Patanjali Foods Limited (PATANJALI) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Patanjali Foods Limited Q2 FY '25 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjeev Asthana from Patanjali Foods Limited. Thank you, and over to you, sir.

Thank you so much. Good morning. “Season's Greetings to all. Welcome, and thank you for joining us today for Patanjali Foods Limited's call to discuss the results for Q2 of FY '25. I'm joined by the company's CFO, Mr. Kumar Rajesh, along with Mr. Priyendu Jha from the IR team and our Investor Relations Adviser, Strategic Growth Advisors. We have uploaded the results collateral on the stock exchanges as well as the company's website for your reference. During the course of this call, we will be referring to stand-alone financials. I'm pleased to update you that we reported a healthy quarterly performance with double-digit margin growth at EBITDA and PAT levels. The company reported revenue from operations of INR 8,154.19 crores with EBITDA of INR 493.86 crores and PAT of INR 308.97 crores. The company declared an interim dividend of INR 8 per equity share. This quarter's EBITDA is our best operating EBITDA since the company came under the management of Patanjali's Group. It stood at INR 493.86 crores. This healthy performance came in the backdrop of a fairly challenging market environment that we witnessed in the past quarter. We faced erratic and uneven rainfall throughout the country, which has impacted the FMCG volumes, out-of-home consumption and consumer offtake across the industry. However, the green shoots are visible in rural demand in the previous few quarters kept pace to a certain extent. The overall performance of the FMCG industry for the second quarter of the fiscal was mixed with some categories performing better than the others. We also saw some pressure in terms of the raw material prices. Due to reduced supply in the physical market and delay from the government to release [indiscernible], the wheat prices shot up anywhere between 9% to 10%. Pulses also saw an upward price movement in Q2 versus Q1. And likewise, even the palm oil prices have moved up substantially. The edible oil market remained in the normal range, both in domestic as well as the international markets. The domestic prices of crude and refined oil observed an approximate 30% increase in the month of September '24. This is largely due to the 2-way price increase, one, due to an increase in the custom duty of nearly 20%; two, because of 8% increase in the price of the major imported edible oils and which continues on the upward spiral. Coming to our segmental performance during the quarter. The Food and FMCG segment achieved a revenue of INR 2,303 crores with an EBITDA of INR 234.71 crores with a margin of 10.2%. The staples, which includes rice, atta, pulses, wheat products and dry fruits, recorded a revenue of INR 1,032.43 crores with a sequential growth of 9%. Cow Ghee, Chyawanprash, Honey, et cetera, the Indian ethnic foods category recorded a revenue of INR 621.48 crores as opposed to INR 405 crores in Q1 of '25. As shared earlier, we are reevaluating our strategy for the Cow Ghee business. In Q2 of FY '25, the Ghee segment achieved a revenue of INR 355 crores, which is pretty much in line with our strategy. Also, we ran a pan-India print media campaign for Cow Ghee. Our Biscuit sales segment recorded its highest ever quarterly sales of INR 438.73 crores, driven by a volume increase of 5.9% year-on-year. Adjustments in grammage and pack sizes have contributed positively to the growth of the biscuit segment. Doodh Biscuits maintained the leading position in the category and contributed about 2/3 of our biscuit sales. I would like to highlight that our previously launched Ragi, 7-grain and Digestive Biscuits and Patanjali Tea are being well accepted by the consumers. In the soya chunks category, Nutrela demonstrated steady growth with quarterly sales touching a new high. To strengthen Nutrela's brand presence in the category, we have onboarded celebrity and fitness icon Shilpa Shetty as a brand ambassador. We've also collaborated with Star Chefs, Ruchi Bharani and Varun Inamdar to create enticing recipes using Nutrela products for the YouTube and Meta platforms. Our efforts to drive and stabilize the nutraceuticals division continue. And in Q2 FY '25, we have booked INR 23 crores in revenue. Newly launched gummies, vitamin powders and other nutraceutical products are showing promising results. We've also added Nutrela Plant Protein and Creatine Monohydrate, along with new variants of Weight Gain and Superfoods to our nutraceutical range. We continue to reiterate our guidance of a revenue range of INR 100 crores to INR 125 crores in revenue in FY '25 with a 25% margin. We have just onboarded Shahid Kapoor for the nutraceutical product range, which will help us to maintain brand awareness for nutraceuticals. In the first half, we added approximately 125-plus SKUs in the Food and FMCG segment. Notably, more than 80 of these SKUs were introduced during the second quarter. With the rise of new age channels such as e-commerce and quick commerce, a new trend has been emerging in the distribution model of the FMCG industry. The number of consumers opting for these alternate channels of distribution over general trade is increasing. Patanjali is also present on these platforms in key markets. In the Edible Oil business, we registered a revenue of INR 5,939.21 crores with an EBITDA margin of 4.05%. The global dynamics of edible oil have been observing a gradual increase of edible oil usage in biofuels, and this is acting as a catalyst for maintaining higher prices of edible oils. Harvesting of soybean in India is delayed due to extended rainfalls due to lower prices of soybean in the physical markets, the government has announced for its MSP procurement increase. The government also increased the MSP of raw materials for the seeds by INR 300 per quintal, making it INR 5,950 per quintal for marketing season '24-'25, which last season was INR 5,650 per quintal. With these dynamics, fall in the average prices of packaged oils have increased between 15% and 24% over the last 2 months. Further, over a longer-term period, our endeavor is to increase our dependence on the oil palm plantation business. In Q2, we expanded our cultivated land by over 5,200 hectares, taking the total to 80,952 hectares, of this 64% is yielding, which generates an EBITDA to the tune of 16% to 18%. Our plan is to take area under plantation to 0.5 million hectares over the next 5 years. This should cover about 60% of our requirements. We are rapidly growing through partnerships with farmers, providing training and workshops. We not only dedicated -- we are not only dedicated to supporting the local farmers and communities, but also play a role in creating Atma Nirbharta for our country by reducing imports of edible palm oil. Now I would like to summarize our overall financial performance in the quarter. The total income stood at INR 8,198.53 crores. Total EBITDA stood at INR 493.86 crores with 17.8% growth on a year-on-year basis. The PAT of INR 308.97 crores registered a 21.38% growth on a year-on-year basis. In the first half of FY '25, the numbers stack up as follows: The total income is INR 15,400.88 crores. Total EBITDA of INR 928.93 crores, an improvement of nearly 47% against the same period last year. The PAT registered an improvement of 67.07% to reach INR 571.87 crores. Looking forward, the latter half of fiscal 2025 is anticipated to bring improved performance driven by the festive season, higher income, supportive government measures and an above-average monsoon. With respect to the acquisition of HPC business, we have already got the CCI approval and the shareholders' approval and are hopeful to integrate the HPC business by Q3 and perhaps in very early November, once we receive all the approvals, et cetera, from the lenders. This will give a further shot in the arm to our performance. With this, I conclude our presentation and open the floor for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Dhiraj Mistry from Antique Stockbroking Limited.

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

So 2 parts to your question, Dhiraj. The -- so the 2 things which occurred, which is in really second half of September. So the edible oil has continued performing quite strongly in the first quarter also and likewise in the second quarter as well. The announcement of the increase in the custom duty by nearly 20% plus was beneficial, but only -- that benefit is only accounted for once we do the sale and it is invoiced. So we really got the gain maybe just for about 10 to 12 days in the second quarter. There is some inventory gain, which has accrued on account of the sudden duty increase. But we also benefited by the positions that we had as well as the movement up in the international markets, both have been beneficial to the company. So we will carry forward the momentum in the next quarter as well. And hopefully, the prices look very tight. We believe that the markets should be supportive. The international markets are looking quite sort of less supply and more demand. So I expect this to continue. And hopefully, our edible oil should continue on the path of better performance that we've always said, of margin construct of between 2% and 4%. And both the previous 2 quarters, we've consistently maintained at 4% plus margin, and we hope to continue with this momentum.

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

So price increase, there are 2 ways it moves. One is that there's no one-to-one equation. So for example, if the prices have moved up, so normally, there is a pass-through mechanism that works. But there's a local dynamics in the market as well. And that doesn't allow you to pass on the full sort of duty and the price increase to the consumer. So typically, the prices have moved up in the range of 8% to 10% internationally. And our price increase also has been pretty much in line with that. Part of the duty has also got accounted for this. So anywhere between 10% to 12% margin price increase has occurred in the marketplace.

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

No, it won't. It's overall beneficial, as I mentioned, that we typically run the business on a long-only basis where the prices are -- typically, they start to look up. So you hold the inventory at the next price and the international markets have moved up with either immediately or with a lag typically, the prices tend to adjust in India. So even if there's a lag, eventually, the prices will start reflecting the global prices, and it can cut both ways also. It can go down as well as the heavy inventory pressure. But broadly, the price increase is going to benefit and reflect in our margins in this coming quarter as well.

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

Yes. So the revenue, like in the palm business, oil palm plantation, we sort of -- we were -- quarter 1, we were INR 292 crores in revenue. This quarter, we did INR 364 crores in the revenue. And so of course, there was a seasonal impact also because of the peak harvesting season also. So that benefited us.

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

Okay. So I will go one by one. So for example, in the overall FMCG, our total -- business in the foods, FMCG segment, we did about INR 1,654 crores within the -- no, so first, I'll tell you the overall FMCG Foods portfolio. The total revenue we did was INR 2,304 crores this quarter. Our EBITDA margin was INR 235 crores, and it was at 10% that we got. Now I'll give you the breakup of this FMCG business. So in that -- within that, the Foods was INR 1,654 crores. EBITDA margin is INR 140 crores and it was 9% margin that we got. Within that, the breakup of this is that the Indian ethnic foods was INR 621 crores where the EBITDA margin was INR 133 crores at 21% margin. In the consumer staples, we had INR 1,032 crores of revenue, EBITDA margin of INR 6.7 crores, which was 1% margin. It came down largely on account of the higher priced inventory on the staples that we carried and market did not reflect that. Then on the retailer side, which is our CBD business, we did a revenue of INR 188 crores with a INR 43 crore margin, margin percentage of 23%. We were benefited quite well on account of much lower the soybean prices. So our raw material prices really sort of went down and the consumers continued paying at the same level. We didn't have to adjust our prices. Nutraceuticals, we did INR 23 crores of revenue, made INR 10 crore margin. It was nearly 44%, but there were some 1 or 2 exceptional benefits that we got on account of the accounting. But otherwise, typically, the run rate of 25% is what we propose to maintain. Biscuits, we did INR 439 crores at -- and INR 41 crores EBITDA and a margin of 9%. Here, the margin declined on account of much higher wheat prices and much higher edible oil prices, palm oil prices essentially that impacted overall sort of the EBITDA margin percentage.

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

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

Yes, yes. So Dhiraj, just I would like to say we got an increment -- we give an increment for the employees in this quarter. And basically, the employee cost is increased by that only. So near about -- between INR 12 crores to INR 13 crores has been increased from the previous quarter, if you can compare. So this is on account of increment of the employees along with arrear since April 2024. As far as other expenses is concerned, major expenses is on advertisement that is near about INR 40 crores to INR 50 crores and sales promotions and schemes, which marketing initiatives taken by the management.

Got it. And what kind of run rate we can expect in employee cost going ahead?

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

The next question is from the line of [ Pratik Bhandari ] from Art Ventures.

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

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

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

It's largely volume led -- for the volume growth we have received is about -- so there's no price increase, that is the question. So it's largely entirely on the volume basis. We haven't taken any price increase during the quarter. And yes.

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

Sir, 3 questions in the beginning. We have been seeing of late starting from the bellwether company like Lever has been talking slowdown in urban. Also, the rural is seeing a gradual recovery. So can you give some little more color for our type of business because edible oil businesses always will have up-trading, down-trading, looking at the price parity between the branded and premium. But then if you can give some on-ground activities. And what is the contribution we derive from rural, if you have some numbers handy?

So we -- for example, the sort of urban market, clearly, there is some stress that is visible. 60% of our business typically comes from the urban areas that you saw. Rural markets have had a fairly good sort of robust growth. That momentum has sustained in the last quarter also. We are clearly seeing that there's some slowdown in the urban areas, and that is causing stress. But we had a reasonably good growth overall. Like, for example, nearly -- in our foods vertical, we grew nearly 20% plus. Biscuits, of course, slightly tapered off, as I mentioned, 5.3%. Nutrela, that CBD, we got a growth of 8.7%. And nutraceuticals, of course, the base is very small. So it's not relevant as to what the growth percentage was. But overall, we are seeing that urban areas are feeling some stress. Rural demand continues quite a pace. So in our category that we have, we haven't seen any distinct slowdown in the rural areas. In fact, if it is supported, the growth is there. But now with the festivals coming, we are hoping that the urban areas should respond better. And sales trends that we are seeing right now from the beginning of the October, there is some push which has to be done. But broadly, I would say that this quarter because on account of the festivals, et cetera, should sail us through.

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

The e-commerce and quick commerce, just without a question...

E-commerce, quick commerce and modern trade, alternate channels.

And so it's without a question, I think that we can clearly see very visible signs in all the major urban areas that has taken a firm root. And so we are sort of very serious of that. We are continuously working on that space. Our e-commerce sales, we are continuously sort of working in terms of expanding that business. Modern trade also had a marginal impact, but that continues to grow. The stress is largely on the general trade. But this phenomenon still, I would say, in the top 22 -- top 20 cities is much more sort of pronounced than -- but if the pace continues at the same level, then we clearly see a very distinct growth at the cost of general trade in the larger cities.

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

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

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

Yes. So there is some buildup of the inventory as we have very clearly seen that both at the secondary sales level as well as at the tertiary sales level, we are seeing some inventory buildup with the general trade. Modern trade is much more nimble in terms of adjusting to the requirements. And so to that extent, that stress can be seen and very clearly. And so largely, in terms of our own actions, we are working a lot more in terms of the in-store promotion, the work on that area is continuing. But that is something that basically demand which has occurred, which has caused this stress so with the e-commerce and quick commerce side. And I think that the company will have to continue to adjust. We are working on it quite actively, but we are seeing a clear buildup in the inventory.

But generally, non-edible oil, what kind of inventory we would have in the system, say, in the trade and in the distributor pace?

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

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

Yes.

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

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

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

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

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

No. So we -- as we've done in the past, and this is the time as well, that the existing -- nothing changes at all. So the simple part is the SAP integration at the back end has been done. The team, the distribution, the entire manufacturing and entire structure of the functions, everything moves entirely and that integration happens. So really, in terms of the disconnect or adjustment process at the ground level, nothing will happen. But what we gave a guidance even in the last quarter also, the plan is that over the next 18 months, we will work towards 200 basis points efficiency-led improvement, not talking of the organic sort of growth in the business as well as some bit of rationalization at the ground level that we'll start to sort of work on, and we should be able to sort of take that benefit on account of this integration. But right now, I don't see any disruption at all in either the distribution at the ground level or the teams coming on board because it's simply just -- it's almost merely like a plug and play. because they're moving from the parent to the listed entity, and they will just get started very quickly once it gets going.

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

Yes. The ethnic food specialty, Indian specialty, that part of the business has registered 21% margin in this quarter. Did I get that right?

That's right.

Okay. So that clearly is probably superior to what we might have intended or we might have constructed? Or is this the kind of a likely margin profile which will prevail over time?

So Bharat, what we have as a margin construct in the ethnic food side, we've always maintained that typically that business is good to go with 18% plus margin. So in some quarters, for example, in the previous quarter, our margin in that space was 16%. This quarter, we registered 21% on account of some pre sort of festival push of cow ghee, some benefits that we got on account of the honey sales. There are a couple of other categories. But I would say that this cannot be taken as a guidance of 21% plus. It would typically range in the -- always be in the range of 18% to 19% is what is something that we target and intend for.

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

That's right.

Yes.

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

Quite remarkable, I would say, in the backdrop of the kind of scenario that has prevailed in the last few months, that definitely is a very healthy kind of a margin and performance in that area. My second point on which I wanted to gain understanding. You see the digital channels are kind of definitely affecting the traditional distribution strength that many consumer firms, more older generation consumer firms have typically got, but digital channels are clearly impacting. Other factor which is affecting maybe chipping away at margin, but certainly, the new fangle phenomena of direct-to-consumer brands each of them in itself may be small one. But at a local level, local entrepreneurs, some of the direct-to-consumer brands are nibbling away the traditional advantage of the distribution strength that earlier generation consumer firms have been enjoying. But when you are looking at the performance of the businesses like Lever or Tata Consumer and others, including even now Nestle, it is very clear that unless the business models are distinguished in the consumer side, both growth and margins over a period of time will be challenged, and there will be impact on the distribution side. Therefore, 2 ideas I wanted to understand. Our effort at premiumizing. Our Indian ethnic food clearly is a very distinguished portfolio. So to that extent, it holds a very competitive advantage. Our Nutrela platform also is a distinguished portfolio. So it enjoys that competitive advantage. But in terms of premiumization and secondly, gathering the strength in each of the digital, whether quick commerce or e-commerce and specialty offerings through these channels. What are your thoughts on that?

The 2 things that we are seeing right now that the path forward for us because of the sheer volatility, some quarters tend to be good is that we need to work on premiumization very actively. Consumers are willing to pay. Consumers are -- there is a class of consumers which is very keen on sort of buying products which are distinctly different, which carry proposition and there are attributes which they believe that they should be paying a premium for. Health and nutrition is becoming center stage. But that comes added along with a range of other complications as well, like, for example, the packaging, the branding, the positioning, the distribution, et cetera. So I'll give one live example that what we have gone through is in terms of the -- after a huge push that we had in our premium biscuits, we saw that it tapered off, then we started rebuilding the entire thing. And we are now seeing a stability in that growth, but the growth is not skyrocketing at 20% and 30%. It's really a very moderated growth of 8% to 10% is what we see in our premium range. Similarly, nutraceuticals, for example, that after a very heavy start, we came down. But after that, we took the price cuts and the readjusted portfolio. Then we started rebuilding the entire portfolio, but at a premium level and very differently packaged, very contemporary. We have gone through, Bharat I don't -- if you heard that we've got -- now got 4 -- all the businesses have got different brand ambassadors. -- now in last 1.5 years. So for example, from Dhoni to Tiger Shroff and Tamannaah Bhatia, then we went with Shilpa Shetty for Nutrela. Now we've got Shahid Kapoor for nutraceuticals. So all these elements have to go in, but that premium category growth is, a, that segment is very small. The effort to launch it and the sort of demise [indiscernible] at the retail level is also fairly high because not all these products tend to succeed and your ability to stay and continue building that up is very high. So I would say that trend is good. We are working on it. Our premium portfolio, in any case, when we -- and we count our cow ghee, for example, are quite a few other products in that category, that premium portfolio is reasonably decent between 15% and 18%. But adding new products to build up a premium and continuous growing that, it's a challenge. That growth rate will not exceed 7%, 8% at any level where the base is very small. And so that we work on. We are now looking at adding a range of other products. For example, there's a consideration which is going on in the biscuits category after the success that we had. We want to now come out with new sort of premium products, new premium offering that we'd like to do. And all our competitors are doing it as well. Likewise, in the ethnic goods category, we are coming out with HPC, which is going to soon come. We have launched this new range of Saundarya and others. So hopefully, that effort is going to be more organic. It's going to be more long term, and it will come through its own sort of fits and starts in terms of the success rate there. But broadly, the trend is very clear. The urban consumers, there's a distinct class which is willing to pay. And directionally, for a company like ours, we need to head in that direction.

Let me try to kind of put the point in a little different way. I would say in consumer kind of businesses, the kind of fast-moving regular consumption kind of businesses, I would say 4 critical parameters to my mind for long-term success. One, I would put as product innovation. Secondly, whether our business model is distinguished. In other words, our portfolio has a freshness and difference compared to the typical competition. Third is the channel innovation. And fourth, I would put it is premiumization. Now when I put these 4 factors into the play, I would say our product innovation rate at Patanjali is phenomenal. I've not seen really any other consumer firm innovating so regularly so many new products. So we score very well there. Secondly, on -- with Indian ethnic foods, also Nutrela platform and nutraceutical when it becomes material, our product portfolio is a distinguished one. Our business model is more distinguished one, and we score well there. On premiumization, I think is an important long-term journey because the country is getting more and more aspirational. And Secondly, on the distribution channels, commerce, digital e-commerce, these channels are expressing alternate -- I mean, our alternate ways of expressing the distribution strength. On those 2, I wanted to understand how -- what kind of long-term strength and the thoughts are we having offering?

As I mentioned, Bharat bhai, on the distribution side, we have a long way to go. Our current e-commerce and quick commerce sales are just about 2% plus, if you look at overall basis, but about 4% if you look at on the pure FMCG basis, removing the edible oils. So that we need clearly a lot of work. So we have got a D2C channels, for example, our nutraceutical business, nearly -- the base is very small, but nearly, we are seeing 35% to 40% is going through now e-commerce and D2C. Similarly, in businesses like the biscuits, we are seeing a pickup now. On the e-commerce and quick commerce side, that's picking up. But to answer your question, on a targeted basis, we like e-commerce and quick commerce to head closer to 6% of the -- our FMCG portfolio. I'm not talking edible oil in that. And likewise, our modern trade share should be closer to 12%. So which means on a combined basis, we'd like about between 16% to 20% coming through the new age distribution channels, which we currently are at just about 10%. We need to travel some distance. We need to refine our strategy. We need to work through that. Some of our products are never on that category, which are very emerging kind of channels that we are seeing continuously as consumers are evolving. And we will be riding that bandwagon. We are beefing up our teams. We are working on strategy. We have got, for example, across the board on the social media front, you will find that I'll go one by one, nutraceuticals, Nutrela biscuits, we are less there. We are now ramping that up. And like on the food side, our presence on the social media is exceedingly high. And from the social media platform, the site, we are seeing a lot of sales now moving into converting. So -- but we have some distance to travel, and that work is clearly cut out for us, and we are working on that. Our intent is very clear of moving closer to 20% from emerging new channels and remaining the balance 80% through our traditional channels of the GT.

Just one last point. The fact that our share of the modern trade relatively is lower as well as into the digital channels is relatively lower in a way to look at it is an opportunity. And I think in a way, can be a significant competitive advantage compared to the last -- I mean, legacy large consumer firms that have been around for decades, but they have probably been more on a legacy side and need to add up. So in a way, both of things represent an opportunity, along with, of course, premiumization in an aspirational society and aspirational country.

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

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

First of all, congratulations for a great result. I have 2 questions. One is around the other income that other income has increased by 50% in the quarter 2. And another one is the other expenses, which has been shot up by 45%. So does -- is there any one-off income or expense booked in the second quarter?

Rajesh-ji, would you...

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

Okay. And what about the other expenses?

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

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

Sir, my question is regarding the arbitration award going against the company. So how will it affect our company in the future in case we have to give 1,86,00,000 lakh share to advertiser? And my second question is regarding the green tick given to our Patanjali Dant Manjan. There is some controversy going around that. How -- can you clarify regarding that?

Sure, Rajesh-ji on the Ashav Advisory, you can go ahead and answer.

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

Remember, but the arbitration has already been rejected, it has been gone in the favor of Ashav Advertisement (sic) [ Ashav Advisory ] You may appeal further, but let us say -- let us presume that it is going against the company. Then how will it -- as a shareholder, I'm asking, how will it affect our company?

Just one second. That is a arbitration which has happened between the promoter group and Ashav Advisory. So if at all, the promoter group will transfer the shares. You might get additional -- if at all, that goes against the promoter. There will be -- the issuance of that 1.86 crore shares or whatever will just simply be given to them by the promoters. On the company, Patanjali Foods, there's a zero impact.

The second question is regarding green tick to Patanjali Dant Manjan?

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

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

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

Just yesterday, I read that some INR 50,000 penalty is being levied on the company.

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

Metrological, I think.

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

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

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

Thank you. Thank you very much to all.

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