Congrats on good margins. My first question is on the innovation in terms of the makhana better snacks. My question here is, under better snacks, will we see a much bigger plethora of products in the medium, long term? Second, makhana is a -- very commoditized, so how are the margins here? Why do this? And third is, will this have a very wide distribution? Or this is more of a -- bigger outlets and more of the top 20 cities kind of a market.

Yes. So Better Snack Co is basically a brand that we will try to leverage for products which are healthier snacking products, so definitely this is going to be a platform for us for the future. Makhana is -- I wouldn't say it's commoditized, Abneesh. It's -- I think it's a very small category, and we are not looking at distributing it widely. This is going to be a modern trade e-commerce launch only, and till now we've seen reasonably good results on that. Does that answer your questions?

Yes, it does. And a slight related question in terms of the salty snacks which you have been trying given your very strong experience in the previous company. You have also tried that under Britannia past few years, so will that work in a way w ith the better snacks? And any update, if you can share, on salty snacks? How is the scale-up?

Abneesh, that's a very tough category. And we want to make sure that we get all the data required before we do a wider launch, so even at this point in time, it's in a test market. And as we have gone through the months, we've realized that there are so many things to learn from these test markets. And every month, there are new things coming up, so only if we feel absolutely comfortable with a marketing mix and we feel that we have a strong right to succeed will I go - - will we go ahead with a national launch.

The next question is from Avi Mehta from Macquarie. Please go ahead.

Sir, I just have two questions. One, I wanted to understand your comment on market share gains a little better and whether you believe this suggests that the price -based competition is largely behind us. Would you see it this way? Or I would love to hear your comments on that one, sir.

So the t rend, if you were to study trends in most categories, most FMCG categories. What happens is that in inflationary times there are these smaller players who just go out of business, right, because they cannot get there with the cost structures that they have . And their cost structures are mainly around giving much higher margins, giving bigger discounts, so with all that put together, it becomes very difficult for them to make ends meet, but once the commodity prices start to come down -- and I've heard this commentary from a lot of FMCG companies this quarter, but once the commodity prices start to drop, they again start to give big discounts and big margins. And they start to come back to play in the market. And that's what's happened with most FMCG categories this quarter, so you've got to be vigilant. We can charge a premium, obviously. You've got strong brands, so you can charge a premium to all of these players, but the premium has to be within a band. If it goes beyond that band, then they start to hurt you in pockets, so that's what you've got to be careful about. And that's what we've done. As market leaders, it's always -- the onus is always on us to take the prices up because no one will take the price up if they don't see the market leader move up. And so that is a disadvantage for the market leader because we move up the first. And then people start to take prices up, and then when the commodity prices soften, then people start to cut prices again. So that's what's happened, and we've taken the right action. It's not that we are not at a premium to these players. We are still at a premium to these players, but the band has to be defined.

It's still at the top end. We don't -- it's still at the top end of the band. It's not -- so let's say we define the band to be 20%. If it goes -- the premium goes to 30%, then you'll start to get hurt, so we want to make sure that we keep that within that band of 20%.

So -- sorry, sir. You think there is still room wherein this could be a cause of and we have to be vigilant. That's how I should read it. It's not yet behind us.

No. It's -- I don't know what you're saying. I don't understand...

Sir, maybe -- I mean is -- what I meant is this competition is just price based. Would you say that the worst of it is over or not? That's what -- was my question because we are now seeing in the last quarter that, the trajectory on market shares, that has reversed. So that is where I was coming from...

Yes-- that's why you're seeing the results.

Okay.

Yes, but we have to be vigilant as we go forward with that, yes...

Okay, sir, perfect. Sir, the second bit I just wanted to understand was on the margin side. The first half margin performance, would you -- given this first half margin performance, do you see a need to revisit your flattish EBITDA margin guidance for FY '24?

We don't give any guidance. Which guidance did we give? Did we give any guidance on EBITDA margins?

Okay, so there -- okay. Then -- okay, sir. Maybe then I misunderstood the earlier comment, but -- what was given last quarter, but would you say that this is the level that one can kind of continue? What could be risks for this EBITDA margin trajectory in first half to come off, especially because the employee cost reduction has been too stark? So I wasn't sure this quarter was a one-off performance. Or how should I look at that? That is what was basis.

We don't give a guidance, frankly, so I don't know how to answer your question, yes. I think we should move on, thanks.

The next question is from Shirish Pardeshi from Centrum Broking. Please go ahead.

Just two questions. In the beginning, you mentioned that focus state growth has come down, so would you be able to give some more qualitative comments what's happening in UP, Bihar? Because these are -- my understanding is strong glucose market, so maybe qualitatively we can add. And maybe, what is the contribution of these four focus states to our revenues?

So okay. So let me answer your first question, first. See, what's happened is, as I was saying in the beginning as well, the rural -- these markets are predominantly rural, right? And the rural growths, which were at about 2x urban growths till last year, are now lower than urban growth this year, right? So rural growths have come down overall, right, and that's the reason why these growths have come down. Having said that, I don't think there's any fundamental issue. I think it's about the overall growth in the market. And we are still, I would say, growing faster than what the overall market is growing at in all of these states. And I personally think that the hard work that we've done in the last 10 years of building a very strong rural distributio n is going to keep us in good stead. And as the markets start to come back as the rural economy start to come back a bit, things are going to be much better as we go forward, so if you're asking me have we lost share in these markets: No, we haven't.

Yes. Because normally you used to give the market share numbers. So that's why I was a bit worried...

No, no, no. You don't have to be -- so we've just changed the format. We've actually gained share in all of these states. Shirish Pardeshi The reason why I'm saying -- because normally you used to give in the beginning what is the packet growth. And this number, you have not given this time, so I was wondering whether a volume loss is primarily because of this. So maybe, if you can share, what is the packet growth you have seen in the quarter?

The packet growth this quarter has been flattish, Shirish, so -- yes...

Okay. My second and last question, on the ad spend. Most of the FMCG companies has upped the ad spend in the recent quarter. So would you quantify what is the ad spend number which has happened and where it will settle in next 2 quarters?

So we have also -- between the consumer promotions that we are running and all of the advertising that we are doing behind our brands, we have raised the ad spends -- well, not ad but total advertising and promotion spends, by about 1.5%, but it might not show in the P&L because some of the promotions which are grammage-based will not show in the numbers. So -- but the total spend on advertising and promotions has gone up by about 1.5%.

The next question is from Aditya Soman from CLSA. Please go ahead.

So firstly, you highlighted this whole branded F&B category being INR 9 trillion. Would you - - I mean, how much of a play can Britannia make in that category? And any specific categories or subcategories within that, that you want to highlight where you feel that Britannia potentially has the right to win?

So that's a great question. Now we are, I would say, probably the most focused company in terms of what we do. If you were to look at other FMCGs in India, their diversification sometimes is pretty varied. And they get into a very, very -- a variety of categories. What we've stayed true to is to make sure that we move in concentric circles. So we've tried to cover the bakery, first; and obviously, dairy, which is a play for us, so we are basically in the bakery space and dairy. We are doing some experiments with salty. We have -- we are looking at some of the other categories as well, but we are staying close to the knitting so that we don't go too far from where our strength lies. Now dairy is also becoming a big play for us, and we will make sure that we play much harder there. Having said that, there are lots of other categories which are interesting. So the large categories that we don't play in which are in the branded F&B space are salty snacks, are chocolates, all of these categories. And we know that, at this point in time, we don't have a right to succeed. Even companies which have gotten into this have struggled. Even companies with very deep pockets have struggled, so we just want to make sure that -- we first make absolutely sure within the team that we have a right to succeed and then we move forward. As I've said in the past, we would want to stay in the snacking space, predominantly in the baking -- baked snacking space, for the time being then move to other snacking areas and -- which is basically not in the middle of the plate. At some stage -- we are doing a lot of other -- R&D is working very hard on other categories as well, but we will move into those only when we are absolutely clear that we have a right to succeed.

No. Understand, very clear. And just a follow -up on this: I mean you mentioned that maybe in some of these categories, at this point, you don't see a -- sort of any natural right to succeed, but how do you get to that point where you're confident that, "Look. We are likely to succeed?" Let's say chocolates, right, I mean, hypothetically. Would that be like test marketing and then taking notches off or at what point would you just dismiss the strategy?

So we -- so there could be various ways of doing it. So one is if we look at what we are doing in salty. We've been in test market for the last 3 years. And we continue to do it so that we can fine- tune our product before we are clear about where we are going. Similarly, chocolates, obviously we could look at getting into this and test marketing it. We could even look at alliances, joint ventures, so there are various ways of doing it. I'm just talking from the top of my head right now. So there could be various ways of doing it and we will -- we have been in the process of evaluating all this. And I think we will -- we are not clear whether this is the right -- these are the right categories for us at this point in time.

We take the next question from the line of Percy Panthaki from IIFL. Please go ahead.

Varun, firstly, just a couple of hygiene questions. Firstly, if you could give the volume growth or decline for this quarter; and secondly, if you could explain the big Q-o-Q drop in the employee cost, that will be very helpful. And my main question is on the growth. So the poor growth that we have seen this quarter, could you break the reasons up into two or three parts? So one is that there is a high base. Second is there is a general FMCG demand weakness. Third is that there is this loca l and regional competition which is getting active. So if these three reasons put together were, let's say, 100, what part of that 100 would you allocate to each of them?

That's a very complicated question, Percy. I don't -- okay, let me answe r your first question. Your first question was volume growth. It's flat. It's just about 20 basis points, right? So yes, volume has been flat. The second question was on employee costs. There are some base issues. Otherwise, there's no real change in emplo yee cost. There were some options, et cetera which were in the last year, so there's no change. Employee costs have been reasonably stable. What was your third question? You'll have to rephrase it, 100 and all of that. I didn't understand...

Okay, fine. What I wanted to understand is that there are, as I can see, 3 reasons why the growth is weak. One is that there is a high base effect. Second is that there is a general FMCG weakness. And the third is that there is increased local or regional competition, so which of these 3 reasons is relatively the larger contributor? Which of these is relatively a small part of the answer? That's what I'm looking at...

Okay. I got it. I got it. So now obviously there is a slowdown, as far as FM CG is concerned. What we are seeing is a clear slowdown in rural. And despite our continuing to get deeper into rural areas, getting into more villages, etcetera, we've started to see the rural economy to splutter a bit. However, these are macro issues which companies like us cannot sort out. We continue to go on our agenda of building distribution because we know that -- while we've had a weak monsoon and the agriculture economy has not been the greatest this year, we know that this will come back. And when it comes back, we will benefit from that. Second, we have had a very high base. So last year, our growth was 22% in this quarter, so that also is contributing to it. Third, on the regional players, I think we -- I wouldn't say that for the full quarter t his has been a big issue, but yes, for the first, let's say, month, 1.5 months, this was something that was an issue, so we did take some pricing actions. And we will continue to be vigilant on that. I think that's something that we can manage. I think it's the slowdown in the demand which is something that we have to look out for and hope that, that corrects as we go forwards.

So in this context when the volume is weak, demand is weak, what is the reason to sit at such a high margin? Should n't we sort of pass on more to the consumer, maybe operate at a 17% to 18% margin rather than 19% to 20% margin and bring the volume growth up?

No, you're right. I think the agenda for us is to make sure that we grow our volumes much faster, but in times like this, Percy, even throwing money is throwing money at the wall, so we've got to make sure that the demand corrects before we start to do that. My sales head and my marketing head are delighted to hear your comments to -- but yes, the target for us will be to make sure that we grow top line much faster than what we've done this quarter.

The next question is from the line of Jay Doshi from Kotak. Please go ahead.

Yes. A couple of bookkeeping questions. What's the cumulat ive price cuts that you have taken at the portfolio level from the peak pricing that you may have seen 6, 9 months back?

Venkat, would you have some number for that, 3, 2.5%? So about 1.5%, I would say.

Yes, yes.

Right. Now see. In most FMCG categories, what we have seen is companie s cut prices proactively even before there is full recovery in gross margin. At least that's what we've seen in the cycle. You've managed to maintain your market share quite well and also gained 250 basis point gross margin expansion over pre-pandemic levels, so do you expect that, for the category and for Britannia, gross margins of 42.5%, 43% is a new normal gross margin? Or you have intention of sort of taking it down to somewhere midway between there, 40%, where it was pre pandemic; and 42.5%, 43%, where it is right now.

No, that's a very tough question in the current environment with the Middle East in flames; and Russia, Ukraine going at each other. We don't know where this situation is leading up to, so we've got to be very watchful. I would say we -- first of all, we don't give a guidance, so I won't be able to tell you where we are headed, but I would say that it's reasonable to assume that we'll be somewhere around what you see as our margins.

That's helpful. One last one. Wheat flour, the chart that you've shown indicates Y-o-Y inflation, whereas our interactions with other large buyers of wheat indicate that it's broadly at similar levels as last year. So what is the cost of inventory for you? Did you procure it at the beginning of the year, so you are not affected by the recent inflation? And second is if the chart -- if you can explain the chart...

No. So we do buy covers. We do some strategic buying, which helps us neutralize some of the inflation that others see. So Manoj is here. If you have a question for him, he will be very happy to answer.

Sure. So the chart you are showing is more like spot price, right? It's your cost of consumption -- or your procurement cost of bit -- covers that you have would be much lower, right? So you would not be witnessing any inflation. Is that right understanding?

Those are internal numbers.

I see, okay. So that is -- this is our chart of your procurement costs, understood...

Yes.

The next question is from Kunal Vora from BNP Paribas. Please go ahead.

Firstly, I wanted to understand the INR1 lakh crore Britannia flavor market size which you are talking about. How much is biscuits? What part of dairy you considered is -- and bakery, whether it's mostly organized or includes unorganized? And also if you can give us indicative market share in each of the categories?

That's a very tough question. We'll have to do a chart for you, but biscuits would be, what, about 35,000 crores? 40,000 -- so biscuits would be about 40% of it. And then all of the other categories, bread, cake, rusk, dairy, all of that would be the rest, so -- but I will not be able to answer which categories, how big and what is the market share in each one of those categories. But if you want any specifics on cake, rusk, etcetera: Cake, we have about a 35% share. Rusk, we have about a 23%, 24% share. Dairy is -- cheese is a small share, much smaller at about 13%, 14%. So that's how we've calculated it, but it's a good point. Maybe we'll construct a chart for you the next time.

That will be very useful. And second and last question if you can talk about your acquisition strategy both in traditional space as well as D2C br ands in the food space, if there's anything which you would like to consider. I'm also thinking about, like, categories like cheese and mayo spreads. Are there any interesting opportunities there?

From an acquisition standpoint?

Yes, acquisition, thought process on both traditional as well as D2C brands.

Direct-to-consumer brands. Well, we've just gone into a joint venture with Bel. So first, we would want to make sure that, whatever Bel has in their portfolio, we look at bringing those into India. They are obviously dairy experts and they understand cheese very well, but yes, all of this -- mayo, maybe not, because that's not really dairy. But a lot of other cheese categories, whether it's cream cheese; or cheese spreads; or the one that we've launched, which is that -- the sachet, the INR 10 sachet, which is also a spread, these kind of things, we would first like to bring into the market. And then I don't think there are enough innovators in the dairy category in India which are ready for acquisition. I think we'll have a much better portfolio, with Bel as our partner.

Okay. And growth will be mostly organic. And inorganic is not like really a consideration right now.

Not in the dairy category.

Overall at a company level?

Company level. If there are opportunities which give us entry into categories which are adjacent to the ones that we operate in, we will be happy to look at it. And if there are interesting opportunities around us and in countries around us, we'll be happy to look at that. And we are evaluating some of those. So we will continue to do that, but we will not do it. We will not break the bank on any of these opportunities. They have to come at the right price. And I think private equity money is drying up, so there might be opportunities in the future.

Next question is from Tejash Shah from Spark Capital. Please go ahead.

So there are two dimensions of inflationary, deflationary environment. So one which all FMCG company would have highlighted this quarter is that the competitive environment is heating up because of unorganized players, getting more aggressive, but the other dimension is how consumers behave. And usually we have been taugh t by FMCG companies only that, during inflation, they down-trade, but in the deflationary environment, there is more incentive for them to up -trade or premiumize, so why is that not showing up? Or will it take time for premiumization to come back again?

Premiumization. See, within our portfolio we are a reasonably premium portfolio, right? And what we've seen even in the last 6 months is that it's not affected -- if you look at the mix: The mix has only moved towards the premium brands. It's no t like the popular brands or the cheap brands are jumping up in every portfolio. See, even the B players, they -- while they would have gained in certain pockets, I don't think it adds up to the base of the pyramid becoming much larger than what it was. So to that extent, I don't think it's -- I don't think there is downgradation happening in the market.

Got it. And then second and last question. So you spoke about snacking. We have been trying for 2 years, so just wanted to understand: When we get into a new category, which is the best synergy or the top synergy that we look for, which is distribution synergy or brand synergy, that you prioritize?

Well, it was -- the way we looked at it was that if -- snacking, as you know, is basi cally transportation of air, so we were looking at a model whereby we could set up nuclear factories all across the country and have a smaller radius of distribution and hence have an advantage over all of the larger players who have a limited number of fa ctories. So that's what we are trying to do, but frankly, I don't think we are -- the jury is still out. We are still not 100% confident about whether this is going to work because differentiation is also very important. While we have launched certain differentiated products, the issue with snacking is that, the local players, they give -- despite the fact that they might have costs which come out of replenishment, but -- they still have very high margins, very high discounts, etcetera. So only if we are able to counter all of those with the mix that we are bringing to the market will we move forward. Otherwise -- see. On one side, you've got the larger players who are obviously much stronger brands, but they are losing out to the smaller players because of the price play and the grams in bag, etcetera. On the other side, you've got these guys who are throwing money in the market, so we don't want to be caught in this logjam. Only if we find a way to balance and make money out of this will we move forward.

Thank you very much. We will have to take that as the last question. I would now like to hand the conference back to the management team for closing comments.

Thanks, everyone, for spending time with us on this call today. We look forward to interacting with you again in the future.

Thank you very much. On behalf of Britannia Industries Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.