Britannia Industries Limited (BRITANNIA) Q1 FY23 Earnings Concall Transcript

Britannia Industries Limited (NSE: BRITANNIA) Q1 FY23 Earnings Concall dated Aug. 04, 2022

Corporate participants:

Mayank Mundra — Executive Assistant to Managing Director

Varun Berry — Managing Director

Amit Doshi — Chief Marketing Officer

N. Venkataraman — Executive Director and Chief Financial Officer

Vipin Kataria — Chief Sales Officer

Analyst:

Abneesh Roy — Edelweiss — Analyst

Avi Mehta — Macquarie — Analyst

Percy Panthaki — India Infoline — Analyst

Shirish Pardeshi — Centrum Broking — Analyst

Varun Singh — IDBI Capital — Analyst

Latika Chopra — JPMorgan Chase — Analyst

Chinmay Gandre — Reliance Nippon — Analyst

Alok Shah — Ambit Capitala — Analyst

Hasmukh — Star Union Dai-ichi Life Insurance — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Britannia Industries Limited Q1 FY ’23 Earnings Conference Call. [Operator Instructions]

I now hand the conference over to Mr. Mayank Mundra from Britannia Industries. Thank you, and over to you, sir.

Mayank Mundra — Executive Assistant to Managing Director

Thanks, Nirav. Hello, everyone. This is Mayank from the Investor Relations team. I welcome you all to the Britannia earnings call to discuss the financial results of Q1 ’22-’23. Joining us today on this earnings call is our Managing Director, Mr. Varun Berry; Executive Director and CFO, Mr. N. Venkataraman; Chief Sales Officer, Mr. Vipin Kataria; Chief Marketing Officer, Mr. Amit Doshi; Chief Procurement Officer, Mr. Manoj Balgi; and Chief Development and Quality Officer, Mr. Sudhir Nema. The analyst deck is uploaded on our website.

Before I pass it on to Mr. Varun Berry, I would like to draw your attention to the safe harbor statement in the presentation. Over to Mr. Varun Berry with remarks on the performance.

Varun Berry — Managing Director

Good evening, everyone. Welcome to the Britannia analyst call. So, I would jump into the deep end. If you were to go to page three, this is the story of the last six quarters, and it doesn’t paint a great picture from an inflation standpoint. So if you see, Q1 has been, from a consumer food price inflation, which is published at about 8%. The U.S. dollar has strengthened versus Indian rupee. But getting to the bakery industry, I think this is one industry which has faced the brunt of inflation during this quarter, because we have been the single largest inflation for us. So if you notice, we’ve had inflation if you compare it or index it to Q3 of 2021, we’ve had an 80% inflation on wheat. And similarly, on palm oil, there has been a 90% inflation. The only difference is that on wheat, the difference between Q4 of ’21-’22 and Q1 of ’22-’23, it’s gone from a 50% inflation to 80% inflation, while palm oil has gone from 80% to 90% inflation. So wheat is really the largest part of the inflation that we are seeing.

And the only good news is that towards the end of the quarter, it’s come down to a lower level than what we saw during the quarter. So this points towards the fact that maybe as we move forward, things could ease up a bit. Similar numbers on the next page. If you were to look at same six quarters, if you look at how the inflation has moved from Q4 ’21-’22 to Q1 of ’22-’23, you’ll again see that there are certain ingredients, certain raw materials, which are particular to the bakery industry. So, wheat flour has gone up considerably.

Similarly, [Technical Issues] material and industrial fuel have gone up considerably. So, the key commodities are up, and that’s what we’ve seen. But hopefully things will come under control as we go through the balance of the year. So, the numbers are there on top of the slide. Basically wheat flour is 20% quarter-on-quarter, industrial fuel is 15% quarter-on-quarter, and palm oil is 5% quarter-on-quarter, which in effective terms is about INR180 crores of inflation in this quarter alone. How we manage this? Clearly, our weapons continue to be the same.

There is no alternative to price increases, and we continue to take price increases. Second is, obviously, a cost optimization program. We’ve taken necessary price increases, which are really not covering inflation at this point in time. But a good part of this will be covered by Q2 of this year. Cost efficiency programs, as you are aware, we used to do about 2% of revenues. This year, we’re looking at doing approximately 3% of revenues, which will accrue to our P&L this year. Moving on to the next slide, which is slide number six. We have delivered consistent top line growth and that continues. We have delivered market share gains for almost 36 quarters now.

And that also continues despite the fact that as market leaders, we’ve taken the pricing before everyone else, which proves that we have the capability of charging a premium on all of our competitors. So, our revenue on a 12-month basis has grown by 9%. Operating profits are down 11% because of what I just explained to you, and market share continues to move forward in a positive way. Moving to the next slide. There is a slide that you’ve seen every quarter and every time on our earnings call. So, the five plants that we have are driving profitable growth, distribution and marketing, heightened innovation, developing and nurturing the adjacency business, enhancing our competitiveness in everything that we do and sustainability.

And I will cover these in a little more detail as I go forward. Coming to the first, which is distribution, rural has been moving well for us, while we hear differently from other companies. We have done well on distribution. And just to remind you, for us, general trade is the most profitable part of our business, and hence driving that is very, very critical. So, as far as rural is concerned, now we have 27,000 rural distributors. And our growth in rural are 1.5 times what our growth in all India are. Second, the organized trade, which has taken a hit during the COVID days has continued to move upwards. So, it moved from ’20 to ’21 at plus 2% in terms of contribution and saliency, and now it’s moved even further by another 200 basis points as far as saliency is concerned.

Our e-commerce business has moved to eight times what it used to be in quarter one of 2020. It’s large enough, it’s over 25% of our total revenues. And we’ve embarked on a journey to make sure that we do this the right way. So we partnered with a consultant who helped us structure this in a way that we ran it efficiently, and that helped us quite a bit in the last quarter. On marketing activities, I have Amit here with me. We’ve had some very exciting product launches and some very exciting marketing campaigns as well. We’ve also leveraged digital quite well.

So I’ll request Amit to comment on these lines.

Amit Doshi — Chief Marketing Officer

Hi, everyone. As Varun said, we’ve had quite a few interesting initiatives, especially for our new products. So if you look at the top of the chart, we launched Biscafe, which is propositioned as the perfect accompaniment to coffee. We see coffee culture growing, and that’s a big part of beverage consumption today. And this was our first digital-only launch, and we see Biscafe again reaching out to millions of coffee lovers. We had an interesting initiative in the East where we’ve launched Golmaal. This is the part of the market where differentiated crackers are growing very well, and this is a regional product, where we again leveraged regional celebrity in a really, really creative way. On the health end, we launched a Nutri Choice Seeds and Nutri Choice Herbs. These are two extremely differentiated products in the health market.

And this is to bring the benefit of super foods in a really delightful format to health active consumers. And then, another regional launching Jeera Marie, which is a product which we co-created with homemakers with Tamil Nadu keeping their local tastes and preferences in mind. And if you see across businesses, we’ve been — despite difficult weather, we managed to invest in our brands. We’ve managed to keep them salient. And we’ve tapped into topical opportunity and built strong capabilities in using data and technology in doing more targeted marketing.

Varun Berry — Managing Director

Moving to page number 10, which really gives — it lays out the various initiatives this quarter. So, Biscafe, I don’t know if you have tried it, but if you haven’t, I would urge you to try it. It’s a first in India kind of a launch, a great product, and we are seeing great traction. Amit has spoken to you about the other biscuit launches that we’ve done. Happy to report that Croissant has now been finally launched. It’s a national scale-up that we are doing. And the initial reaction from consumers has been extremely positive. So, again, I would urge you to try this product. We have it in three flavors: chocolate, vanilla and mixed fruit, very exciting products, doing extremely well as we scale it up throughout the country.

We’ve also launched a very, very exciting product in the wafers category. This is only in the South currently, because we have limited capacity from our Perundurai plant. It’s a key wafer, which is just a very, very nice product that melt in mouth kind of a feeling. So those of you who are in the South, I would urge you to try this as well. At the bottom of the pyramid, we were not present in the INR5 segment as far as cake was concerned, it was a segment that was growing very fast. And we’ve just launched a cup cake, which is a INR5 variant, in the East and Central regions. That’s doing — again doing very well for us. At least, the initial reactions are very good. And we’ve had the Marble Cake launch, which is also a limited launch as of now, but will be scaled up across the country.

The next slide, on slide number 11. So, if you look at our various businesses, as far as the bakery adjacency is concerned, we’ve had a double-digit volume and value growth in cake. Cake was a business, which was flattish for us during COVID because it was more out-of-home. But now with COVID opening up and also our new launches in this category, we are seeing a double-digit volume and value growth. We have continued our profitable growth journey in bread. As far as Croissant, I just spoke about that, we are scaling it up nationally with great results. It’s doubled in the markets where it was present, which is Calcutta and Chennai, but it’s doing extremely well in the new markets as well. Channels, which is modern trade and e-com, again, doing very well. Dairy, we’ve had another strong quarter with robust double-digit growth. Winkin Cow, where we really leveraged the season, has grown at 140% over last year. International, we’ve extended our leadership in Nepal with another very, very strong quarter. And Middle East is coming back to a healthy double-digit growth now.

Moving on to the next slide, which is that of cost efficiencies. So we’ve worked very hard basically because the bakery industry was facing the brunt as far as inflation is concerned. We’ve really, really doubled down on looking at all the cost efficiency measures that we could outline. And our CFO, Venkat, along with other members of all the functions, have really taken this on very, very seriously. So, if you were to look at the big blocks out of this, distance to market, we’ve reduced this by 4% in Q1, and this has been done by creating flexible manufacturing capabilities to house multiple products in most of our plants. Truck utilization has become better. This has been done by leveraging technology and obviously very focused execution by our very, very skilled team, which has helped us enhance the truck utilization by about 3%. Market returns, which is a fantastic story. We were at our ever best in Q4 of last year. But in Q1, we’ve reduced that even further by 15%.

And this has been possible by process changes that we’ve got to the organization. On renewable energy, which constitutes now 40% of the power consumption, and obviously has a reduced cost, which is 30% less than what normal power cost is, has given us great returns as well. And finally, we worked on optimal power sourcing by rationalizing our DG usage, which has led to a power cost reduction by 6%. So, some very, very good initiatives here. And I’ve been asked many times in the past, how long is this cost efficiency journey going to go on? And I’ve always maintained that this is a continuous process. And this quarter and this year, as we see, we are looking at even becoming better than what we’ve done in the past. So from a 2%, we are looking at providing a 3% savings to the bottom line. Moving on to slide number 13. Big news here. We’ve achieved 100% plastic neutrality in this quarter; and Sudhir, who heads R&D and Quality, has worked very hard to make this happen. We’ve collected and processed more than 35,000 metric tons of plastic, which has got us to this place. So, very proud of that.

We also — as you’ve seen, we’ve released the Sustainability Report and we continue to work in terms of our ESS journey. We are only going to become fitter, stronger as far as that is concerned as we move into this year. Moving to the financials, page — slide number 15. As I’ve already said, our growth is 9% on the top line. The next slide is about what it’s done to the bottom line. Unfortunately, because of the severe inflation, while we’ve grown 9% on net sales, our operating profit has dropped by 11%. And that shows in all of the ratios as well. Profit from operations is at 12.3%, profit before tax is at 12.7%, and profit after tax is at 9.2%. All I can say is that this probably was the peak as far as inflation was concerned, and we are pretty hopeful that things will become better as we go forward. So that’s all from me.

Happy to take any questions from all of you. So, over to you.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss. Please go ahead.

Abneesh Roy — Edelweiss — Analyst

Thanks. My first question is on e-commerce and quick commerce. So if I see your data, last year, e-commerce has grown 100%. And in Q1, it has grown 33% because the tax has moved on from six times. Last year, Wave two was very, very severe in Q1. So it’s a very good growth. So my question here is, could you tell us how is the mix in e-commerce versus your overall company level? How are the adjacencies doing? Because you had called out that cake is extremely competitive in terms of overall, but is it doing better in e-commerce? And is the market share also higher in e-commerce, quick commerce versus the overall pan-India number?

Vipin Kataria — Chief Sales Officer

Abneesh, this is Vipin Kataria. Yes, so you’re right. Last year, there was a multiple growth and we are clocking a very large base. And even in this quarter, we have witnessed a pretty solid robust growth. As far as the split between e-com and q-com is concerned, I think it’s evolving every quarter. While the large platforms like Big Basket, Flipkart, Amazon, Swiggy remain a large part of it, but as we see, there’s a lot of exploitation happening in this space. And therefore it is very hard today to say what’s the salience of the growth separately, right, because it’s a very, very fast evolving space. But I think the overall e-com space is doing pretty well.

And like Varun pointed out, we partnered with some external experts, and they have given us pretty good learning, and we will build the capability here on. As far as the mix is concerned, the mix in these channels, whether it is e-commerce or modern trade is far richer, better than general trade. And therefore, certain subcategories in cake, there are certain canters in biscuit or dairy, which finds a natural higher salience in these channels.

Abneesh Roy — Edelweiss — Analyst

Sure. That’s helpful. My second — last question is on wafer and Croissant. So you had called out in FY ’22 Annual Report that you want to take the leadership position here. So I want to understand where are you currently? I understand wafer is INR750 crore category growing one of the fastest, similarly Croissant have doubled. So where are you currently and how much time you think it will take to reach the leadership position?

Vipin Kataria — Chief Sales Officer

So both these categories, we are trending towards over INR100 crore kind of a mark on an annualized basis, and which I think is a great start. There are a lot of things to do. So, Croissant, we’ve got a very good fix on how we want to move forward. I think we’ve perfected the product. It was an international product, and it was doing very well in other countries. But we wanted to make sure that we tailored it to the Indian tastes, because we have got feedback from multiple consumers in the beginning on how the bread could be slightly more different for the Indian consumer. Similarly, chocolate was a little more European and maybe a little better for the Indian consumer.

So I think we’ve perfected that. We’ve got a lot of innovations in the pipeline as far as Croissant is concerned. On wafers, we’ve got — still got a little bit of way to go. If you remember, we had started the wafer business with not a single cent of investment. It was done through contract packing. And now, we have just started to invest. We’ve got a small flat wafer line and a small fixed line in our Perundurai factory. And because it’s small and all of these lines, they come in small formats, you don’t have a massive capacity line for any of these products. So we are looking at recipes. We’re looking at formats. We are looking at launching some of these products, testing them out and scaling them up very, very quickly throughout the regions of India through investing even more.

So, I would say, Croissant for us to get to — obviously get to leadership, we are already leaders, right, except for East where Parle has been operating for the last 10 years. But on an all-India basis, we are already leaders. On wafers, it will probably take us a couple of years to get to that position.

Abneesh Roy — Edelweiss — Analyst

Very quick follow-up here. Wafer number one market share will be how much and Croissant category size will be about INR300 crores?

Vipin Kataria — Chief Sales Officer

Croissant category size currently is not more than INR100 crores. It’s a completely new category. So we are building it. We are building the category, wafers would be probably INR500 crores, INR600 crores.

Abneesh Roy — Edelweiss — Analyst

In your Annual Report, you have given INR750 crores size. My question was, market share of — number one share will be about 40%, 50% in wafers?

Vipin Kataria — Chief Sales Officer

No. Wafers, it’s a very fragmented category. The leader will be about 20%-ish. It’s a very fragmented category with a lot of regional players and private label. So this category is also in a very nascent stage.

Abneesh Roy — Edelweiss — Analyst

Sure. That’s very helpful. Thank you. That’s all for me.

Operator

Thank you. [Operator Instructions] Next question is from the line of Avi Mehta from Macquarie. Please go ahead.

Avi Mehta — Macquarie — Analyst

Thanks for the opportunity. With these price hikes to cover the inflation and with cost-saving benefits starting to focus clearly in place, would it be fair to expect EBITDA margin to normalize to pre-COVID levels in the second quarter? Or do you think it will take some time more?

Varun Berry — Managing Director

No, I would think that normalization is around the corner.

Avi Mehta — Macquarie — Analyst

Perfect, sir. Perfect. And sir, I just wanted to pick your brains on the comments that you had made in the earlier quarters about price hikes — about the worry that you had about sharp price hikes hurting category growth as customers switch out, do you see that? Or is there a change in that thought process? How would you kind of want to kind of look at it now, given that the increase is almost, I think, 10% plus 10%, so about 20% or so. Please correct me if I’m wrong.

Varun Berry — Managing Director

No, you’re right. You’re right. So, the total price increase would be over 20%, right? So, yes, the point is that there has been a drop as far as volumes are concerned, that volumes are in negative territory, albeit small single-digit — very small single-digit negative territory. But the number of package that we sell is flat, and we are hopeful that this will start to grow once again. So what’s happening really is that there is biscuits, there is bakery products and then there are other products as well. If you think about it, biscuits is the cheapest form of snacking.

So, even within snacks, there has been a choice that the consumer is making. And in that process, we are probably ending up winning, and that’s why we are not facing the kind of drops that we were thinking we could face. And I think, now that we’ve gotten to this stage where we’ve had two clear years of price increase and we haven’t seen a huge negative as far as volumes is concerned, and we continue to see fairly positive revenue growth, I think it’s a good sign. And it shows that we should be able to weather the storm in a good way.

Avi Mehta — Macquarie — Analyst

Okay, sir. Perfect. Sir, and lastly, [Indecipherable] of bookkeeping, the number of ICDs in this quarter? That’s all from my side. Thank you.

Varun Berry — Managing Director

Venkat, what is the number on ICD?

N. Venkataraman — Executive Director and Chief Financial Officer

So, as of 31st March, it was INR740 crores. And as of 30th of June, it is INR690 crores.

Avi Mehta — Macquarie — Analyst

Thank you very much.

Operator

Thank you. Next question is from the line of Percy Panthaki from India Infoline. Please go ahead.

Percy Panthaki — India Infoline — Analyst

Sir, just wanted to understand the volume. It’s negative 2% this quarter. So, when do we see it sort of reviving back? Even in value terms, the growth is around 9%, which is below — a little below what I would have expected. So what is driving this softness in growth?

Varun Berry — Managing Director

So, if you look at our last year base, it was a fairly high base. Vipin, what is our two year growth? It’s pretty robust growth. So, we’ll just come back with that number, but it’s a fairly robust growth that we’ve seen if you look at a two year number. three year growth is about 11%. So that’s a CAGR of 11%. So, we are in a good place there. I don’t think there’s any issue on the top line growth perspective. And I think volumes will start to come back. I don’t think the consumers have seen a 23%, 24% price increase in two years or six quarters like they have seen at this time. So it’s bound to have some impact. There will be some impact. But I think we are on a path to recovery.

Percy Panthaki — India Infoline — Analyst

Right. On the price increases, have there been any in the last three, four months? And are there sort of any which you think you need to take in the near-term, in the next two, three months?

Varun Berry — Managing Director

Yes, there have been. In fact, we were not — so as I was telling you, the total inflation that we faced from Q4 of last year to Q1 of this year, it was approximately INR180 crores,only on the bakery business. And so, we have to take — and this was probably the steepest inflation quarter. And we were not able to take the entire price increase during this quarter. So, we have taken some price increases in the first quarter, and we will complete that in Q2 of this year.

Percy Panthaki — India Infoline — Analyst

So, sir, by Q4, I think on a Y-o-Y basis, in Q4, you had a price inflation of about 10%. So from that level, how much incremental price increase you have either taken or is in the pipeline over the next two, three months?

Varun Berry — Managing Director

It’s about — so, in Q1 and Q2, it will probably be 6% or 7% price increase that we’ll have to take.

Percy Panthaki — India Infoline — Analyst

Okay. Okay. Okay. Understood. Understood. Secondly, coming on to your innovation pipeline and also your product mix, what I just wanted to understand, is that versus pre-COVID? Is the product mix now sort of more superior in terms of — if I strip away the price increases and look at the ASP, which would be only the mix impact, are you seeing it higher than pre-COVID level or is it that because of a huge amount of inflation generally in the economy as well as in FMCG products and biscuits that people have sort of downgraded and the mix effect is negative versus pre-COVID level?

Varun Berry — Managing Director

No. We haven’t seen a negative mix effect. Our premium segments have been doing fairly well. And even the value of the category has been doing well. So it’s not like that the bottom of the pyramid products are seeing a huge resurgence or anything like that. Amit, Vipin, you want to comment on that?

Vipin Kataria — Chief Sales Officer

Yes. So, see, we also shared the organized trade, which is moving up, and that really helps in the mix. Our urban markets are doing fairly well, and therefore, we don’t see any kind of adverse impact or down trading happening on the mix.

Amit Doshi — Chief Marketing Officer

Yes. In fact — Amit here — in fact, the premium categories are growing faster than the bottom of the pyramid. So that’s always a good sign for us.

Percy Panthaki — India Infoline — Analyst

And even in terms of within the same size, within the same brand, is there any down-trading to smaller pack sizes, etc., or no?

Amit Doshi — Chief Marketing Officer

The small packs are a fairly large component of our portfolio. But no, it’s not a visible difference. The contribution of the saliency of the large versus the small pack hasn’t changed dramatically.

Operator

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

Shirish Pardeshi — Centrum Broking — Analyst

Hi everyone. Good evening. Thanks for the opportunity. In this slide, what you’ve referred, there was no mention about the international. So, could you tell what is happening in the Africa and Uganda and Nepal?

Varun Berry — Managing Director

No, I did mention. It’s a part of the slide. It’s doing really well. We’ve had a good quarter as far as international is concerned. And I did mention that for us, if you look at slide 11, if you look at that section of international, we’ve extended our leadership in Nepal and also Middle East is back. Africa, we have a few ant in the fire. It’s not with the kind of inflation that countries have seen there, and also what kind of — the protectionism that countries are bringing to the table has been an issue. But despite that, we’ve grown almost 24% in Africa and AGCC. So, it’s a good performance all over as far as international is concerned.

Shirish Pardeshi — Centrum Broking — Analyst

Just one follow-up Varun here. We have put local contract backing in Africa. And also, we are exporting something from India. So, what is the contribution for the international ex of India?

Varun Berry — Managing Director

Sorry, sorry, just repeat that?

Shirish Pardeshi — Centrum Broking — Analyst

What is the revenue contribution which we are drawing, which is ex of India? I mean, not sent from India.

Varun Berry — Managing Director

It’s very small currently. It’s very, very small — inconsequential.

Shirish Pardeshi — Centrum Broking — Analyst

But do you think, right in the past, maybe we have done a few acquisitions in the Middle East. And then later on, it fizzled out. But does this acquisition or maybe the contract backing arrangement will have a significant revenue contribution in the next three, four years?

Varun Berry — Managing Director

No. So, if you are talking about Africa, my comments are related to Africa. If you are talking about Middle East, Middle East, we’ve got a significant part of our production happening there. But Africa, whatever we are doing with our contract packers is very, very small as of now.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. Okay. Second and last question on the dairy. Last call, you have been guiding that there is a commercial production which we are going to take. So what is the status there? And maybe if we can say that when we see the significant ramp up of revenue?

Varun Berry — Managing Director

So, we’ve commercialized our spray dryer plant. So we’ve produced the first bag of SMP there a few days ago. But the total commercialization will be happening in stages. We will do drinks — now that we’ve started the spray drying, we’ll move to drinks in the next two or three months. We’ll also start the raw cheese plant where we make cheddar. The processed cheese plant because of this semiconductor issue, etc., is going to happen sometime in the first quarter of next year. So that’s how the phasing is looking.

Shirish Pardeshi — Centrum Broking — Analyst

And any further capex you’ve planned on dairy?

Varun Berry — Managing Director

No. There’s no more capex. Whatever was planned is already getting in. And we are seeing very good traction. So hopefully this is going to be a very good venture for us. We’ve seen a 40% growth as far as dairy is concerned in Q1.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. Thank you, Varun. And all the best for the team.

Operator

Next question is from the line of Varun Singh from IDBI Capital. Please go ahead.

Varun Singh — IDBI Capital — Analyst

Thank you very much. Sir, my question is on Milk Bikis. So we did a very high decibel marketing campaign, and we were very much bullish for premiumizing the largest category. So, sir, any comments over here with regards to how the rollout in the Northern market is tracking and if you can also give some objective commentary with regards to milestones that we wish to achieve and where we are as of now?

Varun Berry — Managing Director

So, Milk Bikis has been one big success for us. In the Hindi belt and other parts– it was predominantly a Tamil Nadu product, where we have a 90-plus percent share. So, we’ve been working at both ends. So what we’ve done in all the other markets, we’ve rolled out Milk Bikis Atta with a proposition of Doodh Roti Ki Shakti, which is doing really well for us. And it’s giving us — it’s not just one state or two states, it’s giving us very good results across the other states other than Tamil Nadu. And that continues to be a big resurgence for us. We’ve also done — in Tamil Nadu, we launched Milk Bikis Classic, which is all about the nostalgia of the Milk Bikis when we were growing up kind of a thing. It has also done very well for us. So, between the two, it’s been a very, very good brand for us from a growth perspective. Amit, do you want to comment?

Varun Singh — IDBI Capital — Analyst

Okay. Sir, I mean, if you can give some guidance with regards to what is the revenue size that you would have achieved under this brand? And what are we aspiring for?

Amit Doshi — Chief Marketing Officer

Yes. So, Milk Bikis, we crossed INR1,000 crores mark last year. And it looks like it will be well past INR1,000 this year.

Varun Berry — Managing Director

It’s growing pretty well at both ends. The South business as well as the all-India business. So, it’s been a very good story for us because it’s a product which was a regional product, but we were very proud of what it was. And the thought was that if it’s such a strong product, why can’t it become a national product with salience in every state, and that’s what we’ve been able to do.

Varun Singh — IDBI Capital — Analyst

Thank you very much. Sir, last question on — sir, what percentage of our manufacturing is contract manufacturing as of today?

Varun Berry — Managing Director

Probably about 40%.

Varun Singh — IDBI Capital — Analyst

Okay. So it continues at 40%. Okay, sir. Thank you very much. And wish you all the best.

Varun Berry — Managing Director

Thanks.

Operator

Thank you. Next question is from the line of Latika Chopra from JPMorgan Chase. Please go ahead.

Latika Chopra — JPMorgan Chase — Analyst

Hi. Thanks for the opportunity. My question was, if you could share some color on what is the salience of biscuits and the bakery adjacencies in your domestic turnover today in terms of both volume and value? And also, how do you think this is going to trend over the medium-term?

Varun Berry — Managing Director

So, it should be about, I would say, just under 80% in domestic-only. But the smaller part of the business, which is adjacency, has been growing a little faster. And we are hoping that in the next five to seven years, we can get this to be, let’s say, 55% to 60% with 40%, 45% of our turnover coming from all of our adjacent businesses.

Latika Chopra — JPMorgan Chase — Analyst

And Varun, would the profitability metrics, at least on the gross margin level for these adjacencies, how do they compare against biscuits?

Varun Berry — Managing Director

So we’ve got a very clear grid that we work on. We do not launch any products unless they are accretive to our gross margins. So, the overall profitability might not be there because these products require some amount of nurturing and advertising, etc. But overall, all of our new products have more accretive and a more attractive gross margin than our current gross margin on biscuits.

Latika Chopra — JPMorgan Chase — Analyst

Sure. And the last time, you mentioned that the NPD contribution to your sales is about 4.5%. Has that number stayed in this band? Or were there a lot of new launches that we are seeing, you think this number could trend up meaningfully?

Varun Berry — Managing Director

No, it will definitely trend up as we go forward, because this year, after two years of focusing on the core, we now ventured into a lot more innovation. So, I think that this number is only going to go up. And probably we are looking at more like about a 5% revenue coming from innovation.

Latika Chopra — JPMorgan Chase — Analyst

Okay. And just lastly on capex. For FY ’23, are you still maintaining a INR650 crores, INR700 crores kind of a capex? And what’s the amount that you incurred in Q1? Thank you.

Varun Berry — Managing Director

So capex, whatever has been committed, it will continue. In addition to that, we are putting up three factories. I think I spoke about it last time as well. So we are extending our Odisha factory. We are putting up a factory in UP, which should be ready by next year beginning. We are putting up a factory in Tamil Nadu and Tirunelveli. And we are also looking at one more factory, which will be commercialized a little later, which is in Bihar. So these are the four that we are working on, and obviously the work on Ranjangaon continues.

But thereafter, I think, we are going to take a little bit of a capex holiday, except for innovation where we require some additional investments. But I think we are going to be in a very solid place with factories in the right places. So — and as you know, that we’re getting very good incentives for all of these factories. So we are doing this in a way that we have production in the right place, close to our demand centers. It gives us efficiencies, it gives us fiscal benefits, at the same time gives us the space to grow much faster than what we’ve been growing at.

Latika Chopra — JPMorgan Chase — Analyst

That’s useful. But possible to put a number on the kind of investments which go behind these four factories and the timing of phasing out of capex?

Varun Berry — Managing Director

So, the UP and Tamil Nadu factory are going to be approximately INR300 crores each. But Bihar will probably be slightly lower than that. The extension in Odisha is not going to be too much. Ranjangaon, we’ve already committed INR1,500 crores. We’re almost at about INR1,200 crores, INR1,300 crores now. So that’s the kind of investments that we are looking at.

Latika Chopra — JPMorgan Chase — Analyst

All right. Thank you so much, Varun.

Operator

Thank you. The next question is from the line of Chinmay Gandre from Reliance Nippon. Please go ahead.

Chinmay Gandre — Reliance Nippon — Analyst

Thanks so much for taking the question. Sir, I just wanted to understand your [Indecipherable] in more detail with respect to your earlier stance of like the overall consumption, I mean, was supposed to get impacted. But now we are kind of putting out that — maybe we have more confidence in terms of the consumption, and you see fairly decent growth rate despite of the inflation. And we also have taken a decision like 20% kind of a price hike, right? So, just wanted to understand the change in thought process or change in how we are looking at things?

Varun Berry — Managing Director

No, you’re right. Whatever you said is absolutely spot on. We were nervous as we saw inflation year-on-year. But as we’ve continued on our agenda, we were still a little nervous. But as we are coming to an end as far as price increases are concerned and we are seeing the results on the ground, we feel definitely more confident than we were in the last six months. So, feel positive. I think the consumers today have the capability to absorb these kind of price shocks, and that’s what they are reflecting in their purchase behavior.

Chinmay Gandre — Reliance Nippon — Analyst

Yes. And my second question is with respect to the price increase. So, I mean, when we kind of initiated the price increase last year, so for us to 10% price increase took us almost like six months from Q3 onwards. I mean, till Q4, we took around six months or more. And I presume — I mean, now we are at 20%, so another 10-odd-percent price increase we have kind of implemented or are in process of implementing. But at this time, I mean, you are fairly confident that by Q2, more or less, this would be effective. So I just wanted to understand this.

Varun Berry — Managing Director

Yes, yes. By Q2, we would be almost where we would want the pricing to be. And we’ll also be able to understand where the inflation story is going. I’m fairly confident that from here on, it’s only going to get better. So — but one step at a time, you can’t be sure in today’s world. So we’ll see how it unfolds as we move forward.

Chinmay Gandre — Reliance Nippon — Analyst

Sir, this time you are able to implement the price hikes faster. I mean, because last time you took much more time in terms of adjusting the pack prices and more from that perspective.

Varun Berry — Managing Director

No, that’s absolutely right. I think the team came together really, really well. And they just did a fantastic job of implementing the price increase.

Operator

Thank you. Next question is from the line of Alok Shah from Ambit Capital. Please go ahead.

Alok Shah — Ambit Capitala — Analyst

Good evening. Well, my first question is on the margin. On one side, there are signs of RM inflation abating and then looking to be moderating. And on the other side, there are plans to increase the cost optimization to 3% now versus 2% earlier. So in that context, I wanted to check when you get to see this margin expansion, what will be your priority in terms of spending? Would you like to sort of relocate [Technical Issues].

Operator

Alok, sorry but your voice is pretty feeble.

Alok Shah — Ambit Capitala — Analyst

Is it better?

Varun Berry — Managing Director

I’ve understood the question. So let me try and answer because your voice was not coming through. There’s something wrong with your line. But I’ve understood your question. Yes, we would want to, as pricing normalizes, as profitability normalizes, we would like to spend some more money in supporting our brands, our innovation, our new products. So we would normalize our advertising and sales promotion spend as well, which will give us some muscle on our brand, new products and new categories.

Alok Shah — Ambit Capitala — Analyst

Got it. And just a follow-up to that. While you’re pushing your adjacencies and the new products, is the thought process more towards doing the trade channel spend, that gives you a better ROI? Or is it more to do with the media in the initial two years is what I wanted to know.

Varun Berry — Managing Director

No, we do not support trade spend. My Head of Sales is sitting here and smiling. We will do a consumer-oriented spend.

Alok Shah — Ambit Capitala — Analyst

Okay. Got it. And lastly, just wanted to check if you’re open to commenting on this new speculation of about the appointment CEO, etc. Just wanted to checking if you’re open to commenting on that, any clues? Thank you.

Varun Berry — Managing Director

No, I think it’s a [Indecipherable] early, but we will comment on that. I think I will comment once we’ve done all of that internally, and we followed whatever other regulations for the announcement, so we can chat at that time.

Alok Shah — Ambit Capitala — Analyst

Sure. Noted. Thank you so much for the future [Indecipherable]. Thank you.

Operator

Thank you. Participants, we’ll take the last question from the line of Hasmukh from Star Union Dai-ichi Life Insurance. Please go ahead.

Hasmukh — Star Union Dai-ichi Life Insurance — Analyst

Yes. Hi. Thanks for the opportunity. My question is on growth from Hindi belt. So, we are constantly increasing presence over there. At this time, let’s say, monsoon should be weak in the parts of UP, Bihar, etc. So do you think this will have some negative impact on us in the coming quarters?

Varun Berry — Managing Director

Not really. We’ve had — during COVID, we did have a little bit of a setback in a few states. Setback not in terms of growth, we still continued to see good growth there, but some setback in the kind of targets that we set for ourselves because supervised distribution was not possible during that time. But we are coming back very strongly. So we continue to do really well in UP, in Gujarat. Even in MP, we had a little bit of a setback, but we are coming back reasonably strong. Maharashtra is doing well. We had — we are still struggling a bit in Rajasthan, but it’s a very small state for us. Bihar is, in any case, a very strong state, and we continue to gain muscle there. Even Odisha is a very strong state. We’ve become dominant market leader there. So, I think it’s looking reasonably good, barring Rajasthan, where we need to do a lot more hard work. I think the other states are looking very robust.

Hasmukh — Star Union Dai-ichi Life Insurance — Analyst

Okay. Thank you. That’s it. Thank you.

Varun Berry — Managing Director

Okay.

Operator

Thank you very much.

Varun Berry — Managing Director

Thank you.

Operator

I now hand the conference over to Mr. Mayank Mundra for closing comments.

Mayank Mundra — Executive Assistant to Managing Director

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

Operator

[Operator Closing Remarks]

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