Congrats on the good numbers. My first question is on the innovation. So when I see spices and honey, you have launched under Sonnets. You also have some spices like haldi, etcetera, under Sampann. So wh y have two brands and similarly honey, you do have Himalayan honey also and you have now got Sonnets honey also? Plus, is the label on the spices and honey, etcetera, saying by Tata Coffee. So it's looking a bit strange, right? You have cardamom and black pepper and then, say, by Tata Coffee. So I wanted to understand all this in terms of brand architecture and positioning. Sunil D’Souza: So thanks, Abneesh. So let me say, Sampann is the mass market brand where we will play for the larger market and we will compete in the mainline spice business of whatever, INR60,000 crores, total INR20,000 crores on branded spice category. That is the big play. The Sonnets by Tata Coffee is a very, very niche play. Right now, it is online. If it gains traction, we will see how to take it elsewhere. Thi s is an origin of Tata Coffee. That is the brand positioning. Everything that you see out t here is authentically grown on Tata Coffee or honey, for example, is harvested from Tata Coffee estates. It is a significant premium t o the Sampann portfolio. Himalayan, on the other hand, is everything from the Himalayas per se. Again, this is a premium above Sonnets also. And that is, again, origin/provenance brand that we are playing. Right now, again, that is primarily online, a little bit in offline outlets, but I would say the significant thrust on top line and growth share will be behind Tata Sampann.
TATA CONSUMER PRODUCTS LIMITED analyst Q&A
Sure. My second question is on your foods business. So we are seeing the market leader in masala oats see significant slowdown in Q3 with mid -single-digit kind of growth. So in your Soulfull portfolio, how is the growth rate in Q3? I unders tand you have come out with a lot of new products, so your growth rate could be good. But if you could comment on the existing non-masala oats portfolio of Soulfull? Plus, how is the performance within masala oats? Are you taking good market share in the e-commerce and modern trade? Sunil D’Souza: So Abneesh, overall, I wouldn't comment about other competitors, but all I can say is we remain focused on our growth businesses. Growth businesses delivered 42% growth. Soulfull itself delivered a 47% growth for t he quarter, a vast majority of it coming from the base and not from the new launches like Choco Sticks, etcetera. On masala oats specifically, quarter -on-quarter, we continue to gain share. I would say, broadly, we are trending towards a double -digit shar e. B ut in modern trade, where we are present for a decent amount of time, we are already into the high teens sort of market share.
Sure. My last question on NourishCo. So you have grown strongly in Q3 at 34% and 9 months also at 41%. You had v ery ambitious target of around INR1,000 crores business in FY '24 on this. It seems that you are going a bit slower than that. So if you could comment on Q4, do you think that you'll be able to have a good catch -up on that? And any reason for slightly slow er growth than the initial ambition? Sunil D’Souza: So Abneesh, we remain focused on the INR900 crores to INR1,000 crores that we had talk ed about for NourishCo for the full year. But just to put it in perspective, Q3 is normally the slowest quarter of the year, given the seasonality, especially in Northern India. The season would actually start kicking in end of January, early February, so to speak. So this quarter will be a substantially higher number. For NourishCo, I think the growth rates are immateri al. The number -- the highway is vast. And I will remain quite confident that we'll deliver the INR900 crores to INR1,000 crores number.
We have our next question from the line of Vivek M. from Jefferies. Please go ahead.
My first quest ion is related to what earlier participant asked. Sunil, in terms of portfolio, so while we like the growth agenda, but do you not think that there is a bit of a co mplexity in the portfolio with Organic India also overlapping with some of the existing port folio, and so on and so forth. How do you think about this? Do you think at some point of time, you will have to think about consolidation? And can this also have a drag on the bandwidth of the team? Sunil D’Souza: So Vivek, let me answer it this way. For the overall complexity and before commenting on Organic India specifically. Complexity is dealt with depending on how you structure your team to play on, right? So while you see a lot of new launches, etcetera, they are not on the offline business. They're not in the general trade because that is where the confusion can arise because of limited amount of bandwidth for the front end. Some of it is not even in modern trade because I do not think these products will move off the shelf in modern trade and/or c reate complexity for the team. So you would see the entire portfolio definitely play online because on online for my entire portfolio without complicating anyone's life. So that's number one. So the -- for example, dry fruits, we launched only online. The n as it gained traction, we are looking at select -- we're still not into -- we are not into all of modern trade. We are looking at select modern trade. We have still not ventured into general trade, but products which have got traction, we go all across the place. Sonnets, for example, will be for the foreseeable future only online. It was that these products were already being produced by Tata Coffee. Th ey were under various different brand names or being sold B2B. We do see an opportunity to make some money out of this while building a decent provenance brand of Tata Coffee. Now coming specifically to Organic India. Organic India portfolio is primarily into, I would say, 2 parts: the first part is what I call organic tea and more importantly, infusions. And the second part is supplements. Supplements, absolutely, there is no overlap at all, and that is completely on its own. On the tea space -- on the infusion space, we play in tea , organic. And most of it is loose tea, a little bit of teabags under Tetley green, black and various flavors. Organic India is completely tea -- completely organic, and more importantly, the large part of their portfolio is infusions. If anything, it right now, the way we see it, it complements our portfo lio. But that said, we have just started work on building out the entire innovation pipeline and where to play in both Capital Foods and Organic India. As we work t hrough the details, extremely mindful of the point that you made is not to create confusion in the ranks as we execute, making sure that all these businesses are value accretive.
Got it, Sunil, for the detailed explanation. Just a kind of a foll ow-up to this. I mean, over the last few years, you have done small to reasonably sized acquis ition. And I remember at the time of acquisition call recently, you mentioned that the capital raise would be with the mindset that you still want to have enough cash on your balance sheet. But -- and again, I understand the uncertainty around M&As. But do you think that you have brand architecture pretty much in place, so the acquisition, incremental acquisitions need to be really solving some problem or a portfolio gap? Or let me ask you what would be your thought process in terms of M&As from here? What kind of targets you will go after, now that you have like quite a few brand platforms architecture in place? Sunil D’Souza: So Vivek, let me put it this way. When w e started our journey 4 years back. We had done detailed mapping of the food and beverage un iverse. Every category of size, if I remember, we had looked at 30-odd different categories of INR5,000 crores plus where there were options for us to play and create value. We have made substantial progress, but we are not there quite yet. Capital Foods, for example, complements from a cuisine perspective. We cover all the 3 cuisines, I would say, Indian with Sampann, Western with Smith & Jones, and then I would ca ll the oriental piece with Capital Foods. Apart from that, it gets us into categories of chu tneys, dips, sauces, noodles , which we did not have in our portfolio. Similarly for Organic India. Now while these have filled in some gaps in our portfolio, I t hink we've still got options to play. But as you rightly said, and we have always maintained, we will grow organically, inorganically. We've also publicly said that right now, in the short term, we will put our heads down, make sure we integrate these busine sses and deliver value. But we remain quite open to organic and inorganic options to go forward. So short answer, this is not the end of the road for M&A. We've still got options to play, providing they make sense, both from a strategic and financial perspective. And when I say the strategic perspective, filling gaps faster than what we can on o ur own on our entire food an d beverage road map.
Got it, Sunil. And last question on margins, if I look at exit margin as in the December quarter margins for both India and international businesses at EBIT level, let's say, is it fair to say that India margin expansion from here will be more modest, whereas there is still a catch-up in case of international business over the next few quarters? Sunil D’Souza: So Vivek, let me put it this way. When I look at our peer set, I think we've still got oppo rtunity on EBIT margins. As we bolt on these value-accretive inorganic acquisitions that we've done along with the growth that we aspire to in our base busines ses, we will continue to leverage economies of scale and margin-accretive categories. I think overall as a company, now 15% E BITDA margins is something which we had aspired to deliver. Now we are there. Now that becomes the base. From here on, we will be cont inuing to target higher. And upfront, I mean, even in the food and beverage space or in the overall FMCG space, when you look at the peer set, we are still not even in the middle of the heap.
Got it. I understand, Sunil. But I know smalle r contribution from international, but I would imagine that international margin expansion should be far higher than what you can do in India in the next, let's say, few quarters. Is that fair? Sunil D’Souza: Absolutely. Vivek, International, I've always maintained margin-wise, has to be accretive to the India business. The growth will be sl ower, margin-accretive. The one good thing that is happening with these acquisitions, we will -- add a decent amount of value on the top line as well to both these businesses, along with the expansion of Joyfull, etcetera. But you're absolutely right. Our international business margin has to be accretive to India. We directionally started to move in that space. I think there is still a decent amount of runway to go.
We have next question from the line of Mihir Shah from Nomura. Please go ahead.
Congrats on a good set of numbers. So my q uestion again is on the margin front. But just taking a step back, while if one -- the gross margin, when one looks at the gross margins, you are seeing better -than-expected improvement in gro ss margins. Can you share which business has led to this improve ment? Is it the softness in the tea cost? Or is it the improving profitability in the growth businesses that is driving this or maybe some other reason for that? Sunil D’Souza: So Mihir, let m e answer it in 3 or 4 different pieces, right? Overall, commodit y costs have been benign, whether it is in -- and when I say benign, tea costs are pricing cyclical. You have to remember that. So when I compare to the same quarter last year, it's largely benign. Salt costs are largely benign. More importantly, other in put costs and our gross margin, when we quote, is inclusive of variable freight, etcetera. So given our whole petroleum prices being flat, therefore, logistics costs being largely, I would say , flattish. That is where a contribution - - where our gross marg ins have improved. Both for tea and salt, gross margins are broadly in the bracket where we want it to be. On the growth businesses, obviously, as we gain scale, whether it is ready -to-drink, Sampann, Soulfull, as long as we continue to gain scale, levera ge, operating cost leverage, margins are continuing to improve. So it's a mix of various parameters that's driving up the overall gros s margin portfolio.
Okay. Sir, can you highlig ht what is the differential gap between the EBIT food margin and EBIT margins for beverages now currently as the major... Sunil D’Souza: Mihir, we look at the India business in totality as a food and beverage portfolio because we always make choices depending on where we can create the greatest value. So we segregate up to the gross margin level or margin after promotion, but -- promotion and advertising. But below that, it is all common cost of the India structure. Therefore, we don't break up the EBIT margins for India Food and India Beverage.
Okay, okay. So just another follow -up on margins. You mentioned that international margins should be accretive to the overall business. Can you share any timelines that you have in mind by when can we expect international margins to be accretive to the overall business? Sunil D’Souza: So let me just before that, just to qualify the statement that I had made earlier. The way we are structured is by c ategory in India. So packaged beverages is a category. Pac kaged foods is a category. Soulfull is a category, etcetera. So therefore, all these category leaders have accountability up to margin after promotion expenses. The balance, everything, the back end, front end and all the other functional costs are all com mon. And that's why we don't look at separate, this thing. I mean you could do it by allocation, but then it's a theoretical exercise. On the international business itself, broadly, if I look at it , U.K. has started to come back into a very strong space. As I said, EBIT margins had -- I've never seen it in the past 3 years. Last quarter, we saw double-digit EBIT margins. Canada has always delivered very, very strong margins and continuing to do so. The US is a little bit of work in process. I would say, o ver the next 6 to 12 months, you should see substantial progress on that front.
Wonderful. Sir, sorry, 1 more follow -up on margins. Now after reaching 15% EBITDA level, can you share what k ind of headroom opportunity do we see out here? Any med ium-term guidance, if you can talk about, will be wonderful. Sunil D’Souza: So, Mihir, we always benchmark to our peer set, right? And if you look around in the oth er FMCG companies, I think the range is between -- depending on -- if you take food and beverage, it's about 17% to 25%. But overall, I would say, broadly, peo ple are, if you take a median, it's about 18% to 20%. So there is a decent amount of headroom for us to grow margin. But the most impo rtant piece is we are a growth company, but we are a gr owth plus profitability company. So we will continue to deliver dou ble-digit growth while improving margins at the same time.
Got it. Got it. Sir, secon dly, I wanted to check on the coffee business. When one looks at the coffee volumes, both fo r India and US, they seem to have stabilized. Can one expect improvement from here on? And no further drag on volumes like we had seen in earlier quarters? And also on pricing, on US Coffee, it's turned negative. Have we taken price cuts because coffee prices are actually trending upwards? So I'm unable to understand that math. Sunil D’Souza: So let me answer your second question first, Mihir. Starting July 202 1 onwards, first Arabica up and then Robusta ran up in conjunction with Arabica. Some time a round March, April of 2023, prices started coming down. Again, Arabica sta rted coming down first, followed by Robusta. So the secular trend was for a decline in coffee prices. But starting around September o f this year onwards, again, driven by a little b it of niggling issues in Brazil and the Vietnam crop not coming on to the market completely, Robusta prices have started to climb up. Arabica has started to climb up in conjunction with Robusta. Now the forecasts are that they will start to plateau/soften towards the end of this calendar year. But again, a forecast is a forecas t. So we continue to move up and down along with coffee prices and the activity that we see on the shop floor s in terms of promotions, pricing, etcetera. Because ultimately, we will maintain our market share/grow market shares. So that is why you will see the ups and downs. As of now, I think the prices are starting to move slightly north, but I wouldn't try to forecast too far into the future given the volatility that we're seeing. We would try to play close to where the market is. So that's number one. On the coffee volumes itself, the category itself is soft in the US, overall. And we are also soft in line with the category or maybe a slight bit more, but we will get back to categ ory-plus numbers. India business, we grew 32% on coffee, but it's a small portion of our business, and it continues to be a growth focus.
Got it, sir. A nd lastly, any synergy benefits that you can expect to call out on that can accrue on the integration of international and the coffee business that you've worked out now? Sunil D’Souza: So there are synergy benefits. The bigger substantial benefits are in legal, tax, cash flow and management time. Bu t as we work through, we will come out with very specific numbers as we go forward.
Moderator, can we please request everyone to limit their questions to max two at a time?
We'll take our next question from the line of Percy from IIFL. Please go ahead.
My first question is on the new portfolio, the new businesses, which are growing at 35%, 40%. So just wanted to understand, is the growth currently being driven mainly by plugging the availability gaps? Or are there some other d rivers of growth as well? Now I underst and it will always be a combination of many things. But is it mainly the availabili ty gap, which you are plugging which is driving the growth? Or there are other strong or important factors as well? Sunil D’Souza: So Percy, incidentally, we are growing at 42%. We have grown at 42% for the last quarter. But just to come back to your quest ion, very, very specifically, for example, in NourishCo, we had said both geography and portfolio. When we inherited the business, it was just a Gluco Plus and it was a Tata Water Plus, which we transitioned to Tata Copper Plus. Tata Copper Plus is growin g far faster than Gluco Plus. But -- there is a bit of geographic expansion, but there's also portfolio. We've launched Tata Gluco Plus Jelly. We have launched Himalayan. We've expanded our distribution. We've launched the Himalayan provenance range. We've entered cold coffee. We've just started to pilot sports drinks, energy drinks. So it is both geography and portfolio. Similarly, in Sampann, the big business was pulses. We've started to expand into spices. We've gone into mix. We've expanded poha. And it is both a combination of new categories as well as, I would say, in Sampann, i t is points of availability. In NourishCo, it is points of distribution and manufacturing. A nd in Soulfull, it is plain and simple getting the product across to multiple peopl e. And we've now entered muesli. We've entered choco sticks, and there is a whole range of more innovation. I would say equal weightag e to both geography and portfolio.
And in terms of geography, are there any sort of white spaces right now? So one is, of course, in a city, you can always cover more outlets which are not covered . But do you still think there is easy pickings in terms of going to cities and towns which you have not gone at all until now? Sunil D’Souza: So, yes and no, because differen t parts of the portfolio play differently. In NourishCo, I would say we probably have manufacturing, and we have started, and the keyw ord is started, distribution in about, I would say, 80%, 85% of the country. And that started distribution has to now play out and there is expansion in number of outlets that we will do. But Soulfull, for example, from where they were with about 15,000, 20,000 outlets, is now about -- trending about 5.5 lakhs, 6 lakh -plus outlets. But there is still -- remember, just in terms of direct outlets, I touched 1.5 million. So there is that much room to grow. Sampann, similarly because remember, I am also compe ting with the kirana owner himself, who is normally selling loose/locally packaged pulses, spices, etcetera. So while we a re present in modern trade throughout, there is, I think, a huge amount of runwa y in still expanding distribution in general trade with Sampann. So different parts of the p ortfolio, different opportunities. But as we had said, we are targeting to exit clos e to 20% of our portfolio with growth businesses growing at 30%, which we will now, with the acquisitions, take it up to 30%, growing at 30%.
Right. I am asking only this one question. So allow me to delve a little deeper into this. So when you talk about something like a Sampann and you say there is a scope for going into GT. So typically, see, what happens is that availability, of course, drive growth. But there is a limit to that, right? So if there is a product which I want to buy, if it's not av ailable in one shop, I get it in another, it really doesn't incrementally improve sales very much by making it available in the nearby s hop. So what my question for Sampa nn is that do you think that as of now, the audience for it and the people who want to buy it are already buying it and it's not as if they are not getting the product when they want to buy it? Sunil D’Souza: I would beg to disagree with you, Percy, becaus e the key barrier is to overcome the margin difference between the local loose versus Sa mpann and getting into the Kirana store. Because once we get into the Kirana store, then I've never heard of a consumer who shifted ba ck into any other portfolio, right ? So from that perspective, creating consumer preference is part number one. Making sure we put it into the store and make it available is part number two. On both the pieces, I think we've got a significant amount of runway to play.
Okay. So the ma in challenge here is bringing down the price premium of products like Sampann? Sunil D’Souza: No. I think maintaining the price premium, creating the consumer pull and making sure that we provide a compelling proposition f or the retailer to stock the produ ct. I think that is the problem to solve.
We have our next question from the line of Arnab Mitra from Goldman Sachs. Please go ahead.
My first question was on NourishCo again. So in terms of distribution, where do you think you end up in FY '24 in terms of direct reach or weighted average availability in the category? I was just trying to understand how much more headroom do you think is there after what you've done already this year. And a related question to that is that the energy drink that we launched, so it's very early days. Any sense of consumer response? Does it look like something which can significantly ramp up quickly? Or it is some thing which is a little more of an evolved product and therefore, will need more time for consumer acceptance? Sunil D’Souza: So Arnab, let me answer your second question first. We are still at a pilot stage with the energy drink. The whole thing is to give the proposition of a INR10 energy drink giving the same efficacy that the consumer seeks f or in other brands. We've got to get our -- both our distribution act together as well a s our marketing mix perfected before we roll it out. So very early days. Energy drinks, India and globally seems to be a booming segment. And therefore, getting the proposition right is the key because I do believe if we get it right and given the price p oints that we are looking to target, I think we'll have substantial throughput. So that's point number one. Point number two is with respect to number of outlets. I think by the end of this year, we'll exit at about 8.5 lakhs, 9 lakhs or so. But just to put it in perspective, if you benchmark and against the other big beverage majors, and look at their number of outlets, I would think we are probably scratching the surface. We are about 20%, 25% there of their total universe. So we've still got substantial ground to cover.
And my last question is on the acquisition of Ching's. So what we've seen in other companies is typically when a large company acquires a small company, there is a lot more inventory in the distributor channel, in the retai l channel that has expired stock, and there is some kind of initial hiccups in the first couple of quarters. So based on what you have, what you know and what you've se en because the business is already -- the transaction is completed, do you anticipate any issues in the first couple of quarters, which will be cleaned up for reduction in inventory? Sunil D’Souza: So, I mean, I think Ching's was a decently run company when we took it over. The big impetus for us was to give distribution expansion. In many, m any parts of the country, they are not distributed. So it is all incremental distribution. But where they were already distributed, we are clearly having a full-fledged integration process where we go through the whole piece of taking inventory, making sure we clean up the -- any damage, expiries, which are there, making sure we're helping existing distributors to transition very, very smoothly. So far, it's already been about 7 to 8 days of integration. We are not seeing any major hiccup. There will be sm all niggles here and there, but nothing that I would really worry about.
We have our next question from the line of Sheela Rathi from Morgan Stan ley. Please go ahead.
Sunil, my first question was again on EBITDA margins. I heard yo u say that 15% is now the bottom with respect to the margins. And I also understand this is coming from the commodity deflation which we are seeing. But is there something more which is driving this confidence on EBITDA margins, especially coming from the growth businesses? Sunil D’Souza: So Sheela, number one is, I wo uld say, the confidence stems from 3 or 4 different pieces, right? The gross margins of tea and salt are broadly now where they should be. And this is, when I say they should be, given the historical numbers that we have. Number two is the growth businesses are on a very strong trajectory. But overall, as we are adding businesses, we are not adding costs on the bottom line. So the whole advantage of scale and operating leverage is what is help ing us derive efficiency on the bottom line. And again, when you look at benchmark companies around, there is no reason we should not be getting to -- like I said, 15% is a base. I mean even with this, we are still not in the middle of the pack when it comes to EBITDA margin. So overall, given top line growth, given gross margin efficiencies, given our cost focus on the middle of the P&L, I don't think there is a reason. Just one rider, I would say. While I say 15% is a base. There will be some ups and dow ns. But we would say directionally, 15% would be the base, and we will grow beyond this.
Understood. And my second and final question is we talk about e-commerce share for us being at about 11%. But if you -- just trying to understand what th e share of e -commerce would be for the growth businesses right now? Sunil D’Souza: Okay. So Sheela, we have not actually dissected the share of the Growth. But broadly, for Sampann, I think I would have a higher share on e -commerce versus offline from the simple fact that I said, I mean, we compete with the kirana stores themselves in many categories, that's number one. For Soulfull again, we would ha ve probably higher than what we have as overall e -comm share because, again, availability and drive continu es to be an opportunity for us. NourishCo, I mean I think our offline share would be higher. But overall, I think 10.7% e -comm, I woul d think we would be in the top quartile of FMCG companies in the country. And just to highlight, when we have started our journey, we had said we will build very strong muscles in modern trade and e -commerce. And functionally, we had said we will build RTD and digital. And you can see that all that translating down into the business.
We have our next question from the line of Amit Purohit from Elara. Please go ahead.
Just on the salt business, wherein we are clocking a very strong v olume growth. Anything you could highlight in terms of any specific plan or segments which has been doing well for us in salt? I know the premium is doing well, but other than the premium part? Sunil D’Souza: So Amit, first of all, the opportunity in the salt business i s immense because I think top 5 brands account for about 50%, 52% of the total branded market. And remember, I am 39%. So you can imagine the rest of the brands. So the balance, large part of the salt landscape is what I call no-name brands. It's not loose, but it's not specific brands per se. So there is a huge runway for us to continue to gain share, that's number one. Number two, overall salt volume, I would say, is still very, very highly dependent on base Tata Salt because that is the big boy in the p ack. If I'm not mistaken, close to about 87%, 88% of our volume is primarily from Tata Salt itself. So unles s Tata Salt grow s, the rest of the portfolio doesn't grow. Value-added salts grew 23% this quarter, but the volume growth of 5% was largely led by Tata Salt. And I would attribute it primarily to the factors that prices are now stable for almost a year now. And as prices have begun to be stable, volume growth h as started to come back into the category.
And any update on the Shuddh launch in solar salt? Sunil D’Souza: So Shuddh launch in Solar salt was very, very targeted into geographies where, A) we had a relatively lower share and where it was solar salt, which was the big category. Right now, we seem to be doing well. But again, we've got a long, long way to go.
Sure. And lastly, would you be able to share the salience of the water in the NourishCo? Sunil D’Souza: I would say water would be largely 50% or so of the total NourishCo portfolio. While it is growing faster rig ht now, I would think once we get our entire innovation act together in the Gluco Plus and the cup formats and expand the geographic footprint, you would see Gluco Plus also coming to the party on growth big time.
Moderator, since we've already reached the end of time, if there are any other questions on webcast, perhaps we can take it offline. I requ est everyone to reach out to us if there are any remaining questions. Can we just close the call now, please?
Sure, ma'am. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.