Patanjali Foods Limited (PATANJALI) Earnings Call Transcript & Summary

So first of all, good afternoon, and welcome to this analyst and investor meeting that we are having today on a very historic occasion. You all have seen and -- on the media posts that we did yesterday on the filings at the exchange, the Board of Directors approved a very large transaction of our HPC Business, Home and Personal Care business of INR 2,800 crores, highly profitable. On a slump sale basis at a cost, which is some of our big investor friends were saying it's almost historical, a lot of feedback what we got. So -- and this is a very important journey -- milestone in our journey. This is third acquisition that we have done after the Biscuits business that we acquired 2.5 years back. Last year, we acquired our Foods business from Patanjali. Both were done on the slump sale basis. And there's a third business on the Home and Personal Care that we're acquiring. And just to give you a flavor and a context that both the businesses that we acquired, once they came under the listed entity, we have not only grown them at a huge sort of scale, nearly 60% and 50%. We have increased the profitability. We have repositioned the company at a completely different level. But I will not come in between this. I've got a detailed presentation. But first, I'm going to request [Pooja Swami Ji] to address all of you in terms of what is his vision, his mindset, his orientation towards Patanjali overall, how he sees the transaction and what is the vision he's drawing for all of us in terms of where he sees the company 3 years down the line, 5 years down the line. And in general, his own orientation towards everything that Patanjali does. So we would request Swami Ji to come and address all of us. [Foreign Language]

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Next, you guys just play the ad. [Presentation]

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[Foreign Language], please try them, please buy them, they are available. [Foreign Language] Please buy them and you will be delighted with the soaps. [Foreign Language] And we are seeing a very good traction in the marketplace. Next one. Play the TVC, please? [Presentation]

So I would really urge you please try them at home. These are brilliant products, most natural products. [Foreign Language] once they started experiencing that they've seen the difference compared to the chemical sort of dish washing products, et cetera. It's a very remarkable value that you will derive out of this. [Foreign Language], which is a hair care category, INR 291 crores, 35% gross profit margin, 12% EBITDA margin. [Foreign Language] hair colors, et cetera, very popular, getting growing increasingly [Foreign Language] especially we are seeing a lot of orders from the U.S., which is growing consistently. And [Foreign Language] growth momentum in terms of both creation of new product introduction and growth curve, we are expecting a huge play in this marketplace. Next one, please. Just play the TVC, please. [Foreign Language] [Presentation]

Just as a quick split of the top sort of selling products that we have, Dant Kanti, as I mentioned, as a toothpaste brand is about INR 1,300 crores plus; body cleanser, INR 353 crores; dishwasher bar, INR 238 crores; shampoos, INR 195 crores; aloe vera gel INR 180 crores; face wash INR 105 crores; detergent powder INR 101 crores. You can see that range of products, [Foreign Language], some of them are growth momentum driven or some of them are very recent starts. [Foreign Language] Sales and distribution network [Foreign Language] this is just an illustration of what the architecture of distribution that we have, right from super distributors to modern trade, Patanjali stores, retail distribution. There is a network that we have, geographic distribution. Clearly, you can see that green, which is a strong strength area, followed by red, which is INR 250 crores to INR 450 crores. There are some spaces, which are less than INR 50 crores. We need to focus on a lot more. And that gives us a very deep insight that when Biscuits maybe saw that the distribution white spaces were available where we are not reaching, the moment we started pushing on them, we saw immediate tick in the sales. Similarly, in the Foods business, when we saw the white spaces available, immediately, you saw that immediate pickup in the sales. So now the benefit what we are drawing is different products, we write the distribution chains, and we are able to leverage the synergies between the respective businesses, the independent distribution that they have, which is driving this growth and the momentum forward. Next one, please. This is the past acquisition [Foreign Language] and last year, it came INR 1,600 crores. So one of the values what we have seen is that under the unlisted entity with the way it operates, and it is not that an inefficient operation, it is just that the way it operates. It's a different way of operation. Under the listed entity, we have helped by adding to distribution, [Foreign Language] within a matter of 2.5 years. Similarly, what you can see is that we have nearly doubled our turnover a little less than double in the Foods business within a matter of 2.5 years. So there a lot of effort which has gone into building the businesses by expanding the value. Likewise, we are confident that even the HPC business, we will see a very rapid expansion. [Foreign Language] with the rest of the 4 businesses on the distribution side that we have, we'll be able to drive the growth of the brand and the profitability. And of course, the synergy [Foreign Language] financial gain, we should be able to drive that a lot better. I just want to share with you a very critical part, and this is what Swami Ji was speaking about earlier, what we commit, that vision, what we had and how we have worked to sedulously achieve our target and reach there. Next one. So clearly, one of the stated [Foreign Language] including the current business if we see looking at it right now, including the current business that we're acquiring on an annualized basis, [Foreign Language] this year, it will become [Foreign Language] so this INR 12,500 crores is going to become INR 20,000 crores in 3 years' time. [Foreign Language] we should be hitting 50-50 FMCG share and the edible oil share. [Foreign Language] And one of the major commitments was that how do you build up a INR 18,000 crores to INR 20,000 crores of FMCG business in the next 3, 3.5 years' time? And how do we have edible oil as a stable, but the volume growth will continue to happen. We will emerge as -- and how many companies in the country exist with this kind of turnover on the revenue side of INR 18,000 crores to INR 20,000 crores on the FMCG business. So that was a stated intent, and we are going to sort of work towards that. Wide area of products, we are looking at both organically growing new lines as and when the opportunity shows up. [Foreign Language] And we are very well prepared towards that. And I'll talk briefly about some of the strategies on the premiumization what the company has followed and started to work towards. Next one. [Foreign Language] there's been a massive work. So one of the things which is less understood [Foreign Language], but how we have systematically built up our brands and business, and I'll show you some of the ads, et cetera, what Patanjali has accomplished in last 2, 2.5 years' time. No, no go back to the previous one. [Foreign Language] we got Mahendra Singh Dhoni for Mahakosh and Sunrich sort of brands. We got Tiger Shroff, Tamanna Bhatia, you saw the ads. We've built up all these brands, [Foreign Language] below, they are leaders in their respective categories. And they've done a phenomenal amount of work and a lot of work has gone towards building up both the marketing campaign, creative sort of storyline behind it, getting the brand ambassadors and building them in a very new and different way that new orientation of FMCG has emerged for Patanjali in how it has gone about it. Next one. So I'm going to show you a couple of the TVCs, which you may have seen, but I would really like you to refresh and see that what has all been accomplished in matter of just a short time of 3 years and where we have reached. You play the TVC, please. [Presentation]

[Foreign Language], just addressing the contemporary this one. There's a big focus that we have on premiumization of the businesses. [Foreign Language] It has gained a lot of traction in the marketplace. Personal care [Foreign Language] has become very popular on e-commerce and our own stores. [Foreign Language] even though it meant that we took a step back, but completely repositioned it, completely contemporary basis [Foreign Language]. So then what it has given to us is that, a, both uptick in the margin and drive that we've been able to build up, which has been a very positive step in the way company has gone about building its own structure of FMCG businesses as we are going forward. Next, please. There's a quick snapshot of the extensive reach which company has today. So our reach is estimated that we've nearly 4 million retail outlets that we are reaching. We've got a strong base of nearly 84 super distributors, mega stores, 8,000-plus distributors, [indiscernible], exports to more than 34 countries. We are doing and we are doing no justice. The demand is massive. And we are working to sort of build. Now we're listed on Amazon U.S. directly for a lot of our products, which we are working on, both in U.S. and Canada. Similarly, in e-commerce and D2C channels, we are building it up. And the idea being -- and across all the modern trade outlets and channels that you have, we are present. So the idea is that we want to consistently develop and build up both direct and indirect reach to the marketplace. And continuously, we are adding to the distribution range that we have and any new business that we launched. So for example, HPC when it comes into our fold, not only will we be able to leverage HPC's distribution, but we'll be able to give the benefit of the food distribution that's available for that to grow and build up in a much larger way. Next. In terms of synergies, broadly, [Foreign Language] not for the entire FMCG, we believe that there is a gain of 200 basis points that we can get over the next 18 months to 2 years by various things in streamlining supply chain or unified operations that we can put in. Similarly, enhanced cost optimization on sales force and distribution network we'll be working on very closely. Manpower efficiencies, [indiscernible] across the skill-trained force in terms of both training and retraining and leveraging our ground level assets to a significant benefit that we'll be able to drive. And of course, a very robust R&D setup that Swami Ji spoke about earlier is that the kind of network that we have, the Patanjali Research Center and the research lab that we have is one of the most advanced versions of new innovative products, new ideas that get generated and new medicines, food products, nutraceuticals products and nonfood businesses -- products that has been generated backed by more than 500 scientists, peer-reviewed journals, et cetera. It's a huge value that has been generated. So net-net, I would summarize by how to look at this Version 3 of Patanjali. [Foreign Language] other than routine maintenance CapEx that we have. [Foreign Language] So it is going to be EBITDA accretive business in a huge way. [Foreign Language] over the next 2.5 and 3 years, which are going to totally redefine the FMCG sort of play and the work that we're going to sort of develop and build up [Foreign Language].

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[Foreign Language] Any questions that you have, we'll be very happy to answer. And please...

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[Operator Instructions]

[Foreign Language] First of all, congratulations for this acquisition. [Foreign Language]

[Foreign Language] Hopefully within 4-6 weeks, we will be able to complete the transaction.

So we can assume that from second quarter onwards, the number would be integrated?

Maybe middle of second quarter onwards. Today, we are already sitting at the beginning of this quarter. [Foreign Language]

And sir, second question on financial parts. [Foreign Language] But what would be the contribution on the PAT front?

Sorry?

Depreciation, interest costs are in ultimately PAT for this acquired business [Foreign Language].

[Foreign Language] no question of interest burden is there. So very minimal depreciation will be there.

Got it. And third and last question, [Foreign Language] A&P spend is relatively less compared to other FMCG companies. [Foreign Language] What would be the contribution right now as a percentage of sales? [Foreign Language]

[Foreign Language] Percentage-wise, it is compared to the other sort of FMCG companies, it is on the lower side, but our estimate is about INR 350 crores is what we will spend. So if as a percentage that you see, it will be about 2.25% or thereabout of the FMCG share. If you look at the overall revenues, it is going to be just about 1.25%, 1%.

Yes. And just one clarification. [Foreign Language] that is only for HPC business or including Foods business?