level that we are talking about by 2024 as a new normalized level, how should we look at that?
So I think a couple of things, and I will also ask then Pawan to give you -- elaborate on this. See, the thing is that -- one of the good thing is that the diversified part of the business has now a blended gross margin, which is almost higher than the current portfolio. So which is the first thing. So between Foods and Digital, our gross margin is higher than our core portfolio, which we have achieved this year.
The second thing which we are doing is that with far better efficiencies of spend. And as you know now, we are a house of brands, 4, 5 digital businesses with all the driving efficiencies of scale, we are in a position to get double-digit EBITDA over the next 2 years in this business. And we are also targeted to target food in the 2 to 3 years. So that part of the business, I think, is in good hands.
Now obviously, -- it is also a factor of inflation, deflation. But having said that, I think, this is something our effort next year also will to deliver -- effort will be there to deliver double-digit profit growth. In the case of international, obviously, there have been some issues in terms of currency deflation. Now we hope, given that the Bangladesh elections are over, sometime during the second of the year, we anniversarized that currency depreciation -- and also, as you know, that we are doing fairly well now in the Middle East, North Africa and some of the other markets, which are -- which has potential for improvement of operating margin expansion. So given all that, I think our endeavor will be to actually continue to deliver double-digit bottom line growth next year. Pawan, you would like to add?
No, I think Saugata, you've covered comprehensively. It is very difficult to give a margin guidance on this at this time, because we do not know as to how the inflation or deflation will play out for our orders like copra and edible oils. But having said that, what we are committed to is to deliver at least low teen profit growth. And the drivers, Saugata spoke about, drivers would first of all in terms of -- we definitely expect the revenue growth to be double digit, if there's inflation in the portfolio. .
Number two, we spoke about significant improvement in operating margin of the Digital and Foods business. Number three, there are a couple of international markets where there is definitely a possibility of improvement on operating margin.
And number four, I think there will also be some benefits of A&P amortization. So far, we have not driven the Saffola master brand strategy. And so far, we've been spending in different buckets under Saffola. We believe next year, we should start their journey. So with the levers of all of this and lastly, maybe also if premiumization also plays out well, that also improves our gross margin. So with the mix of all this, we believe that at least we would be targeting low-teen profit growth, if not more.
We have a next question from the line of Arnab Mitra from Goldman Sachs.
My question was, I'll be looking to next year...
Mr. Mitra, I'm sorry, can you use your handset mode, please?
Yes. I'm on my handset. Is it better now?
Yes.
Yes. My first question was on -- as we look into next year, do we see -- when do we see the price decline in Saffola and Parachute anniversarized? And do you see any pockets of price increase that we can see because we are seeing some certain categories in Personal Care where price hikes have started happening. So there is no commodity pressure. So could you just help us understand these 2 aspects on pricing?
So I think I give you based on our current -- whatever the outlook is. In terms of the revenue, the price -- you will see a slight revenue uptick in quarter 4 itself. Quarter 3, we had earlier committed, but what happened was that since in Parachute, we had to take some pricing -- tactical pricing interventions to get volumes back on track. And in fact, if I look at offtake and secondary volume, Parachute growth have been robust in this quarter.
Now coming to next year, I think if you look at history of Marico, the bigger -- the sweet spot for us, actually, especially in Parachute is a scenario that follows -- as follows: Low food inflation, copra inflation, we do -- we have positioned gains, and we deliver high volume growth and profitability is protected. We see that scenario likely to happen in the second half of next year.
And as far as Saffola is concerned, obviously, I think the -- if you look at the price around pre-Ukraine the price of Saffola Gold, that's a Bellwether brand, it was around [ $150 ] a liter. It went to [ $230 ]. It is current year and [ $160 ]. So most of the reductions are done, I think.
And any purpose of price increase in VAHO and other segments that you see?
If there is copra inflation, next year, Parachute will see some price increases.
Understood. My second question was on the Foods business. So you've got 18% growth in this quarter. This includes, I presume, inorganic component that got added to the business. So could you help us understand what could be the organic growth? Has it slowed down for some reason? What could kind of be the reasons why we think it could accelerate next year?
So I think I alluded to last time is that one of the things we are doing in Foods, right, is getting our supply chain and getting our gross margin. Right? So there has been a slight slowdown. But if you look at trend, we should be in a position to get back into 30% plus growth from this quarter onwards.
Got it. And my last question, Saugata, basically if you look at the -- on Pawan's comment that next year, the commodity prices are difficult to call out, you would still look to deliver a double-digit earnings growth.
Given the margins unlikely that you'll see margins further drop from where they are. So the burden of growth [ essentially ] comes on top. Given the current environment, does it not look very difficult that we could see a double-digit revenue growth next year? Because as you rightly mentioned, pricing will probably anniversarize at some stage, but you would have to [indiscernible] deliver very high single-digit volume growth to get to double-digit kind of earnings growth. So is there any difference in how I'm thinking versus what could be the template for next year?
Now if you look at copra cycle, typically, it follows 18 to 24-month cycle. So logically, we should have inflation in copra. So we definitely expect once the seasonal months are over, it should definitely have an upward bias. So therefore there will be a time where we have to take certain price increase.
So if we are able to deliver around 6%, 7% -- 5% to 7% volume growth, I believe that the balance will be made up through pricing as well as some part of the portfolio, which will have a -- better premium. For example, let's say if hair oil does better or the retail business contribution increases. So that delta will be sort of filled up from that part of the portfolio.
And also edible, as we said earlier that it has bottomed out. We have gone back to almost pre-COVID level prices. So we do not expect any further deflation in edible oil. As and when if we face any inflation, of course, there could be some price increase.
So as we move into quarter 4, we definitely expect Parachute to move into positive revenue growth. Coming quarter 1, the entire anniversarization of edible oil will be over. And then depending on if there's inflation in the edible oil, that will also sort of move into positive trajectory.
As far as Value Added Hair Oil is concerned, we might take certain price increase depending on how the crude oil prices move. And typically, we see that we can always take 2% to 3% price increase in the portfolio without much of an impact on the volume. So with all this, we believe that if we are able to deliver a certain level of volume growth, it can definitely move into double-digit revenue growth.
We have our next question from the line of Vivek M from Jefferies.
A follow-up to the earlier question on Foods, Saugata. If you do the math -- I mean, it looks like that adjusting for Plix, the base portfolio actually provided didn't grow. Is there a fair -- is that a correct calculation?
No, no. So around -- so the food -- the core has been a mid-single-digit growth. True Elements as anyway anniversarized. So basically, it is -- yes, the Plix part of it -- the food part of Plix. So as I said, that it is at 18%. I believe that from this quarter onwards, we'll back into 20% plus because of the fact that what we did was -- we slowed down some of the things because of our ability to manage freshness and also our ability to get the gross margin right.
So also, there has been no innovation. If you look at the other thing that has happened is that this year, winter has set in late, but anyway, honey has not given significant growth. So if you look at everything -- I think because last year was a big honey season. So if you look at all that, I think it is a mid-single digit, but as per trends in Q4 is concerned and whatever steps we have taken, I think we should go back into 20% plus and even next year into a 20%-plus kind of a growth.
So March quarter, Saugata, when you say 20%, that is 20% plus Plix or including Plix you're talking about 20%.
Including, including, including.
That will still be very underwhelming right? Because, let's say, Plix does about what, about INR 35 crores, INR 40 crores per quarter, right? And let's say, last year based on Foods business was about INR 600 crores. So I mean even if you don't do anything -- I mean, the Plix business itself is like giving you -- based on our calculation, about 18%, 20% kind of growth. Unless we are getting the seasonality a bit wrong.
So Vivek, what Saugata mentioning is the base case that we should definitely grow at 20% plus in quarter 4, and we will be targeting more than 20% in FY '25. Having said that...
FY '25 will be organic, Pawan, right?
Yes. Largely, because the first 3, 4 months, if you exclude, we acquired Plix somewhere in month of July.
June, July. So Plix anniversarization will happen from July.
Having said that, even in quarter 4, what we are planning is high to mid -- high to low double digit in terms of organic foods as well.
Okay. Okay. And the other thing, Saugata, you have had mentioned in the past about and I understand businesses are dynamic, and there are a lot of things which go right and wrong. But let's say, INR 850 crores when you were looking at for F '24 and INR 1,000 crores for F '25, you're now -- it looks like it's going to be more like INR 750 crores F '24. What would you say that what did not go right? Is it the macro that you would say -- did not go as per the plan? Or is it your base case is built in maybe 1 more acquisition -- when you're ending with like a INR 100 crores shorter, where is the gap in your view?
So I think, firstly, we must appreciate that our diversification journey has been reasonably good. If we look at what was there in '20 versus this and Food has grown 4x. Now if I have to see 1, 2 things where perhaps that contributed to INR 100 crores: One is that we didn't want to grow at any profitability, okay? Unfortunately, compared to -- I mean, so we are clearly conscious that these must not grow at any cost. We must get the fundamentals, right? On supply chain, stock freshness and other things.
The second thing is, obviously, which you can see that urban growth rate has -- which was very, very strong during COVID time and this one has been a little now tapering out. And you can see also some of the food categories and the food company, FMCG, that the growth was not at that level that was there, say, 1 or 2 years ago. It's a combination of that. Having said that, at the end of the day, it's always good to have an aspiration or a dream. We are not way off -- I think, from something completely new, INR 750 crores by INR 850 crores is not a very, very big miss. It is a miss. I would have loved to do INR 850 crores, but INR 750 crores is not bad at all.
I will add Vivek over here, so as Saugata said, so the aspirational target that we have taken in FY '20 without [ side ] in terms of which categories we're getting, et cetera. So largely, if you have made the business more than 4x, I think it's a good achievement.
Now standing here, what we are looking at is that in the next few years, we should be trying to achieve 2x of the scale where we are at this point in time. So we are at INR 750 crores, we should be targeting about INR 1,400 crores to INR 1,500 crores, let's say we talk about FY '27. So again, we're taking aspirational targets. But yes, it's not a significant miss because we have more than 4x as to where we were in FY '20.
And the other thing I want to add is what we have finally achieved -- ability to achieve in FY '24 exit is a gross margin, which is significantly better than Saffola Edible Oil. So therefore, overall, Saffola brand, we have actually been able to significantly up the overall blended margin.
Got it. So the reason why I asked you this was -- you don't think it's because of rising competition. So we are seeing, let's say, Tata Consumer, Nestle, ITC, all of these companies also -- now giving or getting into some of your zones. So you don't think it's because of competition?
As I said, that is low penetrated categories, I think more people investing, actually grow the category. And as you know, there is a significant movement into healthy snacking and healthy in-between meals. And as you are aware of the strength of the Saffola brand.
So I think, as I said, that is not the issue. The issue is that, as I said, that we could have grown. The only category where we participate, where there has been no growth in the category. And actually, the category has not been doing well, post-COVID, is honey. Otherwise, all the other categories, in fact, if you look at Honey Chyawanprash -- off course, Chyawanprash, we don't have a presence. Those are the categories which are not doing well. And especially, there has been delayed winter and all that.
But as far as oats is concerned, we are getting growth. And I think we have just entered snacking once we get the GTM and our overall supply chain capability, right? I think we've taken a pause this year in terms of getting all this right. I think we will get back into 20% plus growth. Now that is a baseline case I'm giving. We may be aspiring more. But I think a 20% plus baseline growth is something underrated next year.
Got it. Very good know that. One more on PPC -- when we look at PPC this quarter, Saugata and Pawan, the presentation mentions about INR 300 crores quarter 3 run rate. And last year, when I look at the same time, seems like the -- if this INR 300 crores YTD ARR. If I assume that exit was higher than YTD average, it doesn't look like that PPC has also grown. What am I missing out there?
So there are 2 parts of the portfolio which have grown. [ Serums ] have been growing as a category and have been doing well. In male grooming, the INR 10 gel pack, as you know, anywhere there is a stress in rural. So that has not impacted -- the other part of the PPC is body lotion. Now this time, there has been a very late winter and a short winter and that -- some of the sale has obviously reduced and some have flown into Q4.
Got it. Okay. And lastly on VAHO. This BOP, Saugata, how much of this -- again, you think about -- you consider this sluggishness because of macro factors and -- versus competition because your opening remarks did mention competition as well. So -- because as and when the cycle turns things get better, do you think this portfolio comes back or you would still be worried about competition over there.
So I think there are 2 ways of looking at it. I think if you look at it, there is obviously a sluggishness in demand. As you know, whenever there is significant inflation, there is certain demand, smaller players getting to it. And also there is competitive intensity when the organized players are focusing on that.
Now there are two ways of looking at it. I put all my refers and defend that versus a smarter way which we are trying to do is, growing the mid and the premium where I have much lower market share, that makes far low gross margin, higher margin and that is what I intend to do. So as by -- if [indiscernible] money, we throwing more money and actually selling at a lower gross margin to get some market share is not something which is sustainable and not a smart thing to do over the long run.
We have a next question from the line of Akshen from Fidelity.
Am I audible?
Yes.
Congratulations on the good margin show. Most of my questions have been answered. Just wanted to understand two things from the team. One was around the Edible Oil business. We've seen quite a lot of volatility in the last 2 to 3 years, given the kind of channel corrections that you would have taken, competitive pricing, et cetera. When you look at this business, I'm not saying in the immediate term, but next 4, 6, 8 quarters out, how are you thinking about the road trajectory in that business? That's question one.
Question two is, you seem to be confident that the changes that you made in the distribution end will help growth. If you could just sort of help us understand what were the difference between primary, secondary, so that we can at least have a gauge if there is a gap that can be caught up in the coming quarters. So just 2 questions, then I had a follow-up, but I'll wait for your answers for this one.
So I think if I look at Saffola, let me tell you, Saffola works the best when there is stability because -- and in the last three years, there has been extreme volatility very high inflation followed by a high deflation. So in a high inflation, what happens is the absolute price of Saffola becomes unmanageable and therefore, people don't upgrade or they downgrade.
When there's high deflation, which we have seen in the last couple of quarters. What happened is that the trade wants to destock because they don't want higher price stocks and they get stuck. We also want to be very careful and not push because my consumption cost, therefore, is high. And those stocks if I sell and create higher STR, I'm stuck with those and make [indiscernible] because I may have to pass on what I call below the line spend to basically flesh out those stocks.
So therefore, I see the way I look at Saffola in long term is this. In the next 3, 4 years, in the Saffola overall portfolio, if Edible Oil is 50% and Food is 50%, with Food delivering at least 10% higher gross margin if not more then Saffola, I think it's a less an ideal thing which we want to do. So therefore, even if it means mid-single-digit growth, that's a very, very satisfactory growth for me as far as Saffola Edible Oil is concerned. Having said that, it is very, very critical, Food needs to grow at 20% plus. And when I'm talking about -- one of the other things you must realize that Plix is wellness. And Plix makes far more higher margin than normal food, because wellness brand made to make higher margins.
So having a far more higher growth trajectory in Food and as Pawan alluded to the 20% in the base case, if I can do more, the better, but having a 50-50 stake between this and over the next 3 years is something which we must do.
Now coming to your next question on GT. I think as I said, it will be a gradual process because I don't want to drive this expansion with higher cost, but with a smarter resource reallocation, which will happen in phases. So one has to be patient about it. But what we are doing is a far more longer-term reset to ensure viability of GT.
Under indexation of GT and over indexation in OT is not the right thing for long-term profitability, and we want to ensure that there is a balanced growth between the two channels. And as I said, unlike other organizations, given that we don't sell sachet, we don't sell food and Saffola in rural, our rural GM is actually far higher or far better. Therefore, it makes all the more sense to continue to invest in rural distribution. As you know, our rural market share is actually lower, especially in Parachute. And so in some of the markets which are strong markets of ours, our Value Added Hair Oil presence is not that great. We can always diversify, Bangladesh is a classic example where we had -- PC had a contribution of 90%, Today, it is sub-60, and we have been able to do an amazing journey in growth. There is no reason why in some of our Parachute strong markets we can replicate that.
Okay. Great. Last question from my side, Saugata. How are you incrementally thinking about capital allocation? Last 2 to 3 years, we've made a bunch of tuck-in acquisitions. Do we wait to assimilate these at this stage? Or should we be thinking of M&A as a continuing strategy around?
Firstly, I think we believe that the digital acquisitions have immensely successful. We might not be the best in the world in creating digital brands that Marico aims to be top quartile in scaling up brands profitably. And let me tell you, we have not even done the synergies. We are just about starting the process of synergies, synergies between -- within the digital brands and taking some of the digital brands to GT. So if there are opportunities, we will do it. Obviously, we have a certain appetite. We have a certain compared, which could be compared to some other different. But I think we will look at it. Having said that, I think -- we always believe that M&A is not a substitute for organic growth. Our focus continues to remain that we must deliver organic growth and M&A is a multiplayer not a escape button for not able to do organic growth.
[Operator Instructions] We'll take the next question from the line of Harit Kapoor from Investec.
I have two questions. One was on the ad -- one was on the ad spend side. On the stand-alone, you've 11%, 12% decline. Just wanted to understand how do we read this? Is it a higher BPL in the core? Obviously, I understand that the advertising on the digital side is in the [ stubs ] because it's a stake entity. But I just wanted to get your sense on this decline in ad spend when we had so much of gross margin taken?
You're right. If you look at quarter 3, of course, ad spend in India business, which is reflecting in the stand-alone has gone down. And there are 3, 4 reasons for that. Number one, we have under index expense in Saffola this quarter given the volatility in underlying commodity and cost of spread sentiment. And also, we ran a visible campaign in last quarter, where we had spent quite a lot. And therefore, we had cut down expenses for Saffola in this quarter.
Secondly, in BOP in VAHO, we rationalized some of the ATL spends and ploughed back towards consumer beneficial pricing. That also sort of reduced the A&P spends. Lastly, through the NRM project that we have done, we have rationalized some of the channel spends in alternate channels of MT and e-comm, which was getting sort of accounted for A&P. And even if you look at -- while this quarter 3, we have declined by about 8%, 9%. But if you look at YTD level, the spend is about 6% to 7% in terms of A&P.
Got it. So Pawan, is it more of a 1 quarter kind of a phenomenon [indiscernible] it that the way to think about it?
Yes, yes. If you go back -- I mean, if you talk about product, should definitely go back to growth of at least mid- to high single digit.
And the second question is on the GT changes. I just wanted to -- in fact one question. Over the next 2, 3 quarters as we implement this, will there be a material difference between primaries and secondaries or it will be marginal?
No. So I think right now, as I said, this one was 2%. We might do something more over the next 1, 2 quarters. But ultimately, the growth will also start coming because what we are doing is we are ensuring the system is geared towards driving growth, driving distribution expansion. So I don't think it will be beyond 1 or 2 quarters, it will start delivering growth rather than doing further correction or reduction.
We have a next question from the line of Latika Chopra from JPMorgan.
What I could sense was relatively more confidence in low teens earnings growth for FY '25 coming to [indiscernible] -- if you look at different permutation combinations on top line growth, of course, you've talked about the gradual volume growth recovery over the next 4, 5 quarters. We talked about this GT [indiscernible] that you're kind of laying out. Do you have any kind of margin levers which probably could take up margins beyond FY '24 levels of 21%, which has given you confidence in low teens earnings for FY '25?
Latika as I explained, it's difficult to give a margin percentage guidance and that's the reason why I took the conversation to more in terms of double-digit to low-teens profit growth. And for that, I talked about the lever that I can see, which I talked about international couple of markets, the digital business, the premiumization. And also, we have an internal cost management cell that keeps on optimizing every year and we typically call out about INR 100 crores to INR 150 crores every year. So the mix of all this, we believe that -- that kind of profit aspiration, we should be able to meet.
And as I said, we definitely expect anniversarization of Parachute in quarter 4, Saffola in quarter 1. And if you're look at the copra inflation cycle, we expect inflation to kick in once the seasonal months are over. So that will lead to some price increase. if you're able to deliver medium-term growth levels in our core business, I think it can lead to double-digit revenue growth.
All right. The second question was a comment that you made on Food business, a 20% plus growth. Assuming Plix, obviously get into the pace. Are we talking about next year -- you've mentioned a number for FY '27, if I heard correctly, your INR 1,400 crores that the aspiration, I understand. But when you were setting that aspiration, does it -- is it organic led or you would assume there is going to be some inorganic addition to this particular Food business when you look talking about the aspiration of [ 20% ] plus growth?
So the way we look at it is we have said the what, we will now start doing the how. Obviously, any long-term strategic business plan has to be a combination of in a 90% logic, the last 10% ambition and magic. We have to also -- we can look at both what I call inorganic opportunities as well as organic entry into new categories.
And the biggest one we have to set it right is how can we succeed in snacking because snacking is the biggest market and healthy snacking is a significant consumer trend. Plix also, I believe, given the huge trend in wellness has the ability to really become a large brand.
And therefore, it's a combination of that. Do I have complete number for it or no. But I think we are -- as long as we're 80% there, 90% there, we will be happy because nobody realized in 2020 that in '27 that we will have a INR 2,500 crores food plus digital business. We never realized, we'll have it. But we just [ ramped ] up it. We did it. We may have not done 100%, we've done 80%, but we are there. So I think broadly -- I think we should be able to do it. I think what is most important is that do you have an operating model that drive repeatable growth. I think we are broadly getting it. I think in digital, we have got it mostly right, we have to get it right in Foods.
We have a next question from the line of Mihir Shah from Nomura.
Since most of the long-term questions are already answered. I have a few near-term questions. One clarification actually on the primary stock correction in GT. It seems that there are more steps that you are implementing. Can this continue to impact sales growth for the next few quarters as well? Or given the stock correction has really happened, it can lead to an improvement in volumes optically at least in the near term in the fourth and the first quarter.
We have done the stock reduction we started in this quarter, maybe at best, there could be an impact in one more quarter, and we do not see really beyond that.
And to answer the second part is that from quarter 3 onwards, we will get the impact -- a positive impact of that. Because if you are doing in quarter 3, quarter 4, from next year, FY '25 and quarter 3, quarter 4, you will get the positive impact.
Okay. Got it. I wanted to really talk on the -- how should one think about the Parachute and VAHO volumes in the near term given that they have a high base? Do you see enough of strength in demand improving from loose BoP that can help them to remain in the positive zone, given they have a high base?
So I think if I look at it, for large brands, one of the interesting things we will notice is both upside and downside, first offtake gets impacted, followed by -- secondary followed by primary. That cycle, we are almost seeing a complete turn as far as Parachute is concerned, where we have seen offtake improvements have happened. We're seeing secondary improvement will happen, and now we are expecting primary. And as I said, that next year, hopefully, there will be a sweet spot of Parachute, which is low food inflation, some copra inflation and therefore, always Parachute gains in that kind of a scenario. .
As far as BAFO is concerned, however, there are two parts to the story. One is that in mid and premium, we have to still do a better job, but we are now getting growth. In the BoP part, we are not getting growth. And the BoP part is not getting growth is a combination, as I said, of stress consumption with smaller players participating and some of the intense competition that is happening. Now that part, we are not clear about what will happen to that. But at least we are extremely focused on improving or accelerating our growth in the mid and the premium part of it.
Understood. Got it. And a quick one on Saffola Oils. I mean, given the sharp price cuts that you have seen, the GT correction, can one expect volume growth to come back to double-digit growth in the near term or there is still headwind from the lower-priced players that can continue to impact volumes for them?
No, I don't think we are aspiring -- the double-digit growth of Saffola will happen only at the cost of margin. We don't want to do that. We are far more focused on putting the resources we have in food growth and therefore, even if there is a mid-single-digit growth, we are okay with it.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
To conclude, we have delivered a competitive performance in a rather challenging operating environment. If we go by offtake growth, market share and penetration trends, we believe we should see gradually improving growth trends in the quarters ahead. International business has been quite resilient despite transitory challenges in some of our key markets. With some of the subsiding, we expect to revert to a familiar growth trajectory from the next quarter itself. .
Overall, while our top line is subdued due to deflationary impact in India business and currency depreciation in international business, we would deliver record high operating margins and fairly healthy earnings growth this year.
We've also made visible progress towards the strategic imperatives set out at the start of the year, especially in terms of portfolio diversification, and we would continue to invest behind the same. 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 have a good evening.
On behalf of Marico Limited, that concludes this call. Thank you for joining us and you may now disconnect your lines.