Marico Limited (531642) Earnings Call Transcript & Summary

Ladies and gentlemen, good day. And welcome to Marico Industries Q1 FY '21 Earnings Conference Call, hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Anand Shah from Axis Capital Limited. Thank you, and over to you, sir.

Yes. Thank you, Janice. And good evening, everyone. On behalf of Axis Capital, I welcome you all to the Marico Q1 FY '21 Earnings Conference Call. We have with us the senior management of the company here represented by Mr. Saugata Gupta, the MD and CEO; Mr. Vivek Karve, CFO; and Pawan Agarwal, EVP and Head, Finance and IR. Before we start the call, I would like to remind you that the Q&A session will be for the institutional investors and analysts. And therefore, if there's anybody else who is not an institutional investor or analyst but would like to ask questions, please directly reach out to Marico's Investor Relations team. With that, I would like to hand the call over to the management for the opening comments. Thank you, and over to you.

Yes. Hi. Good evening to all those of you who have joined the call. I hope all of your friends and family are safe and healthy. We continue to cope with these unusual times with COVID-19 rapidly spreading and severely effecting the lives of every section of our society. We, at Marico, have been striving to take utmost care to ensure health and safety of our people and are partnering with our associates and other stakeholders to help them navigate through the challenges posed by this pandemic. Marico has pledged already INR 7 crores to relief activities and is participating in various rehabilitation initiatives. We remain committed to providing the best possible support to the people associated directly or indirectly with Marico at this time. I would start with a quick brief on the quarter gone by and the outlook going forward before I leave the house open to questions. With the extension of the national lockdown in India, April was nearly a complete washout month for most categories, other than edible oil foods and hand sanitizers and coconut oil to a certain extent. We could resume billing -- meaningful billing of value-added hair oils much later in the month and recorded almost no sales in premium personal care. However, since then, as restrictions eased, the business has seen a smart recovery in May and June, with overall India volume growth growing by 3% in these 2 months on a year-on-year basis, and we continue to show growth in July this year. Typically, we clock a higher share of the annual revenues in quarter 1, not due to any seasonality in the portfolio, but on account of certain drives taken to start off the year on a positive note and building in momentum for the balance part of the year. However, in FY '20, the quarter 1 SKU was further accentuated to about 31% because of a good quarter 1 and subdued performance during the rest of the quarter, which was a function of the external environment and a few internal misses in our portfolio and pricing in Q2 and Q3. Since April this year has been an anomaly, as I just explained, comparing our quarter 1 performance with the base quarter will not be the ideal indicator of the underlying demand trends. Therefore, we believe it is pertinent to compare quarter 1 FY '21 performance with average monthly run rates of FY '20 to get a better sense of where we are. The India business clocked sales at 104% of FY '20 average run rate for the quarter, while optically, volumes were 14% lower on a Y-o-Y basis. We continue to strengthen our market position by gaining market share in more than 90% of our portfolio. We will be extremely aggressive in driving market share gains in all the core and some of the high new tailwinds, new portfolio this year. As we speak, we have experienced growth in the last 3 months, that is May, June and July, and we are confident that we'll carry the momentum and deliver growth for the balance part of the year too, provided, of course, the COVID situation doesn't drastically worsen from the current position. Notably, our secondaries have been in line with the primaries, and we have not resorted to the upstocking or distributors of the destocking in the last couple of weeks of March as well as in Q3 previous year. Given the tough macroeconomic environment, we continue to operate at lower distributor inventories to ensure ROIs of our channel partner is optimized. And we will review the option of restocking if at all when the situation improves. Heightened social distancing norm and travel restrictions worked in favor of neighborhood kirana stores and e-commerce, while modern trade has degrown. We are now beginning to see some improvement in modern trade, but would expect the channel to underperform if COVID situation worsens. CSD business was down nearly 50%, being about 7% of the business, it translates to about 3% volume growth being shaven off. Given reverse migration of labor, government stimulus, good rabi season and no adverse impact on agricultural output during these times, rural in quarter 1 grew at 120% of our FY '20 monthly run rate, while urban, including alternate channels, was nearly at par. We expect this trend to continue in the event of a normal monsoon season. Delving deeper into the India business. Parachute has clocked at 111% of annual average monthly run rate of FY '20. Given the skew and the high 9% base, the brand reported 11% drop in volumes year-on-year. We have seen very healthy traction in May and June, given that the brand is trusted by consumers for purity and hygiene attributes, which have gained even more significance today, giving them all the more reason to switch to trusted leader brand from loose oil. Parachute's latest untouched by hand campaign throws light on the hygienic processing and safety credentials of the brand. With copra likely to be mildly bearish, we shall look at passing on the value to our customers in pricing and drive accelerated conversions of loose oil as well as gain market share in view of the lower disposable income in consumers and a lower competitive activity amongst the smaller players. In value-added hair oil, the portfolio had a rough start with meaningful billings resuming only in the last week of April and fall in demand for premium oils. However, May and June has seen significantly healthier trends with the franchise growing in May-June period on a year-over-year basis, led by mid and bottom-of-pyramid segment. We continue to show some growth in July. We clocked 94% of the last year's run rate, but had a sharp decline on a year-on-year basis. Nihar Shanti Amla Badam continued to gain salience and lead the way for the franchise. Among the newer offerings, Parachute Advansed Aloe Vera also showed promising signs in June and July. In current times, while our consumer wants trusted brands, she may be willing for a lower outlay of spend. Therefore, it is pertinent to be able to offer value to the consumer at lower price points. We shall aggressively engage in pricing and tactical plays in the lower unit packs to drive growth. We are encouraged by June offtake data, which suggests that the hair oil category is now tracking ahead of pre-COVID-19 levels, which is December, Jan, Feb. Our three-pronged strategy of gaining market share in the premium segment driving value in the mid-segment and aggressive pricing in the bottom-of-pyramid segment shall continue in the near and medium term. Saffola Edible Oil continued its healthy run, growing 16% in value and volume terms, the strategic shifts in pricing and promotion in the portfolio and effective brand communication over the past few quarters have allowed us to capitalize on the heightened health consciousness and increase in home cooking. We believe the shift in Saffola's penetration and reach should sustain and will continue to invest towards delivering value to our consumers to build it further, especially with increased cooking at home. However, the potential 20% Saffola growth, which we are expecting was partly stunted because of CLT and modern trade, which has a high saliency. The base foods business, which is Saffola Oats and Savoury Oats had a robust 41% value growth. Saffola Masala Oats continues to gain salience at an accelerated pace in current times. We will continue innovation of newer flavors to delight our consumers. We have made a fresh foray into immunity within the food segment with the launch of Saffola Honey. Every batch of Saffola Honey Undergoes international standard NMR test, bringing consumer export grade quality honey free of added sugar and any impurity. The premium personal care portfolios of premium hair nourishment male grooming and premium skin care recorded sharp declines, given the significant fall in discretionary category sales. While some green shoots are there in June, we will lie low and closely monitor these categories to our sharper near-term outlook and strategy. These categories, however, continue to remain high-growth engines from a medium-term perspective as and when things normalize. On the hygiene segment, Mediker hand sanitizer and Veggie Clean have started well. We have had some agile launches in House Protect and Travel Protect and KeepSafe by Marico, primarily in e-commerce to cater to the need of sanitization. In the current quarter, hygiene portfolio contributed to more than 1.5% of India turnover. Coming to international, the business fared better with the top line growth in 4% -- top line down 4% in constant currency terms, supported by a sturdy 10% constant currency growth in Bangladesh despite the state of lockdown in the country. The non-coconut oil portfolio in Bangladesh continues to grow in high double digits. For supporting the needs of health and hygiene, Marico Bangladesh has launched Mediker SafeLife Hand Sanitizer and Hand Wash. We have also introduced Mediker SafeLife Veggie Wash, a fruit and vegetables cleanser. Further broadening of the personal care play, we launched Parachute Natural Shampoo in 3 variants, Nourishing Care, Damage Repair and Anti Hair Fall. Vietnam has been probably the least affected countries in the world and business is gradually coming back to normal. Offtakes in discretionary personal care have been slow, but we are optimistic of a recovery going forward. On the other hand, the pandemic-led restrictions has further weakened the macros for MENA and South Africa. We remain cautious on this business in the near term, but we'll be aggressive on cost management to keep them float. And we believe, based on the current trends, the situation of decline is improving in these markets in June and July. A&P spends was at 7.1% of sales as we rationalize spends in the discretionary portfolio and we are able to attain the desired share of voice and impact more effectively. There was a visible shift in spend from non-media to media channels, a trend that will continue in the near term. Spends in April by minimal given the circumstances, but we continue to invest in growth in the core portfolio in light of the improving traction during the rest of the year. So to give you a perspective, the core portfolio spends in May and June were at 90% of newer levels, all the cuts were mostly in the discretionary part of the portfolio and to the non-media part of the portfolio. In addition, we also rationalized trade spends accordingly, keeping a tight control on cost fixed overheads was lower than last year, excluding one-offs. As a result, EBITDA margin was up 300 basis points. With A&P and trade spends likely to perk up, we expect operating margins to be 20% plus for the rest of the year. To summarize, a larger trend that we have seen so far is that staples and select tailwind categories have done well while discretionary FMCG has suffered. We saw some of them recovering in June. Steadily improving trends is testament to the inherent strength of our core franchises. We will build the hygiene portfolio with a significant acceleration in e-commerce and digital spends. In hygiene, we believe the key to success in this overcrowding category is differentiation, and we will continue to build this keeping this in mind. We expect the hygiene business to be shaping up into a INR 80 crore to INR 100 crore portfolio for us this year. We also aim to make a quantum leap in foods, and we will eye bigger tailwind categories with market share gain opportunities instead of getting into niches and creating categories. With more in the pipeline for this year, we expect to clock INR 300 crores to INR 350 crores of food business this year in the overall food segment and then gun for INR 500 crore business in foods in 2021, '22. Availability, agility, strong brands rural distribution are going to be sources of competitive advantage. With a series of fresh lock down in various areas, Q2 may turn out to be more volatile than Q1, but we are geared up for times to come. We expect to post growth for balance of the year, and will strive to end flattish at annual level vis-a-vis last year, provided the COVID situation doesn't drastically worsen. The crisis has presented opportunities for us to structurally reset certain costs with newer ways of working, including working from home, automation, smaller assortment. Further with SKU rationalization and spend rationalizations, we are affecting a huge cost transformation across the company. The significant cost leverage generated by mildly bearish input costs and cost transformation shall be channelized into defending and gaining market share. On the international front, while Bangladesh is on a firm footing, we will focus on the rest of the markets to steady the ship and broad-based growth. We see these growth trends in most of these markets in July [indiscernible] to be one of the key building blocks in our journey. In these unconventional working conditions ensuring that motivation and engagement levels stay high has gained even more significance. In this direction, we have been working with our members through a variety of engagement sessions and facilitating medical and emotional well-being through professional aids. We are pleased to be recognized amongst India's 5 best workplaces in FMCG as per Great Place To Work Institute and featured in the top 25 Most Desirable Companies To Work For In India across all sectors. Before I conclude, I would like to say that we have been fairly resilient so far and we shall continue to adapting to the dynamic environment and any deep-rooted changes that the pandemic may bring in consumer behavior. I would like to congratulate the entire team, in particular, the frontline members in sales, manufacturing and supply chains for the exceptional level of great agility and spirit of collaboration that they continue to exhibit. It is this passion that enables Marico to keep punching above its weight even in the face of unprecedented changes. Lastly, I would like to use this forum to thank Vivek for his immense contribution to the Marico growth journey for the last 20 years. He has been a great colleague and has been instrumental in shaping great standards of transparency in investor communication, ethics and governance at Marico. We wish him all the best in his new assignment, and he leaves a legacy and a worthy successor in power. Thank you for your patient listening, and we are happy to take questions.

[Operator Instructions] We take the first question from the line of Abneesh Roy from Edelweiss.

Yes. Saugata, my first question is on the hair oil consumption. What is the impact of work from home because lot of the Indians use hair oil for grooming, styling purpose also? And although lockdown would have ended formally, but still work from home is continuing? And second, earlier, Q1 was supposed to be the start of the recovery of VAHO. Obviously, unfortunately, COVID has happened. Now where do you see -- when do you see the recovery in VAHO?

So if you look at work from home and COVID. First of all, I think as per the data, we, as I had talked in my commentary, the offtake seems to have gone back into pre-COVID levels of December, Jan, Feb, and June. As regards, our consumer trends, what we are noticing, only the premium part of the, which is the non-sticky hair oil, which is used for post wash and used for setting and outdoor usage, most of the in-home consumption or prewash consumption of hair oils is, in fact, increased. As regards VAHO recovery, I thought I -- I mentioned in the commentary that we have grown VAHO in May and June, and the July trends is also showing a growth.

Saugata, one of the other hair oil companies said that in July, last 10 days has been quite tough because, again, lockdown sporadically has restarted. So are you also seeing a similar trend?

So I think the lockdown is not for hair oil, for all companies, I think it has got impacted. As I said, that quarter 2 will be a little more tricky than quarter 1 in terms of far more localized lockdowns. And therefore, we need to be far more agile and resilient. And then the fact that the supply chain, especially availability at the last mile as opposed to. So I believe that I think in terms of -- if you maintain the same kind of agility and the supply chain effectiveness, I think it's a question of whose brands are more available and therefore, gain market share. And therefore, yes, you are right that quarter 2 will be a little more volatile than quarter 1.

Saugata, one follow-up was that if you see there is some bit of seasonality in hair oil consumption in terms of weather impacts, temperature or festivals. And most other companies in Q1 results have given May-June comparison with May-June last year. You have given the comparison on a run rate basis. So wanted to understand why run rate is the right method? And in terms of June, how do we compare to June of last year across the 3 subsegments?

I thought we said that -- I have already mentioned in the commentary, Abneesh, that May, June, we have grown 3% versus last year. So I've given you that perspective. And June and July, also, we have grown in all the categories, most of the categories. As regards to run rate, as I explained, that the reason we've talked about run rate is for us, Q2 and Q3 were slightly soft because of both external and internal reasons. And in Q4, as you know, there was COVID in the March quarter. Therefore, run rate is a better way of looking at it. Having said that, as I said that in May, June, we have grown 3% overall. And most of the portfolios have been growing other than the discretionary part of the portfolio where we continue to face challenges. And seasonality in hair oils is for cooling, which is -- as far as cooling oil is concerned, there's a seasonality in summer, but we don't participate in that category.

Right. My last question is on Saffola. So the base is much softer versus Q4. Q4 base was 18%, on which 25% growth was there. This time, 3% was the base, you grew a healthy 16%. If I see other food players, for example, biscuits, in fact, accelerated to 22% growth in Q1 versus flat in Q4. It is even ITC Foods Plus essentials grew at 34%. Just want to understand Saffola, yes, impact the modern trade, impact of CSD you have called out, but is there any more reason why the growth should slow down on a much softer base?

I think in quarter 4, there was a little bit of pantry loading. I don't think the base -- the soft base is -- I don't think the base was anything softer because you have to see the absolute KL and not the previous year, this one. So I don't think the base matters. So you have to see the run rate sequentially and therefore, I would think that we could have hit 20% plus if the CSD -- and CSD as you know was down 48% and also modern trade because of certain factors -- and modern trade and this one Saffola has a certain skew. But I don't think -- you can't look at the base that way because that 16 to 24 -- 15% to 24% journey or we would have -- we were clocking last year, quarter 4, maybe 15% to 16% before Jan, Feb, and it shot up to 24 because there was a pantry loading that happened in Q4. But in no way in terms of the average run rate, there is a -- in fact, the Saffola run rate we have mentioned is around 116% of the last year's average run rate. So I think even if you consider the base and Saffola started growing, we are doing pretty well.

We take the next question from the line of Manoj Menon from ICICI Securities.

I have only 2 questions. I really don't have 2 questions and ended up asking for before. Okay. So the first is on Saffola and Parachute, wherein we are, one, on Saffola, where there is this opportunity where you're gaining from the work from home or whatever people are staying at home. And same thing in Parachute where the untouched by hand campaign, which is one of the rare opportunities for you to actually present the brand in front of the consumer on ATL, the question here is, Saugata, in your assessment, I'm using your assessment because I'm not sure whether realistically any market research is possible in the last 3 months, what is the household penetration increase? And how much, let's say, as an analyst, I should assume as the CF value-accretive gains what you have got? What I'm essentially trying to understand is, in a normalized scenario, 12 months down the line, whatever benefit we are seeing actually will fade away. And there is a scenario that in 9 months' time, Saffola will actually decline in a normalized way of living. How do I think about the actual household penetration growth currently on these 2 brands?

Let me first handle the Parachute question. I think Parachute, everybody wants to use, I think, brand like Parachute. It's a very aspirational brand, those who are either the consumers who are using local brands or the consumers who are moving from unbranded. I think the biggest, this one is the price premium and, of course, distribution. Now obviously, we have a distribution advantage, and we also are ensuring that all the cost savings that are being channelized towards Parachute pricing, and our net pricing, if we have to give you a perspective, we have taken a 5% to 6% cut in Parachute pricing. So it is not an absolute pricing but through promotional pricing. Now we believe that this is a great opportunity to permanently reset in terms of market share. See, you must realize that we compete with a lot of smaller players. Some other players also are interested maybe in gaining market share. I think this is an opportunity just not through Parachute, but some of our flanker brands do significantly increase our market share. And obviously, and some of that impact of that market share will be permanent. I don't think if we can play the pricing and the distribution. And as you know, also the second thing which we are doing we realized that with the COVID times and also a general dilution of wholesale as a channel, direct distribution, especially in rural is the way forward. And therefore, we believe that most of the market share gains will be permanent. As regards to Saffola, I think it's 2 things which have played on, one hand, a section of loyal consumers have obviously started using Saffola more because they are consuming more oil. But secondly, as I said, that there has been a significant loss in volumes also in CSD and modern trade. Now those 2 are actually going to neutralize once COVID situation normalizes. And I think the fundamental work which we have done in Saffola, whether the tweaking of the pricing, tweaking of the promotion, the new communication, everything, I think fundamentally, the 10% embedded growth is here to stay.

Okay. Understood. So when you say 10%, that confidence comes from a certain visibility on whether it's higher usage, habits changing. How do -- I mean, that's exactly your...

No, no, no. 10% is a question of -- that has to go in penetration, that higher usage, as I said, that in a post-COVID world, if people go back, there are 2 things will happen. I think one is, obviously, people will go back to -- will the permanent shift happen to eating out? I'm not so sure. Secondly, as I said, that when normalization happens, we are definitely more advantaged in a modern trade and the fact that we also hope that CSD will come back to normal. So therefore, these 2 factors will neutralize each other. And therefore, there is no reason to believe that this entire Saffola growth that has happened is going to happen only because of some small set of consumers doing much more in-home cooking. The penetration is also going to increase, as I said, that one of the factors on Saffola increasing volume growth, which as exhibited in the previous year, Q3, Q4 was the right pricing, right communication strategy. So penetration is also increasing. It's just not we are stagnant that penetration and only the entire growth is based on household consuming more Saffola, which will vanish in a post-COVID world.

Understood, and that's very clear, actually. And allow me a lighter question, that's only second one which I have. When I look at these -- some of the new brands, which you have launched, KeepSafe, House Protect, Travel Protect, you know what, you guys have done a brilliant job in terms of getting some generic words exactly as brands. Just curious to understand the thought process which went behind this?

So I think, we were not in a position to extend all our existing brands into the category. So therefore, when you try to establish a new brand quickly, I think if the brand name suggests the benefit, I think half of your job is done.

Absolutely, absolutely, absolutely. All the best Saugata and team actually. I think I genuinely felt as a consumer that the brand names communicate what I really wanted to see as a consumer, and I think the job is 80% done there.

We take the next question from the line of Arnab Mitra from Crédit Suisse.

Saugata, my question was on the trade pipelines. So I think you clearly mentioned that at the distributor level, there has been no upstocking after the destocking which happened. But given that you were not able to supply a lot of products in 3, 4 weeks, the trade pipelines would have got depleted because offtakes kept happening through end of March or April. So in that context, this 3%, 4% growth in May, June or, let's say, even in July, does it give you confidence that it can continue because there would have definitely been some restocking in the normal trade channels given the depletion, which would have happened?

Yes. You -- see, there are 2 ways of looking at it. One, yes, I think the existing outlet, there would have been some -- then that only would be some part of the VAHO portfolio and some Parachute because Parachute we continued to sell in, especially in the south where the situation on COVID was pretty stable in April, May. Having said that, we are unable to -- if I look at -- if I was servicing regularly 100 outlets, we are now being able to regularly service also 70 to 75 outlets. So I think we are unable to service regularly 25% to 30% of the outlets. Now there, we have not been able to stock. So I would say that we have managed to do this number with covering 70% of the outlets, covering with SKUs, which started out with 40%, we are working now with 70% to 80% SKUs. And number three, you have to take it also into consideration that a significant decline has happened in CSD and modern trade. So the GT growth is far higher than that 3%.

Sure. Sure. That makes sense. And the second question was on the launch of honey. So if you could just talk about -- talk through the rationale and how you kind of hope to differentiate versus the leading brand here? And also, is this a -- I mean, given that you're launching in the middle of COVID, you don't have a lot of tools like modern trade visibility or promoter sampling and things like that. Is it a challenge to launch a completely new category in this environment? Or do you think there are some actually positives which may help you in this COVID kind of situation?

I would not like to get into the strategy and differentiation. I think, let that play out in the market. But all I can tell you is that -- I think Saffola is a very strong health equity. And this category is on health and immunity. And therefore, Saffola is a very strong brand. So therefore, anything on health and Saffola, I think, there is a credential. Number two is, we are looking, as I said, there's a shift in our approach to food. If we have taken on the ambition of having a INR 500 crore food business by the end of '21, '22, we need to look at categories which are tailwind, categories which have critical mass, categories with 1 single incumbent with high market share and then the rest being fragmented, where Saffola or a strong brand can play with some differentiation. With modern trade, your concerns, I think I would not think so, because this is a known category. You need promoters and merchandisers, perhaps when you are doing category creation.

We'll take the next question from the line of Percy Panthaki from IIFL.

My first question is on the VAHO portfolio. So just wanted to dig a little deeper on that. See in VAHO, unlike some of our competition, which is purely positioned on styling, our VAHO portfolio has a fair degree of nourishment with the Parachute Advansed and Parachute Jasmine, et cetera. It's like these brands are a combination of nourishment and to some extent, styling, whereas Hair & Care is obviously almost completely styling, but that's a small part of your portfolio. So given that I can understand that if people are not going outside the house, then obviously, the demand for styling will be down, but the demand for nourishment is not affected by that, right?

No.

So I just wanted to understand why we have such a big decline in this portfolio? And also, you mentioned that May and June have not declined for VAHO. So for a 30% decline for the full quarter, mathematically, April will have to be 0 or even negative. What am I missing out in this?

No. So also depends on last year, April's contribution, April, May, June. But we hardly sold in April. We started selling by the only in the last week of April. And as I said, that if you look at the annual run rate last year, I think we are at 94%, 95% of the annual run rate. And if you look at the quarterly growth rates of VAHO last year, it was 7% in quarter 1, 0% in quarter 2, minus 7% in quarter 3 and minus 11% in quarter 4, which ended up with a minus 2% for the full year. So therefore, if you are at 94% of the run rate. And for the full quarter, if I had to dive deeper, May and June it would have been significantly above 100%, which includes some pipeline filling, obviously. So I think as regards the balance 3 quarters, the required run rate to even go flat is around -- it's not much. So in that context, given the fact that we started deteriorating in VAHO because of some of the issues, as I said, out of the -- there were issues in 3 brands, 2, 3 brands, and there was also lack of participation in bottom-of-pyramid. Bottom-of-pyramid, we'll be very aggressively participating. And as far as the 2, 3 brands are concerned, I think 2 have already got relatively fixed and one is almost getting fixed. So I think we are in a much better place in VAHO, but I think we have to show that result over the next 2, 3 quarters. I think we should be flattish definitely to like slight growth maybe in quarter 2, but Q3, Q4, there should be definite chances of delivering growth in Q3 and Q4. But then let me first give you the results rather than telling you something right now.

Understood. And secondly, just wanted to understand on the copra cycle and margins there. Do you think for the full year, on account of copra, there can be any gross margin expansion that you can see?

I think our endeavor will be to get a permanent reset in market share in Parachute and coconut oil. And therefore, any copra depletion in price and deflation we will pass it in terms of pricing. I think we have given a broad idea about the margins. While we have done whatever we have done in quarter 1, we will strive to deliver 20% plus in the Q2, Q3, Q4, balance 3 quarters.

Right, sir. And lastly, on the foods business, INR 500 crores target by FY '22, that seems to be a pretty ambitious target. You are currently what at around somewhere INR 200 crores, right?

Last year base is INR 200 crores. Our quarter 1 run rate is INR 35 crores, INR 35 crores. So with this run rate, if we maintain, that takes us to around INR 270 crores, INR 280 crores. We have launched honey. We might see some new launches in the next 3 months. So INR 300 crores is very much in reaching distance. And then we'll see how the year-ends. So yes, it is ambitious, but we believe that there are 2 things. One is the shift in our strategy to chase tailwind large categories instead of trying to create niche categories. Saffola is an extremely strong brand. And I think in a post-COVID world and the current situation, in-home consumption and consumption of healthy food and healthy habits in terms of people wanting healthy snacking on in-home eating will continue. So -- and we now have a -- I think we broke even in foods 2 years ago. And we now know at least, which is very, very critical in terms of managing supply chain and cost structure in foods.

Right. So, Saugata, if you could just give some kind of flavor. This INR 500 crores, how much of that will be from products, which were not present in FY '20?

Again I don't want to give you this one. But as I said, the base, whatever can -- we have been -- last year also grew 20% plus. This year, we are growing today. The base products are growing at 40% this quarter, the oats. So I think there is very much -- like the base products to get itself to go add to that 20%, 30%, which itself means that this -- the base itself will be around INR 300 crores, INR 350 crores by 2022.

We take the next question from the line of Tejash Shah from Spark Capital.

Couple of questions. So first, Saugata, if you can elaborate on 2 observations made in the investor update that there's an accelerated upgradation from coconut hair oil from loose to branded and then VAHO healthy traction has been observed in the bottom-of-the-pyramid segment. So this is kind of counterintuitive to the macroeconomic environment that you are observing right now?

No, not really. I think it's a function of the ability, see, people are wanting trusted, safe brands, and I think in the case of coconut oil, people want a trusted brand. And number 2 is, I think companies -- with large companies having the agility to distribute and having a supply chain assurance, I think it's a source of competitive advantage. Since we compete with a lot of small players, their ability to distribute. And -- so the combination of a consumer who plus availability, a combination of that is happening. In the case of bottom-of-pyramid in VAHO, it's a different issue where we believe that a significant amount of activity is happening at the bottom-of-pyramid in the case of, especially North and some parts of East end of the country where there's a conversion that happens from loose mustard to value-added hair oil. And because of organized players participating in that, that will accelerate that conversion. And this year, I believe that a lot of small players because of supply chain, working capital and distribution because they distribute a lot through wholesale, they're going to struggle this year.

Sure. So if I understood correctly, in coconut hair oil, it is largely consumer-led and in VAHO, it could be supply-led as well which is leading to this consolidation?

It will be a combination of both. Because I think availability, if we are trying to drive far more availability, it has to be both because the consumer has to get the right price, and the brand has to be available. So we have to -- as you know, Parachute, for example, the rural market share is in the 40%, while urban market share is around 60%. Rural market share is 46%. So there's a huge opportunity, but our pricing has to be right and we have to distribute. People will want a trusted brand, which is untouched by hand and hygienic.

Sure. This was helpful. Second, just one clarification. You mentioned that 90% of the portfolio gained market share. So is it a Nielsen basis or some other source because some other companies said that Nielsen data is not available for the quarter?

So Nielsen data is available for the quarter so as the other basis. In both, we are seeing gaining market share. What we quoted is a MAC number because, obviously, the quarter number -- quarter-on-quarter might not be that stable in quarter, our market share gains are slightly higher, but we don't want to take credit for that because the data might not be stable. So we are quoting on a MAC basis. So at least 9 months gets neutralized in some way. So we have checked from both sources, and both sources are throwing the same results mostly. I think to be fair, just to conclude, I think it's better to -- I think the retail audit will be more stable in the next quarter -- I mean, this quarter going onwards.

We take the next question from the line of Vivek Maheshwari from Jefferies.

Few questions, Saugata. Firstly, you -- in your opening remarks, you mentioned something like first quarter is 30%, not just because of seasonality but also because of -- because you wanted to start on a positive note, I just didn't understand what you exactly meant, sorry?

Last year if you see, quarter 1, we had a very high-growth in quarter 1. We had a -- if you look at the volume growth of quarter 1, we grew 6% in quarter 1, 1% in quarter 2, minus 1% in quarter 3 and quarter 4 was minus 3%. So we started off with a very strong note. We had a very average Q2 and Q3 because of partly internal reasons, partly external reasons. And Q4 compared to the industry, we're better off, but still, it was minus. As a result, your 31% was last year's SKU was heavy towards quarter 1 which is not going to be the case this year because I don't foresee lot of issues internal, we have -- I think we have tackled. And number two, it gets into the base of the lower -- so there will be a lower base in Q2, Q3 and Q4. That's what I had meant.

I see. Okay. And I know this question was asked to you about July and upstocking, and you have clarified that. But my other question on that thesis, when you, by your own admission, say that second quarter can be highly volatile, why would you not upstock? So I mean, in our channel checks, July month has been a bit weakish for the reasons of vertical lockdown and all, but companies have tendencies to actually stock up at the distributor level so that the market can still be feed because the grocery outlet should still be working. So what is your stance because first and second quarter -- sorry, fourth and first quarter, there has been a decent decline in your top line, which means that there is a potential to push up inventory at the channel in case if the situation goes out of control in certain micro markets?

I think when I talk about upstocking, I'm talking of an overall quarter. So obviously, if there are some localized need driven upstock. Having said that, also, as you know that in most of the metros, we are experimenting with a third-party supply chain directly supplying to outlets. So therefore, that stocking doesn't happen necessarily at the distributor point. So professional logistics firms directly supply outlets in most of our metros.

Okay. So that being the case, I mean, there will be enough inventories, what you're trying to say in...

So that inventory will be more at that node rather than at the distributor node. And as you know, we struggled with our urban GTM ROI last year, and that is one of the things we did. And I think COVID has accelerated it, and therefore, we believe that it is better to, given the current situation, to have distributors who are happy with their ROIs rather than give credit and stock more. But I don't think -- but should the need arise on stocking, I don't think we will be shying away from that. But overall, on the average on the quarter level, we'll tend to neutralize it. I think the good thing that happened, Vivek, I think just to also clarify is, at least you are getting a 48-hour notice or 72-hour notice for a lockdown. So that is good enough time for the necessary -- to actually upstock if necessary. But in a general, this one, we might not want to keep it upstocked.

I see. Okay. Okay. Sure. And Saugata, why is Bangladesh so different? If -- apologies, I don't know much about the landscape there. But if the lockdown was as stringent, why the business cycle very different over there compared to India?

No. I think 2 things. I think we have done relatively well. But more than that, even when the lockdown was there, they allowed businesses to run. So we didn't have -- there was -- like their stoppage of, I think, most of the factories and this one, I think most of the times I think the disruption in business was slightly low.

Okay. Okay. And lastly, I know you will not comment about where you want to foray into. But I mean, I just go back to, in Saffola, I remember, I think the rice brand name was Arise a few years back, and there was Saffola Atta mixes. I don't know if those are still around, but do you think some of those innovations were perhaps early at that point of time, and there is a case to look at those products?

See, the problem with commodities and staples are you don't get margin. So anything we want to enter with Saffola has to be a margin-accretive to the base edible oil because those business models are based on high scale. So I believe whether it's in immunity or some other areas there are enough categories, which are typically, say, INR 600 crores, INR 700 crores with single incumbent or opportunity for differentiation, I would rather do that. So one of the things as I said we are deviating from is our fascination to create niches and growing multiple niches because category creation takes a lot of time. And it doesn't give you scale. I think that's a significant shift we want to do in foods. And we, I believe, were under leveraging the potential of the brand Saffola on anything which is healthy in foods. And health also includes immunity.

Absolutely. Just a follow-up on that. So I totally agree, but my simple question is, if that is the case, even if something is margin dilutive, but if it is positive contribution, what's the harm to leverage Saffola brand and then build further from there?

Yes. So I think -- see, just to take a case of rice since you have taken the rice. Rice is also not a level playing field. All the basmatis of the world might not be basmati. And those kind of commodities, we don't want to get into commodities because that is something which we believe are -- there are enough other categories where you can enjoy better margin and scope for differentiation. In this case -- see, there could be a -- one is you have to then get whole heartedly into huge supply chain scale advantages, which we might not have the right now, the -- it will take time to build that capability, whether to get into if we got into branded staples, that requires huge back end capability, which might take time. We are looking at categories, which are slightly more urban-centric. We are slightly more higher gross margin so that is the kind of choice we have done. Now having crossed the INR 500 crores, suppose if we fee cross, maybe our framework will change and we will be ambitious enough to take on something more.

Perfect. Perfect. INR 500 crore number, indeed, is an interesting number without some of these one products. So wishing you all the very best for that.

We take the next question from the line of Harit Kapoor from Investec.

So I just had 2 questions. Firstly, on the distribution side. I mean you emphasized on direct distribution as well as increasing on the rural side. So could you just talk a little bit about plans for F '21 in terms of where direct distribution is right now? And how do you kind of plan to move that forward into the next 12, 18 months, especially on rural?

So I think if you look at -- 2 things we are doing. One is we are increasing the footprint in our direct distribution in terms of converting a lot of stockist towns and sub-stockist towns to direct. We are going state-by-state where we believe we are under-penetrated. Secondly, I think we also believe that wholesale as a channel, especially in urban too, I think it is going to reduce its saliency. Therefore, we have also ensured in terms of our spend -- in terms of spend, in terms of our trade spends, we balance that. And our overall experience suggests that now that we are also playing with the BOP portfolio. We have Nihar Shanti Jasmine. We are going to play more aggressively in Sarso. We have Shanti Amla already at INR 10. Plus, we have a couple of maybe 1 or 2 plans in the pipeline. So we believe now that we have a BOP portfolio, that also gives a kind of a fillip that there's a critical mass of -- earlier, it was only Shanti Amla and now we have 3 brands, at least at a INR 10 price point, and maybe we want to add some more. That will give us a significant kind of a critical mass of portfolio to go into. It is just not distribution but you need the portfolio.

Yes. Got it. Just to add on to that. So for quarter 1, for example, how much would have rural now contributed to your number? I mean, I understand it was around that 35-odd percent number, but...

So rural grew in terms of -- actually the -- in terms of run rate. And just to give you a point that I would think it would have added at least 1 or 2 percentage points in quarter 1. So both e-com and rural added a couple of percentage points in contribution in Q1.

My second last question was on the introduction of the shampoo in Bangladesh. So is this -- do we look at this more as an extension of your thought process on Saffola in India that you're looking at non-niche but slightly larger opportunities. And probably that could be a template for even personal care in India going forward? Or am I just reading too much into it?

No, I think -- see, the way we look at it is that as a company, we believe that we don't want to get into red oceans. And when I define a red ocean, a red ocean is a typically highly penetrated category, dominated by the pre-incumbents having 70% to 80% market share. So shampoo in India might not fit in into our strategy, the market structure in Bangladesh is different.