Agro Tech Foods Limited (ATFL) Q2 F23 Earnings Concall Transcript

Agro Tech Foods Limited (NSE:ATFL) Q2 FY23 Earnings Concall dated Oct. 20, 2022

Corporate Participants:

Sachin Gopal — Managing Director

Analysts:

Ajay Thakur — Analyst

Dhruvesh Sanghvi — Prospero Tree — Analyst

Shirish Pardeshi — Centrum Broking — Analyst

Chirag Maroo — Keynote Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q2 FY23 Earnings Conference Call of Agro Tech Foods hosted by Anand Rathi Share & Stock Brokers. As a reminder, all participant lines will be in listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Ajay Thakur from Anand Rathi Share & Stock Brokers. Thank you, and over to you, sir.

Ajay Thakur — Analyst

Thanks, Stephen. Good afternoon, everyone. On behalf of Anand Rathi, I welcome you all to the Q2 FY23 Results Conference Call of Agro Tech Foods Limited. From the management side, we have Mr. Sachin Gopal, Managing Director; and Mr. KPN Srinivas, CFO of the Company. We shall start with opening remarks from the management and followed by the Q&A session.

Now I will request Mr. Sachin Gopal for his opening remarks. Over to you, sir.

Sachin Gopal — Managing Director

Thank you. Thank you, Ajay. Thank you, Stephen. So good afternoon, everybody. Thank you for taking the time out to join us in today’s conference call. We can walk you through the highlights of the results and then we can take the Q&A as Ajay said.

So I’d request you just to go through the presentation. This is already uploaded on our website and go to page three of the presentation, right. So company mission and vision to be the best-performing the most respected foods company in India, right.

Page four, key performance highlights for quarter two. Foods revenues grew by 124 crores. So this represents a growth of about 13% versus the prior year. But it’s really the first time it was well clocked close to about an annualized sales rate of 500 crores, right. So that’s a very, very good milestone as we see it.

When we started this business, we had a foods business of 10 crores to 15 crores. And over the last 15 years with CAGR of 19% to 20%. It’s a nice feeling to be able to get to close to about 500 crores annualized running rate on a quarterly basis.

And it’s time therefore also we will share with you now that we’ve got close to the 500 crore mark is what will be the building blocks for us in the next few years, so that we can get to perform 500 crores to 1000 crores, but that is something that will take up in the Analyst Meet in the month of November.

Our non RTC businesses really drove the total foods with a 33% revenue growth. This includes ready-to-eat snacks, it includes spreads, it includes chocolates and breakfast cereals, right. And it’s a fairly complex needs to be able to get this kind of a growth on our diverse portfolio, but because it’s large number of commodities, lots of packaging materials, multiple plans, but it came out well and the ready-to-cook business as we will see later.

That was actually continued to be lower than prior year which certainly there is a impact of COVID-19 as far as business concerned, but we always like to be little careful, so we’ll see what else we can do to be able to bring that into a positive volume space soon. Our foods gross margin really improved from the quarter one low.

As we told you when we entered quarter one, there were a lot of headwinds, but they were all receding. It was as I use the words I think a tidal wave and we saw the wave receding and you can see the impact of that, right, in quarter two we are not yet back to where we need to be. We still have a long way to go, but it’s a significant increase and we will continue to work on improving the margin further.

And really this is a result of softening of commodity prices, some amount of it is already in the P&L in quarter two. Some of what it is still to come in quarter three, right. Impact of whatever pricing actions we have taken and volume growth in the non RTC business.

The edible oil’s GM of about 16 crores. I think it’s about 15.6 crore was within the broad desire range of 70 crores plus minus, right. We will continue to balance volume with gross margins in a volatile business, but it’s not that we are going to for sake — gross margin for the sake of volume. We’re not going to do that, right.

We will balance both of them and margin will remain a important consideration for us given the role of the portfolio in our business, right. The quarter two media was marginally below prior year. We also needed to be able to manage the P&L appropriately. So this needs some correction going forward and we’ll see how to do it.

We’ve always said that we want to be in a 7% to 8% A&P spend. Obviously, there are many periods of time that we haven’t been there because of the pressure on coming from the oils portfolio, but as that receives in the share, the materiality of the oils business in our business comes out that we’ll have a little greater wiggle room, if you will, to be able to make the right level of [Indecipherable].

As a consequence, our gross margin increased, but our quarter two SG&A was higher than prior year by about 3 crores. There is some amount here due to employee benefit costs. If you would have seen in the advertisement, but also the largest elements are really travel and secondary freight, right. Travel because there’s a lot more travel now.

We are almost back to the pre-COVID levels, but not exactly, right. So we are I think currently our travel is clocking at about probably about 2.5 crores a quarter. Pre-COVID it was a little more in the 2.6, 2.7, right. So it’s coming back and this is an investment that we need to make, right, because this is an investment that we need to be able to drive our business to make sure that we continue to get the growth rates that we want, but we see this as like a — in a sense of correction.

In the first year of COVID our travel cost came down, right, by about $1 million. Now in this year, they are going up, that correction will happen and then meanwhile obviously our gross margin will continue to grow. And secondary freight largely because a lot of the growth in this year have come because of ready-to-eat snacks, which are more, which are more create intensive as compared to other categories.

Again somewhat of this is all balancing, over time it will correct because as ready-to-cook starts to grow, ready-to-eat is currently benefiting from the opening of the economy. Those benefits will not sustain on an ongoing basis, right. So there’s a lot of movement up and down and the travel and the secondary freight are only one part of that, right, which will hopefully settle down during the year.

And therefore the profit before tax and the profit after tax of 4 crores and 3 crores respectively. So, let’s go to page five, really the size categories that we — foods categories that we focus on are ready-to-cook, ready-to-eat western snacks, we don’t include Indian snacks in this. Spreads, breakfast cereals and chocolate confectionery.

In total that represents a total addressable market of about $8 billion, right. And so from our standpoint that’s large enough for us to get the growth that we want to at least in the near-term, right, and we continue to focus on these five categories.

Let’s go to page six, ready-to-cook snacks. So the impact of the price increases that you’ve taken in popcorn and sweetcorn, particularly is very high, visible in the value versus volume. Value is moving into positive space. There is some impact in this mix also because you know pasta, noodles, these are also very, very good in terms of revenue per tonne.

So the non RTC popcorn businesses led right now the growth has been led by pasta, which shows steady progression. However, there is a volume gap versus prior year due to COVID-19 in the base and this is more than we would have liked to see, right, it’s minus 4%. So, these are something that we need to address and this we are working on as management because there could be an impact of COVID.

I mean suddenly there is an impact of COVID, but we don’t want to be complacent about it. So we’ll be putting more feet both energy and other things in the back half of the year on this, right. This is a big part of the business and if this is goes nicely all pieces fall into place, right. So because it helps margin, top-line growth, all of those.

We had mentioned some time ago that we’ll be introducing a pizza and pasta sauce, so the commercial production of this is underway that is happening as we speak, and it’s looking good and development of plant meat continues. The work is underway on texture for the rights sensorial experience, right.

So we are working on this. We have all the necessary tools in the machinery. I think it’s just a question of, if you will, the time it should be taken for the development. There’s a lot of action in this place. There are lot of players, but we feel we have a strong competitive advantage because almost all the players who have introduced are not getting consumer demand, right.

The category is still small. Even in the US it’s kind of plateaued, but it’s a very important category because going forward the role of protein is only going to be increase. We’re seeing that in peanut butter that will happen in plant meats also.

The only thing is the winner in this category or in the sub-category, if you will, and depending on how it’s marketed is going to be the people who have the capability to create categories, right.

A company which doesn’t have the capability to create categories cannot win in this. And in our reading actually we are the only ones who have the capability to create categories, right. We have the ability to create categories, we’ve done it with ready-to-cook popcorn, we’ve done it with peanut butter, so we have that capability particularly from a consumer contact perspective.

So we’ll just get it right during the course of the year and we’ll keep you posted. So whether we are able to complete the development in the current year and launch it in the current year or what is the status that we’ll update you as the year goes by.

All right. Then the next category which is page seven is ready-to-eat snacks, strong growth continues. Obviously this is benefitting. This is a mirror image of RTC. This is benefiting plus there is a lot of strengthening in the RTE popcorn business.

So what is the consumer trend on this, it’s difficult to call, but there is a very positive strong momentum on ready-to-eat popcorn, but there is a very positive strong momentum in Ready to Eat popcorn and we’re obviously the biggest beneficiaries of it since we are amongst the largest players.

There is a clear improvement in margin, driven by price increases, grammage reduction and packaging footprint changes, all of this happened last year with all the pressure that we had, and it’s benefiting us today. So overall, the margin on the categories improving. And Sweet Snacks are starting to gain momentum. So you know Sweet Snacks, as you — as we probably mentioned to you, but if we haven’t, I’ll just clarify, where actually there is Savory Snacks have no sugar, so Sweet Snacks will have no sugar. We will also have less packaging material per ton of [Indecipherable] and we will have less freight per kilo or per ton as compared to savory clients, right. So right now we have Caramel Bliss Popcorn, which is a relatively small part of the portfolio. We’ve launched Duo Cruncheez, which is an excluded pan product, which is doing very well wherever we put it. And this is — which is currently being supplied from one plant, but very soon — starting this month, we’ll start getting supplied from two plants, one in Kothur and one Unnao, and then subsequently also in more plants as we are progressing. Work is underway also in Value Added RTE including Protein. We’ve talked about this earlier, right. And going forward, we will drive increasing share of Sweet & Value Added Snacks to drive margin Improvement for sustainable growth. So as you — we told you several times, Savory Snacks or Ready to Eat Snacks is a very important portfolio because that’s the conveyor belt for the company. That’s what enables us to open more stores to get up to the kind of coverage that we have today of about 450,000 odd stores, but we needed to be profitable. It shouldn’t be that we are losing money and therefore hesitating to grow. That should not be. And this incorporation of the sweet part within the RET snack portfolio is a very important, I would say, strategic move for us because it will enable improvement in profitability as well and then we never be hesitant to say, oh, we need to ship this product 300 or 400 kilometers. It will shift because the freight is not going to be a pillar for us. That’s very important for us, right. Okay.

Then next page, which is page eight, Spreads & Dips. You can see return to very strong growth. We have a volume growth of 30%, and we’ve certainly taking back share. So as we mentioned to you about a year ago we thought we were losing share. We think whatever we had lost, we got it back and maybe a little more. And right now we are absolutely rocking. That is evident in the numbers. In fact, we are very close to capacity now our ad capacity. So some capacity increase work is underway. And that will show up in the next couple of months.

Our strategy to protect our share has really paid off the big time competition has been really posed to replace the stock and trade. They spend a lot of money, right. There are lot of competitors there, there is HUL and multiple levels but you know — and they spend money, right. HUL, for example, has spent close to INR80 crores on this, right, which is probably more than what we spent on our plan to cumulative advertising or at least equal to it, right. And but, they’re having to replace stock in trade because the stock is dated, it’s not moving. And so impact of ATFL strategy is very visible in terms of freshness of stock. So that is something which is excellent and, you can go into the trade and have a look at it yourself, check with the PKD dates of ours and competitors and you will know the answer to the question.

We’ve also introduced a new high protein variant PeAq. This was introduced now in quarter two and the rollout is underway, right. This is an important sub-brand for us, because over time it will become our protein. It will become the lead as far as the protein place concerned. Today it’s a lead as far as peanut butter is concerned, tomorrow a good lead for protein bars, et cetera, et cetera, right. And, so this is being introduced now. And we will be rolling this out with the necessary modifications also in our [Indecipherable] architecture so that include having salespeople calling on gyms, getting the right endorsement from the people, who are going to the gyms, getting the trial done there et cetera. It’s a — it will be a long game this whole protein piece but. It will ensure that we are in rock-solid position on this part of the business.

And we’ve also launched the Choco Peanut Spread, which is launched in quarter two to complete the nut based chocolate spreads range. So in the net based chocolate we have hazelnut chocolate, almond — hazelnut based chocolate, almonds based chocolate and peanut chocolate, right. So this completes the nut based chocolate range. That is also progressing well. And I would say it will be in line as we — as — and is one of the sort of many saplings that we are planting as we go along, which at some point in time, will get to the INR20 crore, INR30 crore mark and then we’ll be ready for advertising support in the years to come. And we’re also told you that we’ll be launching Salsa. So commercial production of Salsa is underway now and you will see that also in the market soon in the next month or so depending on the growth.

All right. Coming to the next category, which is Breakfast Cereals, which is Page 9. We had steady growth, driven by distribution that — we are now — our category — the category is nudging 100,000 mark in terms of distribution. As per our records, we are at about 95,000 stores and that’s a good place. It took a little bit of a backseat during COVID, because our market working, was not at the level that we would have liked to be. That is natural. It was visible in our travel expenses as well and we were trying to safeguard the entire organization. But post the opening of COVID, now driving very fast and we’ve — I think, we would be amongst the — now lead players in terms of total Breakfast Cereals distribution, right. So as you know, we don’t buy audit, but our management assessment is that the number one player in Breakfast Cereals will be Kellogg. We think that distribution will be somewhere in the range of 400 to closely 3,000 stores right. And if anybody has data at any point in time, please to share that with us that could be useful for.

We think the next most widely distributed breakfast cereal will be Marico Saffola, probably in the region of about a quarter of one million stores. That’s our judgment. This is our team visit. And then we feel the other companies, which is Quaker — Quaker Oats, which is a large player, but mostly only in big packs. So that will be a deterrent in terms of getting numeric distribution. Tata Soulfull — Tata Soulfull would have been less for with Tata has there ruled out a lot but I think also they’re stitching a lot of challenges in terms of the OPEC offtake some of the stores. So let’s, see how they are able to sustain their whatever distribution. We think that will also be in about one lakh stores mark, maybe it’s more and maybe they’ll give some information on the call and then we can look at it and discounted for whatever is the incremental stock inventory, and ours are about. So we think one and two are Kellogg and Marico Saffola and [Indecipherable] and three, four and five is somewhere going to be between us Tata Soulfull and Quaker and, we’ll see what the outcome of that is.

The other piece which is important to notice. We are at a very strong position in Cereal Snacks, right. Likely, we have the highest distribution of central filled cereals. And what our market booking tells us is that we are — we have no doubt the most widely distributed center filled cereal snacks, right. So in other words it’s — Kellogg will have a wider distribution than us, but in center filled snacks, we think we have a wider distribution than them. We feel that they have a bigger turnover than us, right. We think that center filled cereals is about 3% of the turnover of about 1,300 crores. So that’s about give or take INR35 crores, INR40 crores. But a lot of that throughput become, in their case, some large stores, whereas in the small packs, once they complete, we have a distinct competitive advantage, right. So this is important because a lot of the future of cereals snacks is going lie in center filled cereals. Center filled cereals is a clearly different consumer experience, right. And it also caters to a slightly older age group. So if you do — if you Krave and do Kellogg’s UK, you will find that we’ve actually said that young people 18 — 16 to 24 are more credit Kellogg equivalent of the center filled in the UK and the US with our primary users. And that because they’ll say, I don’t want to buy [Indecipherable], I want something else. Or have you become older, you consume more cereal as a snack. So this is a great position for us to be in and it’s something that we will leverage, right. So this will be our key growth driver.

The introduction — we’ve introduced a Hazelnut Center Filled Popz. It’s been very, very well accepted, so that’s doing well. And one more variant is scheduled for quarter three. I’m not — we’re not telling you what it is right now, but you will see it and then — then we’ll tell you about it. We’ve also started commercial production of value-added oats, masala oats. We told you that the regular oats, the plain oats will put under staples because we don’t think they have 30% gross margin potential at best it will 15% to 20%. So it fits in well with Premium Staples. And we work on this, obviously, masala oats is a small part of the business, right. So for the people who have the masala oats and regular oats, our estimate is that masala oats is 25% of the business, right. This is again our estimate from whatever we get from our field and whatever information we get say from CSD, Canteen Stores Department. But we think it’s, a reasonable estimate, right. So we remain, as far as this part of the presentation is concerned, we are focused on that 25%, which is the masala oats and we’ll see what other value-add will do in the future.

So game plan really underway for development — under development for a bigger and stronger position in the Breakfast Cereal. So if you go into any retail store and you look at Kellogg, it’s like a wall. You look at breakfast view. It’s a wall. It’s a Kellogg wall, right. Now, there may be other players on a regional basis. For example, if you go North India, you’ll see a little more Bagrry’s, if you go in, maybe Bombay and Bangalore, you might see a little more Yoga Bar et cetera, et cetera, but the wall is Kellogg. It’s a Kellogg wall. There is nobody else really who comes close to them. So our task is how to break wall, right. And that is something that we’re working on and that is why we said, there’s a lot of work from our side. We’ll we — how do we — how do we execute our shelf presence in the category. So this is work underway. It will take us time, but that’s the key and with that we’ll break — we’ll have a much bigger presence in breakfast cereals in the category.

And also finding and addressing unmet consumer needs, we still feel there are unmet consumer needs in extruded breakfast cereals which is where our strength is and we are working on those, and — but at this point, we can’t share those details with you, but we’ll — you’ll see it, when we see — when you see it in the market.

Okay. In terms of chocolates, continuing strong growth in the business driven by distribution. Once again this is nudging the 100,000 mark with about 95,000 stores category distribution, right. You can see there is an increase in price realization, which is visible in value versus volume growth, right.

Consequent improvement in margin as well. First phase of capacity enhancement has been completed. So we have said, we’ll put up a second-line and which we’ve done. Henceforth we will not talk so much about lines because we’ll be delivering more confidential information. So going forward, we’ll share this information with you on a — on consolidated basis, but what we do want to tell you is that work is currently underway for about 100 crores plus capacity for FY’24, right.

This won’t happen by March. It’s also not required because April, May, June is summer months and the business thus — does come down. But it will happen, it will happen by the time the new season and the next monsoon etc comes in, right.

So we’ll be looking at completing this and this we will complete in one short, right. Meaning, one shot meaning phase between now and June of next year and that will — then you see, there’s obviously in any category which you’re building like this there will be a lot of ups and downs, output will change depending on how much size of you’re producing on a day, what is the kind of packaging work that you’re doing etc, etc.

But broadly, this is what we are looking at a 100 plus [crore] capacity. This is in line with that thinking that in the next three to five years, a very large part of our growth is going to come from chocolates. Chocolates and ready-to-cook we believe will be the two major increments that will come, helping us to take from about 500 crores to 1,000 crores, right.

So I would say, we had one advanced question from one of our investors. So this answers I think that question as well, right. All right. So coming now to Staples. Premium Staples which is basically premium oils and includes some amount of oats. Right now, they’re very small. It certainly reflect softness because we’ve had — we have significantly higher consumer [prices] related to prior year.

Actually there are lot of commentary from more than one company saying that, they are marking down inventory and therefore they will take the loss on that to be able to protect volume. We are not going to do that. We will as — if they — whatever is their pricing, we will move in [later], but our focus will be on protecting margin, okay, because that is the role of the category for us, to give us margin, right, on a sustainable basis.

Execution of strategy is also underway to make premium staples more broad-based, while providing procurement scale to foods. So rollout of oats has started and additional staples items are under development and I would say the rollout of oats that will also happen in due course in the coming quarters and we will talk to you about it and each one we will explain to you what is the role as far as procurement is concerned, right.

And Mass Staples largely reflects the exit from Crystal. October will be our last month where we have Crystal in our base. After that, that will disappear and therefore the comparisons versus prior year will become a better [Indecipherable] comparison. But right now, that’s the way it is.

All right. So that’s the key points on the categories. I’ve got a few questions. So I’ll just [pull] and try and answer those that came in the mail. One of them was where you know in one of the con calls, you had mentioned we have achieved 10% dispatches through full truckloads.

I’m not sure when this was done, but it would be available I guess. So for the ready-to-eat snacks that we today ship about 90% of our — 90% of our ready-to-eat snacks are shipped through full truckloads, right.

So only 10% of ready-to-eat snacks go through the depots, right because that’s where there’s a lot of incremental cost in terms of loading, unloading additional freight more warehouse space, etc, etc.

We think this is a good number. Most commodity players will have almost 100%, right. But you know other companies which are in the branded space like the Frito-Lay or ITC will have mostly through deposit, but we have this happy balance I think between the best of what the commodity players are doing and what the best of branded guys are doing.

So that answers that question. And only — one question that we had from an investor was, look, if your — will your cyclicity improve, in the sense, summer months? We will give you the answer to that as time goes by. I don’t want to give a straight answer, right.

I can’t give you the — for example ready-to-cook popcorn is lower in summer, people tend to eat fewer snacks, right. Similarly chocolates has environment, heat increases in summer months, so it’s more difficult. Volumes always come down in the summer months, so the chocolate people mostly their peak season starts around Rakhi and then goes through till February.

So you’re talking about September, October, November, December, about six months and you will see, if you annualize the advertising spends by month which is there in our presentation, you will know what the peak months are, okay.

So let’s see how our portfolio develops. Ready-to-eat probably doesn’t have that much cyclicity. All right and we also had a question on palm oil, so has gone up in the last few days. Look there’s a lot of volatility in the market, right and it all depends on what is happening in Ukraine, etc, etc, but overall I would say from our edible oil’s perspective we have — and it’s visible. We’ve seen a softness in the palm oil prices and in some of the other oils as well.

And I would say, we are — like we were in the last quarter, we told you, we are positive as far as this — our expectation on what will happen in quarter three and quarter four. All right, so coming then to page 13 in the comparative update, basically you can see here that Frito-Lay on snacks on cherry snacks really dominated the spending, right, and the other highlight was DFM Foods which is I think, I guess in the process of being delisted now has actually increased their spend significantly.

So then that will be — that is the other big change, other than that we don’t really see too much change versus prior year. The next slide is number 14, which is spreads. Here I think the key is Kissan has continued to spend. So if you look at row number two which is Kissan PB, which is Kissan Peanut Butter, take the FY’21 spend that’s INR20 crores, FY’22 that’s INR50 crores, INR70 crores, INR80 crores. The spend close to INR90 crore so far right and you can make a judgment on how good or bad that is you go into the market and see how the product is doing. We continue to spend inline with that.

The other person who has spent a lot of money this quarter is Viva. They tend to do this. They did this in FY’21 also putting front page ads in Times of India in Bombay, Delhi etc, etc. They come and spend a lot of money but then you can see they did in FY’21, then FY’22, they didn’t spend any money so let us see what happens now. And on the other — in the honey you can see there is — I would say, reduced level of comparative intensity right you can see that for example Saffola. I mean not really, so was not really investing any money this year. Even Patanjali is kind of — spend money in one quarter but not in the next.

And Dabur is — looks fairly consistent, just like us, and in chocolates spread, you can see Hershey starting to spend money and Nutella has actually started advertising chocolate spreads for the first time, which is great for us and we will be hopefully able to leverage all the spending in terms of expanding our distribution, particularly for our entry-level packs which will come in this quarter.

So yeah and our spends are broadly in line with prior year. Then breakfast cereals really here the dominant spend there is Kellogg, which is — which has been the case from the time. We have to give them full credit for building this category and Nestle has actually discontinued support. So you can see here, Nestle Koko Krunch. Last time the spent was FY’21, so you still see the product but it’s — I will read this as not an exit but not the formulating support and Saffola has continued to spend as well as Quaker, right.

Tata Soulfull has spent some amount of money in last year INR13 crores, INR9 crores in quarter one but after that we see a little subdued, let’s see how this part goes and we’ll have to watch them as we as we go by. And Parle have spend some money. Parle tends to do this. They come and spend money and then you know they’ll go away for a while then come back again.

All right. And chocolates really [Indecipherable] Mondelez but all others also spending money and as I told you, if you read the months you can see that actually quarter two is a big quarter for them, so if you look at this from a seasonality perspective, you can see in quarter one, the total chocolate category spending was 226 crores, in quarter two it has jumped to 563 crores so that’s a huge amount, right, okay.

And quarter two and quarter three really are the big quarters for the category. Edible oils, your — basically it’s the mass oil share of spending, if you look at the premium share which is Sundrop Heart and Saffola, it’s just — it’s becoming smaller and smaller by the day right. As a percentage of the total, so it’s really the mass oil players now who have the dominant share of oil. So from a premium oil’s category perspective that is not the view but that is to be expected.

I think we always told you that that’s going to be the case and as you know, we’ve not spent any money and our focus will remain on protecting our margin in a sustainable basis. In terms of noodles, Nestle really dominating the spending with a lot of pricing, other players seeking to leverage the price gap. So the price gap is becoming large now and the scales moved up to the INR14 price, and there’s a lot more action there in terms of companies like ITC[Phonetics], WAI WAI Noodles, so on and so forth. All are seeking to leverage this.

Pasta, which is Page 19, not much activity. So almost nobody is spending. I guess everybody’s energy is going behind the noodles category.

And Page 20 is soups, where Knorr really remains a dominant spender. Excellent products that they have in the portfolio, and really at this stage leaving no room for anybody else. So we’ll have to see how the [Phonetics] as we go along.

So overall, I would say, yeah, 2:30 PM, so 30 minutes, at about INR124 crores of Foods Net Sales, this quarter is really the closest that we ever come to annualized revenues of about INR500 crores. So that’s good. Margins have really improved from quarter one low. This still need to go up, right? We need to work on this and work is underway to drive further improvement to operating leverage. Many of the categories are very small for us right now, right? Chocolates, breakfast cereals. So as we get scale in these, this will improve portfolio management, right? How do we manage the portfolio across categories and within each categories to manage pricing, so on and so forth. [Indecipherable] and last is pricing as appropriate by category.

I think the potato foods revenue provides credibility and confidence. We’ve said that we will be the most — best-performing, most respected foods company in India, and the fact that we’ve built up a business of about INR500 crores means that it is not huge, it is not INR2,000 crores today, it will be. But it shows that we are capable of getting to our ambition of one day being a billion-dollar business in India.

And the great news is that the building blocks are very clear, right? So for example, the building blocks for the next INR500 crores is very visible to us. We have multiple levers of growth based on innovation across several categories. And the great news is, none of it is third-party sourced, it’s all in-house, right? So we are able to transfer capabilities from one category to the next. We are only going to get better as far as operating leverage is concerned because in many cases, our capacity utilization is low.

So these building blocks are very, very clear for us. And that’s a great proposition for us as we think and say “Okay. How will our INR1,000 crore business look like in the near-term and subsequently even bigger”.

So, with that, I think we close the presentation. I’d just like to make a few points because, yes we can see the revenue growth and the revenue decline figure if you look at it and, that’s largely driven by [Indecipherable] which is in the base. In quarter three, we will have one month of [Indecipherable], after that it will disappear, right? Right, Srini.

And employee benefit is a little higher but on a year-to-date, this is still flat versus prior year. Depreciation not much changed. And advertising and sales promotion expenses, a little lower. We don’t like this to be higher, ideally with a food growth of close to 15% — we just have 15% growth in A&P. That way at least we are holding our A&P percentage. But it’s been a challenging quarter. Quarter one was very-very challenging. Quarter two also. Obviously, the trajectory is great but then you know, you have to live the — July the way it was, in September the way it was, right?

And — therefore the profit before-tax of INR4 crores. Now there is one other element here which is under other comprehensive income. You’ll see the [Indecipherable] that there is a charge of INR3.5 crores and then also a charge of about INR90-odd lakhs on account of tax, on account of that. Basically, we just restructured the entire pay scale of — pay structure of the company, right? And — so — in the new pay structure, we are now 100% compliant with whatever we anticipate could be the possible changes in the labor code at least as far as whatever we have seen from the graph labor court or whatever information has been given to the public. So that part is taken into account.

However, as a consequence of that, there is a one-time charge in other comprehensive income. Because gratuity as you know is a payout which is based on years of service. And on the salary at the time when the person leaves the company, right? This is not today, it’s sometime in the future, right? So on the basis of the actuarial valuation, we have — and in consultation with our auditors, we have recorded a charge in other comprehensive income of about INR3.5 crores.

Srini, have I summed it up correctly? Alright and other than that let me see, there’s not a lot more. Obviously, the travel and secondary freight expenses that I talked about, you will see in the — it will be visible to you in the other expenses. So that’s why, right? So going forward, we continue to seek aggressive increases in margin and we will hopefully navigate through the year well.

So, Ajay, I think that’s it from my side and we are open to questions till 3:00 o’clock.

Questions and Answers:

 

Ajay Thakur — Analyst

Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions] Ladies and gentlemen, we will wait for a moment while the question queue assembles.

The first question is from the line of Dhruvesh Sanghvi from Prospero Tree. Please go ahead.

Dhruvesh Sanghvi — Prospero Tree — Analyst

Yeah. Hi. Am I audible, sir?

Sachin Gopal — Managing Director

Yeah, Dhruv. Yes.

Dhruvesh Sanghvi — Prospero Tree — Analyst

Yeah. So, I have three questions, slightly qualitative ones. So today, as I see the company journey, we have many products, more plants, more reach, more SKUs, and of course, more competition. And basically, things are getting very complex for us to evaluate who are not as savvy as business manager.

And, when I ask myself that, okay, why am I invested in this company? The one big reason is certainly you. The way you explain, the way strategize your thinking, very long-term, having very big vision. And considering this the only problem of evaluation comes when you know the promoters are completely different, and the bet for us in our mind is you.

If you can talk a bit more on your thoughts, your incentives in the company, of course, on the qualitative side, how you think and where do you find some satisfaction, and your relationship with the promoters and how they think yours. So, that is number one. That will give us a little bit more comfort as the company structure becomes more complex. Because understanding market share gains a quarter, year-end is very difficult for us. That is one.

Second is, considering the oil staple business, can we say that — I mean when I see INR230 crores revenue, INR125 crores from foods. So remaining is that oil staples business. Can we say that this broadly INR400 crore yearly revenue is what do you think can be maintained considering the — all the edible oil-related noise. So many new people entering and getting commoditized. But can we hold that INR400 crore, INR500 crore revenue base and get INR40 crore, INR50 crore cash-flow out of that business. Is that broader understanding correct? I’m not talking about quarterly, I’m talking about a couple of years. So that — it gives us fuel for marketing and building up the food business much faster.

And the last is, can we say that the chocolate business in the next two to three years, I’m only talking two to three years, can probably give us INR200 crore revenue? Again this is forward-looking but just a guesswork on your side that how aggressive is this number in terms of assumption or no? INR100 crore — more than INR100 crores is very difficult over the three-year period? Thank you.

Sachin Gopal — Managing Director

Okay. Thank you, sir. Thank you, Dhruv. So, moving to your first question, yes, it’s complex. And you wanted to know my thoughts? See, I am a slave, right? We’re are all slaves at the end of the day, right? We’re not slaves as in — slaves– you remember the — maybe this is a 20 years of slave work, [Indecipherable], right. But at the end of the day, we are paid to create shareholder value, right, for the promoter and for all independent shareholders. And that is why our approach to the business is extremely transparent, right? You can see that. Today, actually, you don’t really need to possibly ask a lot of questions in the call also. It’s good you are asking the questions and we appreciate it, right, because we need dialog. We also learn from these calls, right, and we get feedback also, and which we have to take positively, right?

But there’s a lot of information which is available. You virtually have the entire P&L of the company visible to you. You have every element of it by the time we post at Investor Highlights page. So, I would say, the focus of the management team, which is all of us in the company and even all the management in the company, is at the end of the day to create a great company. right? People are not — we think that people are motivated by money and greed, that is not really the answer, right? People are motivated to do something great, to do something great with their lives, right? And not everybody is like that, but over time you create a team which is all motivated towards building something, right? So that is what we have and that is how we’ve gone from INR10 crores to INR15 crores of foods to INR500 crores. That is how we will go from INR500 crores to INR1,000 crores. That is how we will go from INR1,000 crores to INR2,000, right? And this is — not just me, but just the entire team is thinking right now, what are we going to do? Because to think about INR1,000 crores, what are we going to do at INR1,000 crores? You need to start thinking today, you see, you see, because a lot of saplings has to be planted right now. We may very small, but by the time we get to INR1000 crores, when we won’t be — we should not be looking for new growth opportunities, right? Otherwise, we’ll be forced to make acquisitions.

And acquisitions, as we know, are not necessarily the — cumulatively the — if you look at the cumulative record, acquisitions are not only the best return as far as the shareholder is concerned, right, especially for a growing country like India. And we’re talking large sums of money. So for example, if you take a look, Tata Consumer just incorporated that SmartFoodz business of theirs which is coming out of Sri City, right? Total assets incorporated were INR395 crores. If you go into MCA filings for last year, the turnover of the company was INR11 crores, right, or sold [Indecipherable] sold, right, for I think INR38 crore business sold for INR150 crores.

So — and these are probably the right choices for those companies. I’m sure, because they are all smart people running the company, but we don’t want to be at that stage when we are that size, right? We want to be able to — we want to be able to leverage the work that we do today, so those saplings of today are all INR20 crores, INR30 crores at that point in time, and with in-house production so that all of those can be leveraged. Because otherwise, we will reach that point and then we’re still [Technical Issues] going to come from. And then we might — we don’t want to do silly things like overspend on advertising and other things.

So our vision has to be long. Our vision has to be very long and there is a huge potential for growth, right? Let’s face it, there aren’t too many companies today at the top of the pyramid. And honestly, we must be one of the very few INR500-crore companies which has the portfolio that we have. But these are not built for today, these are built for 5, 10, 15 years point. Okay?

The other part is oils. I think look, revenue is very difficult to follow on with. One of the reasons we’ve exited [Indecipherable] is that there is a revenue split, right? I’ll give example. When we sold Rath to Cargill many years ago, and today the price at which Rath has been sold is 3 times, right? So — but it could come down tomorrow also, right? So that’s the same thing with edible oils, right? So revenue is very difficult.

From our perspective what we focus is, can we get a steady gross margin? So we called out in our presentation, INR70 crores-plus. It could be INR65 crores to INR78 [Phonetics] crores, all it depends, right? So, we need the right gross margin and we need to ensure that it’s sustainable. It’s not that it will come one year and it will not come the next. That is why we took the price reduction two years ago. When we took the advantage of lower travel cost, we put it behind oils pricing, right? Because, we said we wanted to be sustainable [Indecipherable], obviously, right. But it will always — the focus will be on margin growth[Phonetics], not so much revenue, right? Because the revenue exposure we want to get out of, right?

And the last is chocolate. Yes, I think it’s going to be a big business. You know, it’s visible if we’re thinking of setting up a capacity of about INR100 crores plus next year. We are certainly thinking of INR240 crores and INR300 crores business coming in the next two years, right? Exactly how much, who is going to tell? I can’t tell you that answer. But what we do know is INR15,000 crores food business — sorry, category. What we do know actually is that we have a great product. You don’t need to know it from me, go into the market and see where our stores are selling, and ask the retailer, how is Agro Tech’s Sundrop Duo. They will tell you, it’s very much the rockstar here, correct?

So, these are times to figure out the business model for that, but there is enough scope in this category because it is — so let me give you an example. Historically, you would not have seen many window line[Phonetics] has been taken by us, right? But because window line is the — are the sales reputation[Phonetics] at the window line, and sometimes close to the checkout of that.

So because the revenue from — if you put a window line in popcorn, the revenue will not pay for the cost to the window line, but in a category like chocolate it does, right? You spend INR5,000 in the end, you can get INR30,000, INR35,000, INR40,000 revenue. So, yes, these are great categories. They are very impulse-based. They play to distribution strengths. We have a great sales organization which is the backbone of the company, along with manufacturing. And we are in, therefore — yes, the answer is, it’s going to be a nice business, and that’s why we are investing in it. Okay? Thank you, Dhruv for the question overall. Thank you.

Dhruvesh Sanghvi — Prospero Tree — Analyst

Thank you.

Sachin Gopal — Managing Director

Next question, Ajay?

Ajay Thakur — Analyst

Thank you. The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.

Shirish Pardeshi — Centrum Broking — Analyst

Yeah. Hi. Good afternoon, sir. And thanks for the opportunity. My healthiest congratulations for doing the good efforts to deliver a very strong growth.

Three questions. You have not mentioned anything about the international, and this is what for quite some time we were talking. So maybe if you can give some clarity? Second question is that on the investment of INR100 crore what we have spoken about chocolates. How are you going to fund? And the third question is on the entry into the high protein variant peak. The question here is that, how big is this market? What are the growth rates? And maybe some quantitative backup if you can share with us.

Sachin Gopal — Managing Director

Okay. Thank you, Shirish. Thank you [Indecipherable], thank you for all the questions. So, Shirish, on the first part on the international, see international for us is basically Sri Lanka, Bangladesh, right? Sri Lanka is, you know, you would know as much as I do. I haven’t been to Colombo for while. Where it is dealing with its own share of problems. I am sure the country will come back. So right now, there’s not much transaction happening on Sri Lanka, right?

We have an entity there and we continue to retain it. We’ll watch the circumstances, right? So it’s — and as it recovers, which one day it will, all countries do. They go through their own turmoil, and we will be there. The [Indecipherable] to be there at the point. Obviously, there is some good acquisition opportunities. We will evaluate it, but as of this point in time, it is just a hands-off, okay?

In terms of Bangladesh. Bangladesh also having challenges but the business is doing fine. And Bangladesh — look, our focus is clearly India, right? Because India is — you know, India is going to be where the bigger size of price is. But one should always be in these markets so that we know what is going on, right? We have — we see plants. We have a plant in Bangladesh. It is also a sourcing play for us, right? We just — even today, we sourced some popcorn from Bangladesh, right? We import, we pack, and we bring into the country and it is, therefore — it is also, therefore, a supply chain alternative for us, and that’s important — that’s important for us from a strategic perspective, right.

So Bangladesh has a strategic role, both in terms of supply-chain perspective and in terms of being a large market with good potential, right? Sri Lanka has been important in terms of being a good neighbor and therefore, a part of it. However, it is a much smaller market and going through turmoil. So at this point in time, we are not — we are not really engaging too much energy or even investment in the market. As and when things turn, we’ll change it.

I apologize on the — maybe I was not clear on the chocolate slide. So I just wanted to clarify that when we have said INR100-plus crore capacity, it means needs capacity for INR100 crore of revenues, okay? So that was why Dhruv asked the question about INR250 crores. We are looking at building a capacity, next year only we can generate about INR100-plus crores of revenue, okay? And yes, the answer to that is, how — that capacity, how is it being funded? That is being funded through our cash flows. I mean it is funded right now through all internal accruals. As you know, our entire gross[Phonetics] over the last 15 years has been funded entirely through internal accruals, right? We’ve done — we’ve got a [Indecipherable] of whatever, INR314 — INR344 crores, correct? Srini, how much?

Correct, right? There above. And all that is due to the money that we earned from the company. We took some risks, we took some gambles as far as the oil business is concerned. But you know, today, we have built up a nice food business, right, which is clocking at close to INR30[Phonetics] crores of gross margin a quarter so. I hope that clarifies that part of the question.

In terms of the high-protein variant. I don’t have a lot of data for you. But you know, because the trouble[Phonetics] is, even the data that you get let’s say from private equity right, is very inflated. Because they don’t mark down the discounts and et cetera. So the gross merchandise value that are often quoted are not at all comparable with gross merchant — the net sales of our company, because they might have a 30% or 40% trade discount. So — which is good from a valuation perspective but doesn’t provide a good picture as far as for us to confirm.

What I can tell you is that protein is very very important. It is important in peanut butter, it is going to be important in — because of plant meat. It will be important in bars. So if you do a Google search, you’ll see Mondelez just bought Cliff Bar, right? Cliff is the — one of the major players in the US, right, in this area in protein bars. And Mondelez I think paid close to a $1 billion for it, right? So, I’m sure they’re going to introduce Cliff in India as well, right? So their Cliff will be our competitor to peak, okay? And we both kind of are in the sort of similar space. And since it will be important. How big it is? I’m afraid I don’t have the data. But we’ll try and get that for you at some point, okay? Thank you.

Shirish Pardeshi — Centrum Broking — Analyst

Thank you, Sachin.

Ajay Thakur — Analyst

Thank you. The next question is from the line of Chirag from Keynote Capital. Please go ahead.

Chirag Maroo — Keynote Capital — Analyst

Yeah. Hi. Thank you for the opportunity. First of all congratulations, Sachin, sir that we have reached the target of INR500 Crores in food businesses. I have four questions at this moment, first is related to gross margins. We see that on Y-o-Y basis that we have improved our gross margin from 72% — from — from [Indecipherable] of 72% to 68%. But if I see on a quarterly basis, we are still in the range of 68%, even if our food businesses as a percent of total sales have moved from 44% or 54% and it has started giving a higher contribution, plus our [Indecipherable] business has reduced drastically. Still I’m not able to understand that why are our gross margins not able to improve? My first question is that. It would be very helpful if you can give — give us financial highlights of how the gross margin is panning out in both the verticals like food and oil. It would be really helpful to understand and take the numbers in better way.

My second question is related to the distribution chain. I see that we have reached the mark of one lakh in multiple verticals of our food business itself. I just wanted to understand that what kind of difficulties are we facing to increase our distribution reach, like reaching from one lakh to two lakh if that is our goal, that we have to pan-out within and entire India, so it could be very helpful to understand that how are we panning out and what are the difficulties are we facing to increase it on an year-on year basis?

My third question is like, I just wanted to understand the latest competition per se. It’s great to see that we are firing all the cylinders in food business and agribusiness is going well. But just trying to understand that on ground, we are also starting to see more of competition we get, may be organized, may be organized market, so what is our competitive edge within our food category which is helping us to stand-out in our competition?

And my last question related to understanding like how ad spends will move, like as we are increasing our product portfolio and we are focusing more on multiple verticals, maybe [Indecipherable], may be chocolate and it would require some promotional activities, right, so as a percentage of gross profit which we actually look at, it has been really stagnant, like 8% of gross profit we spend it on ads and promotion, so should we expect that going forward, it is going to increase as we are panning out into new product lines? Thank you.

Sachin Gopal — Managing Director

Okay. Thank you. So, Chirag, I guess that will be the — that will be the last question for the day, right. Alright. All very good questions. Thank you for asking them. So, I — we don’t look at it the way you do in terms of — obviously you’re taking it from the add in terms of net sales, less cost of goods, but let me try and give you — tell you from the way we look at it, okay, in terms of gross margin. See our food gross margin used to be in the range of about 26% to 27%, something like that, right, before COVID, right, and then as COVID — when COVID happened and know we had a disproportionate increase in our Ready-to-Cook business, right, you can go back to those numbers [Indecipherable]. It actually crossed well ahead of 30%, it went into the 32% 33% range.

And then of course you know, COVID — now and then there was a huge commodity on swap rate and you can do the math in our investor highlights, you can see, if you divide the gross margin that we mentioned in the — in the bottom of the financial highlights, where we call it performance highlights, you divide that 28.7% by 1.24%, you you get to a margin of about 23%. In quarter one, I think it had dropped down to under 20%, right, because this whole commodity onslaught was there, and we had to navigate through it so that, the important thing is that we are building this business quarter-on-quarter, so that we navigate it through and we have to convince our Parent Company also about it, and we navigated through so that we exit, we are well and then we continue — our journey continues, at CAGR of 19% continues. Obviously in one year it can be a little more, in another it can little more, less, but it must continue. So, I think right now what has happened is, from the 25% to 26% – 27%, we came down to sub-20% in-quarter-one, we have already recovered to 23% and as I said earlier, you can do the math, you’re all smart. If you look at the trajectory in, quarter one was an average of 20% and quarter two was an average of 23%, clearly the graph is upward, right.

So it — our first task is therefore to just get back to that 26% — 27% and then work out with operating leverage, the right mix, Ready to Cook will also start growing, how do we get to that 30% gate where we’ve always called out as our — as our minimum expectation. Okay. Less than that, we don’t believe you can have a business, because you know it’s not going to be a profitable double-digit EBITDA business. Alright.

In terms of distribution chain difficulties. There are tons of difficulties, okay. I mean every day is a difficulty, right, and it’s only going to become more challenging, but that’s great, because you know what, it’s a more — that is only going to become more valuable. Today, there are as you said, a lot of competitors, because there’s so much private-equity money which has come in, right, but most of them are in the Internet space. The moment they start coming in, that private-equity money has to fund distribution expansion, particularly in the traditional trade, that’s where there is a block. Right.

Now, the good news and the bad news, is that the only thing that you need, is you need to be willing to slog. Okay. You get distribution in India, that’s slogging. You get to work at 9 in the morning, you work, you make your calls, 35%, 40%, 45% calls. Report back to the distributor clients, make sure that deliveries happen the next day if it’s an order booking and you slog and you slog and you slog. And you keep doing that. Right. One year doesn’t make a difference. You do it, five years, 10 years, 15 years, that’s the moat that Hindustan Lever has, right. Now, it’s a different issue that because of their size they are not able to handle something like [Indecipherable], but that’s the moat that they’ve created, right, and that’s the moat that we have today. Right.

How do you get distribution? You get it by slogging. I can remember a time, I was in Chennai two weeks ago, and I can remember a time in Chennai where used to go and we used to an order for one line. One line means one SKU from that retail store. We used to [Technical Issues] least number of lines orders that I’ve got in any store in Chennai, in a small store was 11 lines. There were small stores ordering 11 lines on us. Stores ordering 16 lines, right. Okay. Stores ordering 50 lines, right, that is the power of the portfolio. You see, the critical thing for distribution is, you have to think about the distributor. One of the reasons why we have this portfolio today is of course these categories are attractive and they’re all growing, but the other reason is, for our distributor, he is now targeting five categories and huge geography. When we were just selling instant popcorn, maybe target in one category or one part of one category, so his ability to get revenue or her ability to get revenue from a small area is much better when we are competing in number of categories, right. So, the answer is only slogging. We want to keep doing it. We’ve obviously invested resources as well.

But right now we are not adding more people, because our expectation is, within our 4.5 lakh stores that we’ve got coverage, we still have a long runway for growth. Breakfast cereals you can take-up to ICC levels, right, to popcorn levels, that’s 2,80,000 stores. So, I think the point will come in the next few years, our expectations, the case our salesmen [Indecipherable], our expectation is that chocolates will cross popcorn, right. Because you know how high the price was [Indecipherable] the category size is so large. So this is — you need to be willing to work hard and you have to have the portfolio, right. If you don’t have both of these, then nothing you can do. So if you want to — say you know what, Sachin, work really hard and you drive distribution, but if you don’t have the portfolio, you don’t do it.

And I was talking to somebody, we’ll set-up a chocolates plant in Kashipur and he said sir, [foreign speech] Because that fixed cost of the sales organization is used and that is where it comes to the third point that you raised, which is competition. Competition is there and they are obviously — it is — it is useful. The current play of the Internet and giving some additional margin to the modern trade is useful, but it will only — it takes you only up to a point. To actually win in India with one billion people, you need widespread distribution, right. The rest will come, you will create some business, you will sell it out to somebody else, etc, etc, that is very hard. Okay. So this distribution mode that we’ve now built of 0.5 million stores is great and I think if we had to build that distribution more today, it would be very very expensive. It would be extremely expensive and, frankly, I think almost impossible to do, because I don’t know many other companies who even are showing signs that they will be able to do it, okay. So that’s one.

And obviously the other part is differentiated products, right. So, either you have differentiated products through which you can gain share, so for example, we have — our [Indecipherable] is a very differentiated product. I’m — now you can say, oh well that is, Sachin, I think [Indecipherable] is a better product and maybe that — that could be a valid post review, but the fact is that Bounty is not relevant in India, right. We are available in close to one lakh stores, Bounty is available, I don’t know in how many stores, maybe 5,000, 10,000 stores and very expensive. Similarly, our Peanut [Indecipherable] is a great product, it’s great value, right, and for the consumer. I was in Chennai the other day and as I said, I asked — it was a small self held store and I think it was the 20th of the month and so, we are [Technical Issues] we’ll go and find out in the last 20 days what is our sale and what is Snickers sales.

Because Snickers as you know spent a, lot of money in the category. The Snickers sales was 31 pieces in that net store, us was 36, without spending a single dollar on advertising, right? So that’s the power of great products, great packaging and a great sales force. But we have a great sales force, okay. So [Indecipherable] the products are not so differentiated, than you necessarily have to be present, than you have to bring value, right. And that’s why it is important, I had a perimeter maybe I’ll touch on this in the November Analyst Meet, right, which. I hope will be in person. We need the full portfolio. We need the value products at the bottom which sell for INR250/kilo to INR300/kilo and then you need the product as the top which is INR700/kilo, INR800/kilo, INR1000/ kilo. But you can’t do without either of them. You need all of them. But if you have all of them you will have controls of your packaging. okay.

And last is Ad spend 100%. I would say our Ad spends today are less than desirable but there is the reasonable for it right. We are at this cusp where we are reducing the dependence on the edible oil business right and we are transforming, its visibility to you, if you — it’s certainly more visibility to you than it is to me. Because for you can see it from a distance like you know when you see a child who’s doing up three year or two for us we are knee-deep in it but it’s transforming right. Oils are becoming a smaller share of the business and this is part of the pain of that, but that’s okay, every transformation has it’s pain. nothing comes for free. But, it’s a as — I think we all believe it’s a great food business that we have today. Annualized run-rate of INR500 crores, five categories we don’t need to, think where the growth is going to come, from this [Indecipherable] 1:11:44.1. right, at this point.

The only [Indecipherable] 1:11:47.2, what will be the cost of that growth, that’s all right. That’s a nice position to be in right, so it’s like we don’t really notice mix produced strats plans that we used to be with volatile world, but I don’t think it can get better than that alright.

So thank you Chirag for the question and Ajay, I guess, thank you very much and Steven over to you. We’ll close the call, I apologize to those who have unanswered questions and we’ll look-forward to to the next call.

Ajay Thakur — Analyst

Sure. Sir, any closing comments before we disconnect. No-no no thank you all for taking your valuable time, we really appreciate it. Cheers. Thank you. Thank you. Ladies and gentlemen on behalf of Anand Rathi Share and Stock Brokers that concludes this conference. We thank you all for joining us and you may now disconnect your lines.