Nidhi Verma: Thank you. Thank you so much, everyone for joining us today. We announced our Q2 FY27 results earlier in the evening. I hope you have had a chance to go through the material. As usual, I am joined by Mr. Sunil D'Souza, Managing Director and CEO, Mr. Ashish Goenka, Group CFO, and Mr. Ajit Krishnakumar, Executive Director and COO. In terms of the format, we will walk you through key business updates for the first 20 minutes or so, and then we will open the floor for Q&A. With that, I just want to quickly draw your attention to the disclaimer statement, which is on your screen. With that, I will hand it over to Sunil.
Sunil D'Souza: Thanks, Nidhi. In summary, we grew top line 14%, with a UVG of 11% in the India business. Salt was another strong quarter of 9% volume and 15% revenue. India tea volumes were flat. Revenue was marginally lower YOY. Growth businesses had another strong quarter. Sampann was up 57%. Ready to Drink is now strongly back on the growth trajectory with 47%. Capital Foods and Organic India were up 15%, but the domestic business was very strong because international was impacted by shipping disruptions as well as the Mundra port issue, in early September. International business grew 7%, in constant currency was -2%, but had a very strong margin delivery. Non-branded grew 12%, 9% in constant currency. Consolidated EBITDA was up 18%, with margins expanding 40 bps to bring EBITDA margin to 14%.
Sunil D'Souza: Starbucks had probably one of their strongest quarters ever. Revenue growing 15%, and with strong same-store sales growth. I think now they have five or six successive quarters of positive same-store sales growth, and very strong results. India Salt was close to INR 1,100 crores. It is coming to touching distance of India Tea and Coffee now, up 15%. India Tea and Coffee, largely impacted by weather. A little bit of price increases in tea, and a little bit of a hangover of the disruptions in Q1 of the LPG issues, was down 1%. Growth businesses up 40% to close to INR 1,400 crores, continue to be now powering ahead of our Salt and Tea, Coffee businesses. International close to INR 1,300 crores, up 7%, non-branded up 12%, and consolidated up 14%. Constant currency was 11%.
Sunil D'Souza: In terms of H1, India Salt up 11%, India Tea and Coffee, if you remember, the first quarter was -4% on revenue. This quarter was -1%, so overall -3%, as we have taken up prices. Growth businesses up 43%, international up 11%, non-branded up 3%, and consolidated at close to INR 11,000 crores. The beauty of the portfolio, if you look at it, Salt, Tea, Coffee, Growth, International, now we have got four strong legs on the TCPL stool. In terms of financial performance, revenue up 14%, EBITDA up 18%, profit before taxes up 21%, and net profit at INR 470 crores, growing 16%. EPS of INR 4.75, and as we said, because we amortize certain brands, if I take that off, our adjusted EPS is INR 5.18. For the H1, revenue up 13%, EBITDA 18%, profit before tax 24%, net profit up 22%, adjusted EPS of INR 9.85.
Sunil D'Souza: In terms of the businesses, overall, our A&P to sales for the quarter was 5.5%, and for the H1 was 5.8%. Just a perspective here is we have reclassified visibility separately and A&P separately. That is why this number you will see separately. Visibility is knocked off from revenue up top. In the ballpark, we are in the same number of about 6.3% to 6.5% in total A&P to sales. Growth businesses up 40%, now contribute to 38% of India business. We have started our significant transformational journey with AI, with about 1,600, 1,700 salesmen, which you have on date as of now, with an objective by December to reach 100% of our salespeople operating. There is a personalized AI sales companion guiding the salesman outlet by outlet, SKU by SKU, on what exactly to do.
Sunil D'Souza: Where the salesman misses the outlet, there is a voice agent which does call up the retailer and does the ordering process. The sales executive gets a concise summary of what exactly the DSR did at every single outlet with a follow-up on what coaching is needed out there. That is on the sales front. On the operations front, we have deployed AI to recognize close to 120 different types of leaves that come into the factory, so that we qualify quality and pricing of the leaf per se, of stuff entering into the factory. In the Himalayan factory, we have got AI starting to do online bottle inspection. Around the corner, we have got a history of tea in terms of temperature, rainfall, crop, price, et cetera. We are going to use that to start guiding our procurement team on when to buy, at what price to buy.
Sunil D'Souza: We have already started automation with invoice validation and payment. We have got an engine running at the back end online on consumer insights, feeding both to our R&D team as well as our marketing innovation. We have started trade spend optimizer as a pilot, which we have rolled out for tea for the entire country starting this month, and we have started to see substantial savings. Apart from that, we are looking at experimenting with AI calling for retailers where we can drop frequency to visits to outlets which order less than 2 times a month. So we move from a weekly to a fortnightly frequency with the alternate week AI agent calling in to make sure no order is missed. So these are a few examples of what is already in play.
Sunil D'Souza: We will be continuing to make sure that we have robust business cases as we expand AI across the enterprise. We had 22 new product launches in Q2, total 36 for the H1. As I said, focused on differentiated propositions in health and wellness, convenience, and premiumization. In terms of businesses, as I mentioned, volume overall was flat for tea and coffee, revenue was -1%. Just as a perspective, Q1 was volume +2%, value -4%. As we took graduated calibrated price increases in tea, we have come to a flat volume and revenue -1%. So from a 6% percentage difference volume value, we are 1% here, and as we have continued taking graduated price increases, we expect the equation to start turning value greater than volume starting this quarter. Next. Salt, we took a price increase of about 6%.
Sunil D'Souza: We moved from 30 to 32 for the orange bag in May. 1 October, we moved another 2, so the 32 has become 34. But this is reported before that happened, so volume was up 9%, revenue was +15%. Value-added and premium salts continue to deliver 2x the growth of the base salt business, continue to expand their contribution to the portfolio. Sampann, strong quarter, revenue up 57%, driven by strong volume growth as well. Dry fruits and cold press oils now combined ARR of INR 1,000 crore plus. We will continue to expand the portfolio with margin expansion as we go forward. RTD, having reset the entire business, has now started delivering strong results. Volume up 34%, revenue up 47%. Growth remained broad-based across the portfolio, both with the base business as well as innovation driving top lines.
Sunil D'Souza: Capital Foods and Organic India, overall 18% in Capital Foods, 9% in Organic India. Domestic business was strong. If I put both together, 24% top-line growth. As I said, this quarter, the disruption in shipping, and I think about 10 to 12 days of disruption at the Mundra Port was the prime reason for international not coming to the party completely. But we firmly believe that having reset the go-to market in India, Capital Foods and Organic India are on a strong growth wicket. International, overall -2% in constant currency, lapping a high base, but overall revenue of 7%. The UK was impacted by the continued heatwave for the quarter. The good news is the weather has turned, and I do think UK is going to come back strongly because share continued to hold out.
Sunil D'Souza: Revenue declined 8% in the UK, but US business grew 4%, expanded margins with 6% constant currency growth in coffee. Canada continued their strong growth with 8% constant currency, and South Africa also had a very strong quarter. Non-branded business grew 9% on an elevated base of last year. Robusta and Arabica prices continue to soften, impacting realizations, but margins continued to be healthy for the plantations business as well. The soluble volume grew 21% as we executed strongly, both operationally, and made sure that deliveries kept pace. Starbucks, as I mentioned, had a very strong quarter. It is the fifth successive quarter of same-store sales growth, 15% top line. We had calibrated store openings to get our new business model in place. More or less, I think we have got it, and we have seen strong growth in traffic as well, roughly close to a 10% growth in traffic to the stores.
Sunil D'Souza: Revenue was up 15%. Opened 7 stores, and we are now at 505. You can expect acceleration of stores going forward. Over to Ashish for the financials.
Ashish Goenka: Thanks, Sunil. As Sunil mentioned, our top line grew 14% this quarter. We added INR 700 crore to that turnover. EBITDA growth was ahead of top line at 18%, and that led to a 40 basis point margin expansion, and adjusted EPS grew at 17%. In terms of the H1, the growth has been at 13%. Again, I think overall EBITDA growth was ahead of top line at 18%, and then that led to a 60 basis point margin expansion for the H1. Adjusted EPS again grew ahead of EBITDA growth at 21%, coming in at INR 9.85. Looking at segments. India for the quarter, there was a bit of a contraction of the margins, largely on account of the inflationary pressures that we are seeing on tea and salt. Having said that, of course, we've taken calibrated pricing, which should start flowing in Q3.
Ashish Goenka: Both international and non-branded had a very substantial improvement in profitability, and leading to an overall improvement in segment margins by 50 basis points. The same is reflected at a H1 level, where all three segments have actually improved on profitability across India, international, and non-branded, leading to an overall 100 basis point in segment margin overall. That's pretty much the summary of financials. I think I'll hand back to Ms. Nidhi Verma now for anchoring the Q&A.
Nidhi Verma: Thank you. Moderator, maybe we can go to the Q&A queue to take the questions.
Operator: Certainly. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question comes from the line of Mihir Shah with Nomura. Please go ahead.
Mihir Shah: Hi. Good evening. Thank you for taking my question, and congrats on a great set of numbers. My first question is actually on tea. Sir, if you can just talk about, is the procurement for the year largely done in tea? What is the level of inflation that you are seeing on a YOY basis? Can you share the quantum of price increase that you are putting through? We are seeing some kind of price increases in the market. That is question number one.
Sunil D'Souza: Overall, broadly while tea volumes value has been flattish, market share is stable. It is not that things have moved, it is overall industry has been soft. I think if I look at overall third-party numbers, it is about -6% is what the number shows. In that perspective, I think we are in a not too bad space. We have taken pricing roughly, I would say between Q1 to now, you would have seen roughly around 8% to 10% pricing, which is in line with the inflation that we have seen in tea. While the initial bump in the Q1, Q2 was about that percent, 7% to 8%. Right now, if you look on a week-to-week basis, it is broadly in the 2% to 3%.
Sunil D'Souza: We have covered more or less for the inflation in tea that we had seen, but it has not yet translated completely into the numbers, which you should see going forward. In terms of buying, the peak buying is going on right now as we speak, because after Puja is the big swing which happens in the north, and that is what is in progress.
Mihir Shah: Understood. Could you just reiterate your margin guidance for the full year, and what is the level that we will be exiting at on an overall company basis? Just as a question to this.
Sunil D'Souza: See, we had guided for a 50 to 70 bps expansion when we started off the year. We have seen margin pressure coming through the year, but we have also taken price increases. On salt, 30 to 32 to 34. As we have seen any bit of pressure on costs, we have translated into price to make sure we maintain volume. We remain aggressively focused on expanding margins for the year.
Mihir Shah: Understood. Secondly, on Sampann, another very strong quarter. Can you share with the quick commerce expanding as dark stores reach in tier 2, are the products getting well accepted there? Are you seeing repeat purchases or is it too soon there? What subcategories, we saw that oils and dry fruits have already crossed INR 1,000 crores. So what subcategories are doing well and have reached a sizable contribution? On the flip side, which are the ones that are not doing as per your expectations?
Sunil D'Souza: The good news is, I do not think there are any of the new launches which are not doing the expectations. Like I have said earlier, in our innovation funnel, if the product does not deliver in the first 6 months, then we take a call on it, maximum life support for 3 more months or else out. That is the only way you can sustain growth on the innovation platform. That is number one. Number two, in terms of quick commerce, I think one leading player declared their results last quarter, and our growth in quick commerce is almost in the same ballpark. So we are growing with the quick commerce players as they are expanding dark stores. Number two. Number three is which categories are doing well with quick commerce.
Sunil D'Souza: Actually speaking, if you look at it, Sampann across the portfolio, all our categories are either mostly number one or a few of them are 2 positions across platforms. So from that perspective, I think the team has done a good job in playing with them as we expand. While dry fruits and cold press oils ARR is now north of INR 1,000, the base categories of pulses, poha, makhana, all these things are also in the 30% plus range as we go forward. So Sampann, I think is on a very strong footing. The other good part is that, as I said, when we started off 5 years back, we were -5% margin. We are seeing margin expansion on a continuous basis, both as we build scale, as well as layer on variants to make sure we drive margins along with top line.
Sunil D'Souza: This quarter also, compared to the same quarter last year, I think we are at 270, 280 bps of expansion on margin on Sampann as well.
Mihir Shah: Understood. Very clear. Sorry, Mr. Sunil D'Souza, I am just asking on margins again, just to be very clear. Because last year, in H2, we had seen across businesses margins seeing an improvement, and versus now it is on a higher base. So wanted to get your clear understanding on how should one think about margins on an overall consolidated basis for H2.
Sunil D'Souza: See, overall, whether it is for tea, where we now start hitting peak season in India or international, which was impacted by the heat wave and now winter has already started to set in strongly in the north. So we see no reasons why tea should not increase, number one. Number two, salt, we have already taken the price increases to put margins back in strong footing. For Capital Foods, Q3, Q4 are peak festival and off-take season. So from every angle, we remain quite confident of continuing to deliver margin expansion quarter on quarter. When I say quarter on quarter, you would have taken seasonal into account, so it is versus the same quarter last year. So despite the fact that we delivered higher margins in H2 versus H1 last year, we remain confident of continuing to deliver that this year as well.
Mihir Shah: Got it. Very clear. Thank you very much, and wishing you all the best.
Operator: Thank you. Our next question comes from the line of Abneesh Roy with Nuvama. Please go ahead.
Abneesh Roy: Yeah. Hi. Congrats on good set of. My first question is on your two slides.
Operator: Sorry to interrupt, Abneesh, your line is not very clear. Request you to please check.
Abneesh Roy: Okay, just one sec. Yeah, sorry for that. My first question is on the AI slide and the advertising details which you gave out in the initial remarks. First is, based on the AI, I think most companies currently are doing, are you seeing a cost advantage also, or is it just a companion to the sales team? I understand the language bit. I understand that one week the sales team need not go. Is there any real cost advantage till now or just more of a companion to the sales person? That is first part to that slide. Second bit is more on the advertising and the visibility bit, which you put for the India business.
Abneesh Roy: If I see salt is a smaller part of the business, tea and coffee is around 10% bigger than salt business, and the growth business is again 10% broadly bigger than tea and coffee business. My question is, from an overall publicity budget in terms of, say, visibility plus mass media advertising, what will be the broad split between these three businesses so we can understand that it is a bit related to the sales bit also, sales percentage also.
Sunil D'Souza: Abneesh, number one is visibility is not included in this A&P, and as quick commerce has continued to power ahead, we have continued to invest more behind visibility to make sure we drive penetration and market share in those channels. That is number one. Number two, to your question on AI, we firmly believe, yes, there will be a cost takeout using AI, but that will be par for the course for everyone. The real differentiator comes in how do you bump up your revenue lines with AI? So the AI pilots which we ran gave us a distinct lines per call improvement in the DSR calls, and that is when we decided to scale it. So there is a top-line improvement outlet by outlet because it is very targeted. There is a memory function, and we are building our sales brain behind it. So that is number two.
Sunil D'Souza: Number three, in terms of overall visibility spends, et cetera, we are more on Sampann than for tea and salt. That is because Sampann as a category is also skewed towards more online modern trade businesses, and therefore it is more of visibility shopper marketing spends that happens out there.
Abneesh Roy: Sure. My second question is on the salt business. Last seven, eight quarters, salt business in India has seen very good volume growth. Q2, the 9% volume growth, is it because there was some upfront buying, because price hikes are now happening, or the local players, because they do not have the same capability to arrange the energy sources in the current turmoil, and energy usage is very high in salt evaporation. Did that lead to some market share gain? Because this business versus tea is doing much better now in almost every quarter. But is there something predictability in the coming quarters on the volume growth in salt business?
Sunil D'Souza: Abneesh, I don't think it is volume upload because it's not that we've seen any slowdown even after we've taken the second round of price increase. That is a point in time for now. There might be an impact going forward, but I don't see that realistically happening. I think the entire work that the team has done on building equity, diversifying portfolio, getting in the value-added salt. Like I said in one of the earlier calls, it's almost like a Udupi menu, right, in terms of the types of salt we can get. This quarter also, we launched Tata Salt Plus, which is a double purified solar salt variant in the market. From that perspective, nothing changes. We have consistently maintained. Our market share is now close to 40%, 39.8%, 39.9%. We are growing market share as well.
Sunil D'Souza: I don't think it is because there is a short supply in the market or there is an energy issue. It's just that the entire work the team has done on building the brand equity, distribution, portfolio expansion, I think all that is coming into play. We continue to guide salts for mid-single digit volume, a couple of basis points of price, and that is what we remain committed to delivering.
Abneesh Roy: Sure. Last quick question. Capital Foods plus Organic India, 24% domestic growth. If you can give a split between the two, and could you elaborate on the Mundra strike's impact? Do you expect that in Q3 there could be some bump up pent-up demand benefit because of this impact?
Sunil D'Souza: Abneesh, I think Mundra there was a port strike for roughly around 10 days, so shipping got disrupted a bit. Apart from the fact that now a lot of shipping is getting diverted. Instead of going through the Middle East, it's going all the way around. That is what has impacted our international business overall. Now, there might be a minor shift that will happen. There will be some uplift because as we catch up that gap. There will be some uplift coming into this quarter. But overall, I would continue to expect 25% to 30% growth that we had guided for Capital Foods and Organic India going forward. Domestic, I think, like I said, having relayed the entire go-to-market by February this year, having proved that system works where we have salt/non-salt, we have core/non-core, and then we have regular distributors.
Sunil D'Souza: I think that has brought back immense amount of focus. By the way, that is also, I would say, one of the factors in salt growth, because many of the distributors who were salt-focused, who did not want to do the other businesses now have got freed to focus their energies, capital, execution completely onto salt as well.
Abneesh Roy: What is the split of the 24% growth?
Sunil D'Souza: It is broadly the same for both the businesses.
Abneesh Roy: Sure. Thank you. That is all from my side. Thank you.
Operator: Thank you. Our next question comes from the line of Vivek M. with Jefferies. Please go ahead.
Vivek Maheshwari: Hi. Good evening, Sunil and team. A few questions. First, on the international business, you mentioned about the high base. As we head into the H2, whether I look at YOY or let's say 2 year or 3 year, the base is still going to be very high. How should we think about the growth in the Q3 and the Q4?
Sunil D'Souza: Vivek, the good part is, we are heading into season, right? Especially UK, Canada, we have seasonality. From that perspective, we remain confident. Canada, we've gained share. US coffee, I think 8 successive quarters of share gain. Commodities are starting to ease off, especially US coffee, where now coffee is trending at what, 310, 315, versus the 330, 350 of last year. Around that piece, we remain confident of growing, A. B, distribution expansion. We've gotten into significant accounts now in the US as well. UK, primarily impacted by weather. That seems to be behind us. Like I said, share hasn't got impacted. As the category comes back, we remain confident of delivering expansion. The best part is it is top-line growth with margin expansion that we will deliver internationally.
Vivek Maheshwari: Got it. Perfect. Second, on non-branded. Q1 to Q2, there has been a fair amount of shift in margins from 10% to just about 15%. Again, how to think about the H2, Sunil?
Sunil D'Souza: Broadly, I would say in the ballpark, margins should remain the same, because remember, solubles, which is the larger part of the business, is largely a pass-through. So margins don't change substantially. Albeit there are times when there is substantial movement in coffee prices, then it could swing, but we don't see that happening right now. Ashish, you want to chip in?
Ashish Goenka: Yes, Vivek, I think you'll have to look at the non-branded margins from the context of solubles and plantations. If you see our solubles margin have remained steady between Q2 and Q1. The swing is largely on account of plantations, and that is seasonal, and you would see that happen every year pretty much because the accounting, the way it kicks in is that the biological crop starts getting accounted for from Q2 onwards. Therefore, there is always a seasonality impact between Q2 and Q1. So if you normalize for that, the margin is pretty steady, I would say.
Vivek Maheshwari: So basically, Ashish, you are saying H1 is what should sustain in the H2. Is that how?
Ashish Goenka: I'm saying what you saw in Q2 would most likely sustain in H2.
Vivek Maheshwari: Okay, nice. Okay, got it. Third, Sunil, couple of small questions on the growth businesses. First, the gap between revenue and volume in RTD is quite meaningful. Can you just elaborate on that differential?
Sunil D'Souza: So, couple of points. I think as inflation has bitten, we have taken up pricing. So we will also use that opportunity where we had strong market positions to make sure that we expand margins as we do that. That is number one. Number two, the mix. Remember, the biggest hit to the RTD business at the INR 10 disruption was Tata Gluco+. Tata Gluco+ is a higher value, higher margin part of the portfolio. So as that has come back very strongly, that has resulted in the value/volume differential also coming into play.
Sunil D'Souza: Apart from that, we have launched a bunch of other innovations which are all aimed at the higher revenue, higher margin segments, whether it is expanding coffee, whether it is expanding our fruit teas, whether it is Tata Life, which is just got launched in alkaline and is getting expanded, or Tata Spring Alive, which is our, I would say higher than Tata Copper+, lower than Himalayan water offering. It is mineral water again, which we are expanding. So there is a conscious effort to make sure there is a portfolio expansion with a focus of driving faster revenue growth and margin expansion.
Vivek Maheshwari: Got it. This is useful. Last one on the growth business itself. You have been launching fairly aggressively in the last few quarters. H1 also, you have launched a lot of new products. Two parts, and please be brief if you want to. One is, anything that has not met your expectations in what you have launched in the last year or two? The second is, how do you measure the performance and the risk of something not working out, but you not culling it out from your portfolio?
Sunil D'Souza: Vivek, we have got a very standard set of guardrails for every innovation. Innovation either has to be accretive to the top line at the same margin or accretive on margin at a decent top line. Unless it passes, either it is accretive on margin or accretive on top line at the same margin, we would not launch, number 1. Number 2, the reason why we are also able to launch at such rapid pace, apart from having the innovations and R&D engine, is the ability to launch on e-com, quick commerce in a limited geography, test it out, works, scale it up quickly, then go to modern trade, et cetera. This e-com, quick commerce, and ability to pinpoint pin codes, geographies, specific areas, I think that is what has helped us.
Sunil D'Souza: We have got a very robust stage gate process and every month there is an innovation council where the entire team which makes a decision end to end, everyone is on the call. Business cases are presented. Everyone has a veto right. If someone says so, there is a question mark, and only then it proceeds to the next stage gate. Back to back with this, we have a finance review. Anything that has got launched in the last 6 months comes up for review, and if it is not hitting the top line or the margin, it comes up for a question. If there is a logical answer about why it should continue, there is life support given for another 3 months. If not, at the end of 3 months, we pull it off.
Sunil D'Souza: I would say roughly about two-thirds of the innovation that we launch makes it to the longer term, one-third is killed.
Vivek Maheshwari: Kristal here, can I, with your permission, just one last one on the growth portfolio itself. This quarter was 38%. I know the denominator, because of commodity costs, play a very important role. If you take a 3-year view, where do you think this 38% number settles at in a world where inflation is, let us say, more predictable in your categories? I know that is not the case today, but if that were to happen.
Sunil D'Souza: So, Vivek M., I will just go back to my standard answer. My tea, salt will grow mid to high single digits. My growth categories will grow 30% plus. That view we see continuing for at least the next two to three years.
Vivek Maheshwari: Perfect, Sunil. Thank you. Wish you and your team all the very best.
Operator: Thank you. Ladies and gentlemen, in order that the management is able to address questions from all participants in the queue, you are requested to please restrict yourselves to two questions only. You may rejoin the queue if you have any further questions. Our next question comes from the line of Tejas Shah with Avendus Spark Institutional Equities. Please go ahead.
Tejas Shah: Hi. Thanks for the opportunity, and congrats on good numbers. Sunil, first question pertains to tea volumes. In past, we have observed that once the volume entered this sluggish zone, it takes a bit medium to long term for it to come back. Looking at current demand scenario and on-ground realities, how soon do you think trajectory can reverse? Also, what has to go right for us, both micro and macro, to deliver that?
Sunil D'Souza: Tejas, I would say we will get back to low single digits to mid single digit volume growth. Remember, we have taken the pricing corrections. We are entering season. By the way, we have had a flurry of launches as well. We have launched Gold Reserve, which is at a higher than Gold. We have launched Chakra Select, which is at a lower than Chakra, trying to grow penetration and market share down south. We have launched a Kanan Devan Gold, which is at a one notch higher than Kanan Devan. So apart from our base distribution, equity, market share in the current pieces, we have also launched a flurry of new launches. So we should be seeing volume coming back.
Tejas Shah: Okay. Second, Sampann definitely is on strong footing. It seems that it is turning out to be a platform now, in the sense whatever we are launching on that brand platform, the acceptability seems to be higher than others. Just your insight on what are the guardrails that we can experiment with this brand, and where do you put the full stop and say we can't experiment or launch anything on that platform?
Sunil D'Souza: Tejas, we might look a bit like headless chickens, but we are not. The Sampann roadmap was drawn five years back when we had laid out in the food and beverage space, where do we want to play, with what category, where do we have a brand. That was the guardrails for not only Sampann, but also what categories we will get in and where we will not. Sampann very, very clearly is a pantry staples platform. I think more or less, we have launched into categories which we had identified. For example, we have launched dry fruits. Now you will see layering of flavored, roasted, those kind of stuff. You will see expansion of more convenient form of cooking pulses, so to speak. But broad categories, I think we are more or less there. Ghee, you will see expansion. We have launched Himalayan ghee, which is the Pahadi ghee.
Sunil D'Souza: We have launched ghee with no antibiotics, et cetera, no preservatives. So those kind of expansions you will see. But broadly, category-wise, I think more or less we are ticked off. There might be the few pieces here and there which we might get into. But with what we have right now, we remain confident of strong growth here.
Tejas Shah: Got it. Thanks, and all the best.
Nidhi Verma: Sorry. Can I just make a request to everyone? Given the time constraint, can you please limit your question to maximum two at a time, so that we can give an opportunity to everyone to ask questions. Thank you.
Operator: Thank you. Our next question comes from the line of Nihal Mahesh Jham with HSBC. Please go ahead.
Nihal Mahesh Jham: Hello.
Operator: Yes. Please go ahead.
Nihal Mahesh Jham: Yes. Am I audible?
Sunil D'Souza: Yeah.
Nihal Mahesh Jham: Yes. Hi, Sunil. Good evening. I will take both the questions together. The first one was again on India margins. Fair to assume that the most volatile or uncertain part is the tea segment. Based on where we are in the current procurement cycle from the price you said, post-Puja, most of the procurement picks up, so you have a sense of where we are. How the competitive intensity is, because I think in the earlier cycle, 2 years back, it was mainly the competition which also played a spoilsport. Is there comfort that the tea part of the India margins is reasonably comfortable on our side? That was one.
Nihal Mahesh Jham: Second is, in case of Sampann, we know, and you have obviously discussed about how it is over-indexed or the e-com and the QC channel is the highest, and generally, the outlook for that channel is expected to be extremely strong. Fair to assume that Sampann as a subpart of the growth portfolio will continue to grow much higher than the 30% that you guide overall?
Sunil D'Souza: Let me answer your second question first. Right now, we are delivering very high numbers because we are powering on dry fruits and cold-pressed oils, but we will start to cycle those bases as well. The rest of the portfolio that we see for pulses, poha, makhana, all that, the ballpark is roughly around 30%. That is why I remain wedded to the 30% number, I would say. A few quarters, we might hit it out of the park, but broadly, I think 30 is a good number to take. That is number one. Number two, for tea, more or less, the pricing that we have taken or put in motion in the market now covers for most of the inflation that we have seen. The good news is, this year, bar a few pockets here and there is no spoilsport on the competitive front.
Sunil D'Souza: The entire industry table is starting to move up, which should give us comfort on getting margins back quickly.
Nihal Mahesh Jham: Sure. Thanks, Sunil. Best wishes.
Operator: Thank you. Our next question comes from the line of Arnab Mitra with Goldman Sachs. Please go ahead.
Arnab Mitra: Yeah. Hi, Sunil and team. My first question is on RTD beverages, where you have seen like many quarters now, strong growth. Of course, the weather has been favorable this year, but generally, do you see this as a sustainable trend? How do you see the H2 in terms of new categories or new products that you have launched in this category?
Sunil D'Souza: Arnab, I go back to my fundamental assumption of why I am competitive in the INR 10 space, whereas a lot of the disruptors are not. With a 5% distributor margin, 30% retailer margin, and a 40% GST in carbonated drinks, there is no money you can make in the INR 10 space. Whereas my cups, Tata Gluco+, at INR 10, even after dropping my retailer price to match competition, I am still profitable, and therefore, I can keep continuing to power ahead for a long time to come. You can see the stress on the competitive space, where the INR 10 has got indexed to INR 12, whereas my INR 10 continues to be INR 10, and I am profitable at that. So my business model is robust.
Sunil D'Souza: Even if there is a bit of disruption, I know I will just put my head down and keep executing to make sure I deliver. So that is number one. Number two, as we expand distribution, and I do think we have assembled a fairly strong team now on the ground to deliver. As we expand distribution, the rest of the portfolio also continues to power. So from that perspective, we remain confident of delivering this for some time. Yes, the hot weather extending in Q2 did help a bit. But again, we have guided for a 30% growth. We have delivered far beyond that, partly because of that. But 30, I think, is par for the course.
Arnab Mitra: My second question was on pricing that you have taken in this category in RTD, and obviously, 2 years back, you had to take down pricing or increase margins. So has the competition followed in price increases across in your price segments for you to get this kind of a price realization growth?
Sunil D'Souza: Arnab, value volume differential is not pricing. It is a factor of mix as well, right? Number one. Number two, yes. Let me say we are competitive on pricing. It is not that we have gone ahead of the industry. There are certain indexes that we maintain with respect to the two or three big players in whichever geography we play in, and we move in sync with that. So let me say, we will not win or lose basis pricing. We will win or lose basis portfolio and execution.
Arnab Mitra: Got it. No, that's it from my side. Thanks for all the rest.
Operator: Thank you. The next question is from the line of Percy Panthaki with IIFL Capital. Please go ahead.
Percy Panthaki: Hi. Good evening. I will put both my questions up front. First question is on India EBIT margins. Last year they were around 13%. This year also seems like it might not be very different, maybe slightly higher. Couple of years ago, I think when we had a conversation, the aim was that over a number of years, this would sort of reach a 17% to 18% kind of a number, which would, from the current levels, denote 400 to 500 basis points kind of margin expansion. Firstly, is that a realistic kind of a target to have from, let's say, a three to five year kind of perspective?
Percy Panthaki: Or given the fact that you have a large growth portfolio, which is sort of growing, and new launches are coming, the expansion in India margins sort of will be muted, even though last two years have been below sort of what we were doing earlier. That's the first question. A related second question is on the margins of the growth portfolio. I do not know how you look at it internally. Probably you would be looking at it in terms of gross margin minus visibility and ad spend. Assuming that's the metric, what is roughly the margin, if I might call this as a contribution margin, what is the contribution margin for all the growth businesses put together currently and how was that, let's say, two, three years ago?
Percy Panthaki: Given that the growth business itself is seeing launch of new categories, subcategories, et cetera, should we expect meaningful expansion in the aggregate contribution margin of the growth businesses, or is it going to be more of a top line led kind of a business for the next 3 years or so?
Sunil D'Souza: Percy, number one, we have always maintained that a good food business in India, food and beverage business in India should be in the 17% to 20% ballpark of EBITDA. That is the endeavor. If oil was not at 115, and there were no huge swings on the entire packaging, freight, fuel, all these kind of pieces, I think we would be in a position to deliver. On the way from where we are to the 17%, I think there will be a few hiccups, but in the next 3 years or so, we should be in that ballpark. So that is number one. The reason for that is, it is not that the thing we have done the math to commit to or guide to that number. That is number one. Number two, on the growth portfolio, remember, it is not one simple box. There are different parts of the portfolio.
Sunil D'Souza: Organic India, Capital Foods, very, very clearly accretive by almost 50% to the base. Sampann and RTD, we knew would be dilutive to the base, but there we are playing for the TAM and the growth. So each part of the portfolio plays differently. In each part of the portfolio, the endeavor is to, from wherever it is, to continue to move it up. As I just mentioned, I think on Sampann, we had charted with minus 5%, 6 years back. Today, we are in the 14%, 15% ballpark, having expanded by close to 280, 290 bps versus last year. As we grow scale, as we put value-added products on top of the thing, and most importantly, in the whole system, we will have scale leverage.
Sunil D'Souza: Your entire infrastructure, middle of the P&L is not going to expand as we are expanding margins going up. In Sampann, also remember, there is no CapEx, nothing. It is a completely asset-light model, and therefore ROCE is right up there. In each of the categories, we have got a clear plan on how to expand margins and grow top line. Like I mentioned, dry fruits. We were only in the base. Now we have added the roasted, salted, et cetera. We were in pulses. Now we are adding the value-added pulses as well. From that perspective, mathematically, we will deliver EBITDA expansion and hit that 17% plus number.
Percy Panthaki: Got it. Very clear. Thanks, and all the best.
Operator: Thank you. Our next question comes from the line of Aditya Soman with CLSA. Please go ahead.
Aditya Soman: Hi. Good evening. Just one question from me. On tea now, we have seen a few quarters of disruption. The question here is: Is it a structural challenge where, let us say, the general consumer is shifting away towards coffee or other beverages? Or do you think this is more of a temporary phenomenon with what is happening with the input prices, with costs?
Sunil D'Souza: To give you a perspective, I think in overall per capita consumption, India is still one of the lower of the tea-consuming nations. From that perspective, there is still a long way to go. More than a quarter, close to 30% of the industry is still unbranded. There is leeway on that piece as well. Structurally, I do not see an issue. There are a few hiccups on the way that have happened, but we remain quite confident in delivering the numbers that we have committed.
Arnab Mitra: Very clear, sir. Thank you.
Operator: Thank you. Our next question comes from the line of Amit Purohit with Elara. Please go ahead.
Amit Purohit: Yeah. Thank you for the opportunity. Just on the margins itself, if I look at the standalone numbers, we have seen a sequential decline, and you clearly highlighted the cost pressure. If I look at near to medium term, the key driver would be the good recovery that we will see probably in the international business, and second, the Capital Foods segment expected to start to scale up. These two would aid into margin improvement on a YOY basis. That is a fair assumption because salt and tea would be broadly with the price increase, you would try to normalize the margins.
Sunil D'Souza: Sorry, I did not get the question. If you are asking about how we will expand domestic overall margins
Amit Purohit: Yeah.
Sunil D'Souza: Salt pricing, we have just taken. You have still not seen that come into the play.
Amit Purohit: Sure.
Sunil D'Souza: Tea, as I said, we have narrowed the volume value, and right now value is running ahead of volume. That is the second piece. The third piece, we had seen a little bit of inflation in Capital Foods as well, and we have taken pricing through the quarter, which will again start to flow. Across the board, I think the whole play of price increases has yet to manifest fully into the P&L.
Amit Purohit: Sure, got it. Last thing, you talked about the penetration of Sampann as a brand as well. As the dark stores get opened in smaller towns, the acceptance would be. Any pointers with respect to our distribution strategy, wherein we were splitting the distributors and that helping the Sampann part of the portfolio in the offline channel, some insights into that if you could help, either in any of the markets, metro or small towns.
Sunil D'Souza: In metro, where we have split these distributors into core growth and salt, non-salt. We have not gone down. That said, we are going to evaluate on every quarter basis, look at every single distributor, and if there is a need or an opportunity to drive business by splitting, we will look at it. Right now, we do not have a plan in place, but we will evaluate every quarter. That is number 1. Number 2, on quick com, e-com expanding into smaller cities, as I mentioned earlier, one of the biggest quick com players recently declared its growth numbers, and our growth in quick commerce is broadly in that ballpark. As they are expanding, we are expanding. Let me put it this way, we have partnered the quick com players in their growth journey probably better than most other players, and that is paying back for us now.
Amit Purohit: Thanks a lot. All the best.
Operator: Thank you. Our next question comes from the line of Anurag Dayal with PhillipCapital. Please go ahead.
Anurag Dayal: Yeah, hi sir. Thank you for the opportunity. My first question is slightly looking at the medium term. We understand about the growth business. For the core business, could you give some color on the distribution expansion opportunity, particularly in salt, where we are already well distributed. Are we expected to deliver good, maybe high single-digit growth over the next five years or so? What things we are doing there?
Sunil D'Souza: Overall, in terms of direct reach, I think we are now close to around 19 lakh plus stores, number one. Number two, numeric is, I think, 4.5, 4.6. Whichever way you cut it, the opportunity is still large in terms of uncovered outlets. We continue to expand distribution. I do not see us stopping distribution expansion for some time. Just to reiterate, one of the things that we had mentioned was AI usage for reducing frequency and replacing the alternate calls with AI. The idea was to redeploy the sales team to expand outlets in any particular geography. It is not a cost-saving initiative. It is more of using efficiency to redivert resources to continue top-line growth.
Anurag Dayal: Just a related question. Where we are in HoReCa channel, where we launched last year, and we were getting some INR 100 crore ARR we had reached. So where we are right now?
Sunil D'Souza: HoReCa is roughly at a INR 200 crore, INR 225 crore top-line run rate, and we are upwards of 10,000 outlets right now. We are seeing not only year-on-year growth, we are seeing quarter-on-quarter growth as well. So HoReCa, I think we have got three businesses which we had spawned. Vending is now we are at close to 10,000 outlets, and we are at INR 150 crore run rate. On this one, we are close to INR 250 crore run rate with 10,000 outlets.
Anurag Dayal: Okay. Thank you, sir.
Nidhi Verma: Moderator has given the time, we will go to the web questions and take a couple of questions from there, please. Yeah?
Anurag Dayal: Sure.
Nidhi Verma: Okay. Sunil, there are some questions from Latika, from JP Morgan. I think most of those questions have already been addressed. There is a question from Muskan Ichwan. She is asking, are we facing any challenges in the Soulfull business? We don't talk much about it.
Sunil D'Souza: We don't talk much about it simply because from the scale of the business, it is a slightly smaller business, but Soulfull is on a good run. I think last quarter, the growth was about 23%. It's in the same, 25% to 30% is what is aspiration, and we are quite in the ballpark on that one. The muesli expansion, the expansion of protein into breakfast cereals, et cetera, has gone off really well. There has also been a series of premium launches, whether it is khakhra or it is rusk. These have gone off extremely well.
Nidhi Verma: Yeah. I think rest of the questions have been addressed pretty much. Given the time, I think perhaps if there are any pending questions, you can get in touch with us. Our contact details are on the last page of the investor presentation. Perhaps with that, I would just like to thank you all on behalf of the management for joining us and handing it back to the moderator.
Operator: Thank you very much. On behalf of Tata Consumer Products Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.
