Patanjali Foods Ltd

NSE:PATANJALI

Earnings Call Analysis

Patanjali Foods Q2 FY25: Strong Revenue Growth and Margin Improvements

In Q2 FY25, Patanjali Foods reported impressive revenue of INR 8,184.19 crores, with EBITDA reaching INR 493.86 crores, marking a 17.81% year-on-year growth. The company’s PAT also saw a robust increase of 21.38% to INR 308.97 crores. Despite challenges from rising raw material costs and erratic weather impacting FMCG performance, strong rural demand persisted. The edible oil segment, benefiting from rising prices, maintained revenue of INR 5,939.21 crores. Moving forward, the company anticipates improved performance in the second half of FY25, driven by festive season consumption and strategic initiatives, while aiming for a revenue guidance of 25% margin growth in Nutraceuticals.

Solid Financial Performance Amid Market Challenges

Patanjali Foods Limited's Q2 FY '25 results showcased impressive growth despite a challenging market environment. The company reported revenue from operations of INR 8,184.19 crores, an EBITDA of INR 493.86 crores, and a PAT of INR 308.97 crores. This reflects a year-on-year growth of 17.81% in EBITDA and 21.38% in PAT, demonstrating strong operational metrics and financial discipline.

Sector and Market Conditions

The company faced challenges due to erratic rainfall impacting FMCG volumes, especially in out-of-home consumption. However, there were positive signs in rural demand, suggesting resilience in certain segments. The overall FMCG industry in Q2 displayed mixed results, but some categories outperformed others, indicating potential areas for investment.

Raw Material Costs and Price Increases

Patanjali Foods experienced upward pressures on raw material prices, specifically a 9% to 10% rise in wheat and pulses, and a 30% increase in crude and refined edible oil prices. The company managed to pass on about 10% to 12% price increases to customers, which overall enhances the future margin outlook despite the inflationary pressures.

Segmental Performance and Strategic Developments

The Food & FMCG segment achieved revenues of INR 2,303 crores with an EBITDA of INR 234.71 crores (10.2% margin). Notably, the staples segment reported a revenue of INR 1,032.43 crores. Plans to increase plantation area for palm oil to 0.5 million hectares over the next five years were announced, aimed at achieving self-reliance and reducing dependency on imports.

Guidance for Future Growth

Looking ahead, Patanjali anticipates improved performance in the latter half of FY '25, driven by festive season sales and government support. The company maintained its guidance for Nutraceuticals, projecting revenues of INR 100-125 crores with a 25% margin. Overall, there’s a clear objective to increase revenues and profit margins with sustainable plans in place.

Ongoing Adaptations to Changing Markets

Management highlighted a shift towards e-commerce and QR channels in business operations, with approximately 12% of FMCG volumes now coming from modern and online trade. This is aimed to grow to 15-20% as consumer preferences evolve, suggesting significant investment in digital channels is underway to capture newer customer bases.

Talent Investments and Future Cost Management

Employee costs saw a rise of about INR 12-13 crores due to increments and arrears. As a countermeasure, increased marketing expenditure (approximately INR 40-50 crores) is being managed, which signals an investment in brand and product awareness intended to boost sales beyond immediate pressure on margins.

Key Takeaways for Investors

Investors should note the robust financial performance amidst external challenges. The strategic emphasis on rural markets and digital transition presents growth opportunities. Furthermore, as the company continues to navigate commodity price fluctuations while maintaining margins, there is potential for long-term value creation in both FMCG and Nutraceutical segments.

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Patanjali Foods Limited Q2 FY '25 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call.

These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions]

Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjeev Asthana from Patanjali Foods Limited. Thank you, and over to you, sir.

[Sanjeev Asthana, executive]

Thank you so much. Good morning. Seasoned greetings to all. Welcome, and thank you for joining us today for Patanjali Foods Limited's Call to discuss the results for Q2 of FY '25. I'm joined by the company's CFO, Mr. Kumar Rajesh, along with Mr. Priyendu Jha from the IR team and our Investor Relations adviser, Strategic Growth Advisors.

We have uploaded the results collateral on the stock exchanges as well as the company's website for your reference. During the course of this call, we will be referring to stand-alone financials.

I'm pleased to update you that we reported a healthy quarterly performance with double-digit margin growth at EBITDA and PAT levels. The company reported revenue from operations of INR 8,184.19 crores with EBITDA of INR 493.86 crores and PAT of INR 308.97 crores.

The company declared an interim dividend of INR 8 per equity share. This quarter's EBITDA is our best operating EBITDA since the company came under the management of Patanjali Group. It stood at INR 493.86 crores. This healthy performance came in the backdrop of a fairly challenging market environment that we would face in the past quarter.

We face erratic and uneven rainfall throughout the country, which has impacted the FMCG volumes out of home consumption and consumer offtake across the industry. However, the green shoots are visible and rural demand in the previous few quarters get paced to a certain extent. The overall performance of the FMCG industry for the second quarter of the fiscal was mixed with some categories performing better than the other.

We also saw some pressure in terms of the raw material prices. Due to reduced supply in the physical markets and delay from the government to release the wheat prices shot up anywhere between 9% to 10%. Pulses also saw an upward price movement in Q2 versus Q1. And likewise, within the palm prices have moved up substantially. The Edible Oil market remains in the normal range, both in domestic as well as the international markets.

The domestic prices of crude and refined oil an approximate 30% increase in the month of September '24. This is largely due to the 2-way price increase, one, due to an increase in the custom duty of nearly 20%; two, because of 8% increase in the price of the major imported Edible Oils and which continues on the upward side.

Coming to our segmental performance during the quarter. The Food & FMCG segment achieved a revenue of INR 2,303 crores with an EBITDA of INR 234.71 crores with a margin of 10.2%. The staples, which includes rice, atta pulses, wheat products and dry fruits recorded a revenue of INR 1,032.43 crores, with a sequential growth of 9%. Cow ghee, Chyawanprash, honey, et cetera, the Indian ethnic goods category recorded a revenue of INR 621.48 crores as opposed to INR 405 crores in Q1 of '25.

As shared earlier, we are reevaluating our strategy for the cow ghee business. In Q2 of FY '25. The ghee segment achieved a revenue of INR 355 crores, which is pretty much in line with our strategy. Also, we ran a Pan-India print media campaign for cow ghee. Our biscuit sales segment recorded a highest ever quarterly sales of INR 438.73 crores, driven by a volume increase of 5.9% year-on-year.

Adjustment in damage and pack sizes have contributed positively to the growth of the biscuit segment. Doodh biscuit maintained the leading position in the category and contributed about 2/3 of our biscuits segment. I would like to highlight that our previously launched Ragi, 7 Grain and digestive Biscuits and Patanjali tea, are being well accepted by the consumers. In the soya chunks category Nutrela demonstrated a steady growth with quarterly sales touching a new high. To strengthen Nutrela's brand products in the category, we have onboarded celebrity and fitness icon Shilpa Shetty as a brand ambassador. We've also collaborated with Star chefs, and Varun, to create enticing recipes using Nutrela products for the YouTube and Meta platforms.

Our efforts to drive and stabilize the nutraceuticals division continued. And in Q2 FY '25, we have booked INR 23 crores in revenue. Newly launched gumies, vitamin powders and other nutraceutical products are showing promising results. We've also added Nutrela plant protein and creatine monohydrate along with new variants of weight gain and superfoods to our nutraceutical range.

We continue to reiterate our guidance of a revenue range of INR 100 crores, INR 125 crores in revenue in FY '25 with a 25% margin. We have just onboarded Shahid Kapoor for the nutraceutical product range, which will help us to maintain brand awareness for Nutraceuticals. In the first half, we added approximately 125 plus SKUs in the Food & FMCG segment. Notably, more than 80 of the SKUs were introduced during the second quarter.

With the rise of new channels such as e-commerce and quick commerce, a new trend has been emerging in the distribution model of the FMCG industry. The number of consumers opting for these alternate channels of distribution over general trade is increasing. Patanjali is also present on these platforms in key markets.

In the Edible Oil business, we registered a revenue of INR 5,939.21 crores with an EBITDA margin of 4.45%. The global dynamics for edible oil have been observing a gradual increase of edible oil usage in biofuels, and this is acting as a catalyst for maintaining higher prices of edible oils.

Our soyabeans in India is delayed due to extended rainfalls due to lower prices of soyabean in the physical markets, the government has announced for its esteemed procurement increase. The government has increased the MSP of raw materials are received by INR 300 a quintal making it 5950 per quintal for marketing season '24-'25, which last season was INR 5650 per quintal.

With these dynamics, all in the average prices of packaged oils have increased between 15% and 24% over the last 2 months. Further, over a longer-term period, our endeavor is to improve our dependence on the Oil Palm plantation business. In Q2, we expanded our cultivated land by over 5,200 hectares taking the total to 80,952 hectares. Of this 64% is needed with generates an EBITDA to the tune of 16% to 18%.

Our plan is to take area under plantation to 0.5 million hectares over the next 5 years. This should cover about 60% of our requirements. We are rapidly going through partnerships with farmers, providing training and workshops. We not only dedicated -- we are not only dedicated to supporting the local farmers and communities, but also play a role in creating atmanirbharta for our country by reducing in force of edible palm oil.

Now I would like to summarize our overall financial performance in the quarter. The total income stood at INR 8,198.53 crores. Total EBITDA stood at INR 493.86 crores with 17.81% growth on a year-on-year basis. The PAT of INR 308.97 crores registered a 21.38% growth on a year-on-year basis.

In the first half of FY '25, the number of backup as follows. The total income is INR 15,400.88 crores. Total EBITDA of INR 928.93 crores, an improvement of nearly 47% against the same period last year. The PAT registered an improvement of 67.07% to reach INR 571.87 crores.

Looking forward, the latter half of fiscal 2025 is anticipated to bring imported improved performance driven by the festive season, higher income, supportive government measures and an above-average monsoon.

With respect to the acquisition of HPC business, we have already got the CCI approval and the shareholders' approval and are hopeful to integrate the HPC business by Q3 and perhaps in very early November.

Once we achieve all the approvals, et cetera, from lenders. This will give a further shot in the arm to our performance. With this, I conclude our presentation and open the floor for Q&A. Thank you.

[Operator]

[Operator Instructions]

The first question is from the line of Dhiraj Mistry from Antique Stockbroking Limited.

[Dhiraj Mistry, analyst]

So my first question is on oil business. We have seen 30% plus inflation in the month of September. So in light of that, is there any inventory gains, which we have realized in this quarter or expected to realize in next quarter? And related to that, what kind of price increase we have taken post this price increase? And what would be the implication on margin going ahead because of this?

[Sanjeev Asthana, executive]

So two parts to your question, Dhiraj. The -- so the 2 things which occurred, which is in really second half of September. So the edible oil has continued performing quite strongly in the first quarter also and likewise, in the second quarter as well. The announcement of the increase in the custom duty by nearly 20% plus was beneficial, but only that benefit is only accounted for once we do the sales, and it is invoiced.

So we really what the gain, maybe just for about 10 to 12 days in the second quarter. There is some inventory gain, which is accrued on account of the sudden duty free, but we're also inflated by the positions that we had as well as the movement up in the international markets. Both have been beneficial to the company.

So we will carry forward the momentum in the next quarter as well. And hopefully, the prices will look very tight. We believe that the markets should be supportive. The international markets are looking quite quite sort of less supply and more demand.

So I expect this to continue. And hopefully, our edible oil should continue on the path of better performance that you've always said of margin constructive of between 2% and 4%, and both the Tier 2 quarters, we consistently maintain a 4% gross margin, and we hope to continue with this momentum.

[Dhiraj Mistry, analyst]

Okay. Okay. And sir, what kind of price increase we are expected to take or already taken in edible oil price?

[Kumar Rajesh, executive]

So price increase, there are 2 ways which moves. One is that there's no one-to-one equation. So for example, if the prices moved up. So normally, there is a pass-through mechanism that works. But there's local dynamics in the market as well. And that doesn't allow you to pass on the full sort of duty and the price increase to the consumer.

So typically, the prices have moved up in the range of 3% to 10% internationally. And our price increase also has been pretty much in line with that. Part of the duty has also got accounted for this. So anywhere between 10% to 12% margin price increase that occurred in the marketplace.

[Dhiraj Mistry, analyst]

And will it have margin as a percentage of sales margin will be impacted because of this because our price increase is lower compared to what commodity price inflation?

[Kumar Rajesh, executive]

No, it won't. It's overall beneficial, as I mentioned, that we typically run the business on a long-only basis. where the prices are typically they start to look up. So you hold the inventory at the next time and the international markets have moved up with the either immediately or with a lag, typically, the prices tend to adjust in India.

So even if there's a lag, eventually, the prices will start reflecting the global price. So and it can cut both ways also. It can go down as well as there's every. But broadly, the price increase is going to benefit and reflect in our margins in this coming quarter as well.

[Dhiraj Mistry, analyst]

Okay. Okay. And second, related to the oil business, what kind of revenue realization we have got from the palm oil prices -- palm Oil plantation?

[Kumar Rajesh, executive]

Yes. So the revenue, like in the plam business Oil Palm Plantation, we were -- quarter 1, we were INR 292 crores in revenue. This quarter, we did INR 354 crores in the revenue. And so of course, there is a seasonal impact also because of the peak harvesting season also. So that benefited us.

[Dhiraj Mistry, analyst]

Got it. And coming on the Food division, can you tell us the revenue and margin for the food divide their food business revenue and margin for staple and non-stable foods. And also for the margins for biscuits, Nutrela and Nutraceutical also.

[Kumar Rajesh, executive]

Okay. So I will go one by one. So for example, in the overall FMCG, our total business in the We did about INR 1,654 crores was in the -- so that's actually the overall FMCG food portfolio. The total revenue we did was INR 2,304 crores this quarter. Our EBITDA margin was INR 235 crores, and it was at 10% that we got. Now I'll give you the breakup of this FMCG business. So in that within that, the foods was INR 1,654 crores. EBITDA margin was 14%, and it was 9% margin that we got. The -- within that, the breakup of biscuit, the Indian ethnic food was INR 621 crores, where the EBITDA margin was INR 133 crores at 21% margin.

In the consumer staples, we had INR 1,032 crores of revenue. EBITDA margin of INR 6.7 crores, which was 1% margin. It came down largely on account of the higher price inventory on the staples that we carried, and market did not reflect that. Then on the Nutrela side, which is our CBD business, we did a revenue of INR 188 crores with INR 43 crore margin. Margin percentage of 23%. We were benefited quite well on all the much lower the soyabean prices. So raw material prices were really sort of went down and the consumers continued paying at the same level, we didn't have to adjust our prices. Nutraceuticals, we did INR 23 crores of revenue made no margin. It was really 44%, but there were some one of the segment benefits that we got on account of the accounting. But wise typically that run rate of 25% is what we propose to maintain. Biscuit, we did INR 439 crores at INR 41 crores EBITDA and a margin of 9%. Here, the margin declined on account of much higher reach prices and much higher edible oil prices. Palm oil prices essentially that impacted overall sort of the EBITDA margin that.

[Dhiraj Mistry, analyst]

That's very clear. And just last question on bookkeeping that we are seeing significantly increasing our overhead in employee cost as well as other expenditure. So can you divide your employee expenditure between ESOP and what is the normal course of employee cost? And also in other expenditure, what would be the E&P spend contribution in this quarter versus last year? That's my final question.

[Sanjeev Asthana, executive]

So this question will be answered by Kumar Rajeshji, our CFO, who is on the call. And so Rajeshji, I'll leave you to answer this question from Dhiraj.

[Kumar Rajesh, executive]

Yes, yes. Dhiraj just -- I would like to say, we got an increment -- we give an increment for the employees in this quarter. And basically, the employee cost is increased by that only. So near about -- between INR 12 crores to INR 13 crores has been increased from the previous quarter, if you can compare. So we see on account of increment of the employees along with arrear since April 2024.

As far as other expenses is concerned, major expenses on advertisement. That is near about INR 40 crores to INR 50 crores and sense promotions and schemes, which are marketing initiatives taken by the management.

[Dhiraj Mistry, analyst]

And what kind of run rate we can expect in employee costs going ahead?

[Kumar Rajesh, executive]

So after just we have not integrated now nonfood business. But as far as the existing business is concerned, this is a run rate, which we have shown in the quarterly results.

[Operator]

The next question is from the line of Pratik Bandari from Art Ventures.

[Pratik Bandari, analyst]

Just wanted to get a sense as to what kind of volume growth are we witnessing in terms of our milk biscuits category versus the non-milk biscuits category?

[Sanjeev Asthana, executive]

So in the milk biscuit category, the Doodh biscuit, it's -- we have grown about 3.5%. So that's a very -- slightly tapered off. And -- but for all the biscuits continues to grow, we grow nearly 6% near about this quarter. But milk biscuit basket is a little slightly lower.

[Pratik Bandari, analyst]

So out of the 3.5% of revenue growth that you are seeing for milk biscuits, how much of it would be on account of volume?

[Sanjeev Asthana, executive]

It's largely volume-led. I sort of saw the volume growth we have received is about -- so there's no price increase if that is the question. So it's a largely entirely on the volume basis. We haven't taken any price increase during the quarter.

[Operator]

The next question is from the line of Shirish Pardeshi from Centrum Broking.

[Shirish Pardeshi, analyst]

Sir, three questions in the beginning. We have been seeing off late starting for the bell when a company like Lever has been talking slowdown in urban. Also, the rural is seeing a gradual recovery. So can you give some little more color for our type of business because edible oil businesses always will have a uptrading, downtrading looking at the price parity between the branded and premium. But then if you can give some on-ground activity? And what is the contribution we derived from rural, if you have some numbers handy?

[Kumar Rajesh, executive]

So we -- for example, the sort of urban markets, clearly, there is some stress that is visible. 60% of our business typically comes from the urban areas that you saw. Rural markets have had a fairly good sort of robust growth. That momentum has sustained in the last quarter also. We are clearly seeing that there's some slowdown in the urban area, and that is taking stress. But we have a reasonably good growth overall. Like for example, you really in our food vertical, we're nearly 20% plus. Biscuits, of course, slightly tapered off, as I mentioned, 5.3%. Nutrela plus CBD, we got a growth of 8.7% and Nutraceuticals, of course, the base is very small.

So it's not relevant as to what the growth percentage was. But overall, we have seen that the urban area is really some stress. Rural demand continues quite a pace. So in our categories that we have, we haven't seen any distinct slowdown in the rural areas. In fact, if supported the growth is there. But now with the festivals coming, we are hoping that the urban areas should respond better and sales trends that we are seeing right now from the beginning of October, there is some push, which have to be done. But broadly, I would say that this quarter, because part of the festivals, et cetera, should save us through.

[Shirish Pardeshi, analyst]

Okay. The reason I'm asking because, see, edible oil business price fluctuation, and we are now found on top of the season, so that will get digested. But then nonedible oil business, what are the top 2, 3 things we are trying to do and because you -- some -- in the beginning, you also said that the alternate challenge like e-commerce and modern trade is the focus area. But is it really meaningfully scaling up for our type of business?

[Sanjeev Asthana, executive]

The e-commerce and commerce just without a question.

[Shirish Pardeshi, analyst]

E-commerce and modern trade ultimate channels.

[Sanjeev Asthana, executive]

And so it's without a question, I think that we can clearly see very visible signs in all the major urban areas that has taken a firm route. And so we are -- so very ceased of that. We are continuously working on that space. Our e-commerce sales, we are continuously sort of working in terms of expanding that business. Modern trade also had a marginal impact, but that continues to grow. The stress is largely on the general trade level. But this phenomenon still, I would say, in the top 20 cities is much more sort of pronounced than by the pace continues at the same level. Then we clearly see a very distinct growth at the cost of general trades in the larger cities.

[Shirish Pardeshi, analyst]

Okay. Any number you would like to throw for alternate channel modern trade and e-commerce and e-commence put together. What is the contribution to sales for the?

[Sanjeev Asthana, executive]

So that number is very clear. We do close to about of the FMCG volumes and not including the edible oil business. We do, in total, about 12% through modern trade, e-commerce and quick commerce. And our e-commerce and quick commerce sales are about 4% currently, 6% goes to modern trade and balance, we are now expanding. So -- and this is growing at nearly 20% plus for us. And so that is a broad base. So edible oil, of course, a very substantial part. I'm not including that in it is only for the FMCG businesses that we don't have.

[Shirish Pardeshi, analyst]

Okay. The other question I wanted to check, if I look at the industry trend and while speaking to a few distributors across the country, I think with the disappointed quarter 1, I think the system inventory has gone up. So could you throw some light how we are managing our -- are we really taking some inventory cuts because edible oil inventory would always have the benefit to the retailer so they will not cry. But nonedible oil inventory will always be a problem. So any color you can throw on the inventory part?

[Sanjeev Asthana, executive]

Yes. So there is some buildup of the inventory as we very clearly seen that both at the secondary sales level as well as at the tertiary sales level. We are seeing some inventory buildup with the general trade. Modern trade is much more nimble in terms of adjusting to the requirements. And so to that extent, that stress can be seen very clearly. And so largely, in terms of our own actions, we're working a lot more in terms of the in-store promotion, the work on that area is continuing.

But that is something that basically demand which has occurred, which has caused this trend. So with e-commerce and quick commerce side. And I think that the company will have to continue to adjust. We are working on it quite actively, but we are seeing a clear buildup in the inventory.

[Shirish Pardeshi, analyst]

Generally nonedible oil, what kind of inventory we would have in the system, say, in the trade and in the distributor pace?

[Sanjeev Asthana, executive]

Total inventory typically that you would have is around we keep around 30 days, but that's an entire systems inventory. And that would be between the at the company level and the distributor level. But otherwise, overall, we do about 6x turn 6 to 7x return on the on the business. So typically, I would say that 45 to 50 days of inventory would be maintained across the company.

[Shirish Pardeshi, analyst]

Okay. Okay. And the last question on the other part of the business, which is getting inducted. You mentioned that from November, it will get consolidated.

[Sanjeev Asthana, executive]

Yes.

[Shirish Pardeshi, analyst]

And any ballpark number how much we would have done in the first half?

[Sanjeev Asthana, executive]

In that -- in the HPC business. So HPC business would be about -- I'm not sort of in a position to give you the precise number of the first half, but we should be close to about INR 1,500 crores, we would have done.

[Shirish Pardeshi, analyst]

Okay. So if I understand correctly, you would integrate that business after November.

[Sanjeev Asthana, executive]

Not after November and very soon, I think it could happen any day when we just simply -- everything is done and ready. we're simply working on the final stages of documentation. And you will hear from us very soon and from the next 7 days, 10 days also.

[Shirish Pardeshi, analyst]

Okay. The reason why I'm asking as there are 2 questions actually here that will it go with the existing distributors? And then if that is going to be existing distributor, how this funding or the issues which will get sorted because whenever there is a transition, it is looking -- on the face of it, looking good. But then structurally, the distributor will have an issue. So I give me a clarification from you that are we going to look at and that the existing distributors, which are selling the HPC product or we will merge both the distribution together?

[Sanjeev Asthana, executive]

No. So we -- as we've done in the past, and this is the time as well that the existing nothing changes at all. So the simple part of the SAP integration at the back end has been done. The team, the distribution, the entire manufacturing and the entire structure of the function, everything moves entirely and that integration happens. So really, in terms of the disconnect or adjustment process at the ground level, nothing will happen.

But what we gave a guidance even in the last quarter also, the plan is that over the next 18 months, we will work towards 200 basis points efficiency led improvement, not talking of the organic sort of growth in the business as well as some bit of rationalization at the ground level that we'll start to sort of work on and we should be able to sort of take that benefit on account of this integration. But right now, I don't see any disruption at all in either the distribution at the down level all the teams coming on board because they simply just -- it's almost nearly like the plug and play because they're moving from the parent to the listed entity, and they will just get started very quickly once it gets going.

[Operator]

[Operator Instructions]

The next question is from the line of Bharat Shah from ASK Investment Managers.

[Bharat Shah, analyst]

The non -- sorry, the ethnic food specialty Indian specialty, that part of the business is registered 20% margin in this quarter. Did I get that right?

[Sanjeev Asthana, executive]

That's right.

[Bharat Shah, analyst]

Okay. So that clearly is probably superior to what we might have intended or we might have constructed or is this the think of likely margin profile that you'll prevail over time?

[Sanjeev Asthana, executive]

So Bharat bhai what we have as a margin construct, in the ethnic food side, we've always maintained that typically, that business is going to go with 18% plus margin. So in some quarters, for example, in the previous quarter, our margin in that space of 15%. This quarter, we registered 21% on account of some festivals of a some benefits that we got on the on account of the honey sales. There are a couple of other categories. But I would say that it cannot be taken as a guidance of 21% plus, it would typically range in the -- always be in the range of 18% to 19% is what we are something that we target and then.

[Bharat Shah, analyst]

So clearly, in this quarter, it has been better. And therefore, overall, longer-term picture probably should be in that 18% to 19% today?

[Sanjeev Asthana, executive]

That's right. Because that business also, Bharat bhai sorry, just one more sentence because that business also has certain degree of subjectivity on account of the butter prices and the fat prices as it prevails that market itself is quite sort of -- there are movements in the prices availability, et cetera, and you need to carry inventory at a certain price point. So that's why that is a normal expectation range of 18%, 19% is what we should have from the ethnic category.

[Bharat Shah, analyst]

Quite remarkable, I would say, in the backdrop of the kind of scenario that has prevailed in the last few months that definitely is a very healthy kind of margin and performance in that area. My second point on which I wanted to gain understanding. You see the digital channels are kind of definitely affecting the traditional distribution strength that many consumer firms, more older generation consumer firms have typically got, but digital channels are really impacting. Other factors which is affecting maybe shipping the way at margin. But certainly, the new fangle phenomena of direct-to-consumer brands each of being in itself may be a small one, but at a local level, local entrepreneurs, some of the direct-to-consumer brands are middling away the traditional advantage of the distribution since that earlier generation consumer firms, they have been enjoying. But when you are looking at when you're looking at the performance of the businesses like Lever or Tata Consumer and others, including even now Nestle, it is a little clear that unless the business model has distinguished in the consumer side both growth and margins over a period of time will be challenged. And there will be impact on the distribution side. Therefore, do, I guess, I wanted to understand. Our if premiumizing, our Indian ethnic food clearly is a very distinguished portfolio. So to that extent, it holds a very competitive advantage. Your Nutrela platform also is a distinguished portfolio. So it enjoys that competitive advantage. But in terms of premiumization, and secondly, in gathering the strength in each of the digital and whether quick commerce and e-commerce and specialty offerings through these channels? What are your thoughts on that?

[Sanjeev Asthana, executive]

To -- there are 2 things that we are seeing right now that the path forward for us because of the share volatility, some quarters tend to be good is that we need to work on premiumization very actively. Consumers are willing to pay. Consumers are -- there is a class of convenience, which is very keen on sort of buying products, which are distinctly different, which carry proposition, and there are attributes which they believe that they should be paying a premium for. Health and nutrition is becoming center stage. But that comes added a lot with range of other applications as well, like for example, the packaging, the branding, the positioning, the distribution, et cetera.

So I'll give some like example. That's what we have gone through in terms of the -- after the huge push that we had in our premium biscuit, we saw that it tapered off, then we started rebuilding the entire thing, and we are now seeing a stability in the growth, but the growth is not skyrocketing at 20% and 30%. It's really a very moderated growth of 8% to 10% is what we see in our premium range.

Similarly, Nutraceuticals, for example, that after a very steep start, we came down. But after that, it was the price cuts and the readjusted portfolio, then we started rebuilding the entire portfolio, but at a premium level and very differently packaged, very contemporary. We've gone through Bharat bhai if you heard that we've got now about 4 all businesses have got a brand ambassador now in the last 1.5 years. So for example Dhoni to Tiger Shroff and Tamanna Bhatia, then we went in Shilpa Shetty for Nutrela. Now we've got Shahid Kapoor for Nutraceuticals.

So all these elements have to go in, but the premium category growth is that segment is very small. The effort to launch it and the sort of demise that at the retail level is also fairly high because not all these products tend to succeed and your ability to stay and continue building that up is very high. So I would say that trend is good. We are working on it. Our premium portfolio in any case and we count our cow ghee, for example, are quite a few other products in that category. That premium portfolio is reasonably be between 15% and 18%. But adding new products to build up a premium and continues growing that, it's a challenge that growth rate will not pretty 7%, 8% at any level where the base is very small.

And so that we work on. We're now looking at adding a range of other products, for example, there's a consideration which is going on in the biscuits category after the success that we had. We want to now come out with new selenium products, a new premium offering that we'd like to do. And all the competitors are doing it as well.

Likewise, in the ethnic foods categories, we are coming out with our -- in our HPC, which is going to come. We have launched this new range of and others. So hopefully, that effort is going to be organic. It's going to be more long term and it will come to its own sort of fits and starts in terms of the success rate there. But broadly, the trend is there. The urban consumers, there's a distinct class which is willing to pay. And directionally, for a company like others, we need to head in that direction.

[Bharat Shah, analyst]

Let me try to kind of put the point in a little different way. I would say in consumer kind of businesses, the kind of fast-moving regular consumption kind of businesses. I would say 4 critical parameters to my mind for long-term success.

One, I would put is product innovation. Secondly, whether our business model is distinguished. In other words, our portfolio has a freshness and difference compared to the typical competition. Third is the channel innovation and four, five to put it is premiumization. Now when I put these 4 factors into the play, I would say, our product innovation rate is Patanjali is phenomenal.

I've not seen really any other consumer from innovating so regularly some new products. So this core very well there. Secondly, on with Indian ethnic foods, also Nutrela platform and Nutraceuticals when it becomes. Our product portfolio is a distinguished one. Our business model is more distinguished one and rescore well.

On premiumization, I think is an important long-term journey because the country is getting more and more aspirational. And secondly, on the distribution channels, commerce, digital e-commerce, these channels are we expressing alternate, I mean have alternative ways of expressing the distribution strength. On those two, I wanted to understand how much what kind of long-term strength and the thoughts we have in of it?

[Sanjeev Asthana, executive]

As I mentioned, Bharat Bhai on the distribution side, we have a long way to go. Our current e-commerce and quick commerce sales are just about 2% plus if you look at overall basis, at about 4% if you look at on the pure FMCG business for the moving edible oils. So that we need clearly a lot of work. So we have got a D2C channel, for example, our Nutraceutical business. Nearly the base is very small, but maybe we are seeing 35% to 40% is going through now e-commerce and D2C. Similarly, in businesses like the biscuits, we are seeing a pickup now on the e-commerce and the quick commerce side that's picking up.

But to answer your question, on a targeted basis, we like e-commerce and quick commerce to get closer to 6% of the FMCG portfolio. I'm not talking edible oil in that. And likewise, our modern trade share should be closer to 12%. So between a combined basis, we like about between 15% to 20% coming to the new age distribution channels, which we currently are at just about 10%. We need to travel understood. We need to refine our strategy. We need to work through that. Some of our products were never on that category, which are very emerging kind of a channel that we are seeing continuously as consumers are evolving.

And we will be writing that band wagon. We are beefing up our teams. We are working on strategy. We have got, for example, across the board on the social media front, we will find that one by one Nutraceuticals, Nutrela biscuits, we are left there. We are now ramping that up. And like is on the food side, our presence on the social media is exceedingly high. And from the social media platform, the site, we are seeing a lot of sales now moving into converting. So -- but we have some distance to travel. And that work is clearly cut out for us, and we are working on that. Our intent is very clear of moving closer to 20% from emergent channels and regaining the balance 80% through our traditional channels of the GT.

[Bharat Shah, analyst]

Sure. And just one last one. The fact that our share of the modern trade relatively is lower is revision to the digital channels is relatively lower in a way to look at it is an opportunity. And I think, in a way, can be a significant competitive advantage compared to the last legacy large consumer firms that have been around for decades, but has probably been more on the legacy side and need to add up. So in a way, both of them represent an opportunity along with, of course, premiumization in an inspirational society and inspirational country.

[Sanjeev Asthana, executive]

No, absolutely. And we are seeing that growth, and we are seeing that momentum. And we're very positive about it, that this is going to be a big channel of our business. So it's not a weakness. It's an opportunity that we are looking at in terms of building that side of the distribution channel.

[Operator]

The next question is from the line of Rajiv from Arihant Investments.

[Unknown Analyst]

Congratulations on a great results. So I have 2 questions. One is around the other income that other income has increased about 60% to target. And another one is the other expenses, which has shot up by 45%. So is there any one-off income or expense come in the second quarter?

[Sanjeev Asthana, executive]

RajeshJI, would you.

[Kumar Rajesh, executive]

I'm taking this question. Basically, other income basically increased on account of mark-to-market gain of the mutual fund investment. So if you see the balance sheet, we have realized so much of debtors and invested into the mutual fund. So as on 30th September, mark-to-market gain is there.

[Unknown Analyst]

Okay. And what about the other expenses?

[Kumar Rajesh, executive]

Other expenses is mainly on account of advertisement and sales promotion schemes, so many marketing initiatives have been taken by the management in this quarter. So that this has been increased.

[Operator]

[Operator Instructions] The next question is from the line of Sanjay Gupta from Investment Private Limited.

[Unknown Analyst]

Sir, my question is regarding the arbitration or going against the company. So how will it affect our company in the future. If in case we have to give INR 1 crore 86 lakhs to our? And the second question is regarding the -- yes. My second question is regarding the green fit given to our Patanjali Dant is there controversy going around that. How -- can you clarify regarding that?

[Sanjeev Asthana, executive]

Sure. RajeshJi, on the advisory, you can go and answer.

[Kumar Rajesh, executive]

Yes. Yes, yes. I'm. Basically, the case of Arsaladvisory is related to the application of preferential allotment applied by the Party in early 2020. As you all are aware that the application was completed, we have not allotted shares due to regulatory requirements due to regulatory NOCs from the banks and from the SEBI. After that, they have appealed to the SEBI and appeal got rejected. After that, they appeal to SET also. SET also rejected the appeal and they went to high court and after that in arbitration. We have a strong ground to file an appeal. That's why our name has been included in that arbitration award. We have a strong round to appeal in the High Court. And after the Supreme Court, we have been advised by our lawyers also to file an appeal, and we are in the process of preparing the appeal. We do not expect any significant impact right now on our balance sheet and shareholding patterns. So obviously, after the decision of the court.

[Unknown Analyst]

Remember, but the acquisition has already been rejected has been gone in the favor of advertising. And you may appeal further, but let us say, let us presume that it is going against the company. Then how will it -- as a shareholder, I am asking, how will it affect our company?

[Kumar Rajesh, executive]

No, no.

[Sanjeev Asthana, executive]

Just a second arbitration that has happened between the promoter group and Ashok Advisory. So if at all, the promoter group will transfer the shares. You might get a issue, if at all, that goes against us. There'll be the issuance of that INR 1.86 crores shares or whatever will just simply be given to them by the promoters. On the company, Patanjali Foods, there's a 0 impact.

[Unknown Analyst]

Okay. And the second question is regarding Dant Manjan.

[Sanjeev Asthana, executive]

So that was one of their -- like this, this is one thing. Likewise, we'll have so many such instances there. We are contesting any of this. You don't have a specific answer to the question that you raised right now, but there are similar kind of cases that keep coming out. We are dealing with that. It is still being done at the the parent right now because the business is pretty much with them. But in case we are interested, we can give you further details on that on the specifics of that case as to and how we touch the.

[Unknown Analyst]

Okay. And my last question is regarding the penalty that is being levied on the company every now and then. So is there anything that company is going to protect out penalties 50,000 all brand penalties happening every now and then.

[Sanjeev Asthana, executive]

Is there any specific final you're referring to or not.

[Unknown Analyst]

Just yesterday, I had that some 50,000 penalties being levied on the company.

[Sanjeev Asthana, executive]

We don't have a sort of to the specific question that you raised, we can come back to you on what account this is imposed.

[Unknown Analyst]

Metrological.

[Sanjeev Asthana, executive]

Okay. So that's a department, which is at the state level, Indian mature are largely and which is consolidated. And so we regularly whenever such an instance would come, we regularly product and contact their claims. And it is there, but it's not a very significant nature that it can either impact the company's results or whatever. There is an interpretation of laws at the state level would be many times different. And we deal at the state level and have to address those issues.

[Operator]

Ladies and gentlemen, we'll take this as a last question. I would now like to hand the conference over to the management for closing comments.

[Sanjeev Asthana, executive]

So let me thanks for a very good set of questions, and we're quite thankful to that. Now I can conclude the call, and a very happy Diwali to you and your families. Thank you all for the patience. If you have any further queries, please contact SGA for our Investment Relations advisers on any matter at all and greetings to everyone.

[Kumar Rajesh, executive]

Thank you. Thank you very much to all.

[Operator]

On behalf of Patanjali Foods Limited, we conclude this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.