Agro Tech Foods Limited (ATFL) Q3 FY23 Earnings Concall Transcript

Agro Tech Foods Limited (NSE:ATFL) Q3 FY23 Earnings Concall dated Apr. 28, 2023.

Corporate Participants:

Ajay Thakur — Investor Relations

Sachin Gopal — Managing Director

Analysts:

Soham Samantha — Centrum Stock Broking — Analyst

Vimal Sampath — Individual Investor — Analyst

Vivek Kumar — Bestpals Research and Advisory LLP — Analyst

Devdutt Shaw — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen. Good day and welcome to the Agro Tech Foods Limited Analyst Call for the Q4 FY ’23 Financial Results, hosted by Anand Rathi Share and Stock Brokers Limited. As a reminder. All participant lines will be in the listen-only mode. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ajay Thakur from Anand Rathi Share and Stock Brokers. Thank you, and over to you sir.

Ajay Thakur — Investor Relations

Thanks, Davin. Good afternoon, everyone. On behalf of Anand Rathi Shares and Stock Brokers, I welcome you all to Q4 FY ’23 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 are going to start the call with opening remarks from the management and followed by the Q&A session. I shall request Mr. Sachin Gopal for his opening remarks. Over to you sir.

Sachin Gopal — Managing Director

Thank you, Ajay. Good afternoon, everybody. Thank you for taking out the time to be with us today. We will walk you through the results and then we’ll do Q&A between now and 3 PM. So, I’m on the second page of the presentation that we’ve already have signed uploaded on our website. So that is just a summary title page. So going to page 3, really just to repeat what is our vision, our vision is to be the best-performing, most respected foods company in India, and we’re definitely on-track to be there.

Then going to page 4, which really summarizes the quarter four and FY ’23 key performance highlights kind of all-in-one. Overall, as a headline, I would say we’ve seen steady foods growth, it’s been less than our average for very, very clear reasons, but also we’ve seen a growing margins on [Indecipherable] because as you know, the first two quarters were significantly impacted by very-high level of commodity prices, and I think we’ve kind of navigated through all of that and still maintain our growth rate, and our year ending margins are looking much better.

The quarter four foods revenues were about INR103 crores. These were only 3% higher than prior year, and that really reflects the COVID-19 hurdles, the Omicron, which was there in Jan and Feb ’22, which again saw a lot of people working from home. And that is evident in our numbers also as we see it. Jan-Feb, the base was very high and in March the people coming out of that, and we also returned to the growth so in the Ready-to-Cook business.

In the other parts of the business, it’s been more or less a strong growth too, generating a total of ’23 foods growth of about 9%. Both Foods and Staples showed moderate growth on a full-year basis in gross funding. So, we’ve delivered about a gross margin of about 97% and INR97 crores in Foods and about INR77 Crores in Staples.

We said both of these were higher than last year, and given all that happens I think during the year, I was good that we continued to have a single-minded focus on margin. It came at a cost of volume in the case of edible oils, but I would say that was the right thing to do. And now we’re in the process of making sure that we are more competitive in the marketplace.

We have exited our foods gross contribution. We shared some numbers with you in the last fall on gross contribution. Over time, we want to start reporting more of it, but many of you have said, hey, you were basically giving our gross margins, so can you please go back to that. So, we said okay, but over the next few quarters, we will try and give you a better indication of how gross contribution is going, because at the end of the day, that’s the starting point for the P&L, right, which is less raw materials, less packing material. So we’re at 46%, so more or less this indicates a full recovery from our commodity spike that we saw in the first two quarters of this year. It’s still way to go. We need to be in the 48% to 50% range as we always said, and we’d be working towards that and get to that in the appropriate time.

In terms of the ANP spending, we have Food ANP of about 5.3%, you’ll see the total, which is up by about I think INR3 crores versus barrier [Phonetic] or whereabouts, but as a percentage of the food business, the Foods ANP is about 5.3%. This is lower than the desired range of 7% to 8%, but nevertheless at an acceptable level of investment. And you know, as the margin improved, we will obviously be deploying even more funds behind advertising.

The change in importance, our employee benefits today stand at about 7% of revenues. And that really largely replaced the headcount changes of whatever was the salary increases, they were more or less largely offset by the fact that performance incentive payouts were not there because obviously our profit was impacted from the year and therefore that payout did not happen. So, it offset the salary increase for the larger part of the Company.

In terms of other expenses, we were higher than prior by INR13 crores, nearly the largest chunk of this was restoration of travel and increase in freight, these were the two largest components, but other charges as well like manufacturing, processing, packaging and so on and so forth. The restoration of travel is a big piece, with down the travel during COVID, and you know it is necessary as well, both on safety of our employees and particularly the field people, and it also helps us to shore up the bottom-line, but that part is over now. We needed to be in the market and we will restore most of the travel as we felt we could do safely without risking people’s lives as we progress and the world moves to normalcy.

And profit before-tax and profit-after-tax are INR20.4 crores and INR15.1 crores respectively, lower than prior year, largely due to the early part of the year when we saw commodity prices, which is evident in the operating results for the quarter four.

Okay, I’m going to skip Page 5, and I’ll go straight to page 6. So ready-to-cook snacks — this is the largest part of our food business, right. And you can see here a lot of ups and downs here and there, but in general volume is lower. As we told you, you know as COVID started, there is going to be an elevation in demand due to COVID bringing people and we could see that happening, But clearly, it wasn’t going to be at the same level once COVID ended. People would no longer be working from home and they would go back outside. And, I would say we held the volume retention in the Ready-to-Cook category at about 5% last year, and certainly, it could have been more. We don’t know, different companies have probably sets of numbers in the work-from-home space. But all those categories were impacted positively during COVID and negatively post COVID. So, I would say it’s probably part of the course. And but now we should start to see growth in-line with the prior year. We’ve always had a high-single digit to 10% growth in this business, and we expect to be getting that. Let’s see, we cannot tell you exactly when that will happen, but that should happen because last year by about May, June, the world had started returning to normalcy. April was still a little bit little bit still elevated in terms of work from home.

Elevated level of media in this business, we saw that we spend more money than prior year expansion of distribution and effective use of the INR15 pack along with retail demos, what we believe key to minimizing attrition, a lot of companies have tested pricing 12, 14, though I would say in general, they haven’t worked, and any intermediate price points, say, 15, 20 are important from a long-term strategic perspective as well, because you need to build or reduce dependence always on INR10. INR10 is the greatest driver of acquisition of consumers, but we need to have a good program for non INR10 also.

We’ believe that we are exiting FY ’23 in good shape to get back to the growth in FY ’24 with a normalized post COVID-19 years. Receiving of snacking gifts is underway, we have seen strong acceptance in select store. You won’t see these gets everywhere, but in the stores that we see, it has a very good offtake, and food consumers are coming in and repeat businesses are there [Indecipherable] success is still pending and that’s typical of ready to cook. Nobody is going to do ready to cook business or anything in a hurry. But we have to do a lot of work, we know what that needs to be done and that’s similar to what we did in popcorn, where a lot of energy right now has been doing to head popcorn to ensure that it is a largest part of the business, it is the most profitable part, and therefore, how do we get it back to growth. o we will put more energy and then a few more resources behind this thing forward once we see that growth coming back nicely in popcorn. And there are a lot of pizza and pasta sauces started in FY ’23.

So that was page 6, I request you to go to page seven. That’s the next category, which is ready-to-eat snacks. So, you can see a very strong growth, close to 40%. I’ve also been looking at different companies who are both internationally and hopefully, we have been sharing the results. Overall, I think a 15% to 20% growth is what I see coming off in the ready-to-eat snacks business. I think ours will [Indecipherable] popcorn has done very well.

So, in every business finally, I think it tends to reflect the competitive advantage that you have and the right to win. We clearly have done in the popcorn business. So, we have clear all-India leadership today in the category. You can go anywhere in India and you will see us in the ready to eat popcorn. So, it’s in good shape.

Sweet snacks are also starting to gain momentum. This is very important for us from a margin improvement perspective because it lowers the cost of packaging and it also lowers the cost of pace. So, you know, Caramel Bliss, Duo Cruncheez and in fact, we exhibited sweet share of RT was up to 11% in quarter four FY ’23. And if you recall, I mentioned, we were sub 5%, right, we were in the low-single digit some time ago. So, as we’ve exited, we’ve not an average for the year, we have exhibited about 11. So, we will hopefully strive to exhibit from that between 15% and 20% than next year, but actually that will be perfect, because it would lower our cost of goods, the freight and packaging material will come down and therefore improved margin, and also enable us to go deeper and deeper. We have today in effect, six plant network, and there will be some limitations to [Indecipherable] 500 kilometers, 700 kilometers we can go. So, I would say, this will be helpful from the very important exit [Phonetic] from our overall expansion perspective.

And the impact of greater scale in RT popcorn increased share of sweet and greater overhead absorption has significantly enhanced the profitability of RTE Snacks. I don’t think we are 100% there, but pretty much, we made good progress in the last two years, right by moving to a depot based model to a direct shipments from factory and getting scale and ready-to-eat popcorn and by increasing the share of sweet, and I would say, this is something that needs to worry us a lot, which is at the end of the day, this is a conveyor belt of the Company, this is what our entire distribution expansion model is based on and without getting there, the expansion will not happen, and it should not have been unprofitable for us. So gradually to take it to a position now where it is close to being profitable, is a very good thing, because long-term, it means that we can continue to drive, and we know that by way of secondary trade or anything else, it’s looking the P&L.

We will continue to drive both the scale of savory and the share of sweets going further, and that’s what we’re doing right now. And we are also going to see what learning we can leverage from RTE Popcorn and other RTE Snacks.

Clearly, we had the most success in RTE Popcorn but that is not the same success that we’ve had in say in [Indecipherable] at least one part of the [Indecipherable] is fixed, how do we apply this learning on the others so that each of these become robust business.

Okay, I request you now move to page number 8 which is spreads and dips. As you can see, we had a very, very strong volume growth of about 20% odd, and value was less because this was due to the price reduction that we did on the larger packs. And then we certainly would have gained share in the larger packs. So, I would say overall we’ve been really successful, be able to defend our turf, underpinned by India’s largest FMCG company and several DTC players. But going-forward, I expect to see this moderate. We will see how long India’s largest companies continues to invest, so we be going-forward continuing to defend our base business, there are a few more actions that we need to execute, or we have started execution on the smaller packs like which begun that, and so that we are able to successfully replicate whatever we did on the large packs and the small packs.

All right, well, enhancing future growth and profitability by the three actions that I mentioned in the slides. Why is this important? It’s important because we’ve got this volume growth, significant volume growth, I would say mostly higher than the category. We don’t buy [Indecipherable] as you know, but it came at the cost of margin. So, we need to now ensure that we fix the smaller part of the business and also improve markets. So, we see this happening through three key actions, as I said earlier, one is actually doing trials, who tend to be [Indecipherable]. Just to give you a perspective, there are many companies in India who makes peanut butter and sells peanut butter. So, there are a lot of companies who sells peanut butter, everybody is in peanut butter, you see, HUL is there, Marico has introduced peanut butter, Dabur has introduced peanut butter, you name it, they’re all there. But they will make it and would buy it from us. And there are lots of people who make peanut butter, there are large number of manufacturers in the area.

But there are very few people who make it and sell it. And we’ve also seen historically that in each of the categories in which we play, the INR10 point is very important for category conversion for consumer acquisition, irrespective of the category. I mean, that’s the objective of the purchasing power of the consumer in general. So we’ve seen that for example in [Indecipherable] chocolates with INR10 packs that gives us immediate conversion.

In breakfast cereals it is the INR10 packs. In ACTII instant popcorn, even today the INR10 is the largest, is the largest popcorn that we have. So this is important, and therefore and we believe that it’s very difficult for somebody to compete in these INR10 nano pack unless they are manufacturing and selling, right. So going-forward, we will be processing on the tax to expand distribution and that should bode well for us. If any of our competitors increase their spending on the category, we will still benefit disproportionately from it.

And we feel that it’s a very low probability of any of our competitors actually coming in into this area. Right. We have it, because we are uniquely placed. We’ve got a decent scale in spreads and certainly peanut butter, not [Indecipherable] and therefore, we had those manufacturing capabilities and we have the distribution of 22.5 million stores. So, we are doing — so this we feel will be a good intervention, we will start to see this rolled out in this quarter.

We are addressing the consumer need for spread as a source of protein. So, we are working with them so on and so forth. It’s going to be a time- consuming piece, because the whole area of protein is something that is a new area for us, but it is a very good area for us and we need to work on it, but it takes time, but we’ll get that.

And lastly, we will work on enhancing revenue per kilo by focusing on sweets. So you’ll see this pyramid on the right-hand side, where you will see what we have given is the price per kilo. So this peanut butter sells at about INR250 to INR350 per kilo. Sweet peanut butter sells at INR350 to INR500 per kilo, effective prices of the market and chocolate spread sells at more than INR500. So going-forward, we’re going to focus on sweet. So you see as putting more emphasis on sweet Peanut Butter and things like variants like Honeywell, so on and so forth, that give us a better revenue per kilo, they will also give us a better margin, and this is possible only because now we’ve got the base speeds absolutely controlled and tight. Okay, and then over a period of time, we see ourselves migrating towards spending more on profits, but it even higher in terms of revenue per kilo. So, this will remain a good profitable business for us, the right margin structure that we expect. We will also continue to the seed the sweet business, and we’ll be working on capturing new consumption occasions by addressing the needs of spreads and dips on the go.

So, we need to create new consumption occasion around spreads and dips, so one part is, obviously, yes, I buy a table spread and then I consume it on bread, I buy a bottle, I take it home, right and then I consume it, I may consume something else tomorrow for breakfast, but another really large area is of spreads only. So, to give an example, you must have seen Nutella in blue pack. If you have seen it, then you will understand. Of course, it’s very expensive, but if we are able to capture these new occasions, they will obviously increase profit consumption for us, and it will be very profitable very-very profitable consumption as well.

So, all of these actions are designed to continue to ensure that we grow volume and revenue. Going forward, of course, we expect volume and revenue to come closer, and if anything maybe at some point in time, revenue will go ahead of volume because this year, what data that you see which is the plus 22 and plus 8, really reflect the price correction that we did in the back half or towards the end of this year.

Okay and I request you now to go to page 9. So, on breakfast cereals, obviously a very strong performance there. Expansion of Center Filled Cereals and roll out of Value-Added Oats have ensured strong Category Growth. I would say we continue to see this as we exit their strong momentum here. Center Filled Cereals are really driven by distribution expansion and reduction of the Cookie & Creme variant. So, we introduced the Cookie & Creme variant. If you look at that photo in the store and that is the exactly for a reason to explain what we’re trying to do. You’ll see there isa blue pack there. So that is the Cookie & Creme pack. Cookie & Creme is relatively new to India, it is basically Oreo who has created that taste profile for Cookie & Creme. And the product is doing very well, very well means, very well. And I think it’s entirely full credit to Oreo for creating that taste profile, but I guess we are there to take advantage of it.

Kellogg had also launched a Cookie & Creme, if you would have noticed during the COVID period but they removed it. I guess, the products were not able to match the standards, but our products were hugely impacted.

We’ve also got a cheaper offering called Shells, what we call Shells, which is similar to Kellogg Chocos, but the product — I think we had some challenges with the product earlier, it was a little hard, and we have done a reworking of that Shell product, which will be rolled out now. This will improve our bottom of the pyramid offering, so we will need to have some tax to enable multilevel wholesaling to ensure that we get fairly broad scale indirect distribution. So, by the time we start advertising the Popz brand, it benefits both from the more premium products of the Center Filled Cereals, but it also benefits the bottom-end brands. The Shell product is being ruled out because of that. You see limited distribution. We don’t sell a lot of it, but as we rework it, we probably see it, although you may not see it in the more affluent areas like [Indecipherable] because it will be more a little more down market in less performed areas.

One of the things that has challenged us in Center Filled Cereals has been the huge wall that Kellogg has. So, if you walk into any store in the breakfast cereal category, you will see this huge wall of Kellogg. And you will see, maybe one packet of Popz, one refillable bag or two, they are really not making an impact because they are the category leaders, right. In contrast, if you go into the small stores, we all distribute Kellogg there. We are by far the widest distributor of center filled cereals, and we are saying that on the basis of all our market working more than anybody. There is Kellogg as sold in majority, but we are clearly the most widely distributed Center Filled Cereals

Our mathematics however with Kellogg’s showed on the basis of interviews, meeting their distributors, so on so forth, that the total revenue that they were generating from Center Filled Cereals is three times that amount, right. So that means clearly, we were losing out in the big stores, which is evident to us when we go to the market as well. So, it is not possible we have seen to really break their wall. And generally, we have noted this in most categories. Going in just by saying, oh, by the way I am here, and you know I am better value or something like that does not motivate the consumer to continue.

By and large in the FMCG business, consumers stay with the brand unless the brand gives them a reason to be dissatisfied, either in terms of quality or in terms of price. So, when we finally cracked down this is doing very well. We are building our on walls, it’s next to the Kellogg wall, but we are building our own wall, and this is what you see in the photo as an example of that. So, we take it step-by-step, because it requires investment, we have to spend money on the store. And this is something which is we’ve already started in this first quarter, and it is there in a limited number of stores across the country. We’ll be expanding this during quarter one. And then, quarter two will probably move to investing behind chocolate and then we will figure out how to manage the balance of the year.

This is giving very good results, again the hero is INR10. Our INR10 breakfast cereals are picked-up by consumers, and we think that before it’s an effective way forward, and now it would only be a function of resources. We believe that we have the answer on what to do with the Kellogg wall, and the answer is build-your-own ATSL wall in the cereals category. It benefits not only Popz, which is the largest part of it, but it also benefits other things like granola, muesli, so on and so forth. Of course, we don’t have muesli but we will have at a point in time. So, it’s, I would say work underway, but looking good and promising. Otherwise, we would not have done this revenue growth.

Continuing to deliver strong volume growth to capture operating leverage benefits across the supply-chain, our capacity is significantly more obviously than whatever we are selling and the quarter. All we need to get more volume and then all the other costs, the depreciation, manufacturing, labor cost, resource costs, all of these numbers. Okay, so looking good overall.

Chocolates, we had the question. Please go to page 10 out of 19. I know there is a growth of 59% or 69% of volume and value, but that’s really well below our expectations, and our expectation was that we would be able to more than offset the lower volume that we were going to see in RTC. And I think we certainly have faced significant supply-chain issues in FY ’23, and this is common. If you go through the Hershey CEO of North-America statements, she also mentioned that some way or the other, we have supply-chain issues. Most of the world dyes a lot of machinery from Germany, and Germany has had a huge amount of challenges over the last year. It’s not just gas, there is labor, the breakdown of some interim suppliers that had to change things. So, we are, I would say, as a consequence, we did have some delays in the receipt of our machinery. If you go back to our quarter one analyst call, you will see as we mentioned this there also. So, I would say going-forward, I think we are almost there.

We are probably 80% there in terms of whatever we needed to do from changes in recipe, manufacturing processes, all of that, although all of those are pretty much closed now. I would say, by quarter two, maybe by even by the end of quarter one, we should be in shape to — we should have overcome all of these and then start to be aggressive. We obviously are not going to be aggressive with chocolates in quarter one, Quarter one has high level of heat and also moisture in many locations. Right. So, heat and moisture are a little combination when it comes to chocolates, we need to manage the supply-chain very, very carefully. And it’s okay right up to quarter four, but then beyond that I would move into retail distributors, we need to manage it carefully.

So, but it’s all looking good now. And we told you that we be bidding on capacity, which can produce 100 crore plus of chocolates a year, and we’ll build that capacity in the current year, and we are on-track to be able to do that. Most of the answers to the problems and solution have been found.

Investment in store visibility will start in quarter two FY ’24, close to summer again for the reasons that I mentioned right now. It’s a proven levers for growth acceleration. In particularly, in the chocolate category, it is a very impulse purchase item, and clients happens very, very quickly. And we’ve had very good results in the stores that we tested in the month of January. We will now be rolling this out in quarter two.

And the results are good. If we take a look at the stores where we were able to exit a good display and have a have a reasonable presence in the store, our sale of chocolates in those stores will equal to the sale of our instant popcorn business. I mean our ready to cook popcorn business. Now, that’s a big statement, right, that’s a big statement, because if it can happen in that store, that means we have a right to win and the ability to build large business next to you. The question only is how quickly we can do it and how safety we can do it, because chocolate, we need to be careful about product stability and product quality through the supply-chain. In reality here is [Indecipherable] So we just need to be careful, but we certainly have a product which is good enough, as I said, to be equal to our ready to cook popcorn business, and that’s all in one store, that would probably be, we would have tested this in maybe a 100 stores across the country in January or maybe a little more. So in all of the stores, it’s already there. In some stores like some modern trade stores like we have in say Gurugram, even without the extra display, we’ve already gotten up to 60% of instant popcorn business. So these are big numbers, right, so we will figure out how do we scale it up to make great business. So, our assumptions of how much we can build from this business, we shared with you in November, and this assumption stand validated with the work that we’ve done in-store. Now, the only question is how to get there. And bear in mind, the revenues have come without advertising in these stores, right. All the investment has been made largely in display, so that’s a great statement because the instant popcorn business has been built-up over several years with a lot of advertising support. Of course, it’s a very different business. It needs a lot of demos and other things, but that’s the power of chocolate.

So, to close, the sales capacity, productivity and automation work is underway, capacity expansion and improvement of productivity and automation is underway, and I think it’s on track to be a significant contributor to growth in FY ’24.

I request you now to go to page 11, on the premium Staples business, we’ve talked about it. Margin successfully held in Premium Staples despite the Ukraine conflict. We had a gross margin of INR77 crores, up from INR75 crores in FY ’22. Clear Revenue risk [Indecipherable] always close to INR70 crores, plus/minus INR5 odd crores is the range that we can expect this business to develop, but it will entirely depend on timing, and we know what is the opportunity available at that point in time.

So, I doubt very much that anybody sitting in the early part of there would have felt like the edible oil margin is going to be higher than [Indecipherable], but it did. It is going to fluctuate, and I think we are in the ballpark, that’s what we told you two years ago, INR70 crores plus/minus and I think we are there.

We see a clear revenue risk in FY ’24 in premium staples, we are correcting the pricing now, so, as you correct pricing, you also lose revenue because revenue per kilo come down on each of them. So also, I think we expect to see that therefore, as a consequence of improved pricing that we’ve this earlier as improved price competitiveness to marketplace than the volume demonstrates. We are also making the portfolio more broadly, while providing procurement scale to foods. So, rollout of oats is already underway, and it’s a very steady build that is happening and I would say it’s going well for us, and we’re also working on additional staples which are used in foods, which is under development. So, in other words, we are looking and selecting staples not in a meaningless manner. We are selecting staples where they are already buying those staples, but we don’t have the procurement scale. So, if it makes sense for us to, yes we are okay, I think I will get a significant procurement benefits, as I also highlight that staple under [Indecipherable] under staple then you keep it, and it should also get from a brand perspective. And lastly, it reflects largely the exit from [Indecipherable] FY ’22, nothing more than that. The rest of the business is going well.

Okay, so I’ll skip page 12 and I’ll request you to go to page 13, so we can see that competitive spend, steady spend we had which is designed to address the expected post COVID-19 softening, because we have spent over the last three years, they are equal to or more than the spend in the prior quarter. And I think we’ve done whatever we needed to from a brand investments perspective that whatever is the result, therefore, mathematically of all the ready to cook changes are the lower consumption, it is not manmade or enhanced by any manmade actions in terms of our cutting of advertising or something.

Other than that, not a lot more to report. [Indecipherable] delays obviously up spending here and the others really are self-explanatory, right, okay.

In spreads, page 14 please. So, you can see we’ve had a steady spend behind Sundrop spreads overtime which is the reason of five to six stores we have been spending. Over time, we will as we we’ve mentioned earlier transition is towards more sweeter spread. And as far as the Kissan is concerned, we continue to spend money, so which is good, and even if they continue to spend money now as we are able to expand our nano pack distribution, that advertising will actually be a tailwind for us. So, then will be very, very good. And the probability of where we need it to introduce that we believe is very, very low so that will be game changing and we will make Q2 statements for all these.

Page 15, please. So, breakfast cereals. Here you can see, there is a significant spending behind Foods category of INR30 crores plus which is providing tailwinds for ATFL, and in fact you do a diagnosis of this chart, it’s very interesting. It shows that actually the extruded part of this portfolio which is center filled and Kellogg’s Chocos extruded cereals has actually held their share of the total cereal category at about 25% odd. The other part of the category, which is cornflakes. If you look at cornflakes, cornflakes has also been steady at about 25% of the category. What has changed, however, is the share of oats as a category of breakfast cereals has come down. [Indecipherable] you see, it is almost 50% of the category, and now it’s getting closer to the 25% margin. And the share of Muesli and granola has increased, and that’s kind of what we see overall in the businesses that is to introduce a staple, and you know you will spend advertising money behind it, and you say, okay, it’s a premium price and I’ll make it work. It will give you some revenue in the near-term, but what will happen is our other competitors come in, in oats offerings and those offerings are very good value. So, the profit pools that you have gets diluted. It gets compressed. So, clearly, the entire action is between staying and increasing, and therefore you can do the math, you are a lot smarter than we are. It’s going to be behind more value-added products, it could be cornflakes, it could be extruded cereals, and it could be granola and muesli. So maybe, we’ll drop in some pie charts in the future definitely for you see how it’s moving. That will give you an indicator of which way or which kind of the sub-categories are we investing in the right sub-categories or not.

The next chart is chocolates, and you can really see the power of this chocolate categories incredibly. You can see that the spend last year were in the region of INR1,500 crores. And if you go back to FY ’18, you can see that the spend was INR650 crores. So, in a five-year period, the spends have more than doubled. And that’s really reflective of the profit pool of the category. If you look at the gross contribution of [Indecipherable], it’s an unlisted company but will cost you only INR100 to pull it out, is in the region of 60%. We are at 46%, and same will get to probably to 48% to 59%, [Indecipherable] is INR60 crores. Now granted that they’ve been here for so many years, right. But the fact is that those are the kind of contribution that it is possible to make in the category. And these are the categories for us of the future. This is where you really need to invest our time and money, not in commodity-type of categories. Right.

And in fact, if you go to page 17, we’ll see this reinforces what we’ve always told you about edible oils. You can see, edible oil last year spend is INR207 crores. You can see that figure of 207 per million and you compare it to the same FY ’18 that you saw in chocolates in the large slide, it was INR356 crores. So, the spending — now the INR356 crores was an aberration because the prior year was less and the subsequent year was less, but conceptually, even if you aggregated it up, there is no change. So, in a five-year period, you’re are not really seeing any change in the spending whereas in chocolate has gone up by double, and that’s reflective of the profit pool of the category. So that’s why we said we want to become the best-performing, most respected food company in India, and to do that, we had to transition from being an edible oil Company to a food Company. That’s very important. And obviously, we do have to keep up the base of edible oils for as long as long as we could, which I think we have in the tip of the margins. That is why it’s so important for us as a company, we have a greater share of Foods, and within Foods we are focusing on all the right category, because If we focus on the right categories or the wrong categories, our chance of success in the long-term is always going to be poor. It’s always. But if we focus our energy and select the right categories, the right margin profile, then we will always be guaranteed short-term services.

Okay. So that’s the that’s the interesting perspective, I’m sure, you guys can analyze this data a lot better than I can. And really that’s come almost in the second-last slide of the presentation. So that’s really an update, FY ’23 update on ATFL growth strategy. You can see, we started in FY ’08, with a INR36 crores food business, that is an edible oils is the largest part of our business, and you can see, growth rates have gone up and down during this period, there were areas of 35%, 60% then followed by minus 11%, then 35% again, then 5%, then 18%, then 8%, 10%, and o%, sorry, 15%, and then 35%, 15% and now last year 9%. So, growth rates on year-over-year, growth rates will vary. There is no question in our mind that there will be some years where will outperform the 20%, some years we will be a little less. But overall, if you look at the trajectory, because we built-up the business from INR36 odd crores to about INR137 crores, and you don’t need to be a genius if you look at the graph, you know where it’s going. It’s going into a very, very good place.

So, thank you for your support over the years, but all of this and I’ll go now to page 19, therefore, summary. I think these largely navigated commodity inflation without derailing our volume directly, the growth moderate, no doubt, but there is very good reason coming out of COVID, and that’s okay. This is a lumpy trend, we are now overcoming. I think the base impact of COVID-19 on RTC volume. Even if I look at the last quarter, Jan-Feb was nearly flat [Phonetic] because Jan-Feb last year was up almost 20% over prior year, and that was up on a very, very big base. So, as people are coming in, as schools have reopened now, I think school reopening took place around July last year and therefore, it kind of started to end between April and August or September depending on the nature of the Company, so probably to quarter one by quarter one, quarter two, I think we should start to see the return to growth, and that will get us to back up to that 15%, 20% growth rate that we’ve always had or what is our cumulative ended growth rate. It was 19%, maybe it is down to 18% this year because last year it was the same. Margins are stable despite the impact of the Ukraine war, significant cost in terms of volume, together with lower exit NPAs below revenue risk, it but we are looking under [Indecipherable] foods gross contribution recovered to the pre-COVID. A diverse food portfolio clearly helping to ensure a steady sustained growth and profitable growth. Clearly, we didn’t have a diverse portfolio, we had only a ready to cook business today that would have gone down by 5%, so that’s the benefit of time of a diversity. In many ways it helps, so that’s it.

So, I thank you very much. And you know. We are open to questions now. So, go ahead.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]. The first question is from the line of Soham Samantha from Centrum Stock Broking. Please go ahead.

Soham Samantha — Centrum Stock Broking — Analyst

Hi, Sachin, good afternoon. This is Shirish. So just two questions. When you look at the slide, where you have given the ATSL growth trajectory in terms of food. Now we have INR437 crores. The growth is very volatile and there are many reasons and we do understand, capacity addition has taken that slower pace, but now you have a larger capacity, which is in your hand, how do you see next three to five years growth in terms of food.

And the second question is that though we have seen the volatility into the revenue also has the volatility into the margin. So, in a steady-state now, food is stabilized, so what kind of margin expectation we should be building in next three to five.

Sachin Gopal — Managing Director

Okay, thank you. So, both of the questions really are sort of forward looking. And as you know, we not going to be able to give any forward-looking projection. But I can provide context for that. So hopefully that to do with. So, if you look at it, the growth rates we have, I would say rarely been limited by capacity, okay. Our capacity is not really — I don’t think that’s been an issue, and even during COVID in the first of COVID, where everybody scrambled and we scrambled too, and hopefully we scrambled well. I don’t think we lost much sale in that period, because you know, we were able to scale up. We’ve always had adequate capacity I would say at any point in time. Last year was probably the one thing that I called out in the chocolate business, where we were on the back-foot right, trying to balanced supply and demand, and to produce the right quality products, but overall capacity, I think we’ve always been planning adequately for. The variations in growth over this 15-year period, and you can see it’s always there, at it goes up-and-down. There would be many factors. For example, in one year in the past, we had a large vending business, if you recall in our popcorn business, that is about INR25 crores to INR30 crores. And you know that kind of went out, right, because our largest customer decided to procure from outside, and that’s always the issue when we introduce the business, if you guys did not build that business later in a conscious manner, is that there should be a risk any institutional business had impact on our revenue.

Similarly, in one of the earlier years, I think when you see zero growth, you will see, we had actually put lot of focus on distribution and stock pressure inventory, and then that stock pressure resulted in inventory and that inventory resulted in lower stock build in the prior year resulting in zero growth. And the same is explained also with the high-growth months right. So if you see the high-growth months right, we may be there will be growth in the past, distribution very aggressively or stop growing very aggressively. Two years ago, a lot of the high-growth was driven by COVID, right now we are managing a slightly lower-growth due to the fact that the base is more fluid. So, I would say it’s not really capacity, it is just the macro factors, but whatever other factors specific to either the category as customers or things that we may have done along with it in terms of maybe because harder than it, because food is very different from personal care. Personal care, you have very long shelf-life and there is no real issue on-shelf life, right. So, even you can do it, but if you push too much, then you know, you can pay the price for the following year. Right. And so, you have to do this very carefully, you want to supply to demand, and that kind of more or less what we largely done during the last 20 years, okay.

As far as volatility in the margins is concerned, actually at a gross level, by and large in the food business it has been in the 46% 47% range I would say. The only difference is that it depends on operating leverage. So, in the period where, let’s say, coming out of seasonality, we have lower-volume, then automatically the gross margins that you deliver will be lower. So. To put it in the context, I would say, historically, and let’s take before COVID as an example, we will always have been on the total food business where gross margin of about 26% to 27%, okay and right now, it is lower than that. Lastly, obviously there was a quarter one impact, and as we are coming out of it, since RTC has not grown, and the other part of the business has grown that has diluted take part, but as RTC comes back and that starts to grow and overall volume growth plus RTC part growth, I would say we should be getting back to that 26% to 27% very, very fast, okay.

Going forward, I would say on margin Group, it is going to come to operating level 100%, it is going to come, I become there will be some improvement in this impact and that will be driven by pricing and maybe more procurements in scale and procurement efficiencies due to scale at an even lower wastages in the plant in building materials. There are lot of it will come through, most of it has to come through operating leverage, and the operating leverage is there across the supply-chain, it is there in manufacturing, it will be there in transportation, all the transportation and even in terms of distributor, right, because we do invest behind distributors to support the expansion of distribution as we get more scale that comes up, so I would say that that’s pretty much it. Okay, thank you. Thanks for your questions.

Operator

Thank you. [Operator Instructions] The next question is from the line of Vimal Sampath, an Individual Investor. Please go ahead.

Vimal Sampath — Individual Investor — Analyst

Yeah, good afternoon.

Sachin Gopal — Managing Director

Good afternoon, Mr. Vimal. I am right here.

Operator

Mr. Sampath, your line has been unmuted, you may proceed with your question.

Vimal Sampath — Individual Investor — Analyst

Hello, can you hear me now, yeah.

Sachin Gopal — Managing Director

We can hear you.

Vimal Sampath — Individual Investor — Analyst

So, about three, four quarters ago there was lot of talk about new products like soups, cocoa, and now what we are seeing and even the hummus and things like that, we have scaled down. I mean, is there a change in strategy. I mean what is, I’m not able to understand. I mean, are we going to focus on those products because soup is a very good category. I just wanted to understand. Is there a change of strategy.

Sachin Gopal — Managing Director

Okay, thank you Mr. Vimal. What else, is there anything else?

Vimal Sampath — Individual Investor — Analyst

Second question is capex is mostly on chocolate. We have about INR26 crores now work in progress, WIP. So is it only on chocolates or other products also are included. And third question is, I mean, we are spending on in-store advertisement. Same way, if we have an Institutional division, our products like our peanut butter and all can be placed in five-star hotels, the breakfast spreads, what they have. If we sacrifice margin there and we put it there, it’s a kind of advertisement. That is that in-store, you are having demos. This will be a kind of in-store demo, we may not spend on advertising. This will be our advertisement in one-way. Have you looked at that. These are the three questions.

Sachin Gopal — Managing Director

Thank you, Mr. Sampath. Yeah, so on the first point, which is no, nothing has changed as far as our new product development is concerned, and whether it’s cocoa products or soups as you correctly said. In fact, I had dropped some of the spend chart on the other categories because I think we are still tracking them and we remove them internally. But for the sake of brevity, for this group, since they are not in those categories right now, we didn’t see [Technical Issues] All right. So, there is no change in strategy. It’s just that we need to balance in each of our categories that we’re competing in. The rate of introduction of new products, right. So, right now, in the ready-to-cook popcorn business, our single ready-to-cook segment of the business, our single greatest focus has been getting the RTC business back to growth. In fact, we have even compromised and we have made some changes, let’s say, the people who are doing demos of pasta, we ask them to get back to popcorn so because that is the core of the business, we need that to be growing at that 8% to 10% for our algorithm of 20 odd percentage, not less than that. So that is why, we see it, and I think as we return to growth on ready-to-cook popcorn, we will see more focus behind that. Right. Meanwhile, the development work of all of these of plant needs that we talked about, all the development work is underway. Many products are actually completed, but right now being held in abeyance, I’m sorry, sorry for the pronunciation. We need to ensure that we don’t overload the entire selling system, given the fact that this part of the business is 50% or thereabouts but Foods business is we need to get it back to growth, okay. So, no change in that, but yes, timing, we have to moderate our timing to be successful, okay.

Your point on capex is 100% correct, as there is very little capex investment per se that we’re doing in Machinery outside of chocolates. Obviously, there are some, but the bulk of it is chocolate and that is designed in to build-up that capacity with the INR100 odd crores of chocolate revenues.

And lastly, yes, [Indecipherable] that is not a — there is no right or wrong in this business. It’s just, as you know, with the energy that we have and the field organization and the organization that we deployed would be SG&A that we try to run in. We have to be selective about where we need to focus. So, we, for example, don’t really — we had a vending business and we introduced the popcorn as I mentioned earlier to Shirish’s question. But when we did, we said okay, it’s better for us to spend our money on retail., The number, if you look at our wage cost, all right, we are running at about 7% of sales, that’s the number. If you look at that INR62 odd crores we running at about 7% of sales. Now that is not very high for foods business, for the company for any food business. Of course, you can argue that we have 50% or little less than that of our businesses in Staples, and Staples business are commodity-type businesses even in Foods, with more waste cost, but either way the wage cost is not high, it’s comparable to many companies, privately-owned and there a lot of unlisted companies, we can share that details with you if you want bring out, you can just pick them up for INR100 or so. So, within that, we have to make places, and we introduced the business, yes, it does provide trend, yes, it can provide visibility, for example, you could say that way now, let me get listed in IRCTC so on and so forth. There are people who do that, but our core is building a nice, strong, resilient retail business, that’s the core. That’s what we have to, and that’s what great brands are built around.

So, our focus will be there. If you let these, we’ll certainly take them. But we are not going to be investing too much of resources behind it. It will have to be very, very, because we understand that finally in these businesses, we are accessible. It’s like the foodservice business has really grown this year. But the fact that we obviously have to because the person who owns the customer can decide whether he wants to give your ketchup or your mayonnaise or your mustard sauce, I can break logic, or peanut butter or whatever, so we can chat more about, but thank you, Mr. Sampath. Good questions.

Okay, Ajay, I think we’ve got time for one more question now.

Operator

Thank you. The next question is from the line of Vivek Kumar from Bestpals Research and Advisory LLP. Please go ahead.

Vivek Kumar — Bestpals Research and Advisory LLP — Analyst

Hi Sachin. I think you mentioned briefly about these categories, but like ready-to-cook popcorn is already INR200 crores, because we have been the largest, so that category is growing differently in the overall growth. So, when do you think we will be able to build chocolates and spread as another greater than INR100 crore categories or whatever the company’s plan, and when do you think on this each category one pulling down, one going up, these kind of things are, like we have at least one, two three pillars instead of one big pillar of ready-to-cook popcorn. So, if not these two, then maybe some other categories which we may repeat. So that was my question.

Sachin Gopal — Managing Director

Okay, thank you, Vivek. That’s a very important question. See, I think, the next two categories which will reach INR100 crores are ready-to-eat snacks and spreads. Both of these are, I will say, our expectation would be that they should either nearly touch or cross the INR100 crore mark in FY ’24. And on that basis, whatever are the growth rate that we have today and the size of the businesses last year. Chocolate is an incredible opportunity, and you know it will certainly overtake all these other businesses, meaning, if we manage it right, it’s possible that chocolate could be our largest category, I would say in about five to seven years, which is possible. As I shared the data with you, already in so many stores and the stores where the they are in display, we feel we [Indecipherable] them, right. So that means the potential of the categories is there, and it is not a talking about category potential in a broad macro term, it seems that these products that our company is selling are proven to generate a revenue equal to instant popcorn or ready-to-cook popcorn both microwave and instant popcorn in these stores. That’s a data point. So now the question is, what will be the glide path to that. We also have a reasonable idea of what our gross contribution on the products, because we are making them now, we know that is our revenue, what is our raw-material etc., so we need to figure out the business model. How are we going to actually get there. But I’ve said maybe three years ago, I said this is going to be the category of the future and it will be. So, I would say to the first question of INR100 crores, well, the two INR100 crore categories in the near-term, we can expect now, we’ll be spread — will be ready to eat snack and spread, and over the medium-to-long term, the bigger player will be chocolates. And that’s why we are making those investments there. Okay.

Vivek Kumar — Bestpals Research and Advisory LLP — Analyst

Thank you, sir, thank you.

Operator

Thank you. The next question is from the line of Devdutt Shaw, an Individual Investor. Please go ahead.

Devdutt Shaw — Individual Investor — Analyst

Hi, thanks for taking my question. I was just wondering, when we are trying a new product and testing the waters when it is in the traction phase of the strategy, how well it has been received by consumers. At what point do we decide to, cannot say that — let us talk putting in any approach or resources into this new product. This is probably not working. Can you give any color on that.

Sachin Gopal — Managing Director

Okay. Anything else is there?

Devdutt Shaw — Individual Investor — Analyst

Yeah, one more. This is, I’m just wondering with regards to RTC, RTE and chocolates, already big enough market in terms of its potential, why would we not too focused on [Indecipherable] as an extension of that question is, does it really work competing the spreads and the cereals category.

Sachin Gopal — Managing Director

Okay. All right. So, I think the first question is very sort of big one, because when do you develop and when did they work. And the answer is, I don’t think we do. We believe that nothing is really impossible unless there’s enough data to clearly substantiate that it is impossible, and the whole part of building a business from scratch, as we’ve done on this food business that as you see, with about INR35 odd crores, is that if we got challenges, we face through the years. So, I can remember the time when the ready-to-eat popcorn business was five tons only. We were selling 50 tons a year. Today we sell it in thousands of tons, okay, so and there was no way out. So, you are confronted with this business and has challenges everyday. If you said, I will give up, we will probably give up on 95% on the time, because nothing happens. Every time we go out, you face the problem, you solve it, then again a new one will come up, and that’s the part of ongoing business development. Especially the building a business from scratch. If you inherit a legacy business, somebody else is doing the business, you came in you said, okay, now, can I grow by 10% whatever, that’s a different story, but if you want to build businesses from scratch, it requires a tremendous amount of tenacity. So, one of the reasons that I’ll give you, I’ll share with you a thought which will prove this point and you can double-check it later. If you see more food companies, big food companies in the U.S. don’t realize so much on organic growth as we are around acquisitions. And the reason for that is that the task of in the food business you have machinery and you have the recipe. Now the machinery can work with the recipe, the recipe may not work with that type of machinery, then you need to modify the recipe. Then you need to go back, then you need to see what is going to make it efficiently, right. This process is an ongoing process, so for large corporation it is very difficult to manage this, because an entrepreneur is everything right. He or she is doing manufacturing, R&D, selling, everything else. So, the end result therefore is entrepreneurs typically build businesses in North America and then they sell them to larger companies. The larger companies have the balance sheet to be able to make that acquisition. But this trial and error and ongoing brain that is required that they don’t have because they’re bifurcated by functional side. So, we rarely give up, even if we give up today, we need to revisit that same thing five or seven years later.

So, nothing has actually ever given up per se. We will initiate, we will test, then it may go into a little backburner. For example, chocolate spreads are good examples. We initiated, we got some shares, we got some mileage, but now we need to renew the recipe, we need to modify the fats that are there, now there be some other things that we are going to starting with the soup. This processes are ongoing, okay. It’s all problem solving at the end of the day. So, you have to. Management finally has to initiate the problem solving, otherwise you never have a chocolate building businesses from scratch, that’s not possible. And on RDC, each category will, you know, have it grown benefit and these five categories we’ve chosen because we believe this will be fast-growing five food categories in the future, or going forward, and honestly, they not only improve results on their own, but the learnings across categories are incredible. They are just incredible. One of the reasons we are able to get set in that pursuit without spending a dollar in advertising is because we have an RTD snacks business. So, we already have backed snacks, if you will, supply-chain is set-up nicely and then we have a competitive advantage versus anybody.

Then we have two more other products that will be rolled out this year which really demonstrates this cross colonization of technological advantage that comes from happening in multiple categories. It is an incredible benefit. So being in a single category is not a great way to build growth for many reasons. It’s not great for your distributor because he doesn’t get the revenue from the person covering, it’s not good for you as a company, because you don’t get the scale, and you don’t get this network effect that you get in completed periphery. So, we have not chosen categories. Which we believe we don’t have a future, or let’s say, we’re doing a play notes business, right. You know, about 75% of the market is play notes, more than 75%, 80% of the total market must be play notes. And we have always we have said this is not a foods business, it is a staples business, it will never have any long-term decent margin, it cannot have, it’s a single commodity. So, you put it under staples, so why we’re doing it, and do you think of choice where we believe we can have a profitable business like we show the chocolates, advertising spend has doubled in FY ’18 and ’23. And as advertising on edible oils as has gone by half. Now, you may choose some other year as a base or whatever, but the story is explained, right. You have to choose great categories, and the categories that we compete in are all categories with high GC, very high GC. For a company like even Kellogg, I don’t think we’ll be operating at less than 55%, 60% gross contribution. They haven’t done their last two filings, so I don’t have the figures, but so these are the best playing grounds for all of us, so that we can take share and we can we can get volume growth and it can be profitable for us. Okay, all right.

[Speech Overlap] Sorry, that it. I don’t mind, I can hear, but I won’t be able to answer your question. So why we keep it for next tenure. Okay, all right. No hard feelings. So, love you, okay.

Okay, okay. Thank you. Ajay, thank you for the call. Take care, and you guys have a great day, and a good quarter.

Operator

[Operator Closing Remarks]