Sundrop Brands Limited (500215) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Agro Tech Food Limited Analyst Call for the Q4 FY '23 Financial Results, hosted by Anand Rathi Shares and Stock Brokers Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Ajay Thakur from Anand Rathi Shares and Stock Brokers. Thank you, and over to you, sir.

Thanks, Darwin. Good afternoon, everyone. On behalf of Anand Rathi Shares and Stock Broker. I welcome you all to Q4 FY '23 Results Conference Call of Agro Tech Foods Limited. From the management side , we have Mr. Sachin Gopal, Managing Director; and Mr. K. P. Srinivas, CFO of the company. We are going to start the call with opening remarks from the management and followed by the Q&A session. I shall request Mr. Sachin Gopal for his opening remarks. Over to you, sir.

Thank you, Ajay. Good afternoon, everybody. Thank you for taking out the time to be with us today. As we will walk you through the results, and then we'll do a Q&A between now and 3 pm. So I'm on the second page of the presentation that we've already defined uploaded on our website. right? So which is just a summary title page. So going to Page 3, really, just to repeat what is our vision? Our vision is to be the best-performing, most respected foods company in India. And we're definitely on track to be there. Then going to Page 4, which really summarizes the quarter 4 and FY '23 key performance highlights kind of all-in-one. Overall, as a headline, I would say, we've seen steady food growth. It's been less than our average, for very, very clear reasons. But also, we've seen improving margins as we've gone through the year because as you know, the first 2 quarters are significantly impacted by a very high level of commodity prices. And I think we've kind of navigated through all of that and still maintained our growth rate and our year-ending margins are looking much better. The quarter 4 food revenues were about INR 103 crores. These were only 3% higher than prior year, and that really reflects the COVID-19 third-wave, right? Omicron, which was there in Jan, Feb '22, which again saw a lot of people, a lot of people working from home, right? And that's evident in our numbers also as we see it. Jan, Feb, the base was very high and in the March people started coming out and then we also return to growth. So in the Ready to Cook business. In the other parts of the business, it's been more or less a strong growth too. And then generating a total FY '23 foods growth of about 9%. Both Foods and Staples showed moderate growth on a full year basis in gross margin. So we delivered about a gross margin of about 97% -- INR 97 crores in Foods and about INR 77 crores in Staples. We said -- both of these were higher than last year. And given all that happened, I think, during the year, it was good that we continue to have a single-minded focus on margin. It came at a cost of volume in the case of edible oils. But I would say that, that was the right thing to do. And now we are in the process of making sure that we are more competitive in the marketplace. We have exited our foods gross contribution. This was -- we shared some numbers with you in the last call, on gross contribution. Over time, we want to start reporting more of it. But many of you have said, hey you are basically giving us gross margins. So can you please go back to that? So we said, okay. But over the next few quarter, we'll try and give you a better indication of how gross contribution going. Because at the end of the day, that's the starting point from the P&L, which is less sales -- less raw materials, less packing material. So we're at 46%. So more or less, it indicates the full recovery from our commodity spike that we saw in the first 2 quarters of this year. It's still -- we have way to go. We need to be in the 48% to 50% range, as we've always said, and we'll be working towards that get in the appropriate time. In terms of the A&P spending, the Foods A&P was about 5.3%. You see the total, which is up by about, I think, INR 3 crores versus prior year or thereabouts. But as a percentage of the food business, the Foods A&P is 5.3%, this is lower than the desired range of 7% to 8%. But nevertheless, an acceptable level of investment. And as the margin improves, you will obviously be deploying even more greater funds behind advertising. The change in employee benefits, our employee benefits today stands at about 7% of revenues. And that really largely reflects headcount changes or whatever the salary increases, they were more or less now largely offset by the fact that performance incentive payouts were not there because, obviously, our profit was impacted for the year, and therefore, that payout did not happen. So it offset the salary increases for the larger part of the company. In terms of other expenses, they were higher than prior year by INR 13 crores, nearly, the largest chunk of this was restoration of travel and increase in freight. These are the 2 largest components. There are other charges as well like manufacturing, processing charges so on and so forth. But the restoration of travel is a big piece. We have cut down the travel during COVID and it was necessary as well, both from a safety of our employees and particularly the field people. And it also help to shore up the bottom line. But that part is over now. We needed to be in the market, and we've restored most of the travel if we felt we could do safely without risking people's lives as the year progress and the world move to normalcy. And profit before tax and profit after tax at INR 20.4 crores and INR 15.1 crores, respectively, lower than prior year, largely due to the early part of the year when we saw commodity price. Which is evident in the operating results for the quarter 4. Okay. I'm going to skip Page 5, and I'll go straight to Page 6. So Ready to Cook Snacks. This is the largest part of our foods business. And you can see there are a lot of ups and downs during the year. In general volume is lower, as we have told you also, as COVID started, we said there is going to be an elevation in demand due to COVID, meaning people could see that happening. But clearly, it wasn't going to be at the same level once COVID ended because people would no longer be working for home, they go back out side. And I would say we've held the volume retention in the Ready to Cook category at about 5% last year. And suddenly, it could have been more. We don't know. Different companies have reported different sets of numbers in the work-for-home space. But those categories impacted by work-from-home, positively during COVID and then negatively post- COVID. So I would say it's probably par for the course. And -- but now state should start to see growth in line with the prior year. We've always had a high single-digit to 10% growth in this business, and we expect to be getting that back. Let's see, we don't -- we cannot tell you exactly in which month that will happen, but that should happen. Because last year by about May, June, the world has started returning to more normalcy. April was still a little bit still elevated in terms of work-from-home. Elevated level of media investments, you saw that we spent more money than prior year, expansion of distribution. An effective use of the INR 15 pack along with retail demos, where we believe key to minimizing attrition. A lot of companies have tested our pricing 12, 14, I would say, in general, they haven't worked. And any intermediate price point at 15, 20 are important from a long-term strategic perspective as well because you need to build or reduce your dependence always on INR 10, INR 10 is the greatest driver of acquisition of consumers, but we need to have a good program for non INR 10 also. We believe that we are exiting FY '23 in good shape to get back to the growth in FY '24, with a normalized post-COVID-19 days. The seeding of Snacking Kits is underway. We have seen strong acceptance in select stores. You won't see these kits everywhere. But in the stores that we see, it has a very good offtake and a few consumers who bought in and repeat businesses are there. But broad-based success is still pending. And that's typical of ready-to-cook. Nobody builds a ready-to-cook or anything in a hurry. But we have to do a lot of work. We know what that work needs to be done, and that's similar to what we did in popcorn. But a lot of our energy right now has been going behind popcorn, to ensure that it's the largest part of the business. It's the most profitable part, and therefore, how do we get it back to growth. So we will put more energy and a few more resources behind this going forward once we see that growth coming back nicely in popcorn. And there are a lot of pizza and pasta sauces started in FY '23. So that was Page 6. I request you to go to Page 7. That's the next category, which is Ready to Eat Snacks. So you can see here, very strong growth, close to 40%. I've also been looking at different companies who have both internationally and locally who've been sharing the results. Overall, I think the 15% to 20% growth is what I see coming out of the Ready to Eat Snacks business. I think our is a little more because RTE Popcorn has done very well. So every business, finally, I think it tends to reflect the competitive advantage that you have and the right to win. We clearly have that in the popcorn business. So we have clear all India leadership today in the category. You can go anywhere in India, you will see ACT II ready-to-eat Popcorn. So it's in good shape. Sweet Snacks also starting to gain momentum. This is very important from us from a margin improvement perspective because it lowers the cost of packaging and it also lowers the cost of trade. So ACT II Caramel Bliss, Duo Cruncheez. And in fact, we exited Sweet Share of RTE was up to 11% in quarter 4 FY '23. And if you recall, I mentioned to you, we were sub 5%, right? We were in low single digits some time ago. So as we exited this is not an average for the year. As we exited, we exited at about 11%. So we would hopefully strive to exit somewhere between 15% and 20% the next year. Then actually, that will be perfect. Because it would lower our cost of goods, it was annual because freight and packaging material will come down, and therefore, improve margin. And also enable us to go deeper and deeper. We have today in effect, a 6-plant network. And there will be some limitations to how many thousands per 500, 700 kilometers that we can go. So I would say this will be helpful from this very important also from our overall expansion perspective. The impact of greater scale in RTE Popcorn, increased share of Sweet and greater overhead absorption has significantly enhanced the profitability of RTE Snacks. So I don't think we are 100% there, but pretty much we've made huge progress in the last 2 years, by moving stocks, by moving to a depot-based model to a direct shipments from factory by getting scale in and Ready to Eat Popcorn and by increasing the share of sweet. And I would say this is something that used to worry us a lot, which is at the end of the day, this is the conveyor belt of the company. This is what our entire distribution expansion model is based on and without it that expansion won't happen. And it should not have been, if you will, unprofitable for us. So gradually, to take it to a position now where it is close to being profitable, I think, is a very good thing because long term, it means that we can continue to drive, and we know that it's not that our investment by way of secondary trade or anything else is hurting the P&L. We will continue to drive both the scale of savory and the share of sweet going forward, and that's what we're doing right now as well. And we are also going to see what learnings we can leverage from RTE Popcorn and other RTE Snacks. Clearly, we had the most success in RTE Popcorn, but that's not the same success that we've had in, say, Tortilla chips and excluded snacks. We'll see now that at least one part of the model is fixed, how do we apply this learning on the others so that each of these becomes robust businesses. Okay, I request you to now go to Page #8, which is Spreads & Dips. As you can see, we had a very, very strong volume growth of about 22-odd percent, and value was less because this was due to the price reduction that we did on the larger packs. And then we certainly would have gained share on the larger packs. So I would say, overall, we've been really successfully able to depend our turf under threat by India's largest FMCG company and several DTC players. But going forward, I expect to see this moderate. We'll see how long India's largest FMCG company continues to invest. So we'll going forward, continuing to defend our base business. There are a few more actions that we need to execute or we have started execution now on the smaller packs like the 350-gram pack. So that we are able to successfully replicate whatever we did on the large packs, in the small packs. While enhancing future growth and profitability by the 3 actions that are mentioned in this slide. Why is this important? It's important because we've got this volume growth, significant volume growth, I would say must be higher than the category. We don't like being so as you know. But it came at the cost of margins. So we need to now ensure that we fix the smaller packs part of the business and also improve margin. So we see this happening through 3 key actions, as I said earlier, one is accelerating trials to INR 10 nano packs. Now just to give you a perspective, there are many companies in India who make peanut butter and sell peanut butter. So there are a lot of companies who sell peanut butter. Everybody is in peanut butter. You saw HUL is there, [ Marico ] introduced peanut butter, Dabur has introduced peanut butter, you name it, they're all there. But they don't make it, they buy it from other. And there are lots of people who make peanut butter. There are a large number of manufacturers doing this job. So -- but there are very few people who make it and sell it. And we've also seen historically that in each of the categories in which we play in, the INR 10-point is very important for category conversion, for consumer acquisition. Irrespective of the category. Because that's the reflective of the purchasing power of the consumer in general. So we've seen that, for example, in Duo, in chocolate. We launch chocolate, it's a INR 10 pack which get us immediate conversion. In Breakfast Cereals, it's the INR 10 tax. In ACT II instant popcorn, even today the INR 10 is the largest price point that we have. So this is important. And therefore -- and we believe that it's very difficult for somebody to compete in these INR 10 nano pack unless they are manufacturing and selling. So going forward, we'll be focusing on these packs to expand distribution, and that should work well for us. If any of our competitors increase their spending on the category, we will still benefit disopportunately from it. And we feel that it's there's a very low probability of any of our competitors actually coming in into this area. We have it because we are uniquely placed. We've got a decent scale in spreads in both peers -- in certainly in peanut butter, not as yet in chocolate spread. And therefore, we have the manufacturing capabilities, and we have the distribution of a little under 0.5 million stores. So we're doing -- so this, we feel will be a good intervention. You'll start to see this being rolled out in this quarter. We are addressing that the consumer need for spreads as a source of protein. So we are working with gyms, so on and so forth. It's going to be a time-consuming piece. Because the whole area of protein is something that is a new area for us, but it is a very good area for us and we need to work on it. So it will take time, but we'll get there. And lastly, we will work on enhancing revenue per kilo by focusing on sweet. So you'll see this pyramid on the right-hand side, where you see what we've given is the price per kilo, so base peanut butter sales at about INR 250 to INR 350 a kilo. sweet peanut butter sales at INR 350 to INR 500 per kilo effective prices in the market. And corporate spreads sell at more than INR 500 a kilo. So going forward, we're going to focus on sweet. So you will see us putting more emphasis on sweet peanut butter things like we have variants like honey [indiscernible], so on and so forth. They give us a better revenue per kilo, they will also give us a better margin. And this is possible only because now we've got the base piece absolutely controlled and tight. And then over a period of time, we see ourselves migrating towards spending more on chocolate spread, which is even higher in terms of revenue per kilo. So that this remain a good profitable business for us with the right margin structure that we expect. We will also continue to seed the sweets business, and we'll be working on capturing new consumption occasions by addressing the need for Spreads & Dips on the go. So in a sense, we need to create new consumption occasions around Spreads & Dips. So one part is obviously, yes, I buy a table spread and then I consume it on bread. I buy a bottle, I take it home. And then I consume it, I may consume something else tomorrow for breakfast. But another very large area is for spreads on the go. So to give you an example, you must have seen the Nutella & Go back. If you haven't, I would suggest just to Google it. you'll understand. Of course, it's very expensive. But if we are able to capture these new occasions, they will obviously increase total consumption for us. And it will be very profitable, very, very profitable consumption as well. So all of these actions designed to continue to ensure that we grow volume and revenue. Going forward, of course, we expect volume and revenues to will come closer. And if anything, maybe at some point in time revenue will go ahead of volume. Because this year, what data that you see, which is the plus 22 and plus 8 really reflects the price correction that we did in the back half or towards the end of the prior year. Okay, I'd request you now to go to Page 9. So on Breakfast Cereals, obviously, a very strong performance there. Expansion of Center Filled Cereals and rollout of value-added Oats have ensured strong category growth. And I would say we continue to see this as we exit the year. Strong momentum here. Center Filled Cereals are really driven by distribution expansion and reduction of the Cookie & Crème variant. So we introduced the Cookie & Crème variant. If you look at the photo in the store, and I put that photo for a reason to explain what we are trying to do, you see there's a blue pack there. So that's the Cookie & Crème. Cookie & Crème is relatively new to India. It's basically, Oreo who has created that taste profile for Cookie & Crème. And this product is doing very well, very well means very well. And I think it's entirely full credit to Oreo for creating that taste profile. But I guess we are there to take advantage of it. Kellogg's had also launched a Cookie & Crème, if you would have noticed during the COVID Period, but they removed it. I guess the product was not able to match the standards, but our product certainly is going back. We've also got a cheaper option called Shells, what we call Shells, which is similar to Kellogg's Chocos. But the product, we didn't -- I think we had some challenges with the product really, it's a little hard. And we've done a reworking of the Shells product, which is being rolled out now. This will improve our bottom of the pyramid offering. So we will need to have some packs to enable multilevel wholesaling to ensure that we get fairly broad-scale indirect distribution. So that by the time we start advertising the Popz brand, it benefits both from the more premium products of the Center Filled Cereal, but it also benefits the bottom end products. So the Shells products is being rolled out because of that. You see limited distribution. We don't sell a lot of it. But as we rework it, you'll probably see it, although you may not see it in the most affluent -- more affluent areas like where guys live, because it will be more -- a little more down market and in less affluent areas. One of the things that has challenged us in Central Filled Cereals has been this huge wall that Kellogg's has, so if you walk into any store in the Breakfast Cereals category, you'll see this huge wall of Kellogg's. And you will see maybe one target of Popz there, one refillable bag or 2, and we're not really making an impact because we are the category leaders. In contrast, when you go into the small stores, we are out-distributed -- we out-distribute the Kellogg's by a mile. By a mile means by a mile. We are by far the widest distributor Center Filled Cereals. And we are saying that on the basis of all our market working, more than anybody, whether it is Kellogg's or nobody there. We are clearly the most widely distributed Center Filled Cereals. Our mathematics, however, with Kellogg's showed on the basis of interviews, meeting the distributors, so on and so forth, that the total revenue that they were generating from Center Filled Cereals was 3x our amount. So that means, clearly, we were losing of in the big stores, which is evident to us when we go to the market as well. So it is not possible we have seen to really break their wall. And in general, we've noticed this in most categories. Going in just by saying, oh, by the way, I'm here and I'm better value or something like that doesn't motivate the consumer to come to you. By and large, in the FMCG business, consumers stay with the brand unless the brand gives them a reason to be dissatisfied, either in terms of quality or in terms of price. So what we finally cracked now, and this is doing very well is we're building our own walls. It's next to the Kellogg's wall, but we are building our own wall. And this is what you see in the photo is an example of that. So we'll take it step by step because it requires investment, we have to spend money on the store. And -- but this is something which is we've already started in this first quarter, and it's there in a limited number of stores across the country. We'll be expanding this during quarter 1 and then quarter 2, we'll probably move to investing behind chocolates, and then we figure out how to manage the balance of the year. But -- this is giving very good results. Again, the hero is INR 10 here. That our INR 10 Breakfast Cereals are picked up by consumers. And we think that, therefore, it's an effective way forward. And now it will only be a function of resources. We believe that we have the answer on what to do with the Kellogg's wall. And the answer is build your own ATFL wall in the cereals category. It benefits not only Popz, which is the largest part of it, but it also benefits other things That Granola, Muesli, so on and so forth. Of course, we don't have Muesli, but we will have at a point in time. So it's, I would say, work underway, but looking good and promising. Otherwise, you've not have got this revenue growth and continue to deliver strong volume growth to capture operating leverage benefits across the supply chain. Our capacity is significantly more obviously than what we are selling. And therefore, all we need to do is get more volume and then all the other cost, depreciation, manufacturing labor cost, resource costs, all of those come down. So looking good overall. Chocolates, I'd request you to please go to page 10 out of 19. I know there's a growth of 59% or 69% of volume and value, but that's really well below our expectations, our expectation was that we would be able to more than offset the lower volume that we were going to see in RTC. And I think we certainly have a significant supply chain issues in Fy '23 and this is common. If you go through the Hershey CEO North America statement, she also mentioned it some 1 or 2 quarters ago, we've had supply chain issue. Most of the world buys a lot of machinery from Germany. And Germany had a huge amount of challenges over the last year. It's not just gas, there's gas, there's labor. This breakdown of some interim suppliers, they have to change things. So we have, I would say, -- we -- as a consequence, we did have some delays in the receipt of our machinery, if we go back to our quarter 1 analyst call, you will see as we mentioned it there also. So I would say, going forward, we are I think, almost there, we're probably 80% of that -- 80% there in terms of whatever we needed to do from a changes in recipe, manufacturing processes, all of that, although all of those are pretty much closed now. And I would say by quarter 2, maybe even by the end of quarter 1, we should be in good shape to -- we should have overcome all of these and then start to be aggressive. We obviously are not going to be aggressive with chocolates in quarter 1 because, quarter 1 sees high level of heat and also moisture in many locations. So heat and moisture are a legal combination when it comes to chocolates. We need to manage the supply chain very, very carefully. And it's okay right up to our depot and then beyond that, as it goes into retail distributors, we need to just -- we need to manage it carefully. So -- but it's all looking good now. And we told you that we'll be building a capacity which can produce 100 crore plus of chocolates in a year, and we'll build that capacity in the current year, and we are on track to be able to do that now. Most of the answers to the problems and solutions have been found. Investment in the store visibility will start in quarter 2 FY '24, post the summer, again, for the reasons that I mentioned right now. It's a proven lever for growth acceleration. It's in -- particularly in the chocolate category. There's a very impasse item and trails happens very, very quickly. And we've had very good results in the stores that we tested in the month of January. And we will now be rolling this out in quarter 2. And the results are good. If you take a look at the stores where we were able to execute good display and have a reasonable presence in the store. Our sale of chocolates in those stores is equal to the sale of our instant popcorn business. I mean, our ready-to-cook popcorn business. Now that's a big statement. That's a big statement because if it can happen in that store, that means we have a right to win and the ability to build that business nationally. The question only is how quickly we can do it and how safely we can do it. Because chocolate, we need to be careful about product stability and product quality right through the supply chain. In reality here, it can make waste. So we just need to be careful. But we certainly have a product which is good enough, as I said, to be equal to our ready-to-cook popcorn business. If -- and that's not in one store, by the way. That would probably be -- we would have tested this in maybe 100 stores across the country in January or maybe a little more. So in all of those stores, it's already there. In some stores like some modern trade stores like we have in say, Gurgaon, even without the extra display, we've already gotten up to 60% of instant popcorn levels. So those are big numbers. So the only thing is how do we scale it up and to make a great business. So our assumptions of how much we can build from this business, we shared those with you in November, those assumptions stand validated with the work that we've done in store. Now the only question is how to get there. And bear in mind, these revenues have come without advertising in these stores. All the investment has been made largely in display. So that's a great statement because in instant popcorn business has been built up over several years with a lot of advertising support. Of course, it's a very different business. It needs a lot of demos and other things, but that's the power of chocolates. So to close this page, capacity, productivity and automation work is underway, capacity expansion, improvement of productivity and automation work is underway. And I think it's on track to be a significant contributor to growth in FY '24. I'd request you now to go please to Page 11. So on the premium stable business, we've talked about it, margin successfully held in premium stable despite the Ukraine conflict. We had a gross margin of about INR 77 crores, up from INR 75 crores in FY '22. Fair revenue, so, that's in line. We've already -- always told you, INR 70 crores, plus/minus INR 5-odd crores is the range that you can expect this business to develop. But it will entirely be -- it will depend on timing and what is the opportunity available at that point in time. So I doubt very much that anybody sitting in the early part of the year would have said actually the edible oil margin is going to be higher than prior year. But it did. So -- but it's going to, it is going to fluctuate. And -- but I think we are in the right ballpark. That's what we told you 2 years ago. INR 70 crores plus/minus, and I think we are there. We see clear revenue risk in FY '24 in premium stable. We are correcting the pricing now. So as you correct pricing, you also lose revenue because revenue per kilo comes down or lead up comes down. So you'll see -- but also, I think we expect to see that, therefore, as a consequence of the improved pricing. And we've seen this earlier as we improve price competitiveness to the marketplace, then the volume algorithms will also changes. We are also making the portfolio more broad-based while providing procurement square to Foods. So rollout of Oats is already underway, and that is -- that's -- it's a very steady build that is happening. And I would say it's going well for us. And we are also working on additional staples, which are used in Foods, which is under development. So in other words, we are looking and selecting staples, not in a meaningless manner. We are selecting staples where we're already buying those staples, but we don't have the procurement scale. So if it makes sense for us to, yes, say, okay, I think I'll get a significant procurement benefit, as I also had it that staple under -- which I'm buying for Foods under staple, they will keep it, and it should also fit from a brand perspective. And that staples have reflects largely the exit from Crystal in FY '22, nothing more than that, the rest of the business is doing fine. Okay. So I'll skip Page 12, and I'll request you to go to Page 13. So you can see snack competitive spend. Steady spend behind ACT II, which is designed to address the expected post-COVID-19 softening. If you see our spend over the last 3 years, they are equal to or more than the spend in the prior 4-odd years, so it's looking good. And I think we've done, therefore, whatever we needed to from a brand investment perspective, that whatever is a result of, therefore, mathematically of all the ready-to-cook changes or the lower consumption. It is not man-made or enhanced by any man-made actions in terms of our cutting advertising or some thing like that. Other than that, not a lot more to report. Frito Lay is obviously up spending here, and you can -- the others really are self explanatory. In spreads, Page 14, please. So you can see we've had a steady spending behinds -- setting spends behind Sundrop Spread over time, which is the reason of INR 5-odd crores, INR 5 to INR 6 crores we've been spending. Over time, we will, as we mentioned earlier, transition this towards more sweet of spreads. And as far as the Kissan is concerned, they continue to spend money, so which is good. And even if they continue to spend money now as we are able to expand our nano pack distribution, launch it and expand distribution, we will -- that advertising will actually be a tailwind for us. So that will be very, very good. And our -- the probability of there being able to introduce that, we believe, is very, very low. So that will be game changing, and we keep you posted about it. Page 15, please. So Breakfast Cereals. Here, you can see there's a significant spending behind the Fills category, INR 30 crore plus, which is providing tailwinds for ATFL. And in fact, if you do a diagnosis of this chart, it's very interesting. It shows that actually the excluded part of this portfolio, which is Center Filled and Kellogg's Chocos, excluded Cereal has actually held their share of the total cereal category at about 25-odd percent. The other part of the category, which is Corn Flakes. If you look at Corn Flakes. Corn Flakes has also been steady at about 25% of the category. What has changed, however, is the share of Oats as a category of Breakfast Cereals has come down. 4 years ago you see, it was almost 50% of the category. And now it's getting closer to the 25% mark. And the share of Muesli and Granola has increased. And that's kind of what we've seen overall in the businesses than if you introduce a staple and you spend advertising money behind it and you say, okay, it's a premium price and I'll make it work. It will give you some revenue in the near term. But what will happen is that other competitors come in with Oats offerings and Oats offerings are very good value. Then the profit pool that you have gets diluted, it gets compressed. So clearly, the entire action is between still increasing. And therefore, you can do the math, you guys are much smarter than we are, is going to be a more value-added products. It could be Corn Flakes. It could be extruded Cereal and it could be Granola and Muesli. So maybe we'll drop in some pie charts in the future just for you to see how it's moving it. That will give you an indicator of which way -- on which way or which one these subcategories are we investing in the right subcategories or not. The next chart is chocolates. And you can really see the power of this chocolate category. It's incredible. You can see that the spend last year were in the region of INR 1,500 crores. And if you go back to FY '18, you can see that the spend was INR 650 crores, so that means in a 5-year period, the spends are more than doubled. And that's really reflective of the profit pool of the category. If you look at the gross contribution of [ Mondelez ], it's an unlisted company, it will cost you only INR 100 to pull it out. Look at it, it's in the region of about 60%. We are at 46% saying we'll get to 40% to 50%, model is 60%, 60%-plus. Now granted that they've been here for so many years. But the fact is that those are the kind of contribution that it is possible to make in the category. And these are the categories for us of the future. This is where we really need to invest our time and money, not in commodity type of categories. And in fact, if you go to Page 17, you'll see with reimbursement, what we've always told you about edible oil. You can see edible oil last year spent INR 207 crores. You can see that figure of INR 2,074 million. And you compare it to the same FY '18 that you saw in chocolates in the last slide, it was INR 356 crores. So the spending -- now the INR 356 crore was an aberration because the prior year left and the subsequent year was less. But conceptually, even if you aggregate it out, there's no change. So in a 5-year period, you are not really seeing any change in the spending, whereas in chocolate, it's gone up by double. And that's reflective of the profit pool of the category. So that's why we said, we want to become the best performing most respected foods company in India. And to do that, we had to transition from being an edible oil company to a foods company. That's very important, and obviously, we have to keep up the base of edible oil for as long as we could, which I think we have an keep out the margins. But that is why it's so important for us as a company to have a greater share of foods. And within Foods be focusing on all the right categories. Because if you focus on the right categories, or the wrong categories, our chance of success in the long term is always going to be poor. It's always to be. But if we focus on our energy and select the right categories with the right margin profile, then we will always be guarantee short-term success. So just an interesting perspective. I'm sure you guys can analyze this data a lot better than I can. And really, that's come -- brings me almost to the second last side of the presentation. So that's really an update -- FY '23 update on our ATFL growth trajectory. You can see, we started in FY '08 with a INR 36 crore food business. That is when an edible oil is the largest part of our business. And you can see growth rates have gone up and down during this period. There were years of 35%, 60%, then followed by as a minus 11%, then 35% again, then 5%, then 18%, then 8% -- 10%, -- 8% -- 0% -- sorry, 15% and then 35%, 15% and now last year 9%. So growth rates have gone up on a year-over-year growth rates will vary. There is no question in our mind and there will be some years, they will outperform the 20s. Some years, there will be a little less. But overall, if you look at the trajectory, it's great because we built up the business from INR 36-odd crores to about INR 437 crores. And you don't need to be a genius if you look at this graph, to know where it's going, It's going into a very, very good place. So thank you for your support over the years for all of this. And I'll go now to Page 19, therefore, summary. I think these largely navigated commodity inflation without derailing our volume trajectory and growth. The growth is moderate, no doubt, but there is a very good reason coming out of COVID, and that's okay. This is monthly trend. We are now overcoming, I think, the base impact of COVID-19 on RTC volume. Even if I look at the last quarter, Jan-Feb was really tough, because Jan-Feb last year was up almost 20% over the prior year, and that was up on a very, very big pace. As people are coming out, as schools have reopened now. I think school reopening took place around July last year. And work-from-home kind of started to end between April and August or September depending on the nature of the company. So probably through quarter 1, by quarter 1, quarter 2, I think we should start to see the return to growth. And that will get us to back up to that 15%, 20% growth rate that we've always had or what is our cumulative average growth rate of -- and it was 19%, maybe it's down to 18% this year because last year it was[ 10% ], but that's okay. Stable margin is stable despite the impact of the Ukraine war, significant cost in terms of volume, together with lower exit NPS per kilo or revenue risk, but we are working under way to address these risk. Foods gross contribution recovered to pre-COVID levels. And a diverse portfolio clearly helping to ensure a steady sustained growth and profitable growth. Clearly, we didn't have a diverse food portfolio. When if we had only a Ready to Cook business today, that would have gone down that 5%. So that's the benefit of diversity in many ways it helps. So that's it. So Ajay, thank you very much, and we are open to questions now. So go ahead.

[Operator Instructions] The first question is from the line of Soham Samanta from Centrum Stock Broking.

This is Shirish. So just 2 questions. When you look at the slide where you have given the ATFL growth trajectory in terms of food, now we are INR 437 crores. The growth is very, very volatile, and there are many reasons, and we do understand capacity addition has taken little slower piece. But now you have a larger capacity, which is in your hands. How do you see next 3 to 5 years growth in terms of food? And the second question is that though we have seen the volatility into the revenue also has the volatility into the margin. So in a steady state now food is stabilized. So what kind of margin expectation we should be building in the next 3 to 5 years?

Okay. Thank you. So both of the questions really should be thank you. I'm sort of forward-looking. And as you know, No, we are not going to be able to give you any forward-looking projections. But I can provide context for that. So hopefully, that should do the job. So if you look at it, see, the growth trajectory has, I would say, rarely been limited by capacity. Our capacity is not really -- I don't think it's been an issue. And even during COVID, in the first wave of COVID, where everybody is scrambled and we scrambled too and hopefully, we scramble well. I don't think we lost much sale in that period. Because we were able to scale up. We've always had adequate capacity, I would say, at any point in time. Last year is probably the one thing that I called out in the chocolate business. Where we were on the back foot, trying to balance supply and demand and to produce the right quality products. But overall capacity, I think we've always been planning adequately for. The variations in growth over the 15-year period, and you can see it -- and it's always does, it goes up and down. It would be many factors. For example, in 1 year in the past, we had a large vending business, if you recall, in our popcorn business, that was about INR 25 crores, INR 30 crores. And that kind of went out, because our largest customer decided to procure from outside, and that's always an issue in the institutional business, which is why we didn't build back that business later in a conscious manner, which is why should we risk any institution business and impact on our revenue. Similarly, in one of the earlier years, I think where you see 0 growth, you will see we had actually put a lot of focus on distribution and stock pressure inventory, and then that stock pressure resulted in inventory and that inventory resulted in lower shipments in the prior year resulting in 0 growth. And the same is expand also with the high-growth months, so if you see the high-growth months, you -- maybe we grow in the past, distribution very aggressively or stock presence very aggressively. In the -- 2 years ago, a lot of the high growth was driven by COVID. Right now, we are managing a slightly lower growth due to the fact that the base is of COVID, I would say it's not really capacity. It is just that's the macro factor. But whatever is the factors specific to either the category, our customers or things that we may have done along the way, in terms of maybe pushed harder than we could. Because food is very different from personal care. Personal care you have very long shelf life, I mean there's no real issue on shelf life, so you can do it. But in food, if you push too much, then you -- so you can pay the price for it in the following year. And so you have to be just very careful you have to supply to demand. And that kind of more or less what we largely done during the past many years. As far as volatility and the margins is concerned, actually, gross -- at gross contribution level, by and large, in the food business, it's been in that 46%, 47% range, I would say. The only difference is that it depends on operating leverage. So in the period where, let's say, you -- coming out of seasonality, you have lower volume than automatically, the gross margin that we deliver will be lower. So to put it into context, the -- I would say historically, and let's take before COVID as an example. We would always have been in the -- on the total food business, a gross margin of about 26% to 27%. And -- but right now, it is lower than that. Largely, obviously, there was a quarter 1 impact. And as we are coming out of it. since RTC has not grown, and the other parts of the business has grown, that has diluted that margin. But as RTC comes back and that starts to grow and overall volume growth plus the RTC part growth, I would say we should be getting back to the 26% to 27% very, very fast. Going forward, I would say, on margins, look, it is going to come through operating level, 100%. It is going to come. It will come -- there will be some improvement in GC. And that will be driven by pricing and maybe more procurements in scale -- procurement efficiency due to scale, and even lower wastages in the plant in our below material, but a lot of it will come through -- most of it has to come through operating leverage. And that operating leverage is there across the supply chain. It's there in manufacturing, it will be there in transportation, all the transportation is there. And even in terms of distributors, because we do invest behind distributors to support the expansion of distribution. As you said, more scale, that comes up. So I would say that's pretty much it here. Okay.

[Operator Instructions] The next question is from the line of Vimal Sampath, an Individual Investor.

So about 3, 4 quarters ago, there was a lot of talk about new products like soups, cocoa. And now what we are seeing and even the hummus and things like that, we have scaled down, I mean, is there a change in strategy. I mean what is -- I mean I'm not able to understand. I mean are we going to focus on those products because soup is a very good category. So I just want to understand, I mean, is there a change of strategy.

Okay. Thank you, Mr. Sampath. What else? Anything else?

Second question is CapEx is mostly on chocolate. We have about INR 26 crores now work in progress, WIP. So is it only on chocolates or other products also are included? And third question is, see, I mean we are spending on in-store advertisement. Same way if we have an institutional division, our products like our peanut butter and all can be placed in 5-star hotels, the breakfast spreads, what they have? if we sacrifice margin there and we put it there, it's a kind of advertisement. Does the in-store, you are having demos, this will be a kind of in-store demo. And we need not spend on advertising. This will be an advertisement in one. Have you looked at that? These are the 3 questions.

Thank you, Mr. Sampath. Yes. So on the first point, which is no, nothing has changed as far as the -- our new product development is concerned and whether it's cocoa products or soups as you correctly said. In fact, I brought some of those spend charts on the other categories because I think we are still tracking them, and we review them internally, but for the sake of gravity for this group since they are not in those categories right now. all right? So there's no change in strategy. It's just that we need to balance in each of our categories that we are competing in, the rate of introduction of new products. So right now in the ready-to-cook popcorn business, our single ready-to-cook segment of the business. Our single greatest focus has been getting the RTC business back to growth. In fact, we have even compromised and we would have made some changes, let's say, the people who were doing demos of pasta, we asked them to get back to popcorn. Because that is the core of the business. We need that to be growing at that 8%, 10% for our algorithm of 20-odd percent to work, so not less than that. So that is why you see it. And I think as we return to growth on ready-to-cook popcorn, you will see more focus behind that. Meanwhile, the development work of all of these plant needs that we've talked about, all that development work is underway. Many products are actually completed. But right now being held in abeyance [indiscernible] -- I'm sorry for the pronunciation. Because we need to ensure that we don't overload the entire selling system, given the fact that this part of the business, which is 50% or thereabouts of our foods business, we need to get it back to growth. So no, no change in that. But yes, timing. We have to moderate our timing to be successful. Your point on CapEx is 100% correct. Most of this is on chocolates only, and there is very little CapEx investment per se that we are doing in machinery outside of chocolates. Obviously, there's some, but the bulk of this is chocolate. And that is designed in to build up that capacity that we talk to you about INR 100-odd crores of profit revenues. And lastly -- yes, we have the institution that -- that's not -- there's no right or wrong in this business. It's just as you know with the energies that we have and the field organization and the organization that we deploy, with the SG&A that we try to run it, we have to be selective of where we need to focus. So we -- for example, don't really -- we had a vending business in the institutional business for popcorn as I mentioned earlier to Shirish's question. But then we did -- we said, okay, it's better for us to spend our money on retailing. Remember, if you look at our wage cost, all right, we are running at about 7% of sales. That's the number, if you look at the INR 62-odd crores, we're running at about 7% of sales. Now that is, kind of not very high for our food business for a company, for any food business. Of course, you can argue that we have 50% or a little less than that of our business is staples and staples business, or commodity-type businesses even in Foods will run with lower rate cost. But either way, the wage cost is not high. It's comparable to many companies who are privately owned, and there are a lot of unlisted companies, and we can share those details with you if you want to -- or rather, you can just pick them up and see, as I said, at INR 100 a shot. So within that, we have to make choices. And the institutional business, yes, it does provide trail. Yes, it can provide visibility. For example, you could say, oh, by the way, now let me get listed in IRCTC, so on and so forth. And there are people who do that. But our core is building a nice, strong, resilient retail business. That's the core. That's what we have to -- and that's what great brands are built around. So our focus will be there. If there are opportunities, we'll certainly take them. But we are not going to be investing too much of resources behind it. It will have to be very, very -- because we understand that finally, in these businesses, you are replaceable. It's like the food service business has really grown this year. But the factor is, you are replaceable because the person who owns the customer can decide whether he wants to give your ketchup or your mayonnaise or your mustard sauce as compared to others or peanut butter or whatever. So just, food for thought, we are chat more about it. But thank you, Mr. Sampath. Good question. Thanks, Okay. Ajay, I think we've got time for one more question now or 2. I don't know.

The next question is from the line of Vivek Kumar from Bestpals Research and Advisory LLP.

I think you have mentioned briefly about these categories, but ready-to-cook popcorn is already INR 200 crores, and that has been like because we being the largest, so that categories grow determine the overall growth. So when do you think we will be able to build chocolate and spreads as another greater than INR 100 crore category or whatever in your company's plan? And what do you think that this each one pulling down, one going up. These kind of things are more like we have at least 1, 2, 3 pillars into 1 big pillar ready-to-cook popcorn. So if not these 2, maybe some other categories which you may be thinking of. So that was my question.

Okay. Thank you Vivek. That's a very important question. See, I think the next 2 categories, which will reach INR 100 crores are Ready to Eat Snacks and Spreads. Both of these are, I would say, our expectation would be that they should either nearly touch or cross the INR 100 crore mark in FY '24. And that basically, whatever are the growth rates that we have today and the size of these businesses last year. Chocolate is an incredible opportunity, but -- and it will certainly overtake all these other businesses. It will overtake all the other businesses, meaning -- if we manage it right, it's possible that chocolate could be our largest category I would say, in about 5 to 7 years. It's possible. Because as I shared with data we, already in so many stores, in the stores where we are investing in display, the sale is equal to popcorn. So that means the potential of the categories is there. And it's not talking about category potential in a broad macro term, it's saying that these products, which our company is selling are proven to generate a revenue equal to instant popcorn or ready-to-cook popcorn, both microwave and instant popcorn in these stores. That's a data point. That's [indiscernible]. So now the question is what will be the guide path to that? We also have a reasonable idea of what are our gross contribution on these products because we are making them now. We know what is the revenue, what is our raw material, et cetera. So we need to figure out the business model. How are we going to actually get there? But as said, maybe 3 years ago, I said this is going to be the category of the future. And it will be. So for -- I would say to the first question on INR 100 crores, well, the 2 INR 100 crore categories in the near term, we would expect now would be Spread -- would be Ready to Eat Snacks and Spread. And over the medium to long term, the bigger play will be chocolates. And that's why we are making those investments that we are in. Okay.

The next question is from the line of Devdutt Shah, an Individual Investor.

I was just wandering when we are trying a new product and testing the waters when it is in the traction phase of under strategy how well it has been received by the consumers. At what point do we decide to kind of say that let us stop putting in any efforts or resources into this new product. This is probably not working. Can you give any color on that?

Okay. Anything else, Devdutt.

Yes, one more. I'm just wondering with regards to RTC, RTE and chocolates, already big enough markets in terms of its potential, why would we not choose to only focused on those 3. And as an extension of that question, is it really worth competing in the Spreads and the Cereals category?

Okay. All right. So I think the first question is a very sort of deep one, which is when you give up and say, that this is not going to work. And the answer is, I don't think we do. So we believe that nothing is really impossible unless there's enough data to clearly substantiate that it is impossible. And the whole part of building a business from scratch as we've done on the food business. As you see, it was about INR 35-odd crores is that these are challenges we faced through the years. So I can remember a time in the ready-to-eat popcorn business was 5 tons a month. I don't know, It was -- we were selling 50 tons a year. Today, we sell it in thousands of tons, right, okay? So -- and there was no way out. So you are concerned with those business -- every -- with those challenges every day. If you said, I will give up, you will probably give up on 95% of the stuff, because nothing happens. Every time you go out, you face a problem, you solve it, then again, and then again a new one will come up. And that's a part of ongoing business development. Especially if you're building a business from scratch. If you inherit a legacy business, somebody else who's doing the business, you came in, you said, okay, now can I grow it by 8%, 10%, whatever. That's a different story. But if you want to build businesses from scratch, it requires a tremendous amount of tenacity. So one of the reasons, and I'll give you -- I'll share with you a thought, which will prove this point, and you can double check it later. If you see, most food companies, big food companies in the U.S. don't rely so much on organic growth as we relay acquisitions. And the reason for that is that the task of -- in the food business, you have machinery and recipes. Now the machinery can work with the recipe. The recipe may not work with that type of machine, then you need to modify the recipe. Then you need to go back, then you need to see what is going to make it efficiently. This process is an ongoing process. So for large corporation, it's very difficult to manage this. An entrepreneur dose it because an entrepreneur is everything, he or she is doing manufacturing, R&D, selling, everything else. So the end result, therefore, is entrepreneurs typically build businesses in North America, and then they sell them to larger companies. Because larger companies have the balance sheet to be able to make that acquisition. But this trial and error and ongoing brain chew, if you will, that is required, they don't have because they are bifurcated by functional silos. So we rarely give up. Even if we give up today, we may revisit that same thing 5 or 7 years later. So nothing is actually ever given up as such. We will initiate. We will test then it may go into a little back burner. For example, Chocolate Spread is a good example. We initiated, we got some share, we got some mileage, but we say, no, now we need to reduce the recipe. We need to modify the facts that are there. Now there'll be some other things that we're going to do starting this quarter. So these processes are ongoing. It's all problem solving at the end of the day. So you can't [indiscernible]. Management finally has to -- is paid for problem solve, you've got paid and others, you'll never have a shorter building businesses from the scratch. That's not possible. And on RTC and by -- each category will has its own benefit. And these 5 categories we've chosen because we believe this will be fast-growing 5 food categories in the future or going forward. And honestly, they not only produce results on their own, but the learnings across categories are incredible. They are just incredible. One of the reasons we are able to get share in Breakfast Cereals without spending a dollar in advertising is because we have an RTE Snacks business. So we already have a bad snack, if you will, supply chain is set up nationally, and we can -- we have a competitive advantage versus anybody. There'll be a few more other products that we'll roll out this year, which will really demonstrate the cross-pollinization of technological advantage that comes from being in multiple categories. It is an incredible benefit. So being in a single category is not a great way to build growth for many reasons. It's not great for your distributor because he doesn't get the revenue from the beats that he's covering. It's not good for you as a company because you don't get the scale. And you don't get this network effect that you get when you complete in many categories. So we've not chosen categories which we believe we don't have a future. Or, let's say, we're doing a [ plain old ] business. But -- and about 75% of the market is [ plain old ], more than 75%, 80% of the total market must be [ plain old ]. And we have always -- we have said this is not a business, this is not a food business, but It's a staples business. But it will never have in the long term or decent margin. It cannot have, It's a single commodity. So we put it under staples. So we've told you why we are doing it and what the businesses of choice where we believe we can have a profitable business, like we showed you chocolates, advertising spend has doubled between FY '18 and '23. And advertising on edible oils has gone by half over the same period. Now you may choose some other year as a base or whatever. But the story is explained. We have to choose great categories. And the categories that we compete in are all categories with high GC, very high GC. For a company like even Kellogg's, I don't think they'll be operating at less than 55%, 60% gross contribution. They haven't done their last year's filing, so I don't have the figure. But -- so these are the best playing grounds for all of us so that we can take share and we can get volume growth, and it can be profitable for us. Okay.

I understand. Please don't mind.

Sorry, that's it. I'll not be -- no, no, I don't mind. I can hear, but I won't be able to answer your questions. So why don't we keep it for next time here. Okay. All right. No hard feelings. I still love you. Okay. Thank you, Ajay, thank you for the call, guys. Darwin. Take care. You guys have a great day and a good quarter. Yes.

Thank you, Ajay. Thank you, everyone.

On behalf of Anand Rathi Shares and Stock Brokers Limited, that concludes this conference call. Thank you for joining us. You may now disconnect your lines.