Sundrop Brands Limited (500215) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q2 FY '24 Results held for Agro Tech Foods Limited Conference Call hosted by Anand Rathi Shares and Stock Brokers. [Operator Instructions] I now hand the conference over to Mr. Ajay Thakur. Thank you, and over to you, sir.

Hi, everyone. I welcome you all to Agro Tech Foods Q2 FY '24 Results Conference Call hosted by Anand Rathi Shares and Stock Brokers. From the management side we have with us Mr. Sachin Gopal, Managing Director and Mr. K.P. Srinivas, CFO. Now without wasting much of our time, I would like to hand over the call to Mr. Sachin Gopal for his opening comments and followed by a Q&A session. Over to you, sir.

Thank you, Ajay, and good afternoon, everybody. Thank you for taking the time out to join us today. We'll follow our standard process where we'll walk you through the presentation. We have had one or two comments saying that we might be running shy in terms of -- we need more time in terms of Q&A. So I'll request Ajay had about 5 minutes to -- Ajay, if you could just let us know if we need to give another 10 minutes or something like that for more questions. So I assume that all of you have got access to the presentation that we've posted on our website and that -- as well as the regulator. So if I could request you, please we can go straight to Page 4, okay. Page 4 of the presentation. Overall, I would say it is a soft quarter for us. We did not have any foods growth related to prior year and this is below our expectation. And we saw strong margins in staples. So we'll walk you through and be constructive what exactly is in the business and therefore what are the actions we are taking and what do we expect. So to start with soft quarter with no foods growth, most likely due to unusual phasing by quarter in prior year. Quarter 2 last year, the food was higher than quarter 3 by about 7%, which is very different from the pre-COVID times. So there is some amount of, I would say, ups and downs in our basis. That doesn't mean that the growth is what we want, the answer is no. But the trend between quarter 1, quarter 2, quarter 3 was different last year as compared to the pre-COVID years. So overall, we think it's probably better to look at 6-month data rather than 3 months data, right? Because the longer the data points, the more accurate, the greater the accuracy that you have. And year-to-date foods volume growth therefore is about 6%, which is about 4% in value. This is probably more representative of current growth rates. Now we fairly need to get it into double digit very quickly because our CAGR is in the region of 18% to 19% improved. So we'll talk you through what are the actions that are currently underway. In terms of gross contribution, this was actually quite good. Net sales less RM/PM. This came out to be about 40% for the total company. And foods is still now pretty much back at the 46-odd percent level, which is the level that we've had historically. That's a good gross contribution, because as you know, in the foods business, the best-in-class today is Nestle, which is over between 48% and 52% depending on the quarter. And that includes infant nutrition and coffee. So clearly, 46%, 48%, 49%, these are kind of very, very good gross contribution figures to look at. They indicate that the core of our P&L is right. Now we have to see how to manage our expenses in that in terms of manufacturing supply chain estimate. The strong GC improved our gross margin as we reported by about 500 basis points. So this moved up from what 19% to 24%. We generated an incremental INR 4.5 crores. And this incremental gross margin we largely invested in A&P across 4 categories. This is also the first quarter ever that we actually had advertising being invested in all the 4 categories are: Ready-to-Cook, Spreads, Breakfast Cereals and Chocolates. And it's kind of a sort of vision or the painting of the future where we see ourselves as a multi-category, multi-product line company, which is able to support advertising profitably across categories. The increase in other expenses is largely due to higher freight and travel, right? And quarter 2 profit before tax and PAT are lower than prior year, because we did earn margin, but we also invested a significant amount in A&P, right? And therefore, our [indiscernible] is lower. And year-to-date PBT and profit after tax are higher, significantly higher than prior year, but that's obviously because quarter 1 of last year was a very low base because of the commodity price inflation that we saw. So we will -- today's presentation, we will not spend so much time on margin. We will talk to you about margin and EBITDA progression when we talk to you in the November analyst call, if you remember of meeting. If you remember, last year we had talked to you about how are we going to get to a INR 1,000 crores of foods. And this year we're going to spend a little more time on how -- what is the road map to get into that 15% to 20% EBITDA margin, which we feel subsidiarily we have because we have a good gross contribution, but we'll walk you through what are the actions in that when we meet in November. Okay so if I could request you to go to Page 6 now. On the Ready-to-Cook category, this is the core of our business, right? And as you can see, in quarter 2 of this year, we had -- volume was almost flat at about 1% and value was down 4%. On a year-to-date basis, this low single-digit revenue growth or what this comprises of is a low single-digit revenue growth in RTC Popcorn, which is driven by a mid-single-digit volume growth, both in instant popcorn and some pricing in microwave popcorn. The reason why I'm deconstructing this for you, is that, obviously this is the largest part of our business, and we need to see this growing at about 8% to 10% in terms of our overall growth algorithm. And the good news is that instant popcorn, which is a nice product is already in that 5%, 6% range in terms of volume growth, right? So that means we are coming out of COVID, right? And we are -- therefore we keep doing all that we are doing which is continuing to invest behind their expanding distribution, we should get back to that 8% to 10% level, right? And in microwave popcorn volumes are actually flattish, but we have some pricing. So that is giving -- the combined is that in ready-to-cook popcorn, we're getting on low single-digit revenue growth. What has happened however is that we spent a lot of energy in the last 12 months because our popcorn business was not growing, right? And we spent a lot of energy to put it back and we diverted a lot of demo, retail demo resources, so on and so forth, and away from non-popcorn business. That was a conscious choice that we had. One of the consequences of that is that if you look at point #5 in this chart or point #4, you can see the non-popcorn businesses are currently drilling prior year by about 49%. That include basically sweetcorn and pasta. These are the 2 big ones, right? And so now that we brought the popcorn business kind of growing towards our growth algorithm, we are going to start increasing focus on that part of the business as well. Meanwhile, coming to point #2, we are investing in steady levels of media, and you will see that in the competitive spend charts behind instant popcorn. Microwave popcorn will also benefit from the launch of the pop-up box. This is already in market in some parts of the country, and we're fully rationale probably in about 10, 15 years. And this is an interesting concept. It's -- basically it increases the convenience of the microwave popcorn -- of the consumption of microwave popcorn. It doesn't -- it's not game changing that it will certainly change and everybody will move from a microwave bag to a microwave box, but because we also have a [indiscernible]. But the [indiscernible] had certain supply chain challenges, which this pop-up box helps to address, right? So it is certainly going to be new news for the category and to that extent, it will help our overall performance. And in terms of the non-popcorn business, we are once again putting efforts this winter -- or coming -- ongoing festive season in winter behind these products, and we expect to be able to turn that around. I will later in this presentation we have a chart on historically how our different product categories behave as we build them. And you see the whole -- that the businesses tend to go a little up and down in the early stages. We still -- we get our full business model right for that category. We've also told you that we'll be launching plant meats and cocoa based products in quarter 3. This is on schedule and in the next -- probably couple of weeks, we will be running off these products. And when we meet in November, you'll actually be able to [indiscernible] in the meeting. So that's it on the ready-to-cook category, overall headline. Based on the category, which is instant popcorn now at mid-single-digit volume growth, revenue lower because we have taken pricing up last year, we did some correction as the commodity prices soften because we wanted it to be correctly priced to be able to secure our ongoing volume growth objectives. And basically the category being dragged down by the non-popcorn business. If I could request you please to go to Page 7. Overall, on the ready-to-eat category, all looking good, getting a growth of about 23%, 24% in volume and value. It's very ready-to-eat popcorn, which is driving the category growth. And across pack sizes and across challenge -- across channels, sweet snacks continue to make very good progress. Year to date sweet share of RTE is about 8% compared to 4%. If you recall in the back half of last year, it gone to 11%, obviously, because as winter comes and festive seasons come in, the sweet part has a greater advantage. And we expect to continue to make progress on this one. We are also rolling out gift packs to leverage our sweet portfolio. So that has started, starting this Diwali. This is in the market now. We are also strengthening our INR 5 portfolio. And I want to make a mention of it because there are large parts of consumers in the country who really -- for whom INR 5 is the main price point for snacks. And therefore it is very important for us to create a snacks portfolio between spreads, breakfast cereals and chocolate, which will enable us to have a profitable INR 5 portfolio. So that's part I think is more or less under development right now. But we've made a lot of progress over the last couple of months. And as we move therefore from -- we have a coverage of a little under 0.5 million stores. As we look from 0.5 million to 1 million stores, we expect this to be a very critical driver. It could be new areas. It could also be new stores within our current company, within the current bid. But either way, a strong robust INR 5 portfolio is important. That doesn't mean we want to be a INR 5 company, but we do need it to be -- to support the expansion coverage plan. And we will continue to leverage the scale of savory and the margin of sweet to create a profitable Sweet & Salty snacks business. Overall the category is doing well, both in volume, margin improvement is also very, very significant in this category as we get a better portfolio and a more profitable portfolio. So all looking good here. No specific actions that we need to talk to you about. In terms of Spreads & Dips, as we indicated to you, maybe probably 2 or 3 quarters ago that we were possibly losing some share in this category because the volumes were not coming as we wanted them. We've taken the actions here over the last -- over the last, I would say, 3 to 4 months, right? We've launched a 300-gram pack at INR 99, which is very good. That's consistent with the strategy that we followed in the large 924 grams from 1 kg pack, where we really, I would say, dominant category. And we are now going to do the same thing with this 300-gram pack in the midsize pack. And therefore, any loss of share that we may have had, 100, 200, 300 basis points, whatever the number might be, we think we should be able to address that and then again, get this also at a nice growth mode, the mid-size pack segment. The rollout of the new INR 10 blister pack is underway. As we mentioned to you, this is the first, I think, blister pack in peanut butter outside of North America, it's the first time any company or country is doing it. And acceptance is very good. In this month, for example, in terms of transaction, it's probably in our general trade because it's still to get fully listed in the modern trade. That process is underway. We probably have more transaction on the blister pack than we have in any of the larger packs, in the general trade. So that means, its only 2, 3 months in the market. So this will do very well for the business because it will enable us to get new consumers. Some people may stay with it, some people may come to a bigger pack, but this is -- these are very, very strong acceptance. And as you can see from the photograph on this chart, it's located on the contrary offer, it's close to Chocolates. So it's really perfect. It's a perfect vehicle for us to drive consumer acquisition and bring new consumers in global categories. You would see from the comparative charts that our significant spending competitor has spent about INR 140 crores so far. This is obviously rack rates. So if you take whatever discount you have, you'll have to reduce it by that much, whatever that number might be, right? But it's a fairly significant spend by any circumstances. Now we had, as you know, a few options, what do we deal with it when we have such a large corporation coming into what is relatively a small category and willing to spend that much money. We could have tried to compete with them on advertising dollars. But we chose not to do that because that would have spent a lot of money, invested shareholder money, right? And so we chose to compete on size. So we have taken some hit on margins on peanut butter. But the strategy is paying off. For the last 3 years, our CAGR on the peanut butter volume is 17%, right? Now as you know, if any business grows by 16% per annum, the CAGR in 4 years that business levels, right? So this is up to last year. Obviously, this year is not coming at the same rate at 17%. Right now, it's minus 2%. We will get into positive space. But if it's not 17%, the 4-year CAGR will be 16% or 15%, right? So bottom line is -- exit volume 4 years after the launch by actual in peanut butter will be about 2x of our prelaunch volume. And whatever was our volume when we launched -- when they launched the peanut butter, our volume first 4 years will be double, right? So that puts us in a happy situation, right? Because after that, these spends are clearly not sustainable, because on a INR 140 crores spend our estimate is they've got revenues of about INR 20 crores, maybe INR 22 crores, INR 23 crores, but not much more margin about that, right? So it's not same. It's not same and it cannot pay for them. The strategy cannot pay for them. We are in a very, very strong situation, right? We're already there in the 1 kg pack. Many of that packs, I think, have been delisted in some of the customers. And we are not many in the large pack. I think it's not customers across, but maybe something of some sort. So I think we have a very, very positive situation, right? And once we get the share back in the midsized pack and we expand the small pack, we're in good situation. As and when the spending -- high level of spending stops, it will give us a pricing opportunity, which we will then apply to volume, which are double of what we were 4 years ago. So some impact on short-term margin, but overall strategically absolutely the right thing to do. We continue to work on the protein segment for peanut butter. We are working with [indiscernible] so on and so forth. Chocolate spreads, we're getting our act together. I'm going to refer more to chocolate spreads when we come to the category of new businesses, on the Go packs and Dips. And we will -- certainly the -- I think -- although we have not really tracked this business so far, but I think there are clear indicators that some of the things that we are doing in the peanut butter business is applied to Dips will actually give us a good position. With that, I would request you to please to go to Page 9, Breakfast Cereals. Here again, like the ready-to-eat snacks business going well, 41% growth, 45% growth. Popz center filled cereals clearly powering the growth for ATFL, and we are benefiting from the RTE snacks supply chain. From a supply side -- chain supply side, actually, the sense to supply side is common, right, because of facilities. I would say, when we think of scale, probably we've always said we need about INR 200-odd crore business to get a good margin in the category. Probably industry, when we look at cereals, we could combine cereals with snacks and that would be the desired level from a scalability perspective. Our rewired architecture for Popz Shells has been well accepted and total cereals distribution is therefore reflecting steady growth. We've spent -- we have 4 months of continued investment behind Popz, which is now completed, June to September. And we are launching 2 new products in quarter 3 and quarter 4, which will complete our portfolio in breakfast cereals. So we believe that we can continue delivering strong category volume growth and achieve segment leadership in center-filled cereals. As you know, we have Kellogg's there in center filled cereals and we also have Tata Soulfull. And -- but we believe we are uniquely placed in this category. We have a distributed supply chain. We have 3 plants across the country. So our freight is good. Our product is outstanding. And frankly, very difficult to compete with. So we expect to continue to see good growth in the category. Page 10, Chocolates. So Chocolates is looking a little lower than what we would have liked it to be, but we did have to test out to see how far we can go without advertising support. So we had mentioned this to record 2 quarters or 3 quarters ago. And so Duo continues to steadily gain distribution. We started there for media, we could see, as you know, there were some tapering without advertising. So we started media investment in the month of August to support the task of consumer acquisition. Roll out of the INR 5 pack is also underway to further expand distribution. We will build on this. And we are working to increase our share of the INR 1,000 crores Gifting Market with the Moments pack, which is priced at INR 100. So gifting is a big part of chocolate, depending on what data point we use the number of the share, the Gifting Market at consumer price where we evaluate anywhere between INR 800 crores and INR 1,000 crores or INR 1,100 crores. It doesn't really matter for us. These are large enough numbers for us if we get a reasonable share of it. So we are, I think, close with -- we've launched our most aggressive gift pack so far at INR 100, and I think it should do well. At the time that we launched actually, there was only another -- only Cadbury had INR 100 gift pack. And I believe they have also moved the pricing right now. So they may revisit their pricing depending on -- or looking at our move, but I think it's a nice pack and we'll test it out. Obviously, gifting, the mastering gifting business will takes time, but I'm sure we'll get there. And we are on track for capacity expansion in FY '24, which is capable of supplying volume for INR 100 crores business plus, that is only about INR 100 crores next year, but we wanted to have the capacity for that type so that will give us some flexibility. Chocolates is a difficult product to make, right? As I mentioned to you very often, a single [indiscernible] made [ 258 ] over a period of 4 days. As one of them lands in our products, we got a challenge. That is why it's a high profitability business. You could survey and access to MCA the P&L statements of Mondelez, of Hershey's and Mars, you will see it's a category with 60% gross contribution. 60% gross contribution -- 58% to 60% is very much part of the course. So everybody would like to do it, but to be actually able to build the manufacturing capabilities and to build a supply chain, which can handle that, it is incredibly difficult. I think we've done a large part of it. And we know that we need to be very, very careful because we have a lot of things at stake in the future on this category, because if we want to drive our gross contribution from 46% to 48% to 50%, then chocolates has to play a very significant role on that. So we just need to be very careful as we progress this, but in good shape overall. Okay. if I could request you to go to Chart 11. Now this is a chart which is useful and may helpful answer a lot of questions as we think about new categories, okay? What we've done is the last year in each category is FY '23. So year 15 for peanut butter is FY '23. Year 12 for RTE popcorn is FY '23. Year 5 for Breakfast Cereals is FY '23. And year 4 for Chocolates in FY '23. Now you can go backwards and arrive at whichever is the year. Okay we did want to give precise data in volumes in terms of revenues, right, because that will be -- that I think would not be good from a shareholder standpoint. But we wanted to give you a perspective on how long it's taking for us to build new businesses. This is a comment or question actually that is often asked to companies by the Street because everybody wants to know. I saw a recent interview with one of our investors have sent where we have somebody from Tata Soulfull, they say, but you are building these businesses, but they're very small and she correctly answered the question. She said, look, these businesses are small today, but we need to have multiple businesses which are going to grow so that when the time for investment is right, we can invest behind this business and she was absolutely spot on, right? So if you see here, in the case of peanut butter, we crossed the INR 15 crore mark, somewhere around year 7 and year 8, right? And you can see in the early years of probably under INR 10 crores, approximately. So we don't need to know the precise number. Oddly, in RTE popcorn also, it happened around the same time. It happened about -- after about 8 years, we crossed the turnover of INR 15 crores. And if you see the prior 5, 6 years, the first 3 years, it was hovering. Now what is that number? I mean, I wouldn't be able to recall exactly, but let's say, in the region of INR 4 crores, INR 3 crores, INR 5 crores, something like that. And somebody was asked me this question, I remember on Chocolates front. This is such a small business what are we doing with it. The answer is that we need to continue to manage these small businesses, refine it, address the product issues that we are having, it could be anything. It could be in recipe, it could be fat, it could be sugar, it could be ingredient, right, it takes time to figure out businesses, right? They don't come out of an excel worksheet with the linear formula apply, right? That is why the CAGR is the CAGR, because it has a mixture of many things, right? So you can see here, we crossed the INR 15 crore mark in RTE popcorn around the 8 years. And in Breakfast Cereals, it looks like we crossed INR 15 crore mark in about 5 years and in Chocolates, it looks like we crossed it in about last 4 years, right? So overall, historically, we were doing INR 15 crores in about 7 to 8 years, and now we've doing it in about 4 to 5 years. Now come to the INR 50 crore. If you look at peanut butter, we as per this chart, we crossed it or reached it probably around year 11, right? And if you look at RTE popcorn, also we reached it about the same time, year 11, year 12, right? So what this means is that each of the new businesses that we are building up, we're building faster. The earlier ones to pass, it took us INR 50 crores to reach -- it took 11 to 12 years to reach INR 50 crores in the case of peanut butter and popcorn, we certainly look like we're going to do a lot faster when it comes to Breakfast Cereals and Chocolates, right? Part of that could be due to the fact that our distribution reach is now much wider, right? At the time when we launched peanut butter, our coverage was probably less than 100,000 stores, right? Today we are at about 0.5 million stores. Part of it also could be that our bandwidth, our manufacturing bandwidth, portfolio bandwidth, it's far greater today than what it was 10 or 15 years ago, right? So overall these trends are looking good. Having said that, they definitely need to be much faster, because as our revenue grows to have an incremental growth in our revenue, we need the new products to go faster and faster, right? In other words, if we are at INR 15 crores, we are doing 8 years, 5 today, or 4 to 5, we would probably be able to do it in 2 to 3 crores. But having said that -- 2 to 3 years, right? But having said that, it has to be done profitably, right? So if I show you some examples going forward, money is not necessarily the answer, right? So if you look at our competitor in peanut butter, they've spent INR 140 crores already, right? And probably that turnover is in the region of INR 20 crores, INR 25 crores. That's our estimate. Maybe it's right, maybe it's wrong, we don't have access to meet some data, right? And so it's -- is it by our model, the profitable business, the answer is no. Similarly, if you look at one of our other competitors in breakfast cereals, there was -- they spent INR 40 crores already, right? And after a couple of years, the business is still probably in the region of INR 5 crores, INR 10 crores. So we certainly don't want to have an unprofitable business, because we need to build our 15% foods EBITDA margin business, right? And we're building it from scratch, okay. But we need to do it faster. So the good news is, the new businesses are going -- are growing much faster than the older businesses did. And obviously we don't have to be satisfied with it, and we should speak to do this even faster. But this will also help to answer that chocolate spread question, right, which was -- I was asked to me some quarters ago, which is, yes. Some of these businesses are going to be at INR 3 crores, INR 4 crores or if you look at pasta, we go to a 7%, 8% share of category in the stores that we were, but we have to change our resources and we had popcorn. So is it -- these businesses are going to be initially a small level. We'll gradually get the business model right. And then we have to get for those opportunities and those opportunities come. You can see in peanut butter, the opportunity came suddenly in year 9, there was huge jump. If you look at ready-to-eat popcorn, the opportunity came between year 10 and year 12, right? So there's an old, I think Chinese saying in this that the opportunity will come, but you have to be prepared for that opportunity. You have done all our homework and be ready. And that's exactly what -- how we are working to be ready and then in time we will have multiple businesses, which will be INR 13 crores, INR 15 crores, INR 20 crores. But the good news is we don't have to then acquire money and spend money to buy businesses to drive. We would have already -- these 3 stapling would have been planted and there'll be smaller trees by then and ready for A&P support. Okay and I hope that has helped to answer many of your questions on new products. I request you to go to Page 12. Total Staples volume is flat to prior year, supported by Mass Staples and adjacencies. Roll out of oats and almond continue. We also did some rollout of honey, but we had some product issues. So we ended back and we just regrouping, and we put that out. Adjacencies, these adjacencies of oats and almonds support both increased efficiencies in procurement and the health of our distributor network, right? And we have significantly mitigated the impact of lower edible oil prices on total ATFL and distributor revenue. Distributor revenue isn't important for us. One of our investors ask us the question about you said that you will exit Mass Staples or bring it down to about 5%. It is in the region of 5%, 6%, 7% of our business, right? But we do need to ensure that our distributor health is important, because in India, the most visible thing is to build up a distribution infrastructure, and you need to manage it very carefully because that is the future of the company, okay? All right. So I would request you now to go to Page 14 of the presentation, snacks competitive spend. You can see here that spending steadily INR 1 crore a month, right? And so we are spending back in the INR 9 crores, INR 10 crores region. Last time also we spent about INR 9 cores, we have now about INR 10 crores. There is one interesting data point that's coming out from this chart. If you look below the Yellow diamond level, right, in this chart, Cornitos, Too Yumm, Balaji, Bikaji, Haldiram, Pipo, lot of zeros. Lot of zeros, right? And even somebody like Too Yumm, who used to spend a lot more money, but there is no money right now. So this is a trend that we are seeing in multiple categories, right? And I'm not sure what is the reason for this. But it is clear that basically the smaller players, I think, in these segments are not spending the way that they used to do. What would be the reason for that over time, I'm sure we will better understand. But there is some messaging which is -- message which is here. But overall from our side we have continued to spend at the rate of INR 1 crore per month. All right if I could request you to go to Page 15, you can see competitive spends here. Obviously, the spend is dominated by H12 with Kissan Jam and Kissan peanut butter. They continue to spend at a very aggressive spend. We continue to have steady spends at much lower level. But again, here, across segments, lower spends, smaller players are less visible. So if you look below, let's say, the Dabur Honey level, you'll see it's a sea of zeros. There is one INR 14 million, INR 1.4 crores, which Hershey's spent in April. Otherwise, everybody is off, right? So there's clearly some stress on in the system, and we will -- as I said, we'll seek to understand this better. In Breakfast Cereals, primary spending continues to be by Kellogg's, but we have obviously started our spending in June this year. And we spent about INR 2 crores. So the September figure is not here, but we spent another INR 50 lakhs there. Nestle has moved their advertising investment, they spent INR 40 crores in total, but they moved the investment from Koko-Krunch, which I think is the brand they use in Southeast Asia too much, which is a chocolate brand. So presumably that is to try and get some benefit of the Munch brand, right? And we'll see how this goes. But overall, I think the primary spender still in this category remains Kellogg's. And we will continue to invest at our levels to be appropriate. In Chocolates, competitive spend primarily dominated by Mondelez by far, by far, the leader in this category. We have started investment behind Duo. And again, across segments, within Chocolates also, smaller players are less visible. So if you look at the spends that people like Hershey's, we look at by even to an extent Ferrero, if you look at Mars, definitely spend levels are lower rates. We see a lot more zeros there. And including when you look at the last 2 rows, which is IDC. So let's see, as I said, some messaging there, which is indicated. At least at this stage, we can see people are not spending that much. Why they are not spending that much is something that we'll seek to understand. In edible oils, pretty much this quarter, at least on 0 spending by the premium edible oils share. We were already at 0, but many also now at 0 as per this chart and compared to 100% a decade ago. So when we told you in earlier years that, look, this whole premium edible oil businesses is not a great category, and that is why we want to build out the foods business. Then if you told us as you know, well, we don't really agree. That is a proof of the putting it in the eating today. When the category has 0 share of spending, then the answer is in your sales, right? Bottom line, not a great category and I think we did absolutely the right thing to be able to focus on foods. So overall summary, therefore, year-to-date food volume growth reduced to 6% due to a softer quarter too. All the actions are in place, particularly in ready-to-cook and spreads, so that we can get back up to double-digit levels. Gross contribution starts to reach 40% level for total company. But more importantly, foods is at a historical level of 46%, right? And that's the one that we need to track because that's the 1 over time we need to get migrated to the 48% to 50% range. Impact of lower edible oil prices partly offset to growth in food, adjacencies in premium staples and higher shipments of mass oils. And we are working towards enhancing the food growth by executing required actions, particularly in ready-to-cook and spreads, right? So that, I think, completes the overall review by category. We would have already seen the P&L results, which I touched upon, I think, in Slide #4. If you look at the details of the P&L, with some increase in employee benefits, right? But I would say not that significant. And advertising and promotion, certainly, we have increased versus prior year. So you can see the impact of that. Like last year for the half year ended 30th September, if you look at this chart, our results, it is INR 10.92 crores, which is about INR 11 crore, which has now gone up to about INR 15-odd crores. So we added about INR 4 crores and a lot of that is in this quarter, right? And yes, on a year-to-date basis, profit before tax and profit after tax is up, but we covered that in the quarter, specifically quarter 2 was down. Okay. So I think with that, Ajay, we've completed. Hopefully, we haven't taken 40 to 45 minutes of the total call time. So if you manage in 35 minutes, I think maybe we can close this [indiscernible]. But I'll go over to you and whatever you to want to do. Thank you.

Okay. We can open the floor for Q&A session.

Okay. Thank you.

[Operator Instructions] The first question is from the line of Dhwanil Desai from Turtle Capital.

Sir, I have 3 questions. The first one is, this quarter we have seen a sharp jump in ad spend and in one of the earlier calls you have indicated that because of the P&L constraint, our ad spend was around 4% to 5%, which eventually will take it to 7%, 8% of our food business. So I think we have roughly in that range. So should we expect this kind of a 7%, 8% spend to remain? And kind of does it also mean that the incremental gross margin will get out back into the ad money? And a question related to PAT is that if we spend more money on the advertising, does it mean that whatever historical growth that we were having around 17%, 18% CAGR, will it add to that? Or we need to spend this money to kind of get to that 18%, 20% growth? So that's my first question. Second question is the chart that you have depicted, which was quite very informative as to how many years it takes for the product to go to INR 15 crores and INR 50 crores. So in this life cycle of a product, how does it typically work? After a certain critical threshold, do we see any hockey stick effect and whether the threshold is INR 50 crores, INR 100 crores, any thoughts around that? Any observations from your experience if you can share? And the third question is on oil business. So oil business, we were clocking around INR 70 crores gross margin on an yearly basis and we had said that we would want to maintain a number around that. The only contrary that I see that is that if we are going for maintaining the gross margin, then essentially, we become slightly less competitive to our peers and then we lose volume. Then if you lose volume, then again, getting back that market shelf space is very difficult. So even in the catch-22 situation where it becomes difficult to cling on to a steady state, gross margin, in our commodity business. So these are the 3 questions.

Thanks, Dhwanil, they are all awesome questions. I want to complement you for your thorough understanding of the business, okay? So well done. And by the way, some of these questions are also what the Board of Directors asked me yesterday and they will post full marks to you. Okay. Why don't we do one thing? But we will take it in the order which we get. See, if you look at our year-to-date A&P spend, it is in the region of about 7.5%. If you take 6 months data, okay? For quarter 2, it's a little higher, but 6 months is 7.5%. We remain committed to say 7% to 8% is what we required. That's the range that we've always given you for the last many years, and it remains our range, because we will never make an EBITDA margin out of 15%, out of 12%, 13% A&P business. It's just not possible. And there's enough data, you can look around at other companies. It doesn't work, all right. The underlying assumption is here, is that our P&L should be able to support it, right? So when we talk to you later in November, we'll talk about this, right, which is that we see 7% to 8% is a reasonable range for us to support that 18-odd percent growth. That CAGR of 18%. So that answers the first part of your first question, right? It is required. Because remember, as we become larger, the impact of innovation as a percentage of total is [indiscernible] right? Today, when you are a smaller business, you can do an innovation, let's say, INR 5 crores, INR 10 crores, right? It will make a delta impact, right? But when you are at INR 2,000 crore business, a INR 4 crores, INR 5 crores business is not going to make any impact, right? So you are going to need to spend those advertising dollars. Probably over a period of time, our share of business coming from media, which is advertising driven relative to share of innovation will change. Today it is about 50-50. But we cannot expect that INR 2,000 crores or INR 4,000 crores, it will be 50-50, but that's why we are building up all these other small businesses, which by that time will be INR 20 crores, INR 30 crores. So they are already advertising grade businesses, right? An example could be chocolate spreads, an example could be pasta, whatever. The key underlying assumption, however, for us to maintain the key risks to our ability to maintain the 7% to 8% is what's happening on edible oil margin. As you can see right now, our edible oil margin is pretty good, right, okay? And we are definitely tracking higher probably than that INR 70-odd crore number, 70-plus minus number that we gave you. But it's a commodity at the end of the day. It's a single commodity, right? So it's going to have challenges. And therefore, wherever we have got if we look back historically, whenever we had the opportunity, the first thing that we did was we invested behind that, right? But that doesn't mean that there are no risks. If edible oil margin comes under pressure, it's possible we will not be able to afford the 8% level or 7.5% level. But let's see, that's what so far so good. I'll go to question #3 because that's related, right, on oils, as we are on oils and then we'll come to that threshold level question. On the volume impact very much so, absolutely. This is our exercise on a day-to-day basis that we keep doing, right, which is, okay, what's the volume impact, how much margin, because at the end of the day it's not a market, which is only center of oil. There's a lot of competitors in the market, right? And as you can see, many of them send big advertising box. Of course, they are all the mass oil category, but they are spending money. Maybe they don't see themselves as mass, maybe they see themselves also as premium, right? So we have to keep an eye on it, and it's an ever ongoing work in progress, right? I think the only answer to this is for our food to dominate the total gross margin contribution. Once food contributes to 75% to 80% of our total gross margin, then I think the impact of that edible oil margin will reduce. So that is the answer to your third question, because we just need to keep doing the foods, invest behind it, more distribution, make it 75% to 80% of the business because that edible oil is always going to be there, it's always going to go, right, because it is a commodity, okay? And lastly, on your question on threshold, so this is the question actually that Pedro, who is one of our Director from Conagra Brands, [indiscernible] because we showed the similar charts of course in the board meeting we had all the detailed numbers, but it is the same chart in the sense. And you said, so what's the story, what do we expect at INR 50 crores, where do we expect INR 100 crores, INR 200 crores, and so, I think at INR 50 crores business that has become viable. It's no longer losing money, but it's cross the threshold of where the company is investing a lot of time and money. The margins start to come through everything. We are obviously -- for the same categories when we were discussing at the Board, we have the margin data also, right? So we are looking from that context. And then as I've already said, at INR 200 crores, the businesses are incredibly profitable -- at INR 200 crores, we're incredibly profitable. So our ready-to-cook popcorn business is there, right, excellent business, a great business. And so INR 50 crores, I think, is the first milestone where you say, okay. I'm now out of the -- if you will -- there is a base investment phase, I think I've got my business model right, everything is working. And 200 is where it probably -- it's a great business. And that's why INR 1,000 crores, we need to have about -- businesses of about INR 200 crores. Now for them, for some we may choose to consolidate. Like I said, on RTE cereals, maybe, if I want scale on these 2 categories in the plants format, maybe I'll combine these 2 for calculating the scale at the INR 200 crores and et cetera, et cetera. So there'll be -- it won't be as simple as black and white, but it will be there, right? And yes, I think that hopefully answers the question. That doesn't mean that INR 150 crores to INR 200 crores is always a smooth ride. On popcorn at one stage, we had 40 competitors, right, like we are right now seeing on peanut butter. We have a competitor who is spending a lot of money, but we've also done our best. We know that [indiscernible] volume and doubling every 4 years we are okay, because nobody can spend money indefinitely. When the money spending stops, we will take up the pricing. Our margins will come back to where they were. So I would say, yes, INR 50 crores is a first milestone. INR 15 crores is another important milestone because you remember, many of you have asked me at what level do you start to invest some media behind the product, and INR 20 crores, I remember I have always given you. So if you see both Chocolates and Breakfast Cereals are heading towards that -- it's in that INR 20-odd crore mark. So that is why we have started investing. We will not be investing in brands at INR 5 crores or INR 10 crores, like chocolate spreads right now. We'll get our business model right, we'll grow them. We'll have a decent distribution and then we'll evaluate what is the stage at which media support is required, okay? I hope that answered many of your questions, but thank you, they were very good.

We have our next question from the line of Vivekkumar from Bestpals Research & Advisory Llp.

I also have 3 questions. Like our food growth is -- as of now, I'm not talking about when we are at INR 2,000 crores or INR 1,000 crores, as of now dependent on spreads and ready-to-cook popcorn growth. So first, this may be a wrong assumption, but ready-to-cook popcorn, are we -- is it because of the COVID days that we are having a small growth? Or is it there are some new competitors and we have to -- like what we are doing in spread, we are thinking of other things and strategizing so that we will get our growth back? That is my first question on the ready-to-cook popcorn. If it is because of this COVID growth and because it's the most distributed product among all our food products, so when will we start seeing the growth? Because foods growth is mostly dependent on that also moving the needle. Second is when will we start having the flywheel that you are trying and you've been explaining for the last 5, 6 years of how you are introducing, why you are doing at INR 5 crores product, INR 15 crore, INR 50 crore? And when do you think will get -- become a company where I think you slightly answered the previous answer of that foods gross margins becoming 70%, 80%. Then we'll have a flywheel that will have a continuous -- at least the basic growth would be 10% to 15%, and good times will grow 25%, 30%. And when we leave -- and what factors do you think will lead us there? Can you give us some picture on how companies will look like -- should look like for us to have that? So let's -- those are my questions.

Thank you. You're spot on. And this is a comment that Jim, who is our Chairman, made yesterday. James was only discussing the financial. Obviously, the new categories are going to build up over time, right? But for now we are very dependent on ready-to-cook on spreads. And so where do we go from there. So I'll try and give you a number, okay? If it helps, okay? Because I can't give you the exact. But if you look between April '19, so there is a big COVID impact there, right? I mean, then I'll walk you through the conversations of what Jim and I had during COVID. April '19 and you look at today, our ready-to-cook volumes have doubled. So over a 4-year period, we got a doubling of volume, which means at 16% CAGR. Because 16% means you double it 3, 4 years. Now as COVID hit, most food companies had a choice, right? We were sitting on elevated consumptions, right? And therefore it produced more profits, right? And at that stage, we have a choice. Do we allow that profit to slow down to the shareholder or do we recognize the fact that these are elevated basis and they can come down dramatically if we don't actually expand our consumer base in that period. And for that reinvestment in advertising and reinvestment in, if you will, distribution. Although distribution during COVID was difficult to invest in, because there was so much work from home that obviously we were not in a position to drive that completely. And that's exactly what we did. So Jim and I talked about it, I think we're going to invest, right? And a lot of CEOs in North America didn't do that, right? They say, we'll allow the profit to flow in, right? But the consequences are clear. We've got a business, which is today double of what it was 4 years ago. And that way, if you look at our competitive spending charts on Slide 2, you will see that in FY '20, we were at INR 4.5 crores on H2. Go to the next page, all right? And in FY '19, they had come down to INR 3.8 crores because there was a lot of pressure that I was telling Anil just now about the edible oil margin, et cetera, et cetera. And we took that advantage and up the strength to INR 10.4 crores. If you look at FY '21, INR 10 crores in FY '22 and INR 9 crores in FY '23. This, we believe, has enabled us to actually continue to grow, meaning have this stagger of 16%, 17%, right, and avoided possible falls in consumption because we were able to expand our consumer base. And our read is that for companies who didn't do that, who didn't invest during COVID, and this is very visible, a lot of examples in North America. So volumes are actually down today, right? So that's why we are very comfortable. That's why I talked about the instant popcorn growth. I needed to do deconcept that chart for all of you. Expect that 5%, 6%, 8% to 10% is what we need. So we just keep investing, we should be okay. We need to understand this for ourselves as well, so that as management, we know we're making the right decisions. On spread, I think it's a very simple chart, explained very simply. You've seen the numbers. You've seen that [indiscernible], it's a significant investment by somebody who spend INR 140 crores in a category, which is just a few hundred crores, right? And we had to take the best management actions that we could take, which was taken. I believe these come out very well. And honestly, if we double our volumes pre their launch, our manufacturing cost structure will be much better. We'll have a good share and we will be able to therefore take some pricing. When exactly do they stop spending. That's a question I can't answer. You say good. All right, okay? So it could take more time, a lot more time, let's see. Let's see how it is, okay? On your comment on the flywheel if you will. I think to an extent, Anil's question also was in the same space as you've also mentioned. I think, look, a meaningful -- I've always said a meaningful size of category. So that is about INR 200 crores. If these categories worth about INR 200 crores, I think each one of them is very sensitive, right? So multiplied by size we're in size categories that INR 2,000 crores. Now it won't happen exactly because ready-to-cook is already that much larger, right? Peanut butter and ready-to-eat are also larger than Chocolates and Breakfast Cereals. So we can make projections. But broadly, I think INR 200 crores, INR 1,000 crores is where the whole piece should fit in. At that level, if you assume a INR 250-odd crore oil business, for example. That means about 80% of our business is foods. At 80%, that also ties in with Anil's question, that we are much less reliant on the oil business for margin and also the overhead absorption for SG&A absorption. So we'll talk more, I think in the November we'll talk to you about what the road map on EBITDA to get to that 15% to 20% range, which structurally we have our business for that. That's the time we can ask more of these questions. Thank you, Vivek for asking. Okay, Akshay, back to you.

We have our next question from the line of [ Vimal Sampath ], an individual investor.