Sundrop Brands Limited (500215) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sundrop Brands Limited Q2 and H1 FY '26 Earnings Conference Call hosted by Anand Rathi Share 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 Share and Stock Brokers Limited. Thank you, and over to you, sir.

Good afternoon, everyone, and I welcome you all to the Second Quarter and First Half Earnings Conference Call for Sundrop Brands. From the management team, we have with us Mr. Nitish Bajaj, Group Managing Director; Mr. Asheesh Kumar Sharma, CEO and Executive Director of Sundrop Brands; Mr. K.P.N. Srinivas, CFO, Sundrop Brands; Mr. Abhinav Kapoor, CEO and Executive Director for Del Monte; and Mr. Amitosh Banka, CFO, Del Monte. So without wasting much of a time, I should like to hand over the call to Mr. Nitish Bajaj for his opening comment, and followed by Q&A session. Over to you, sir.

Great. Thank you so much, Ajay, and good afternoon to all the participants on this call. I am very happy to be with you all of again and take you through how we have done in Quarter 2. I will be, I assume you have all downloaded the presentation and you have the presentation available with you. I will refer to the Slide numbers or page numbers of the presentation as I speak through and take you through the performance of the organization. I'm starting with Slide #3, which is just a quick recap of the vision and mission we have set for the Sundrop Brands as an organization and a group organization. Our vision remains to make sure that we bring very joyful and enjoyable experiences of food to the modern evolving consumers. And we shall do so by continuously creating innovative, delicious, and easy to process and make food solutions for our consumers. Just a quick recap, and I'm on Slide #4 now. Sundrop Brands, as a thesis, is created as a scaled food platform where we would bring multiple opportunities of building synergies, expanding the growth, and building a profitable business for the organization. As we stand today, we have our presence in high growth and high margin categories, which you are aware of. We do, with the entry of new management teams, we do have a very significant and expanded focus on identified core portfolios to which we will drive our growth journey. We continue to build our salience increasingly and aggressively in fast-growing channels, and I'll talk you through that. There is, of course, a very high focus on improving EBITDA and margins of the organization, and you will see some discussion in this meeting around that. Overall, as we build scale and we build profitability, our approach for any new entry or new expansion in this business will be to make sure that our capital efficiency improves. So while we will build scale, we will do so ensuring efficiency of the capital we deploy at the core of our thinking and business decisions. And we do remain always open. Of course, there is a very strong organic growth story which we have talked about but we do remain open to any opportunity which will be in the ecosystem to look at an inorganic route for expansion and building our business scale and efficiency. I'm moving on to Slide #5, a quick recap for you as a platform today we have very, very, very, I would say, high on consumer affinity, consumer familiarity, and very powerful brands, three such brands which exist. ACT II and Del Monte are global brands for which we have the perpetual license for greater India geography. And Sundrop is iconic brand which was created almost about 40 years back, and that brand continues to win the hearts of our consumers even today through multiple offerings. Now coming to the performance in quarter 2, we continue our growth journey in an equally strong way. I am now on Slide #6. In quarter 2, our growth has -- in quarter two, we have grown at about 8%. You are aware that there was some impact of GST because there were new rates which were brought in most of the categories. In the last week of September, introduction from 22nd, 23rd of September, And as an outcome of that, we did see some transition issues in September month because trade down-stocked. And as an outcome, I would say we have lost out an opportunity to cash in the full off-take or secondary-led demand in the month of September. And that has slowed down the growth a little. We did grow in H1 at about 10%. In quarter 2, I would say our inherent growth has remained the same, but there is a 2% to 3% impact of GST transition on our business, and that should hopefully come back as we move ahead in the periods over next two quarters for this year. What has worked well for us in this quarter, and I'm calling out our B2B business specifically, today this is dominantly led by Del Monte. So while Del Monte did experience same transition issues in B2C business, but in B2B business, they continue to perform strongly and they have accelerated the growth of that business in quarter 2 to 23%. And I'm calling these out because I've said we will focus on new channels of growth for the business. In e-commerce, similarly, which is an emerging channel for the business, we continue to drive strong growth and we have grown at 41%. This entire growth is being backed by aggressive marketing investments on driving saliency of our brands, and also driving the purchase occasions for our brands. And that you see in continued high investments on advertising ahead of curve. So we are now spending about 35% more than last year. On the margin side, with the focus, and I would say a relentless focus of both the organizations on improving our cost side of levers. We have seen about 250 basis points improvement in our gross margin, both in the side of material marketing and also in the operational side, and I would say specifically on the operation side, in manufacturing and supply chain. And as an outcome of this, we have delivered a growth of 29% in EBITDA, and I would say this is a, of course, I would just want to call out here that this 29% growth does take out certain one-time costs, which we are implementing in the area of cost efficiency improvements, which are not recurring in nature and there is of course a very strong employee engagement program on ESOP which is a non-cash expense that has also been kept out in this assessment. This wasn't there in the base of last year, this today sits in the base of course for this year and is not like to like and hence I have taken it out plus also the project expenses which we are doing for realizing efficiency in business, they are one-time in nature. Our balance sheet continues to be strong. Our total net worth is about INR 1,450 crores. We continue to be a zero-borrowing company, no debt at all on the balance sheet, and we do have a free cash balance along with the mutual fund investments, which are made, totaling to about INR 24 crores in our balance sheet. Moving to Slide #7, this is just to show you how, in the same context, the H1 looks like. H1 is at about 10% growth overall. B2B business, I talked about of Del Monte, has accelerated in quarter 2, but at an overall level also is growing at 12%. E-commerce growth, very sustained. Similar number, 42%. Advertising investment in the full half, we have spent aggressively. Overall investment going up by 44%. And gross margin expansion at the full half basis is about 190 basis points. What it also reflects is that Q2 is better than Q1, and there is a progressive improvement in our margin expansion. And at an overall level, our EBITDA growth, on same principles I'm talking about, taking out the ESOP costs and taking out the one-time project expenses, climbs at about 30%. Moving to Slide #8, this is just to give you a flavor of how the two organizations which today constitute Sundrop Brands as a platform are doing. So Sundrop Brands, which is about 58% of the business, in H1 has grown at 11%, in quarter 2 has grown at 7%, but I would say there is a 3% GST transition impact. I'm on Slide #8 just for clarification. Sundrop Brands has grown as a company at about 7% in quarter 2, and with the GST impact factored in, the growth could have been about 9% to 10%. Full year, last year, we had grown at about 5%. So there is a clear market improvement in our growth trajectory as we continue to invest and strive for efficiency in the organization. Del Monte, very consistent performance. If I look at H1 growth of 9%, Q2 growth of 10. Q2 has some impact of GST transition, could have been again 2% to 3% better if I would have not had that impact. But it's overall done well because B2B business has accelerated further in Q2. And as an outcome of this, at a group level in quarter 2 we have grown at 8% and in H1 we are growing at about 10%. Moving to Slide #9. This is about our core categories where we are investing on brand building and also expanding our innovation platform. And you will see both of that being talked about how we are doing it. But on our core category, our relentless focus for expanding business is yielding very strong results. Our business saliency from our core categories has now moved to 64%. So just in about two years' transition time, I would say from FY '23 to as we stand today, in the middle of FY '26, our saliency has moved 11% up for our core category. I would also want to refer back to quarter 1 numbers. When I had shown you the same numbers for quarter 1, the saliency of our core category was 61%. So we have, with our focus of advertising investments, have further strengthened our core category, and today they are contributing to 64%, which means they are the ones which are really driving the growth of the organization. A snapshot of how we have done in quarter 2. I'm on Slide #16 -- sorry, Slide #10, my apologies. On Slide #10, on our core categories, if I look at popcorn as a business, which is where ACT II brand is dominantly centered, is grown at about 12% in value terms. Culinary, which is where our Del Monte business is in the form of ketchups, mayo, and kind of offerings, has grown at about 15% in value terms. Premium Staples or our edible oil business, which is where Sundrop Brands is sitting, has grown at about 13% in value terms. We have seen some erosion in volume, but that I would say is an outcome of very, very steep commodity prices for Sunflower Oil in specific. Sunflower Oil today is the most expensive edible oil in the set of oils we compete with, because of which we are seeing some of the bulk pack users who, let's say, use it possibly more as an institution, they are shifting out gradually from Sunflower Oil to other cheaper alternatives of oil. And this, of course, is a transient nature. We do see that commodity prices do fluctuate. And as and when we would see Sunflower Oil stabilizing to, let's say, at more harmonized levels to other commodity oils, we should expect to see this bulk oil volume also coming back. But today, in the transient state, we are seeing an impact with Sunflower Oil inflating higher than ever commodity -- other edible oils. On Italian business, which is a combination of olive oils and pasta and olives under Del Monte brand, we are seeing very strong volume growth, but there is a value decline of 3%. I had talked about this in the last quarter also. The reason we are seeing this phenomenon is because edible oil prices have actually -- in olive oil, prices are actually opposite in trajectory to the edible oil price. They had increased significantly in the last two years, but have softened in this year. And they have significantly softened in the last 6 to 12 months. As an outcome of which we have passed the benefit of the input cost to the consumer without changing our margin profile at all. So we have maintained our margin profile, but the cost side benefit we have passed to the consumer, because of which we are seeing a transient decline in the value terms, but intrinsically our volumes are growing at 13%, so we are recovering. One business which is, again, Sundrop Brands Peanut Butter business. This is a business we are facing very strong competitive challenge and we need to get out of a negative situation. We continue to be declining at about 11% in this business, and I'll talk about it in some detail ahead. Same performance at full half 1 level. Again, popcorn, and I'm on Slide #11. Popcorn business is growing at 16% in value terms. Whenever you see marginal shifts, let's say, please do keep in mind that there was a GST transition in September, which has, let's say, put about a 3% growth impact in each of the businesses. So popcorn has grown at about 16%. Culinary, ketchup, sauces, mayo has grown at 12%. Edible oil business has grown at 16% in value terms. Volume I talked about, bulk oil business dominantly impacting in quarter 2. Quarter 1 this number was more at about minus 2%. Olive oil and pasta, Italian business of Del Monte, again growing at 10% in volume terms. Volume further expanding, I would say, in quarter 2 versus quarter 1. And that's why quarter 2 is better than H1. And Spread business continues to be under pressure. Getting into some details about our core categories. In Popcorn, I would say our business, and I'm on Slide #12. Popcorn, our business, is a mix of ready-to-cook at home, hot and fresh popcorn, and ready-to-eat format business. We are seeing consumer increasingly shifting towards convenience, but the inherent growth of ready-to-cook at home experience also continues to be strong and buoyant. So both categories are doing well. And of course, ready-to-eat business is doing significantly better, going at about 43%. This is, of course, our growth hero category. Overall, Popcorn franchise, if I have to call it, is going at about 16% plus in business over last year. And this is driven very, very strongly by the investment calls we are taking on this business. You may recall last year, this business was going at about 4% to 5% in the popcorn business and growing at about 30%, 35% in ready-to-eat. So there is a clear acceleration we have seen in both businesses as we invest on growth. E-commerce, where we are investing even more aggressively, and I'll show you some numbers here, is increasing the growth velocity of each of the core categories and doing significantly better. We did launch two new packs to uptrade our consumers in quarter 1 of this year. These packs have done well and have now started to contribute about 5% of our business on a stabilized basis. When we had launched them, they were contributing at about 10%, but clearly they have stabilized to now add about 5% incremental volumes for us at a business level. We also have launched two more new products in quarter 2, I would say. Overall, we have launched about 4 products in H1. So we did launch a Butter Blast and Cheese Blast flavor in ready-to-cook format in quarter 2. So innovation to drive our growth is also taking shape. Moving to Slide #13 on Premium Staples business, I have talked about how pricing has been one of the key drivers of this category because at the commodity side we have seen inflation. Our overall endeavor in this business is to make sure that we protect our volumes while we continue to ensure our profitability is stabilized in this business. We are seeing good signs on that, minus the bulk oil pack impact. On the consumer pack side, we are now seeing our volumes are flat to marginally growing in that direction, but clearly we are not seeing any further consumer erosion in our edible oil volume franchise. We are also doing some experiments. I would just want to call them out. They are in the early phases. We are looking to expand our Sundrop Heart franchise through a media experiment in a regional market and then take a call of investment in the longer term on this business. Similarly, we are working to expand newer franchise of Sundrop Oats business, and that is showing promise for us to build as a future growth hero for the business. Coming to spreads and dips business, Slide #14. I have talked about that this business is under pressure, and I would say this business is under pressure primarily on two sides. One is we are seeing new entrants which have launched high-protein and chocolate variants, so new experiences for consumers, which we did not really have as an offering in our basket. We were more positioned as a family strength and immunity builder offering, but clearly with the youth today moving towards protein, these new offerings have taken shape in a big way, and we have lost out some share of our franchise to this area. To counter this side of threat, we have launched two new offerings in September '25. So clearly innovation, which we have talked about, will be a driver for our recovery, is starting to take shape. We have launched a high-protein variant, and we have launched -- we actually launched two high-protein variants, one in a Dark Chocolate flavor, which is where the consumer preference is, and second in a Honey flavor, both of which are very good-tasting products. In addition to that, we are also seeing some pressure on the side of mass strength and immunity building, largely again in modern trade, driven with attractive consumer offers. To counter this, we have launched again two new products, one in the Jaggery format, and second in a Chocolate format, to gain share back from the mass segment through modern trade again. There is of course, in the cycle, as we put on our path to recover in this business, we had started dialing up e-commerce and quick commerce investment and that channel has started to respond well and today driving our growth at about 36% on an H1 basis. Moving to Slide #15, on our Culinary business, which is a combination of ketchups and sauces, We are seeing strong growth both in B2B and B2C formats. Clearly very strong consistent performance. We are entering into broader key account deals and investments in modern trade. Our Del Monte business, I must say, is very strong in modern trade and standalone modern trade format. And in that format, we are building our distribution and account tie-ups to drive higher growth and those are also reflecting. Mayo business is growing very strongly in H1 on the back of B2B and e-commerce and modern trade. So again, we are seeing in that business also strong growth coming in. Italian business, I talked about it. Pasta business is growing at about 7% to 8%, again driven by modern trade and e-commerce channel. Olive oil business, while doing very well in volumes because we have passed out reduction in the prices to the consumers is declining on value. So overall this business is growing at 10% in volume, but is transiently because of price reductions is not showing that in the value number. But as we stabilize this base, this business should also come back to value and volume growth in the period of it. Moving on to Slide #17. On the e-commerce business, we have done significant investments across both quick commerce and hybrid platforms and that is showing in a very strong, consistent, ahead of industry growth, I would say, in this channel. Overall, we are going at about 41%. This channel is also, of course, our testing ground for innovation. So a lot of innovations, which I have talked about in slides before, I will show you also a snapshot ahead, are being driven also through e-commerce to drive accelerated growth for this channel. Overall brand investments, if I have to talk about, we continue to invest. I'm on Slide # 18. We continue to invest both in traditional and digital media and also on e-commerce marketing to make sure we grow strong and significant. So overall in quarter 2, our investments are up by 34%. E-commerce, which is our growth channel, is getting the greater investment share. The key point is in both these channels, I would say we are investing ahead of curve. So clearly, investments ahead of curve, both in H1 and in quarter 2, continue to accelerate and drive our growth in business momentum. Moving on to Slide 19, and this is the Sundrop specific story. We have a very large coverage of about close to 500,000 outlets in Sundrop, but this coverage was still on a -- wasn't on a tech platform. The change, even which we have now implemented, started from month of April, May in this year, is to bring our entire coverage on a tech platform. This is a very critical area, I would say, to drive productivity of our field force and the outbreaks which we cover. So this project, as I said, was initiated from April, May, but has been ramped up nationally. Today, 79% of Sundrop field force, which goes into the retail outlets, is on the mobile platform. And we have already been through efforts in quarter 1 and quarter 2, where we have ramped up this coverage of people, brought almost like 25% of our total coverage universe on the tech platform. We do expect by end of this year to be 100% on a tech platform. So this is going to be a very key driver of our efficiency, productivity, and outlet specific growth calls as well in the journey ahead. Moving on to Slide #20, we did onboard some external partners to help us improve our margins in three specific areas. One area we picked up was the packaging material in Sundrop business. And the two areas which are picked across both the organizations is manufacturing and logistics or supply chain costs. And of course, to get this external advisory, there are certain one-time costs which we have paid to these partners in quarter 2 and quarter 1 of this year. These have delivered significant improvement outcomes, both on the material margin side and also in the manufacturing and supply chain costs for our business. And as you can also see, there is an accelerated benefit in quarter 2 versus quarter 1 as an outcome of these initiatives. But clearly overall our margins have improved by about 250 basis points in quarter 2 as a business. You are also aware that there was a GST transition. 95% of our group business is now on 5% GST. So clearly a strong growth driver for consumption which applies to almost 95% of our business and minus the edible oil and olive oil business which would be let's say about 25% of our business, rest of the business has seen reduction in GST from 12% to 5% or 18% to 5% and that is means also in the period ahead we are very confident that this should drive the growth. We have, of course, passed all the benefits of GST reduction in the form of reduced MRP or increased grammages to our consumers in alignment with common recommendations and also to drive our growth in volume for the period ahead. There have been multiple new launches. I'm on Slide #22. There have been many new launches being on each of the businesses. I have taken through most of them, just coming to Del Monte side of launches. We have expanded our portfolio in mayos and in canned fruits and vegetables segment to make sure that we drive accelerated growth in each of the businesses. Moving to slide on financials, Slide 23 and 24 are reported financials. They are not like-to-like because you are aware Del Monte Business became part of Sundrops from 6th of February, and hence, if I do comparison of reported financials, it's not like-to-like, so I'll move straight to Slide #25, where it's a proforma financial, which includes Del Monte financials in the base period of quarter 2. So clearly, growth, 8% improvement, material costs improving as a ratio, and hence giving us benefits on the material margin side, growing at 6%. Employee expenses have grown faster at about 13% but I would say these are, of course, excluding ESOP expenses, which I have taken on, but this growth has been there to drive our Del Monte sales infrastructure and expand the reach of our coverage. Advertising as a business, we have taken a call to invest, that's clearly reflected. Other expenses, which is where a lot of efficiencies have been brought in through manufacturing and supply chain costs have actually been flat, and this is helping us improve our data ratios by about 60 basis points versus last year, taking out the one-time costs, which I've talked about. Those are specifically listed for you at the bottom line as an ESOP and one-time expenses at the last row, at the second last row in this slide. Same picture on Slide #26 at H1 level. Very similar performance, very similar story. Improvement in material margins, employee expenses, as I said, we did do some ramp-up in our sales coverage. Del Monte in quarter 1 and quarter 2, but the full expansion happened over the quarter, and that's why you've seen some increase in employee expenses, but at an H1 level, employee expenses are only up by about 7%. Advertising investments continue to be strong. And overall, other expenses are virtually flat, driven by improvements in manufacturing and supply chain. Again, for reference, the use-off and one-time expenses have been specifically called out and separated from the results for sake of like-for-like comparison. That brings me to Slide #27 and a closure slide. Some of you may have seen this before. This just sums up the pieces and also brings the story on which we will continue to build this business. So we do have very, very strong brands in this business, which cater to our needs of consumers. Our business is seeing strong tailwinds driven by consumer mega trends which will drive consumption of branded packaged foods. And that is also going to be strong growth stimulus for industry and us put together. We of course have an opportunity to gain shares significantly and that should drive our growth ahead of industry. Our presence, as you have seen through the various slides, is in high growth and good margin categories. We do have leadership positions in some, we have a challenger position, but a very strong brand in others, which gives us a significant headroom for growth, both through category expansion and also share gain. We would continue to drive high investments on business while ensuring efficiency of capital we invest. And one part of thesis, which we are working on, but will shape up is leveraging complementarity of businesses. And hopefully sooner I should have some stories to talk about there. We are starting to do some experiments there. We'll also drive the growth of our business, leveraging strengths of each other. And on manufacturing side, we are already seeing efficiency coming in. Last, in summing up overall, we do have a very strong management team. And today the entire leadership of both Sundrop and Del Monte are with me to answer any questions you would have in our journey to drive growth, profitability and value creation for the organization. So we'd like to thank you all for being here and hand it over back to the team so that we can start Q&A.

[Operator Instructions] The first question is from the line of Percy Panthaki from IIFL Securities.

I was just doing some rough calculation trying to derive the volume growth for the company as a whole. It's somewhere in the region of about 2%. I might be off by 1 or 2 percentage points, but not very materially. So if I add back the GST impact, which is another 2% to 3% we get a volume growth of about 4% to 5% for the company. Given that there are so many low-hanging fruits. Most of the products are quite small in size and market share, how do we, I mean, evaluate a 4% to 5% growth for companies such as yours, expectation, I think, should be much higher at least internally, wouldn't it be?

Thank you for the question. So I would like to nuance this a little bit for reference. Again, see, our investment calls are category-specific. We have chosen certain categories on which to invest for growth. And we are constantly driving both value and volume growth in these categories. In a few categories, like ready-to-eat popcorn and even ready-to-cook popcorn, we sell an experience of popcorn and commodity prices does require us to change the grammages in line with the commodity movement. But consumer buys an occasion and a path to fulfill the occasion. And hence, we are driven in these categories more by number of unit sales we do. So I would say if you look at Popcorn as a business, a unit sales growth is a more important determinant than the volume growth. And our unit sales growth, because we largely haven't taken any unit price increases, and we have only passed the grammage benefit or grammage increase whenever the commodity cycle has moved or GST benefit has come. So, Popcorn business, I would urge you to look at value growth, because dominantly our value growth is equal to our unit growth, and those are driving the consumer consumption occasions as an outcome. Outside of popcorn if you look at olive oils, ketchup and sauces which is where we are investing. We are seeing strong volume growth as well. Edible oil, I was -- right I had called it out. Our stated objective is to protect volumes. We are not yet looking to grow volumes in that business. We are running some experiments. As and when they shape up, we will come back to you and say how we are looking to change the strategy there. But for now, on edible oil, the coil is to protect volumes and margins. Outside of this, olive oil again, volume growth is faster, value growth is rather lower. So overall I wouldn't say that the number, the way you are looking at 2% to 4 % is a right view to look at. Look at popcorn in a value growth perspective, look at other categories like olive oil, ketchups, even peanut butter, in a volume growth and value growth. Our only category of concern is peanut butter, I would say, where we are losing both volume and value, and management is committed to turn it around, and the innovations which were launched are a clear reflection of the steps we are taking to bring that business back.

Understood, sir. Secondly, just wanted to understand the GST rate change has affected what percentage of your portfolio and how have you passed on the increase? I mean, in what percentage is it a grammage-led pass on? And then what percentage is it a price-led pass on?

Okay. So GST, I did talk about between 70% to 75% of our business -- sorry, 95% of our business has, let's say, moved to 5% GST. So within this 95%, 70% to 75% of our business has benefited with GST reduction. Edible oil and olive oil business is the only 2 businesses, which have remained at 5% GST as they were before. Outside of it, everything else has seen a GST reduction and that benefit has gone to consumer. Now coming to a second question on how much of it has passed through as the price increase and how much through grammage? I would need to come back with an exact number. I don't have an exact number. But broadly, the way to look at it is all the packs which were at a price point of INR 10. There, we have passed the benefit in the form of grammage increase because on a INR 10, you can't make the prices INR 9.30. That currency does not exist with consumers. On all our bigger packs, which were at a higher price point, dominantly, we have passed a price reduction to the consumer. So peanut butter is a fully priced reduction, olive oils -- sorry, not olive oil -- ketchups, sauces, mayo is fully price reduction. Popcorn business, I would say, dominant rate is in the format of INR 10 price point. There, it is a grammage pass-through to the consumer.

Understood. And lastly, can you help us from a modeling point of view, how much of ESOP cost to build into the P&L for FY '26, '27 and '28.

Okay. So firstly, I need to come back to this question. See, these are noncash expenses in this nature. We have, of course, launched a five-year grant and those details were shared with the stock exchanges when the grant was made. The entire grant has been made upfront to all the employees but there are very clear performance parameters linked to actual achievement. And these are long-term performance parameters. So while there is a, I would, just to give you a nuance, there's about a 30% of the total use of grant is linked to tenure. 70% is linked to performance. And these performances are long-term in nature, which means the employees and management will get the benefit of those only at achievement of three- and five-year milestones. So clearly the intent of larger grant is to make sure that we build sustainable long-term growth of the organization. For modeling, I don't have the answer to give you honestly ready to give you at this point of time.

Understood. But just directionally, should I take the P&L hit to be linear across 5 years, front-ended or back-ended?

I would say it will be higher in the first 2 years and much lower in the last 3 years.

[Operator Instructions] The next question is from the line of Shirish Pardeshi from Motilal Oswal Financial Services Limited.

Nitish, on Slide 10, you have given the popcorn value has grown 12% and volume 2%. And also, I see on the subsequent slide, there is a INR 20 pack and INR 30 pack has also seen some extra grammage. Question here I have is that what is the mix of Popcorn ready-to-eat and ready-to-cook?

Yes. So Asheesh, do you want to answer it?

So Shirish, this is Asheesh. Can you hear me?

Yes.

Yes. So the ready-to-cook or as they call it IPC or MWPC, and ready-to-eat, the mix is roughly 66%, 34%. 66% of the popcorn business still remains in ready-to-cook. 34% is in ready-to-eat. Now coming to the specific question of those INR 20 and INR 30 packs that you are seeing, those packs have been a part of our new launch this year, right? In the new launch, there is a grammage which is given here, right? And again, these are those packs where we are sticking to price points for the consumer, right? Pricing pack at 99 and those are not part of this, right? So there are all the packs up till about what Nitish had mentioned that there is a pack that we have, which are price point packs and there are packs which have grammage packs, right? Whichever got the grammage pack, there is a reduction in price and whichever was the price-point pack, there is increase in grammage.

Also, Shirish, just to nuance your question of let's say, I don't know if your question was 2% volume growth in quarter 2 versus 6% in H1, there is a 3% to 4% GST impact you need to keep in mind in quarter 2 because last month's sale did get impacted in the transition.

Yes, I understand this. My question was that if 1/3 of the business is ready to leave and that is driven by the price point and you've taken an intervention of grammage increase. I was expecting this volume growth should have been higher.....

So let me ask that question a little differently. So what percentage...

The grammage increase is happening post 22nd of September. There is a trail pipeline, which will get built. Going forward, right, you should see that, I don't think in quarter 2, we would have seen the impact of this.

I would rather say the other way around. In the prior year, we had seen inflation in the commodity side, some of which was passed to the consumer through grammage reduction, because these packs play on a unit and consumption occasion. So when you see 16% value growth or 12% value growth, in a way you are seeing a more closer to that unit growth for us, while volume could have been adjusted in the prior period, reduced in the prior period, which means it was sitting in my last year base, but is not sitting in this year base. H1 is dominantly that story. GST, volume pass back, you will see more in H2.

You may be right, but as far as my memory is recalling, in the month of February, May, we also ran the 20% extra promotion to expand our coverage. So anyway, so are you trying to say that quarter 3 volume growth will be in excess of double digit or maybe high single digit?

High single digit is the direction I would give for volume growth.

Okay. On the premium Staples, I mean I understand there is an inflation and there is a pass-through, so we will try and maintain the run rate and the margin profile. But do you think this business will always be value-driven and the volume is still far-fledged or may not happen in the near future?

No, so see, this business -- any business can never be long term value driven because eventually it's a commodity business. We are already at a price premium. Today, whatever we do as a price increase is in sync with what the industry, which means today we enjoy a certain premium. We are not looking to expand that premium any further. Our intent is to make sure we protect our volume from this point of time. Today whatever price increases we take, dominantly are linked to commodity price movements. So that story of saying we will improve our premiumization and grow via premiumization on oils is not there anymore. We are saying we will ensure that our price premium position is protected. We will experiment to find there are stories for volume growth for us in some specific areas. And hence we will pivot to protect the volumes and protect the absolute margin as a story in this business.

Okay. In the Spreads business, what is the exact issue? Because last two quarters, this business is seeing a lot of volatility and I would understand the peanut butter is the main part, which is seeing a lot of competition. So, can you explain a little more depth, what is the problem and what we are trying to fix here?

Okay, Shirish, in the spread business in the last 6 months to 1 year, there has been an entry of very, very competitive players with multiple kind of 1 plus 1 offers, et cetera, right? Now that has really put a lot of margin pressure on the category for us. We started a journey on this, forced this by developing newer products, which we could compete and also changing a part of our sourcing model, right? Because we had a single plant supplying across the country. So we had to work on the product. We had to work on sourcing and get it. As of September, if you look at now we have 3 new products which Nitish had mentioned, right? If you look at the agri product that we have launched, it is very competitively priced and sourced also comparatively to compete with them, where this is. So for fixing structurally a peanut butter business, we needed to have a good product and very well-sourced product also, right? So that took us some time in Q1 and Q2 to fix both of these issues. So one was the pricing issue. The other was the new product development of high-protein chocolate products, which we needed to build. So that is -- you will be aware that developing a new product takes a little longer than just addressing our current pricing, but that would have impacted our margins far more severely. So that's one. We believe that going forward in Q3, Q4, we should start seeing benefits of these as we roll out and build consumer demand for them.

Okay. Just last question on the distribution. You said that Salesforce automation is taking speed. But in your pilot or in your experience, what are the tangible benefits you have seen in these 400,000 outlets which you are covering.

So, as I said, we are right now in the phase of bringing the entire organization onto Salesforce platform. We started this journey with about 100 of our field force in May. From 100 to about 720, we have expanded from May till September end, because these numbers are dominantly H1 end numbers, which we have shared with you. What we have been able to do in this period is to bring the entire data on a tech platform, how it will benefit in future, because benefits will now start fructifying in the platform data which is available. We can know how many lines we are selling in each outlet. How many -- what is the productivity of each outlet? Which outlet is good to service? Which outlet is a high throughput outlet? How do we treat high throughput outlets differently from low throughput outlet and give some differential advantages and growth? How do we pick up journey of contiguous outlet? So if two outlets with a very similar profile are not selling the entire range, how do we make sure that we cross-sell and build the range? Increasing line sold, increasing throughput per outlet will be the key driver as an outcome of bringing them on a tech platform. Because you could guide those decisions and monitor the impact of those at an outlet level.

I understand that's helpful, but I just wanted to check, suppose the first 100 booths you introduced in the month of May, and when you have this data on a real-time basis, is the number of lines which are standard improved from 3 to 5 or 3 to 10? or which are the categories within that because I would assume that ACT II would have been a largely distributed in terms of RT and RTC. I think we start the understanding or you can share some outcome of these implementations.

So maybe we are not ready with that information today. We can come back to you separately. As I said, our focus till now has been more on expanding and building the full platform. But you're right, the local level sales team has started to work on that, but launching a national program linked to this we have not yet done. We will do a national program linked to this once we have the entire database on platform. As of now, at a local level, it is more a sales team, local working to drive this data and improve their productivity.

The next question is from the line of Naitik Mody from OHM Portfolio.

Coming to the spreads category business, we said we lost a lot of market share. So with these new products, what is our strategy to possibly gain market share? Is it pricing or what else it is? If you could give us some color on that?

Yes. So as we said, why did we lose market share? We lost market share largely in two places. One, which was in e-commerce, right? And on a price point, [indiscernible]. Both have been fixed now......

Sorry to interrupt you. Nitish?

Hello?