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
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to Marico Limited Q4 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 to all those who have joined the call and hope all of you are doing well. With FY '24 having come to a close, I would like to reflect on the operating environment during the year and the quarter gone by, after which, I shall touch upon our performance and our strategic objectives going forward over the next 3 years.
The FMCG sector has been fairly resilient amidst challenging circumstances during the year. Volume growth for the sector on a normalized basis has been stable even while grappling with volatile input prices, erratic climate events, subdued environment in the general trade channel and slower-than-anticipated recovery in rural demand. Similarly in Q4, the operating environment remained largely consistent with preceding quarters. While urban growth slightly moderated, rural growth witnessed a visible uptick towards the end of the quarter.
Premium segment maintained their need over mass segments across FMCG categories with improved macroeconomic indicators, enhanced government spending, a favorable monsoon forecast, moderate retail inflation and reduced volatility in commodity prices, the upcoming year holds promise for a gradual uptick in consumption sentiment across both urban and rural.
Moving to our performance in Q4. Domestic volume growth inched up sequentially with steadying trends across the majority of our portfolio. Domestic volume growth was flattish after 3 quarters of decline, owing to incremental anniversarization of pricing drops taken in key portfolios last year. We expect domestic volume growth to trend up consistently from Q1 FY '25. We have continued to witness healthy offtakes with 75% of the business either gaining or maintaining market share and 100% sustaining or enhancing penetration.
Delving into the domestic business, we shall touch upon the key trends in each of our categories. Parachute has seen steady recovery over the last 3 quarters amidst resumption of loose to branded conversion as copra prices have inched up on expected lines. This shift also reflects in the 50 bps gain in market share. We expect an improving trajectory in volumes driven by the favorable trend in copra prices. Gradual escalation in copra prices is a positive for the brand as it affords us the opportunity to strategically leverage the brand's pricing power and the tremendous procurement system advantages we have versus other brands and thereby gain volume traction and market share.
In response to the rise in copra prices so far, we have already implemented price hikes in select packs towards end April, amounting to 6% increase at a brand level. We could take another round of price hikes in case of any further rise in copra prices during the course of this year.
Saffola oils also exhibited stability as trade sentiments eased with both input and consumer pricing stabilized. With pricing decline abating early next year -- or this year, sorry, revenue growth is expected trending to the positive reduction in this year. Offtakes for the brand have remained healthy, and we expect the portfolio to gradually resume a steady growth trajectory. During the quarter, we initiated range advertising under the master brand Saffola by launching a powerful campaign on the importance of taking Roz Ka Healthy Step through Saffola's entire range of offerings comprising edible oil and food, which emphasized the fact that healthy living is a lifelong journey and not just a temporary fad.
We believe this is a first step towards leveraging the liquidity of the master brand, which will enable far more efficient brand-building investment going forward across the entire portfolio. Value-added oils had an optically weak quarter on a high base, while there has been sluggish demand and higher competitive intensity at the bottom of pyramid. The performance largely reflected the subdued sentiment in the mass BPC segment. Notably, our mid- and premium segments of value-added hair oil have continued to fare better.
While we had a challenging year in the bottom of pyramid segment, we expect a more rational competitive going -- competitive environment going ahead, given the significant bearing it has on profitability. We anticipate a gradual pickup in the franchises performance next year, driven by a strategic focus on premiumization of the sales mix. and augmented investment in brand building, which may be supplemented by an improving consumption sentiment in mass BPC categories and more innovation from our side.
Foods had a healthy quarter with organic foods portfolio comprising oats, honey, and soya chunks growing in double digits. We have closed the year about 4x the scale of FY '20. This is short of the revenue aspiration set earlier as we took a step back this year to reset a few fundamentals in order to be able to drive consistent 20% plus CAGR in Foods over the medium term. This involves refinements in our supply chain and GTM strategy and strengthening the cost structure.
We now believe we have the building blocks in place to double the scale of Food business by FY '27 and drive consistent improvement in profitability as each of these organic components get critical mass. We have expanded gross margin of Foods by about 800 bps in FY '24 through some of the [indiscernible] initiative and expect this to further improve as we scale up. Within the Foods portfolio, the oats franchise maintained its category leadership with healthy growth in offtake. Saffola soya chunks continues to scale well, while Saffola Honey emerged as the fastest-growing brand in terms of penetration within the category and continues to gain market share.
True Elements and Plix have also sustained their accelerated growth momentum.
Premium Personal Care has maintained its healthy growth trajectory, led by digital-first portfolio clocking an exit ARR of around INR 450 crores. Beardo has scaled to about 3x since FY '21 and achieved positive EBITDA this year. We will aim to move Beardo to double-digit EBITDA margin in FY '25. Just Herbs surpassed the INR 100 crore ARR milestone in FY '24, while the traction in Plix's Personal Care portfolio has been encouraging. Both Plix and Just Herbs have been scaling with minimum cash burn. We now have a playbook and considerable in-house capabilities to scale digital brands profitably and aim not only to double the ARR of digital-first brands by FY '27, but to also achieve double-digit EBITDA margin in the portfolio.
Taking the growth trajectory and business drivers into account, we believe both Beardo and Plix have the potential to reach INR 500 crores each in terms of turnover in next 4 to 5 years' time. With the new businesses contributing to over 20% of the domestic revenues, our portfolio diversification objective has led to a marked shift in the revenue construct and reduction in commodity linkages of margin and revenue growth. We will sustain the aggression to drive 20% CAGR in these portfolios and expect the composite share of Foods and Premium Personal Care, including Digital, to reach 25% by FY '27, accompanied by a visible improvement in their profitability.
During the quarter end, quarter and the year, alternate channels continued to gain salience, while general trade has been subdued by profitability pressures as a consequence of muted growth and pricing corrections in mass categories. We have observed that over the last few years, while disproportionate focus and investment on premiumization and innovation by the sector, coupled with the emergence of D2C has led to a quantum leap for alternate channels, the GT channel has been under pressure. However, we believe that the GT channel will remain a source of long-term competitive advantage for large organized players and primary channel of our mass or core category to size in over the medium and long term.
While the prices cycle turns positive, we have been taking initiatives to enhance the profitability of our general trade channel through stock reduction and selective credit extensions. Over the last couple of years, we have also implemented a sales framework that enables us to continue winning in the marketplace by strengthening our micro market focus and execution, bringing enhanced agility and leveraging technology and analytics.
We have successfully streamlined processes and ironed out teething issues faced during the restructuring of the operating model over the last 6 months and expect much more positive outcomes going ahead. Lastly, we also observed that the pace of expansion in our distribution reach has slowed down post the pandemic. Therefore, in this direction, we have also rolled out a definitive plan to transform our direct reach over the next 3 years through the rollout of Project SETU. Project SETU has phased 3-year road map to expand our direct reach from 1 million outlets currently to 1.5 million outlets in FY '27, taking the total to direct reach multiplier from 5.8x to 4x, which would be 1 of the best in the sector.
We have committed investments of INR 80 crores to INR 100 crores by FY '27 towards coverage and infrastructure enhancement and demand generation initiative, which will not come at an incremental cost to the company, but will be funded by re-allocation of resources to optimize our spend in the wholesale channel organized trade savings for improving process efficiencies, reducing wastage in supply chain, and large-scale use of technology and analytics.
Over the last -- next 3 years, we will deploy analytical capabilities to concurrently weigh the return on the investment and ensure Project SETU is cost neutral. In addition to improve direct reach and weighted distribution and especially in challenger brands other than the core, we expect Project SETU to drive market share gains across categories in urban and rural as well as to enhance assortment levels in urban stores, thereby enabling diversification and premiumization in the domestic business. We will continue to drive differential growth in our urban centric and premium portfolios and large packs through organized retail and e-commerce channels.
Therefore, our focus will be to deliver consistent and competitive growth through a much sharper and targeted portfolio SKU strategy channel. Amidst the backdrop of improving macro indicators, we expect a gradual uptick in the growth of our core categories through these concerted efforts of reviving growth in the GT channel.
We further with pricing headwinds behind, we expect domestic revenue growth to outpace volume growth from Q1 '25. Moving to international business. We have rebounded to double-digit constant currency growth in this quarter and expect to retain the momentum in FY '25 and beyond. The Bangladesh business has recovered strongly on a sequential basis amidst the challenging environment on the back of a broad-based portfolio and robust fundamentals of the business.
We expect the business to grow in double digits going ahead.
In Vietnam, we are seeing a slowdown in HPC demand. Although the expanded portfolio, which now comprises 3 distinct female personal care brands should enable us to hold strong in the meanwhile. Over the last couple of years, we are seeing a strong ramp-up in our MENA through the expansion of hair oils portfolio in Egypt and the gulf region as well as healthy traction in the hair care and health care portfolios in South Africa. This has accelerated the broad basing of our business, reflecting a reduced dependence on the leading market Bangladesh. We expect the revenue share of Bangladesh, which was more than 50% in FY '22, to reduce to about 40% by FY '27.
In addition to strengthening the growth prospects of the business, the ramp-up of MENA and South Africa had margin upside potential to scale benefits in the medium term. To sum up, consolidated revenue growth has moved into positive territory in Q4, and we expect it to trend upwards during the course of FY '25. We believe we put in place building blocks to deliver double-digit revenue growth through consistent outperformance vis-a-vis category and market share gains in the domestic care portfolio, core portfolios, accelerated growth in Foods and premium personal care and double-digit constant currency growth in International business.
We have delivered our highest ever operating margin in FY '24, led by robust gross margin expansion, even while investment towards brand building, which was at 10% of sales remained the [indiscernible] area. While key commodities are exhibiting upward bias, we are confident that we'll be able to maneuver margin through pricing, driving more favorable mix and cost management and procurement gains to hold steady in the coming year. In the medium term, we expect operating margin to structurally inch up over the next few years with leverage benefits as well as premiumization of portfolios and diversification across both the India and international business.
With that, I will now close my comments. Thank you for your patient listening, and we'll now take all your questions. Thank you.
[Operator Instructions] The first question is from the line of Abneesh Roy from Nuvama.
My first question is on Foods vision. Doubling in 3 years, that would mean 25% CAGR. And related question is taking direct reach from 1 million to 1.5 million, Project SETU. For both these, do you need to do more M&A? Or is it based on the current portfolio largely?
So as far as Project SETU is concerned, as you know that I think, especially in certain states, we are under-indexed in distribution. We believe that post COVID, we haven't had significant increase in distribution and therefore, a lot of places we want to move it from indirect to direct. I think the current core is good enough. But yes, you could see far more aggressive participation in the some of our core categories, especially value-added hair oils.
And I think this SETU is specifically focused at certain states where, as I said, we are under-indexed. And most of it is by 2 things. What we are doing in the rural, a lot of expansion in direct distribution, including quality of direct distribution. In the urban, far more perhaps segmented approach in Foods and Premium Personal Care. And we have kept an outlay of around INR 70 crores to INR 100 crores over the next 3 years on SETU, which will be funded internally from some of the savings and the re-allocation of resources within the overall sales system as well as cost management across the organization, but this is a very, very big bet for us where we have put a dedicated team, including senior leadership to drive this as a big bet over the next 3 years.
Sure. One related question is on the India demand. Some companies have started talking about high-single-digit, double-digit volume growth in some quarter of FY '25, and some companies are also seeing that going ahead, rural will grow faster than urban. I think it will differ company to company. I wanted to understand for Marico on these 2 aspects in terms of the volume growth for the full year for the India business and in terms of rural versus urban, what will be your take for Marico?
So I think we are definitely seeing increased rural uptick, especially during the end of the quarter, we have seen that, while urban has moderated. The way we see it, obviously, as far as we are concerned that as far as the core is concerned, definitely, there'll be far better rural growth. Also, I think the benefits of Project SETU will start kicking in, in the second half. See, for Marico also, we have a significant digital business. And that digital business, as you know, is growing. And therefore, that is essentially a little bit of urban. But as far as the core business is concerned, I think rural demand will be significantly showing improvement, at least as we gradually move towards the second half of the year.
As regards I think we are in a position to perhaps at this stage to say that we look forward to giving a double-digit revenue growth or the composition of volume and inflation, we will see as it pans during the year.
Sure. My second and last question is on Bangladesh. So you have come back to decent sales growth, and you are aiming for a double-digit growth going ahead. So I wanted to understand, because we keep hearing that there is a currency issue there. There is overall some level of anti-India sentiments also. I don't know if that does impact you. And overall, the economy is also facing a lot of challenging times. So in that context, I wanted to understand this acceleration in growth, is it coming because Parachute has taken price hike and you do have a sizable Parachute business? But in terms of volumes and market share, if you could comment, how are things shaping up there?
I think volatility in a post-COVID world is here to stay, and I think Black Swan has to be integrated into any company's risk management framework, okay? And in terms of volatility, we always believe the strong gets stronger and the weak gets weaker. And it has been seen during COVID. In India where organized players have a big share. I think Bangladesh we have a relatively strong position, and we are extremely robust.
Obviously, this last quarter sales has been on the back of volume growth and market share gains. As we also know, I think we have significantly reduced dependence on Parachute in that market where, whether it's value-added hair oil, shampoo, baby, they are also driving a lot of our incremental growth. I think we have a very full-fledged much more a broad-based business out there. And therefore, given our distribution strength, given our brand strength, I think in spite of some of the issues in the country, but having said that, I think the Bangladesh situation is far better in terms of economic growth, and we believe a lot of the currency and this one will get better as things progresses. And I think we are seeing a significant -- at least an improvement on the ground situation as far as our brands and our position is concerned.
The next question is from the line of Avi Mehta from Macquarie.
Saugata, I just wanted to look at -- understand Project SETU a little better and clarify a point. Now in addition to this benefit that would come in terms of reach and hence to segment level growth rates, do you see it fair to see such a reduction in inventory lowering the impact of channel downstocking or upstocking that is witnessed during periods of copra and vegetable oil price hike?
No, no, I think, see, the 2 things what it does is, first of all, we radically improved the quality of distribution. Now what happens is that if you look at it, say, a core brand like Parachute or, say, Shanti Amla in the North or Parachute in the South and West, obviously, we'll have a huge, it's based on pull and therefore, is a huge indirect reach.
What happens is the moment you move from indirect reach and wholesale dependent reach also is a factor of a significant pull. What happens is that the wholesaler's or if you depend on indirect reach, they only focus on a limited amount of SKUs, which have significantly high velocity. When you drive direct reach, it increases your range, it increases your assortment, it increases your control. It also leads to better rates because sometimes wholesale discounting and dumping leads to some kind of a rate instability. So it gets far more controlled.
Now direct reach also ensures that the entire rural I have a technology-driven live visibility of what is happening in the system. And therefore, perhaps the cost of doing sales will go down. Also, as you know, we don't do sachets, and therefore, our portfolio mix is reasonably good in rural. The kind of brands we sell, whether it's Parachute or some of the value-added hair oils. And therefore, our breakeven, as you drive rural distribution, is fairly attractive.
Now what had happened in reality was that post-COVID and our focus on driving diversification, perhaps this had taken a backseat. And therefore, we didn't do significant improvement in our direct distribution. We strongly believe that for mass companies in the core categories, direct distribution, especially rural will be a source of long-term competitive advantage as opposed to indirect distribution. Because in the urban, especially in OT, you can buy distribution in some way. This one requires significant investment in infrastructure, scale, operational efficiency, and huge investment in technology. And this is what we intend to do. And you know that we also compete with a lot of small players who will never be able to do that kind of investment. And this is something we are now determined to do.
And this will actually drive 3, 4 things. It will drive range selling. It will drive far more weighted distribution. Now if you want to compete or challenge our ability to take on certain brands or challenge where our challengers will be far better, especially in some parts of the country like North where we are slightly under indexed compared to South and the West. It will also lead to, as I said, far more -- you are right in terms of smoothing and lowering of sales. We don't have to depend on the indirect channel for some of our growth.
Okay. Got it. But as I clearly understand, there is a lot more benefit from sales perspective and reach perspective in terms of quality that is what you're targeting. Got it. Got it. The second bit [indiscernible] was your comments on pricing growth coming back in Parachute, vegetable oils decline coming in the base, Foods, et cetera, doing well. I just wanted to reconfirm that our expectations for FY '25 are at double-digit [indiscernible] growth and [indiscernible] growth remains or is there any update on that?
No, no. I think directionally, it remains that way.
The next question is from the line of Percy from IIFL.
Questions on a couple of the core categories. So in VAHO, there is still a sales decline. Just wanted to understand when will the pricing anniversarize? And secondly, even apart from the price reductions, I would guess that the volume is probably either marginally negative or just marginally positive. So what do we need for the volume growth in VAHO also to accelerate? And the same question is for Saffola also. Saffola volume growth is not bad at I think around 5%, but there is a significant price cut, which is going on. So when will that sort of anniversarize on a Y-o-Y basis is something that will help in the modeling exercise?
Yes. So I think as far as Saffola is concerned, Q2, it will anniversarize in terms of you getting into a level because the last price drop happened sometime at the end of Q1, it got initiated sometime in June, July. So -- and our current estimate indicates it will be -- I don't see too much volatility in the immediate term as far as Saffola is concerned. As far as VAHO is concerned, I think there are 2 things to be taken. Yes, sometimes during the next 2, 3 months of what I call the shrinkflation, anniversarization will happen. Because it's not just the pricing, but it is a shrinkflation anniversarization, because some of it as you know in our 10 and 20 packs because of post inflation, we took down the MLH. So therefore, that will happen.
Now in VAHO, we, however, are wanting to focus a little differently. We are focusing on value growth right now. And it's very important once that anniversarization happens, we get back into positive value growth territory. There is obviously competitive pressure at the bottom of pyramid. But the good thing is since the last -- while I'm not getting into exact details of breakup, from the last quarter, we are beginning to see volume growth, and therefore better mix growth by our performance in the non-bottom of pyramid, where we are also gaining some share, okay? And therefore, that should lead to the value growth happening. We also expect that there will be some rationality in competitive intensity at the bottom of pyramid because consistently putting that doesn't make money for anyone.
Right. Also I wanted to understand on the digital brands like in Foods, you have said that in 3 years, you want to double the turnover. Any such targets for the digital brands?
Yes, 2x again 3 years, because if we have to maintain -- so our endeavor in the entire portfolio, which is the diversification portfolio, which is Food Digital, has to grow at 20% plus every year. So that's the aspiration. And I think in digital, as I said, we are very excited about the way Plix and Beardo is scaling up. And I think I have reinforced this. I think Marico, we should be -- I think we have now a reasonable playbook to ensure that we profitably scale up that business.
Right. And lastly, on your overall consolidated margins, we are already sitting at very decent kind of margins versus history. So over a 2- to 3-year period, what kind of headroom do you see in margins, if at all any?
Pawan, would you like to take this? .
Percy, this is Pawan. So, yes, there are some structural levers in place, which we believe we could deploy as we go ahead, and there could be some possibility of improvement of margins over the next 3 to 4 years. Of all the things that we can talk about is, let's say, for example, Foods you would have seen that we have expanded the gross margin this year by 800 basis points. So that itself has given a significant ramp up. And some of the initiatives that we had taken was during the year, and therefore, full year benefit will flow through the year next year.
Similarly, we are making big strides in margin improvement in digital business next year. Also on the back of a significant enhancement this year. So Beardo has broken even and we aim to move to double-digit EBITDA next year. You would have also noticed that we have started the master brand campaign in Saffola, which will help us optimize the A&P spend. And similarly, some rapid scale up in some of the international territories will build operating leverage, and that will aid margins.
Apart from that, Saugata also spoke about premiumization. So we'll also try to drive a better mix, and we do expect that share of portfolio with higher margin profile will also increase having a positive rub off on overall margins. So with all these levers in place, I believe that there is still enough opportunity of margin improvement over the next 2 to 3 years. However, for immediate next year, given the fact that we have inflationary pressure, we do not see any margin improvement happening next year, but of course, we will definitely strive for healthy profit delivery.
The next question is from Manoj Menon from ICICI Securities.
Before the question, I just have a clarification. So did I hear correctly that did you mention that the relative competitive intensity in VAHO is likely to get better?
Hopefully, at the bottom of pyramid is what Saugata mentioned, because there has to be some rationality with respect to the way it is happening at this point in time.
Sorry, Pawan, you are not audible.
Yes. But in any case, just to clarify that we will continue to focus in ramping up the slightly higher RPI end of the business.
And also just to add, Manoj, in fact, ex of BOP segment, we have grown well. In fact, we've also gained share in ex of BOP segment. So definitely, we are doing a good job in the mid- to premium segment. Because of hyper competition at the bottom of pyramid is where we are facing stress.
Pawan, BOP would mean only Shanti or would you include other brands?
Basically Shanti and Sarson.
Shanti and Sarson, which operates as a...
Understood. Very clear. Secondly, on the D2C, I just want to double click on a couple of things actually. One, let's say, D2C brands are about 5% of the overall India revenue today. There is an opportunity to go online to offline, et cetera, et cetera, and even companies, which has been predominantly online has created, which means that company like Marico conceptually per the success proportion ratio, let's say, in office will be far higher. But could you just talk a little more in detail in each of these 4 brands, which will you actually see the higher opportunity online to offline. And is that one of the key considerations in the guidance of doubling of revenue in D2C. And another one, just Saugata, one last thing on the DTC part is that you would also talk about organizational changes, if any. We did find one exchange announcement a few months back of an EVP digital appointment as well. So those would be helpful.
I think I will just give you a more high-level view on the movement to GT. See, as far as start-up brands is concerned, I think food, it's far more easier to first get into GT because I believe that just a digital-only model for Foods -- nutraceuticals is an exception because nutraceuticals are high margin and high AOV. Anything which has low AOV and moderate-to-low margin, categories like Food, obviously, needs to go to general trade or premium general trade quickly.
Now as far as brands like Beardo, Just Herbs is concerned, obviously, the focus should be to take some of the SKUs to GT. Just because I have money to throw and I take big display units in the outlet doesn't necessarily mean generating an offtake in GT. That might give you onetime sales, but it doesn't necessarily give you long-term repeat offtake.
So I think our approach has been methodical. And I think the first step would be to get into maybe premium cosmetic and this one, we already have Beardo some contribution coming from GT, Just Herbs, minimal, but Beardo already we are experimenting a little bit. And yes, I think there are 2 sources of competitive advantage. One is obviously the existing access to GT, but more than anything else, also the fact that we now have scale in digital brands, which means they could be sharing of resources, sharing of costs, sharing of best practices. And obviously, the first-party data, which we have, which we have not yet harvested. So those are the -- so I would say it's a composite thing and not just GT.
Very clear. And some of the -- is it fair to say that you've already done the groundwork in terms of -- for example, when I think about you've put ink on paper, actually giving a guidance. Is it fair to say that you have actually identified which brands, geographies, outlets, SKUs. So you do have a fair amount of clarity on the execution. Now obviously, you have to just execute. So is it fair to assume that way on D2C?
So again, as I said, that we will do a lot of test and learn. It's -- we don't -- unlike, say, our Project SETU, which is a very, very proven concept, which is you expand outlet, you expand distribution, it gives reach. As far as GT and this one is concerned, it's going to be a series of test and learns.
For example, sometimes it surprises you like a certain category or subcategory starts flying. Like I'll give you an example of it. One of the D2C brands I am not naming, we are seeing huge traction on quick commerce. Now we didn't realize that we'll have some -- then later we realized, yes, it's an emergency top-up or an impulse it can work. So I think we are doing a series of tests and learns. And therefore, to say that we have an extremely cookie-cutter approach that this is going to happen. We are going to do a series of experiments. And maybe over the -- and also, for example, in Beardo we are checking out the salon channel, that's an alternate channel. And we should be open to tomorrow also looking at inorganic opportunities hypothetically in that.
So we are looking at a series of this. We believe that, as I said, that one of our stated intent is, while we will continue to grow the core, over the next 3 to 5 years, we will ensure that the diversification or decommoditization of the business keeps on rapidly happening. And in those areas, we will do some experiment. Now how much will be the percentage of GT, very difficult to say. But all I can say is that in Foods it will be far more accelerated than Personal Care, because in Personal Care, we believe by just mere presence in OT and bringing it to moderate trade itself is a huge opportunity. And as you know, the other interesting thing is that even 2,000 top cosmetic stores contribute a significant portion of beauty in this country.
Very clear. And all the best on this. And one last thing, if I may, I'm not sure it's relevant for a quarterly call, but it's a platform to engage. Look, I still get portfolio manager questions on, let's say, if hair oil is a sunset category. I understand that this has been discussed many times in the past, particularly during down cycles in general for FMCG. And historically, you've helped us with some quantitative information in terms of recruitment rates, lapse rates, performance of different segments for hair oils versus let's say, some other personal care segments, particularly in the BOP, et cetera. Could you just help us with some statistic to kind of, let's say, continue to assume that it's not a sunset category as it is perceived to be?
Manoj, it is a 45-minute presentation, I'm happy to do it. All I can assure you that I have -- I mean, we have a ready-made deck for you. I can take you through it. But all I can assure you is that if you look at it, trend of VAHO growth has largely -- the category has largely trended BPC. So there is no difference in some of the category. In fact, it's been now 20 years since I joined the organization. There was a note that the category is dying even in 2004.
No, I agree, sir. Okay. Got it. I will probably connect with Pawan and team separately.
Yes, yes, absolutely, absolutely. Happy to take. And let me tell you the other interesting thing we are seeing that in international markets also, there is a trend, like we are seeing good traction in some of the Western markets also. I believe the more people damage their hair, the more people do a lot of treatment, this practice will be relevant and come back. And if you look at it today, I look at this practice of this category just like yoga, having a turmeric latte. So I think Indian and we are today -- if you look at the today's youngsters are far more proud of Indian music, Indian traditions than perhaps the earlier generations who was just looking up to West for everything.
Also if I may add Manoj, the 3 important consumer metrics that we keep a track on, which is the penetration, the frequency of usage and the consumption per usage. On all these 3 parameters, we draw a lot of confidence looking at the numbers. There could be a little bit of lapse in the top [indiscernible], but that's not something where -- which is a matter of concern. In fact, they're only moving to some better formats where also we are present. So purely on consumer metrics, we have a huge amount of comfort. And as Saugata mentioned, we can always have a much longer discussion in terms of [indiscernible] as to what are the broader trends in hair oil. But purely from a consumer metric standpoint, we're absolutely comfortable.
So the other thing I want to add, sometimes what happens is that when the category growths are presented, when you add up the category growth of the organized players, in some of our categories, what gets missed perhaps is the growth at the top end and the growth of the small brand to unbranded and especially during inflation. So you have to add that to see, for example, last year, before of course, we believe that people have moved because of in a lot of categories to smaller brands because of inflation pressure. Similarly, at the top end people have moved to digital brands. Now they don't get captured when you add all the volume growth of the large players. And then you get a feeling that the category is slowing down.
The next question is from the line of Tejash Shah from Avendus Spark.
Saugata, just wanted to understand the genesis of the project of expansion -- distribution expansion. Because in recent past, whoever has kind of gone this path, it has not resulted in kind of numeric expansion, at least in terms of sales expansion, sales growth. So just wanted to know how should we think about that -- this as a growth driver or this is a quality of distribution driver? Or this is a margin driver going forward?
I think it's both a growth and the quality of distribution driver both adds to that. See, I perhaps would beg to disagree because there are at least 2 or 3 player peers in our sector who have significantly added distribution and distribution-led growth. And that has resulted in growth. And some of the outperformance, if you see in volume growth or top line in the sector in the last 5 to 7 years, 2 or 3 players that stand out have all been through direct distribution increase.
So today, when we analyze our own data, numerically, 16% of our distribution is total reach is actually direct. So should we assume that a large part of our revenue is actually coming from direct? Or how should we think about over-indexation of that number versus our current revenue base?
Actually, what happens like I think I covered just like before. See, what happens is that usually, your leader brands or dominant brands, like, say, a Parachute in the South and West and Shanti Amla or Nihar in East, they will get anyway indirect distribution because, as I said, the indirect distribution channel likes to have a minimum amount of SKUs with tremendous high velocity.
Now when you get into challenger brands or if I want to get into new categories in value-added hair oil or some of the other categories which I want to do for diversification of the portfolio, direct reach and retailing is far more important. The other thing that happens is that we believe for the general trade, as I said, that ultimately, general trade and the sustainence of general trade and profitable sustain on general trade is going to happen when you expand far more in rural because obviously, in urban, there is a significant competition with OT.
And for large-scale manufacturer like us, who have categories which have significant penetration in rural. I think just to give you an example, Parachute, for example, still has a 12% to 13% gap between rural market share and urban market share. Now if I really start driving distribution and direct reach and today, the other thing that happens is that if for brands like Parachute, we are -- if I don't do direct distribution, we have data to prove that the vulnerability to counterfeiting is also extremely high because I have brand awareness but not brand availability.
So I think the combination of all that, and I -- the reason we are doing it is because we believe our direct-to-indirect ratio of 5.5% is extremely high, the indirect-to-direct ratio. The average this one of our peers is slightly lower, and that has also happened because in the last 3 years, we didn't do much in expanding distribution. And as I know that in the last 2, 3 years, we have taken tremendous strides in our cost management initiatives, driving analytics-based spend models.
And therefore, today, we are very confident that the effort in terms of people, effort in terms of resources is available to do that in a very, very focused sort of a way. In fact, as we speak, there is a dedicated team of senior this one actually driving this initiative.
The next question is from the line of Akshen Thakkar from Fidelity.
Congratulations on very good set of numbers. Just a couple of questions from my side. One was just double clicking on your commentary around profit growth for next year. I think till last quarter, we were calling out low teen growth. And while you've not called it out, it did sound like you're talking about low-double-digit growth here. So just wanted to understand if the interpretation is correct. And if so, is Project SETU or investments that you're making there or elsewhere in the business causing this sort of lower and they are all for good investments to be made, no problem over there. I just wanted to be clear on where the difference is coming from versus the previous commentary.
There's no difference, Akshen. We definitely will strive for low-teen profit growth, but there are multiple moving parts at this point in time. For example, if you look at -- we don't know as how the inflation will play out in key commodities or how will geopolitical scenario pan out, which will have impact on crude prices and is derivative in the corresponding impact on the pricing on portfolio. So first of all, margin percentage, we are still saying that we will try and hold. Now depending on what is the kind of revenue growth, we definitely will deliver healthy profit growth. So low double digits is something definitely which we believe will definitely happen, but we'll definitely strive for low teen growth as well. So there is no change per se in terms of what we have said earlier.
Got it. So we should take it as a bound that you'll try to keep it within that range, and we see it only as volatility in raw material and not that incremental investments in Project SETU or something else?
Project SETU, as Saugata had clarified, that it is self-funded. So there are multiple -- we spent about INR 300 crores to INR 400 crores in various channel spends and while Saugata has said that we'll spend about INR 80 crores to INR 100 crores in the first year, the investments could be about INR 20 crores, INR 25 crores. And taking out that INR 20 crore, INR 25 crores out of a spend of INR 300 to INR 400 is not something which is a very difficult task, a lot of inefficiencies, which we can weed out and therefore, we'll reallocate the resources. So this Project SETU will not have any impact on the profitability purpose.
Yes. Just to clarify that INR 80 crores to INR 100 crores is over a 3-year period, yes, it's not 1 year.
Yes, yes, of course, of course. Secondly, I just wanted to leave you with the comment on really welcome the disclosures on gross margins for food and whatever the EBITDA margin targets for digital-first brands, et cetera, are. I think it just helps us understand margin drivers on your business a lot better from these levels. Otherwise, we come to think of 21% as historical peaks, but as I think you called out well, that some of these drivers continue to help margins. We look forward to more disclosures around some of these businesses which are becoming a larger part of your business.
One very last housekeeping question from my side on other income. There is a sharp dip this quarter. Is there anything onetime that we should be thinking about in this quarter?
Akshen, I think it's better to look at our full year numbers rather than quarter 4 because of some onetime sitting in the base. So at a consol level, at a full year level, if you have to look at like-to-like, it has increased by about 10%. Specifically for the quarter, of course, it has a one-off, if you remember, had a onetime gain, based at a onetime gain on sale of land in 1 of our units, which is about approximately [indiscernible].
Yes, yes.
And apart from that also, this quarter, we have a lower investment income due to higher dividend payout. And additionally, what we've also done is there is an FX revaluation hit due to currency depreciation in Egypt and [indiscernible]. So these are some of the one-off items in the quarter 4, which is starting the picture and therefore, it is better to look at full year, which is about like-to-like about 10%.
Next question is from Mihir Shah from Nomura.
Two questions on VAHO. If you can again try and help us understand the 7% decline was largely because of high base in volumes? Or is there a price correction that was taken? I'm sorry if I'm asking again, I missed out on that part. Is it a price cut in VAHO that we have implemented and -- or this is largely volumes have contracted meaningfully?
So I will just give you a construct. We have done relatively better in the mid and the premium segments. There has been a little bit of a bottom of pyramid, which is the impact. And it's a combination of not price but shrinkflation, as I said, and it's a combination of shrinkflation and some obviously volume impact. But the good thing is that since last quarter, we have started doing much better in the -- and our focus will be also in that. As you know that if I had to do a cut between low RPI and high RPI as the RPI moves our market share progressively reduces, therefore there is a huge market share pool which is sitting there. And you will see during the year some more concerted action on our part to get that market share.
Got it. Thank you for that clarification because I was just wondering if it's pricing led then it will drag through for the remaining part of the FY '25.
But just to also -- I think I have mentioned this, the shrinkflation anniversarization is also happening as we speak.
Right, right. Got that Saugata. One more question on margins, actually. I'm just trying to understand the waterfall on the margin because Saffola, which was a low-margin segment for you, Saffola edible oils was kind of in a very massive decline phase, which is coming back to growth phase and hence can add on to the pressure. VAHO, probably, yes, there is some anniversarizing that is happening. But again, contribution will be lower. The positive swings will come from your new portfolio or the growth portfolio, but add on to the project -- I mean add on to -- so will it -- will the margins -- if you have to hold on to the margin, will it be at the cost of ad spends or there is sufficient room for that to get the investments behind the growth brands can be done with the kind of margin swings that we are expected to see?
Saugata explained earlier, the margin swings will basically come from 3,4 things. One is, as I said, Foods, there has been a margin expansion in current year. And current year also initiatives were identified during the year. So there will be benefit next year also. Plus digital business, we have moved significantly this year and there's a plan to move positive EBITDA in the next year. So that will all create the overall margins.
And similarly, if you look at VAHO performance has been the best. If you are able to drive better VAHO and a better mix, so that will also help improve the margins. Again, at the cost of repetition, I just want to clarify that SETU is not going to impact the profitability. It will be self-funded. And as I mentioned, that there are multiple resources, we'll do a re-allocation of resources. So that will not have an impact on the profitability. Margin percentage guidance as I said, it is more about we'll try to hold the margins, but we'll be striving for healthy profit growth.
The next question is from the line of Karthik Chellappa from Indus Capital Advisors.
I have 2 questions. First is on your direct distribution expansion of the additional 0.5 million outlets. Can you talk about predominantly which states will see this expansion?
No, we don't want to get into details, but as I said that certain parts of the country we are traditionally been weak, where maybe our competition is perhaps relatively stronger. And as we -- and which means that other than our top brands, the second or the third brand weighted distribution is weak because we don't do direct distribution. So it is -- we have -- obviously, it's not an all-India thing. We have selected certain things will go in a phased manner.
And it's a 3-year kind of a effort. So we will take a couple of states. Then next 6 months, we'll take a couple of states. Obviously, right now, we have started the test and learn. So it's very, very state -- in fact, within a state also subregion and subcluster focused. And we have, as a result, also done our sales structure, revamped our sales structure so that it also -- just the way the cluster kind of an approach, which is there in our sales system now.
Some of the other peer companies have also done it, we -- that approach is like that. So it's similar to a winning in many Indias, if I call it.
The second question is, as far as the gross margin expansion in Foods is concerned of 800 basis points, what portion of this will be, let's say, cyclical simply because of moderate inflation? And what portion do you think will actually be structural?
No, Karthik, in fact, most of the expense is actually more structural in nature. And let me give you a bit of a color on that. So I think, first of all, we have improved the relative price index for some of our products in relation to the competition that is quite prominent. We've also moved to in-house manufacturing from 3P operations for 1 of our key product portfolio, which has helped improve the gross margin. Thirdly, we've also reconfigured our supply chain footprint to move closer to the marketplace that will optimize the supply chain and logistic cost. And also now with honey and soya gaining scale, we are getting scale advantages in procurement. Yes, some part of it is also driven by gains in commodity, but a large part of it were due to all the structural reasons that I spoke about.
Got it. Just one housekeeping question. If I look at the others under other expenses of INR 321 crores. I think this is the first time where in a particular quarter it has crossed INR 300-odd crores. What would be the key expense items which saw this rise? Anything specific to call out there?
There will be some of the inorganic element of the acquisition that we have done, which is Plix. So if you exclude that, then your growth will be in line with what would be -- in line with the volume and revenue growth.
We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.
Thanks for listening in on the call. To conclude, the year has ended on a positive note with both the domestic and international business headed in the right direction. We expect an improving trend in domestic volumes through the substantial initiatives being taken to bolster growth in the core categories and sustained thrust on diversification. We also expect to continue strong momentum in the international business while expanding growth levers of the business. With pricing and currency headwinds largely in the base and commodities exhibiting an upward bias, the pricing cycle has turned positive. Owing to the above, we believe we have set the stage to deliver double-digit revenue growth in FY '25 and will aim to deliver a healthy earnings growth in the coming year. 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 great evening.
Thank you very much. On behalf of Marico Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.