Dabur India Limited (DABUR) Q2 FY23 Earnings Concall Transcript

Dabur India Limited (NSE: DABUR) Q2 FY23 Earnings Concall dated Oct. 27, 2022

Corporate Participants:

Gagan Ahluwalia — Vice President Corporate Affairs

Mohit Malhotra — Chief Executive Officer

Ankush Jain — Chief Financial Officer

Analysts:

Shirish Pardeshi — Centrum Broking — Analyst

Abneesh Roy — Nuvama Institutional Equities — Analyst

Unidentified Speaker —

Arnab Mitra — Goldman Sachs — Analyst

Harit Kapoor — Investec — Analyst

Shrenik Bachhawat — LIC Mutual Fund — Analyst

Avi Mehta — Macquarie — Analyst

Kunal Vora — BNP Paribas — Analyst

Mihir Shah — Nomura — Analyst

Tejas Shah — Spark Capital — Analyst

Sheela Rathi — Morgan Stanley — Analyst

Mayank Kumar — Business Head – Foods

Ajay Thakur — Anand Rathi Group — Analyst

Vishal Punmiya — Nirmal Bang Institutional Equities — Analyst

Aditya Agarwal — Deloitte — Analyst

Presentation:

Operator

Ladies and gentlemen. Good day, and welcome to the Q2 Results Investors Conference Call of Dabur India Limited. [Operator instructions] I now hand the conference over to Ms. Gagan Ahluwalia. Thank you. And, over to you ma’am.

Gagan Ahluwalia — Vice President Corporate Affairs

Good morning ladies and gentleman. On behalf of the management of Dabur India Limited, I welcome you to this conference call for the results for the quarter and half year ended September 30, 2022. Present here with me are Mr. Mohit Malhotra, Chief Executive Officer, Dabur India Limited; Mr Adarsh Sharma – Chief Operating Officer; Mr Ankush Jain- Chief Financial Officer; Mr N. Krishnan -DGM Finance; Mr.Ashok Jain – EVP Finance & Company Secretary.

We will start with an overview of the Company’s performance by Mr. Mohit Malhotra, followed by a Q&A session. Over to you, Mohit.

Mohit Malhotra — Chief Executive Officer

Thank you ma’am. Good morning, ladies and gentleman. A very Happy Diwali and Seasons greetings to everyone. Thank you for joining us today amidst the festive season. The operating environment continues to be very challenging. We are seeing unprecedented inflation across the world, with 40-year highs in US, UK and other markets.

Operator

[Technical Issues] Ladies and gentlemen thank you for patiently waiting, we have the management line reconnected. Over to you sir. Please go-ahead.

Mohit Malhotra — Chief Executive Officer

Thank you, Aman. Apologies, ladies and gentleman for the glitch. Good morning to everyone. A very Happy Diwali and Seasons greetings to everyone. Thank you for joining us today amidst the festive season. The operating environment continues to be challenging. We are seeing unprecedented inflation across the world, with 40-year highs in US, UK and other markets. India also reeling under pressure of inflation, which is visible in the CPI being higher than the MPC comfort level target of around 6% for the ninth moth in the row. Central banks across the world are raising interest rates to curb inflation, but this is impacting consumption and also leading to currency devaluations across the world and geographies. As a result we are seeing GDP growth touched across-the-board.

In such an environment, Dabur’s consolidated revenue from operations grew by 6% with the constant currency growth of 8.5%, India business grew by 7%, the 3-year CAGR for revenue of India business is at around 12%, backed by double-digit 3-year CAGR in all the three verticals of businesses, which is healthcare, HPC and Foods. On account of continued, unprecedented material inflation, our gross margin contracted by 300 bps plus, but this was partially offset by price increases and saving initiatives. This led to operating margin declining by around 190 bps to touch 20.1% in Q2 financial year ’23.

Consolidated profit-after-tax registered a decline of 2.8% to touch INR490 crores during the quarter. In terms of the categories, food and beverage business posted a stellar growth of 30%, the beverage business was on a strong trajectory and outperformed the industry significantly with our market shares in GNN category, increasing by 410 bps. This was further bolstered by strong traction in our food drinks and milk shake portfolio, which has helped us to expand our total addressable market substantially.

The food business also performed well with a growth of 21%. It is also my pleasure to inform you that we have signed a definitive agreement to acquire 51% share holding of Badshah Masala Private Limited. Badshah is one of the leading players in the spices and condiments category with major presence in Gujarat, Maharashtra and Telangana. The acquisition is in line with our strategic intent to expand our foods business to INR500 crores in three years’ time and to expand into adjacent categories. It also enables our entry into INR25,000 crore branded spices and seasonings market in India. We intend to leverage our market presence in both domestic and international markets to provide a further fillip to our foods business.

Coming to the HPC portfolio we recorded a 6.3% growth on a high base of 17%, leading to a 3-year CAGR of 11%, toothpaste portfolio grew by 11.2% during the quarter and our market-share in toothpaste segment increased by 10 bps, home care reported a growth of 21% driven by robust double-digit growth across Odonil and Sanifresh franchises. Odonil recorded an increase of 350 bps in market share in liquid air freshener category and Odomos increased its market share by 330 bps. Shampoo also recorded a 9% growth with increase in market share of 40 bps. Hair oil posted 2% growth in the quarter, impacted by category declining by 5.7% in volume, that said our 3-year CAGR is healthy 7% in the hair oil category. Our market share in hair oils improved by 20 bps.

The healthcare portfolio is lapping over a 2-year base of exponential growth due to COVID onset. On the 3-year CAGR basis, healthcare continues to be on trend of around 10% CAGR. Our market share in Chyawanprash increased by 120 bps and in Honey increased by 40 bps. The new entrants in Honey category saw significant shrinkage in market share by around 200 bps across both traditional trade and modern trade. Digestive category saw flat growth on a high base of 22.7%, under the OTC and ethical business Honitus and Shilajit reported strong growth. Among channels, e-commerce was a standout performer with a growth of 50% and now contributes to around 9% of our revenue. Modern trade also saw double-digit growth during the quarter.

International business recorded a constant-currency growth of 12% on a high base of 23% last year. Sub-Sahara Africa business grew by 18% and SAARC business logged a double-digit growth, while Egypt and Turkey businesses reported robust double-digit growth in constant-currency terms, they were impacted by severe currency devaluations, leading to loss in translation in India. Overall in-spite of weak macroeconomic environment, we continue to drive our business aggressively and have gained market-share across 95% of our portfolio.

Going-forward, we expect the quantum of inflation to moderate on account of high inflation in the basis, while current demand remains weak, a strong festive season, near normal monsoon and good harvest and MSP increases should enable recovery in rural in the near-term. Urban recovery will continue to be driven by revival of economy, softening of inflation and buoyancy of new age channels. As for Dabur we will continue to focus on gaining market share, growing ahead of the industry on back of strong strength of our power brands, distribution coverage, innovation, cost optimization, efficiency enhancement initiatives.

With this I bring my address to a close and open the session to Q&A. Thank you very much.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]. First question is from the line of Abneesh Roy from Nuvama Institutional Equities. Please go ahead.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Yes, thanks. My first question is on Skin & Salon, so on a Y-on-Y basis, I understand. High base was there because of sanitizer. On a 3-year basis 1.1% is one of the lowest growth within your own categories, so, is there any shift in consumer behavior towards other products, other brands? The Nielsen market-share data, we know doesn’t always capture the true trend. And second related question is on sanitary napkins, will this be more of a e-commerce player? Because this is a very tough category and we already have intense brands also here. Yes.

Mohit Malhotra — Chief Executive Officer

So, Abneesh, first thing on Skin & Salon. We were lapping over very high basis that’s the reason why the growth of Skin & Salon is negative 5, which is there and it contains sanitizers like you rightly noted And I don’t think there’s anything structurally which is wrong in Skin & Salon except for that discretionary products consumption it has still not reached the pre-COVID level, so it is just taking some time. That said we are on the agenda to–taking market share from local players. Local players are actually very strong. We’ve seen high-price increases in the skin care to a tune of roughly around 8%-9%, whereas some local players have not taken those price increases. So there is a little pushback coming from the consumer in terms of off-take, but I think as the advertising begins in skin, I think the business should trend well.

Just to tell you on the initiatives that we’ve taken in skin care, we’ve revamped our entire Gulabari portfolio and with the onset of winters, there’ll be a little bit pipelining also that we put in place and in winters we should see very good growth coming on Gulabari on the back of consumer promotions and new packaging revamp that we have done. Even in the Fem business, there is a big revamp which is happening. On the sanitary napkin field, this is essentially going to be e-commerce place. We will test the market as to how it fares before we roll it out to modern trade like we do with most of our new products.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Sure, thanks. A related question. In last three years, Dabur has usually diversified its portfolio with lot of the products on e-commerce. So, which ones are successful and, when you say, e-commerce is 9% of your sales, how much is coming from the products which have been launched in the last three years?

Mohit Malhotra — Chief Executive Officer

Yes, so, e-commerce is doing very well for us as in the current quarter also, we have grown by roughly around 50% in e-commerce and we had some structural issues with Amazon, etc., changing their partner in supply chains, getting shifted to multiple other partners now but I think that is all behind us. And, all the different verticals of e-commerce are doing well, whether it’s a marketplace or it is the grocery vertical or it is the pharmacy verticals, all of them are doing exceedingly, well plus we put in a separate infrastructure and a business head for e-commerce and we are monitoring the business and quarter-on-quarter our business is trending up. As you can see that it’s already 9%, around four years back, this seems to be around 2% to 3%. Now this has become accretive for all the innovations for us. So whenever we are launching new concept or a new product, we are first testing it out on e-commerce, because of the cost of entry is very low and not significant investments are required on e-commerce and we use digital marketing to create demand and also on platform demand in addition is pretty economical as compared to the marked market.

The products which have done really well for us in e-commerce, our baby care range has done exceedingly well for us and Apple Cider Vinegar, which has done very well, then we have other products like — I think most of the other products in juices and drinks have done exceedingly well for us. Our edible oils are doing well. Shilajit new launches and variants have done very well. The new product contribution on e-commerce is already 11% for us. So, I think most of the products which we launched on e-commerce are doing quite well and under the Real chia seeds and the flaxseeds, both of them are doing well. As a matter of fact the new launch of peanut butter is now trending as a top seller on e-commerce ahead of Pintola and other established players.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Sir, one question we grapple with is, you mentioned in Chyawanprash, the new entrant has lost market share on e-commerce etc. in modern trade. So that same question I had is, because you are also entering late in most of these categories, initial sales is there, because of either advertising or just — consumers just wanting to sample all the pricing whatever. You have confidence on these scaling up over three to four years and will these be taken to the general trade also?

Mohit Malhotra — Chief Executive Officer

Yes, so let me first address your first question. The new entrant, what I meant was not Chyawanprash was Honey. In Honey, There was a quickly scale-up happen to around 5%-6% market share levels in modern trade but there — there has been a drastic fall in market share that we have seen of around 200 and 300 basis-points and moreover the NMR claim on back of which it actually gained market share and so much of euphoria was created in the marketplace, has all died down now. The NMR claim is also back and, now they’ve launched a new variant with the sub-branding of Active and no more cleaning NMR, so I am suspicious on some optimization of the formulation also would have happened by the new player.

So. I think it is the competency and the core competency not being there in these categories and that’s why the new entrant has come in. As far as we are concerned on e-commerce, we launched a lot of NPDs wherever we have a right to win. So, when I say we have a right to win, we have a core capability and the competency to create those products and we compete with no established and a very big organized player. We generally compete with the digital-first players and digital-first players don’t have the wherewithal to stay-in the business in the general trade or in the brick-and-mortar channels where we have the strength and we can scale-up and we are not launching in the areas where we have that strength. We are launching it on their turf which is digitally first and if we do well in that digitally first space, then the chances of our success in a turf where we are strong, it’s very positive which is modern trade and in GT, which will come later for us. So, I don’t think there is a problem.

That said, baby care range is being scaled-up to modern trade and the other variants, like apple cider vinegar also being scaled-up to modern trade. In modern trade also we are not going to en masse modern trade. We are going to very selective modern trade chains and taking promoters to ensure that the progress of our NPD is very slow and gradual and it is not that we give a target of doing 10 crore or two percent market-share targets to our team. We are talking about the share of shelf and share of market in the outlets that we are putting it, so it’s very micro marketing that we guys are doing with our NPD. So that way, I don’t think we are actually worried, because it is a very channel-wise and a segmented launch that we guys are following.

Abneesh Roy — Nuvama Institutional Equities — Analyst

My second question is on Badshah Masala. So after 60 years, this brand is around 200 crore to 250 crore size, so, which means in branded masala, it is around 1% market share. So what is the expectation of scale-ups here over a three to four-year time frame given. In 60 years it is around 200 corers. Second is, of course, a lot of the listed players are also having very aggressive plans here. And if you could talk about the margin profile versus your standalone margin and when you say cash EPS neutral in first year and EPS accretive in second year, what do you mean by that?

Mohit Malhotra — Chief Executive Officer

Right, okay, I’ll answer the first question first. So it’s a very old brand, so, I think the answer lies in your question. I think there is so much of legacy and heritage in this brand–64 years-old brand, it’s almost like Dabur, which is 135 year old legacy which establishes a lot of trust and faith in the consumer franchise, which is buying it. So your point on market share, yes, they are around 4% to 5% market share in the core markets. They are basically present in Gujarat, Maharashtra and Telangana, where they are the good number two-player in the market with four to five. And if you look at this whole masala and the condiment market, the size of the market is very scalable and sizable around INR25,000 crores as compared to categories like oral care or hair oil where we operate in INR10,000 crore markets sizes and in juices where we operate around INR1,500 crore to INR2,000 crore market size. This is a very lucrative, large market. I think the first pivot of our winning into the market sizes where we entered should be scalable enough and there should be enough room for us to grow and with that kind of a market size, there is room for multiple organized players to come in and gain market shares and this market is essentially unorganized.

So, there is lot of room to get converted from unorganized to organized, from organized also to big branded player, so enough room for everybody to play and this is a very — should I say state-by-state market growth which one needs to follow. so we are starting from Maharashtra and Gujarat and then we will extend this portfolio going forward. and we feel that there is a brand equity here, which can be harvest and can be ploughed. As far as the growth not being there in past decade or so around 4%-5% of CAGR, I think there were issues within the family and that’s why the growth was not there. The family was little divided on the investments to be put behind the brand and, there hardly was any investment put behind the brand. But, the Jingle of Badshah still resonates very well.

As far as margins are concerned to your second point, Abneesh, the margins are accretive, whether it’s the gross margin or operating margin-it is accretive to our foods portfolio margins and this will only add on and improve our margins in the food segment where we guys operate with essentially beverage portfolio. We have a vision to extend our beverage portfolio to a food and beverage portfolio and this is an attempt in that direction to become a completely food and beverage company rather than being only a beverage player. We have a 70% market share in the beverage play but we want to extend this to the food segment.

As far as cash EPS is concerned, you want to take up Ankush?

Ankush Jain — Chief Financial Officer

Yes, Abneesh. Thank you for the question but what we mean by this is that profit-after-tax, net of the interest opportunity cost will be accretive from the first two years and without taking into account the brand amortization, which will come subsequently but cash EPS will definitely be accretive in two years, yes and going forward. Yes.

Abneesh Roy — Nuvama Institutional Equities — Analyst

And Mohit, on the question of the distribution scale-up because you said only few states Badshah present, will your plan be to first focus on these states or you want to first take pan India presence.

Mohit Malhotra — Chief Executive Officer

No, not really. So we have a very focused strategy on this. So in first phase we will focus on Gujarat, Maharashtra and Telangana, that is the key core state. In the second phase, we will focus on the adjoining adjacent states, which is Rajasthan. And subsequently we will look at scaling it up to all India where Dabur has a presence. So first that is the geography wise play. As far as the distribution play is concerned, we have got the distribution to roughly around 80,000 outlets, where Dabur has a much huger scale of distribution, whether it’s direct or indirect in both urban and rural. I think that within these states will be strengthened before we move on to the adjacent states and then subsequently to rest of India, but for rest of India as you know this is very specific to the pallet, likings and preference driven category, so we will have to create a back-end and create flavors, which are in tune with the preferences and the taste of the consumers in other geographies also. So that scale-up will happen in due course of time.

Abneesh Roy — Nuvama Institutional Equities — Analyst

That’s all from my side, thank you.

Mohit Malhotra — Chief Executive Officer

Thank you.

Operator

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

Shirish Pardeshi — Centrum Broking — Analyst

Hi, Mohit and team. Good morning. Thanks for the opportunity and Happy Diwali to you and the team. Just two questions, which is burning in my mind. During the COVID period our healthcare business has moved from almost 23%-24% to almost 40% when I look at Q3 last year. Now, clearly healthcare tailwinds are not there and the product decline is already there. So just wanted to your thought that how we should look at this business the rest of the year.

Mohit Malhotra — Chief Executive Officer

Yes, so Shirish, pre COVID the business was roughly around 30% contribution to our overall business and in healthcare. So, healthcare obviously got a growth spurt of around 70% during the two years of COVID, year-one and year two. Post that there has been a rebalancing of portfolio, which was expected to happen and which is happening. One thing, very heartening for us is the penetration levels of these healthcare categories have gone up to the pre COVID levels. So if you look at the business and this is the off-season that you’re looking at. Now in season we will be back to 30% contribution in this business.

If we look at the foods business also that went down to something like around 15% or even lesser then that and back to 20% levels, even the HPC business which was more discretionary in nature that went down to around 40% level back to 50% level, so the rebalancing of portfolio mix, which has happened and it’s going to be back to the pre COVID levels,so, which will be 30% of healthcare, foods being around 20%, HPCs around 50% and that’s what we expect it to be going forward also. The good thing is because of the catalytic impact of COVID, now some penetration levels in these categories have kind of stabilized and they are higher than the pre COVID levels and during the COVID period we’ve actually gained sustainable market share. If you look at Chyawanprash. I think year-on year in past three years we’ve gained something like around more than 1,500 bps overall in the three years.

So we have actually strengthened our market leadership in Chyawanprash, We strengthened our market leadership in Honey. In Honey pre COVID we lost to Patanjali, but post COVID we regained the entire ground and now our market share is in the range of around 50% in Honey also, despite newer players coming in because the whole market opened up and there was a growth, we have not seen any slack in terms of our market share and as a leader we are growing in this category as a leader and continuously launching newer formats, newer innovations, packaging the revamp, etc like you seen in Honey. We’ve extended ourselves into organic Honey, we’ve extended ourselves into squeezy pack, now we are launching pet bottles and we have gone into Honey Tasties, we will be launching a Honey tea and Honey for cough and cold, so there is definite multiple pivots and opportunities of growth which actually opened up post COVID for us and so is the case in Chyawanprash. In Chyawanprash also we’ve seen Chyawanprash in powder form coming in, Chyawanprash Diabetic coming, Chywanprash gur base coming in and so therefore it just opened up the whole market for us.

Shirish Pardeshi — Centrum Broking — Analyst

That’s really helpful, Mohit. My second question on the beverages part. Now we have a very strong strategy and we are now expanding and representing a larger market. So if you can give me some data points that when we had only one brand, which is Real, and now we have beverages, so, what kind of distribution leg-up which we have seen and what leg-up will still continue next two to three years, because I clearly see that the dairy beverages is growing upwards of 25%, so in that context so what we should estimate. I mean this purely from the modeling purposes, I’m asking this question.

Mohit Malhotra — Chief Executive Officer

I would request our Business Head of Foods to answer this question.

Unidentified Speaker —

Hi. So in beverages, we are playing in juice and nectar category and we had around 80%-85% NDA with 90% WD. We have been able to expand and add about 1.5 lakh outlets from the pre COVID level. Actually during the COVID level the distribution went3 down because of people staying indoors and with the drinks portfolio coming in what is really happening it is giving up links to expand Real into rural areas, into areas where we were not there because earlier [indecipherable] nectar was primarily urban centric, and town class one centric brand. Now with the right price point and with the right packaging we are really expanding our distribution into rural, we have created a whole super stockist network, we are going out to about 18,000 substockists now and on back of that network given the price point of 20, which is the Real juice and nectar price point that is also finding a lot of headroom for distribution expansion. We are already there in about three lakh outlets as far as the drinks business is concerned which we have created. We are poised to be above INR200 crores portfolio in drinks which was launched a couple of years back. So, there is a huge distribution opportunity for us. Earlier when we are playing in the juice and nectar category, a premium category, we were limited to urban centres and now we are expanding into new geographies, beyond North to other geographies like East, Central, West and South or be it beyond metros and class one towns to other town classes and rural markets. So, that’s what the strategy is.

Shirish Pardeshi — Centrum Broking — Analyst

Yes, that is really helpful. Mohit, my last question on Badshah. In terms of channel mix, if you can help me what is a channel mix in terms of modern trade and general trade and second, if you can give me some broad saliency, how much Gujarat and Maharashtra market contributes to the overall sales?

Mohit Malhotra — Chief Executive Officer

Alright, Shirish. Second question first, so around 80%-90% of the business comes from Gujarat, Maharashtra and some places adjacent to Maharashtra and Andhra Pradesh and Telangana. So around 80%-90% of the business happens from there, so its very focused part of the play which is there.

In term of channel mix, majority of the business is happening from GT which is around 95%, ecommerce is almost 0 and for Dabur ecommerce is around 9%, so I think this gives us a huge opportunity to make ecommerce at least 5% in the couple of years to come. Modern trade again is 3% for them and for us modern trade is up around 10%. So we will scale up 3% to 10% and stage it up, so there will be a lot of leverage which will happen with the Dabur’s infrastructure for Badshah.

Shirish Pardeshi — Centrum Broking — Analyst

I think after a long time, we feel we have a very good acquisition, so my sense is that you will turn around beyond our imagination. So all the best to you and the team. Thank you.

Mohit Malhotra — Chief Executive Officer

Thank you for the kind words, and wish you a very Happy Diwali and Seasons greetings. Thanks Shirish.

Shirish Pardeshi — Centrum Broking — Analyst

Thank you.

Operator

The next question is from the line of Arnab Mitra from Goldman Sachs. Please go ahead.

Arnab Mitra — Goldman Sachs — Analyst

Yes, Hi Mohit and team and congratulations on the acquisition. My first question is on acquisition itself that you have given some FY23 estimates of revenue and EBITDA if you were to derive it which showed a reasonably strong growth in FY23 versus in 22, so how confident are you that the 23 numbers are reasonable and not very aggressive because you will probably not have much inputs to put in 23 itself and the second was on the margins once it comes back into Dabur’s fold, will the cost structure increases against that you have a more–you have more overheads and they have to put advertising and will you be able to hold this 23% with kind of advertising that you have.

Mohit Malhotra — Chief Executive Officer

So, as far as the numbers for the current year is concerned, we are well on the way to achieve those numbers. Six months have already elapsed and we’ve already done more than around 50% of the numbers/ So, I don’t think there is any issue in terms of achieving those numbers and Arnab, as I told you before that there was a little rift within the family and that’s why the investments were actually stopped before the whole sell-out and this deal has actually happened and that’s why the growth was muted in the past, but I think now leveraging Dabur’s infrastructure, etc, I don’t think there is any impediment in terms of growing this business to the numbers that we’ve taken and we really think that we can grow this business at a 20% plus CAGR over the next four to five years and that is what is there as a game plan and the whole strategy has been created around achieving those numbers, whether it’s a distribution strategy or its investments or it is a channel mix or it is a price pack architecture or introducing new brands or variants or extending geographies or creating new formulation so all that blueprint already has been created and I think there’ll be huge synergy.

I don’t think we will bolt on, we will take Badshah’s business as stand-alone entity because we’ve only acquired a 51% stake and the promoters of the company are still there and the promoter will be the Managing Director of the company and we will want to get a lot of learning from the promoter. So they will not be the overhead from Dabur which will be saddled on to Badshah. They will be running the company independently and as with the Board doing the governance of the company and on the Board, Dabur will have a majority stake and we will be running the company very prudently and judiciously. I don’t think there will be any overheads which will come in because Dabur is acquiring the company but professional talent will be actually seen in the Board and that we will do in due course of time, that we will let you know as to who will be from the Dabur side so most probably the finance and marketing and sales distribution will be people from the Dabur side and owner will also be there to help us and guide us with the entire relationships which are existing there and also on the purchasing progress that they had 50% of the raw materials that we purchase in herbs and spices form to Badshah, so there’ll be a lot of leverage in the scale benefits that we will get In terms of procurement also.

Arnab Mitra — Goldman Sachs — Analyst

Sure, thanks. That’s helpful and there is one add-on question to that acquisition of the balance 49%, say five years down the line, is it an option that you have and is there a valuation that has already been decided on which that transaction will happen?

Mohit Malhotra — Chief Executive Officer

Yes, it is not an option. It’s a compulsory acquisition that we will have to do at the end of five years and that’s the part of the SPA that we will be signing and it will have the same multiple of revenue and EBITDA that we’ve acquired 51% stake, and the end of five years it will be on the same multiple of EBITDA and revenue.

Arnab Mitra — Goldman Sachs — Analyst

Got it. Fine, just last question on the brand amortization which I think you briefly mentioned, would you be amortizing the entire brand over a period of time or if you could help us understand how much of amortization comes in from this?

Ankush Jain — Chief Financial Officer

Sure, Arnab. I think brand amortization will be valued and a fair value of the brands will be established at the time of acquisition. We expect this to be obviously amortized over a period of 10 years which is in-line with our accounting policy and the share of that will be approximately INR40 crores to 50 crores which will come to us which is a non-cash item.

Arnab Mitra — Goldman Sachs — Analyst

Thanks so much and the last question on margins, overall how do you see the margin pressure given your mix of commodities with current trend. And maybe pricing that you may have planned, that will be the last point on this.

Mohit Malhotra — Chief Executive Officer

Sorry, I didn’t understand the margin pressure.

Arnab Mitra — Goldman Sachs — Analyst

The overall Dabur consolidated business, how do you see it in the second-half given how commodity mix trending right now?

Mohit Malhotra — Chief Executive Officer

So therefore the inflation in the current quarter has been around 10% and we expect the inflation to abate a little bit to 6% levels as we are navigating a high basis of last year inflation of around–so we expect inflation to be around 6% and the price increase benefit of 6% kicks-in now, so we expect the inflation to moderate in the coming quarters. With that sequentially our margins should be better but there will be some amount of margin erosion which can be ruled out in this quarter and also in the next quarter. Only in the next fiscal year we will have a benefit but sequentially the margins will continuously become better as we go into the third-quarter and the fourth-quarter.

Arnab Mitra — Goldman Sachs — Analyst

Thanks so much Mohit and team and all the best.

Mohit Malhotra — Chief Executive Officer

Thank you, Arnab. Thank you so much, yes.

Operator

Thank you. Our next question is from the line of Harit Kapoor from Investec. Please go ahead.

Harit Kapoor — Investec — Analyst

Hi, good morning team. Just had two questions, firstly was on the gross margin again. How much of this 300 bps decline that happened in the first-half would you–350 odd bps decline that has happened in the first-half in India would you attribute to the inflation impact and how much would you kind of attribute it to mix because you’ve also seen health–health supplement category is actually decline and foods actually grew at a faster pace.

Ankush Jain — Chief Financial Officer

Yes, Harish. Out of the 350 odd bps, 200 bps would be purely because of inflation, rest 100 bps would be basically because of mix and balance 50 bps will be basically because of some rebalancing in consumer promotion since we had to [indecipherable]. So broadly these three factor are 350 bps.

Mohit Malhotra — Chief Executive Officer

But that said we actually mitigated this 350 bps erosion in the gross margin when it comes to operating margin. Operating margin falls only on 190 bps. So, I think that has come on back of some saving initiatives that we did in the first half, roughly around INR40 crores and there has been obviously price increases which had happened and a lot more leverage coming from S&M also has helped us to bridge this gap between 300 to 190.

Harit Kapoor — Investec — Analyst

That’s helpful. Second question is on these new product launches. So it seems like the mode of launches are going to be starting from e-commerce., then moving to select modern trade and then depending on the performance of the launches, to kind of immediate action standards then it goes and get GT, so is this typically going to be the template that use and it seems like you have over the last couple of years but is this typically the template you are going to use across new launches and if there are any exceptions if you could kind of mentioned in the last two years if you got anything different. Whether you started the GT or direct NP, so just wanted your sense on that.

Mohit Malhotra — Chief Executive Officer

Yes, So, I think this is a good standard playbook that we’ve actually established for NPD and this is also helping us because of the investment which is going behind establishing a new products because ecommerce is a little more economical channel wherein the investments are not huge and if you launch it lock, stock and barrel in the GT, the investments on the mass media, especially in the hindi satellite are very heavy and burns a hole in our pocket especially with inflation being there, we can’t afford that to do so. E-commerce is a great platform to fly a [indecipherable] balloon and it establishes and moreover the consumers who are shopping on ecommerce are also the ones who are early adopters and these early adopters want to drive the new brand, so it’s working out well and then we roll it out in MT and then followed by GT. I don’t remember any exceptions which has actually happened, if at all there are some exceptions like in the MFD category we have launched Vita there but that’s also in selective open format outlets of GT where we have actually rolled that out, otherwise we are following this playbook which is kind of working well for us.

Harit Kapoor — Investec — Analyst

Okay, one last housekeeping question if I may is, you mentioned 9% in ecommerce, what could be MT now in terms of–In terms of share.

Mohit Malhotra — Chief Executive Officer

Around 10%.

Harit Kapoor — Investec — Analyst

Great. Yes that’s it. Thanks.

Operator

Thank you. Our next question is from the line of Shrenik Bachhawat from LIC Mutual Fund, please go ahead.

Shrenik Bachhawat — LIC Mutual Fund — Analyst

Hi, thanks for the opportunity. So my first question is could you share the state-wise revenue-share for Badshah as of now.

Mohit Malhotra — Chief Executive Officer

Sorry, state-wise revenue share…

Shrenik Bachhawat — LIC Mutual Fund — Analyst

Revenue share divided in Maharashtra, Gujarat and Telangana.

Mohit Malhotra — Chief Executive Officer

One second, exact numbers I will just have to tell you.

Unidentified Speaker —

Maharashtra is around 35%, Gujarat is 40% and Telangana is around 10%.

Shrenik Bachhawat — LIC Mutual Fund — Analyst

Okay, got it and what is the outlook on the ad spends for FY22 like how will ad spend span on for the second-half.

Mohit Malhotra — Chief Executive Officer

Advertising spends for us have been muted. We cut-back on advertising spend by around 20% plus in the second quarter that is because the inflationary pressures are high, some amount of optimization of advertising was required but our overall advertising ad pro spends which is advertising and promotion spends in the quarter has gone up by around 7%, so that is in line with our top-line, so there hasn’t been any cut in the advertising and promotion, it is just moving resources from one bucket to the other. We’ve not advertised but it all depends upon the channel mix where we sell it depending upon the competitive intensity in the demand situation so as the demand situation improves we will put our money into advertising and if the demand situation is not improving and the categories continue to decline then we have to fight for market shares and sales shares in which the trade spends and the consumers spends become more important the advertising spend. So the situation is pretty influx so it depends upon how we maneuvered those spends depending upon what competitive intensity that we face. I can’t comment but that said around overall spends are in the range of around 15% for us and will remain that much.

Shrenik Bachhawat — LIC Mutual Fund — Analyst

Got it sir, and on the asset under the new Indore plant, could you please share the asset turn expected on that plant and the revenue expectations in FY ’25.

Mohit Malhotra — Chief Executive Officer

Sorry, I didn’t quite get that really, can you repeat the question?

Shrenik Bachhawat — LIC Mutual Fund — Analyst

From the new Indore plant, the new CapEx that you are doing for 386 crore, what is that asset turn expected in that fund..

Mohit Malhotra — Chief Executive Officer

Sorry what expected…

Ankush Jain — Chief Financial Officer

Asset turn. In our plant the new acquisition which we have–sorry the new CapEx which we are planning INR325 crores, we are expecting around three times asset turnover, so INR900 odd crores turnover will come at the peak of it, so which should be roughly three times.

Shrenik Bachhawat — LIC Mutual Fund — Analyst

So, around INR900 crores revenue should be achieved by FY ’26 or ’27.

Ankush Jain — Chief Financial Officer

I think in the peak around between FY 2’7 you can take. And just to come back on the Badshah and as you said that the market share is around 45% for Badshah Masala, so that is in Maharashtra and Gujarat, right, Telangana will be much lesser.

Mohit Malhotra — Chief Executive Officer

That’s right. It is in the geographies where they are present in Gujarat and Maharashtra.

Shrenik Bachhawat — LIC Mutual Fund — Analyst

Telangana would be around 2% of…

Mohit Malhotra — Chief Executive Officer

The [indecipherable] small around 5% market-share, actually 5% market-share in the blended category.

Shrenik Bachhawat — LIC Mutual Fund — Analyst

Got it. Thank you so much.

Mohit Malhotra — Chief Executive Officer

Thank you, Shrenik.

Operator

Thank you. Our next question is from the line of Avi Mehta from Macquarie. Please go ahead.

Avi Mehta — Macquarie — Analyst

Hi Sir. Just wanted to kind of first understand the rural recovery, you remain optimistic, would you say your confidence on rural recovery is high versus what you shared in first-half, sorry first quarter and if yes, what could have driven that.

Mohit Malhotra — Chief Executive Officer

Yes. I don’t know if I’ve been very optimistic, not really so. So, I think what’s happening is Avi that rural for Dabur as you know, was for past six quarters always trending ahead of urban and this is the first-quarter where we’ve seen the rural lagging behind urban whereas this category indicators which are the early indicators that we get that rural was lagging but Dabur is actually caught on back of a lot of infrastructure that we put in place in terms of appointing 10,000 Yoddhas which is actually contributing to around 20 crores of our sales also and our village leads has actually gone up 100,000 so we did not see the telltale signs of a little slowdown happening in rural while the category — FMCG category was all pointing at the same thing.

This quarter we’ve seen rural actually growing by only 1% and urban business growing at around 6% so we have seen the credit pressure, liquidity pressure coming in rural business and more so in the rural heartland of Dabur which is more UP and Bihar and UP and Bihar the problem actually got exacerbated by the monsoon also being a little patchy in those areas, while all-India the monsoon has been good but in our specific areas where there is a huge reliance of rural in Bihar and UP for us where the monsoon has been a little patchy and therefore a little slowdown down is what we are seeing in credit pressure, liquidity pressure is what we are seeing in these areas, it’s very difficult for me to give you a definitive answer as to when will the rural recovery start but I think the festive season, it’s kind of brought in a little glimmer of hope in terms of our pipeline has filling for healthcare product has been good in rural with Chyawanprash and Honey kind of kicking-in and in the month of September we have actually seen some growth happening in our healthcare business here, so that is what gives us a little optimistic hope that rural might just come back around.

Avi Mehta — Macquarie — Analyst

Got it, very clear. Sir, the second question was on the margin front, you did allude very clear feedback sequentially. I think the worst of the gross margin pressures are behind us because inflation eases off and price increases go through, would it be fair to argue that second-half EBITDA margin performance should also kind of mirror this in that sense.

Mohit Malhotra — Chief Executive Officer

That’s right, absolutely. So we talked about EBITDA margins only, so EBITDA margin sequentially are better and they will get better in the second-half and we want to maintain our EBITDA the operating margins in the range of 20%-21% for the whole year which is what guidance also that we’ve given in the past.

Avi Mehta — Macquarie — Analyst

Perfect, Perfect and sir, lastly on the Badshah acquisition. I understood the revenue synergies, you were kind of alluded to some synergies at the back-end but would you argue that higher chunk of synergies is something that would be revenue-driven and margin is something that would not be the case. I mean I guess that was what the read-through but I just wanted to kind of understand it better from your perspective who has that understanding correct.

Mohit Malhotra — Chief Executive Officer

Yes, so the synergies are actually immense in the business, so first is obviously the distribution muscle of Dabur especially in the rural that is huge for us and whether it’s the core market of Badshah or the non-core market of Badshah, I think rural village reach of Dabur is far better and in rural you sell small low unit price point packs and they don’t have that so we are putting up, CapEx as increasing capacity for them, also that’s one area of the states in which we can expand then the non-urban non-core urban markets where they are not present and Dabur is present that is second lever of synergy is that we will get and the third leg of synergy is alternative channels like modern trade and e-commerce where they are not present and we people are presented, the fourth synergy is actually overheads because being a smaller business that overheads are higher as compared to Dabur which will leverage its existing infrastructure and on marginal cost basis we can just tag on this business to our business that’s the four, the fifth is the procurement efficiency we see by on scale and our systems processes enable us to get better deals as compared to the verbal negotiations that happened in their case, the seventh is automation in the factories which today they have manual operations, we will automate and therefore reduce manpower there, so that is another level of synergy and then obviously the manning and organization structure can also be leveraged but this will be reinvested back in advertising spend that they have been cutting back on. Therefore, creating margin, so whatever synergies we get it’s not that we will plough it back into the business and advertising because I think demand has to be created and this category is high decibel advertising category where we need to invest money in creating the demand.

Avi Mehta — Macquarie — Analyst

Got it, got it and this is very clear. Thank you very much, sir. And wish you a very Happy Diwali and a prosperous year ahead.

Mohit Malhotra — Chief Executive Officer

Thank you, Avi.

Operator

Thank you. Our next question is from the line of Kunal Vora from BNP Paribas. Please go ahead.

Kunal Vora — BNP Paribas — Analyst

Yes and thanks for the opportunity, sir. First question on Badshah, what’s the reason for buying only 51% and not 100% to start with and you said you expect strong growth in revenue as well as profitability so you will have to share some benefits of that with the promoters for the remaining 49% and also the promoter will continue to remain the MD, so will you be able to drive all the changes you want to implement with promoter still being in control.

Mohit Malhotra — Chief Executive Officer

Yes, first thing, Kunal, I think a good question. So obviously these deals happen over a period of time and we have been in discussions and in talks with them for over five years now and the deal has got consummated after a span of five years, so there have been deliberations and discussions which have been happening with the promoters over a period of time in which we’ve established that chemistry connect also.

So, I don’t think–they being the Managing Director on the Board will actually help us because we are getting into this new category, it is a alien category for us, we’ve not done the business like this and we need to gather understanding on-board and with the promoters being there, I think they will only hand hold us because there are so many nuisances that we will have to understand in this category and there is a stickiness in the relationships which is there as far as distribution and the channels is concerned so that stickiness of relationship also has to be harnessed and with Dabur’s progress in negotiations, so that will come very handy plus creation of products involve a lot of understanding of the taste and preferences of the core markets.

As the promoters are Gujarati, they understand that taste pallet so well of the Gujarati consumer so therefore extending the product, creating new variants, looking at the market; so we can provide that analysis and they can provide real culinary sense of the taste of the local consumers, so that–so lot of learning has to come from them and that’s why. In a sense the promoters would not sell-out the company if we were to acquire 100%, they would agree to that, that’s one. Number two, a lot of learning has to come from the promoters and they will hand hold us plus it will take us that much of time to understand the company. So if a part of that benefit will go to the promoters over a period of five years, we are okay with that. So that’s the way the deals happen, which are more win-win relationships rather than one-way deal.

Gagan Ahluwalia — Vice President Corporate Affairs

And just to add to that, team is going to manage the business along with the Managing Director and most of the members of that could be nominated by Dabur, so we expect that all the changes and synergies that we want to capture, we will not have any issues taking them for.

Kunal Vora — BNP Paribas — Analyst

Understood. That’s very clear. My second and last question. I just wanted to understand how does the reduced advertisement spends impact the strength of the brands like we have seen this happening across-the-board all companies have lowered spends, besides the gross margin pressure, is there anything structurally which has changed like say television, digital dynamics because of which the spends have been lowered and how does it impact the business in the longer-term, reduced ad spends.

Mohit Malhotra — Chief Executive Officer

Sorry, Kunal there was a lot of noise in the conversation, we could not hear you, could you repeat?

Kunal Vora — BNP Paribas — Analyst

Yes, so what I wanted to understand was the reduced advertisement spends, how does it impact the brands in the longer-term. I mean, I understand that in the short-term it is gross margin pressure which is resulting in the cuts in expenses?

Ankush Jain — Chief Financial Officer

So the question is, the reduced A&P spend how does it impact demand in the long-term, specifically for Dabur. Though in the short-term they understand that there are pressures and therefore A&Ps being reduced.

Mohit Malhotra — Chief Executive Officer

Right. Right. Kunal, Sorry, could not understand the question, there was disturbance, but you know as far as we are concerned the acid test of a brand’s growth is market share gain in volume and value and more so in volume and that’s what we are trending, so as you know 95% of the portfolio we guys are gaining market share, whether you gained market share through advertising, pull creation or through pushing the product and the consumer actually uses it, that’s the acid test and we’ve been gaining market share and strengthening our position in the marketplace, so as the situation warrants, the investment moves into that particular sphere depending upon how the demand is, comparative intensity is, so that’s the way things are, so, I don’t think this is going to hamper the brand health but that said we are completely for investing behind our power brands and new products that we guys are launching. As the situation becomes a little better we will be back into investing behind the brands the way we were used to doing it and actually increasing our investments behind the brands, so that philosophy is absolutely with us.

Kunal Vora — BNP Paribas — Analyst

Earlier you were looking to take expense to much higher levels like you wanted to go beyond 10%, today we are at like 5.5% so where does it settle, would it settle somewhere in-between, do you want to go back to double-digit expense?

Mohit Malhotra — Chief Executive Officer

No, the intent is to go back to double-digit ad spend as the situation demands but at the moment because of the inflationary pressures being so high, I think temporarily we’ve actually got some efficiencies coming in optimization of advertising which has actually happened but that would not be a long-term strategy. Long-term is always to cut-back on trade and consumer spending and put the money back into advertising.

Kunal Vora — BNP Paribas — Analyst

Understood, and just one last question on Middle-East and Namaste values in declines in sales and on constant-currency basis, what’s happening there and how do these markets look like for the coming quarters.

Mohit Malhotra — Chief Executive Officer

Again inflation is the main culprit, there has been huge inflation like in India we’ve seen a 10% increase, in Middle-East we’ve seen a inflation of around 30% and 30% inflation is coming in because it’s entire portfolio is our HPC portfolio which is personal care portfolio and which is very crude denominated in terms of the raw-material prices, in addition to that we’ve seen currency–dollar is actually strengthening. So because of the inflation we had to take price increases to an extent of around 20% there, because of the 20% price increase we’ve seen a little backlash coming from the marketplace and inventories, also reluctance of the distributors to pickup the high-price stock. I think it’s a momentary issue which will get resolved, so it is because of that most of the categories, while they’re growing in terms of value but volume-wise we are actually declining there but I think it’s a momentary thing which is happening both in the US and also in our Dubai Meena markets.

Kunal Vora — BNP Paribas — Analyst

Understood, that’s clear. That’s it from my side, thank you.

Mohit Malhotra — Chief Executive Officer

Thank you, Kunal.

Operator

[Operator instructions] Thank you, the next question is from the line of Mihir Shah from Nomura. Please go ahead.

Mihir Shah — Nomura — Analyst

Hi, I hope I’m audible. Hi Mohit thank you so much for taking my question. So firstly I wanted to just pick a little bit more–get some more thoughts on the demand–overall demand environment. I mean narrative for most companies has been that demand is expected to improve going forward. But the recent demand improvement that you’ve seen in urban and you did highlight on rural demand that you are witnessing for yourselves, so the recent urban demand can also be largely festive linked uptick that is there and can easily fizzle away, any data or trends that you are witnessing that can give you some insights on how rural demand and urban demand is expected to shape up going forward from here.

Mohit Malhotra — Chief Executive Officer

We are seeing the demand environment is actually pretty lukewarm as far as the data–what the data tells us if I look at the syndicated data, certainly we’ve seen a growth in the market which is roughly around 10.9%, has come down to around 8.1% and the volumes have actually gone down by around 2.2% which was in the range of around 0.9% in the last quarter, so the volumes are going down, the growth that you’re seeing in the syndicated data is all coming on back of the price increases and because of inflation and price increases, the interest rates are going up, so therefore there all efforts being made by the government to not to revise the demand but to Destruct the demand to reduce the inflation, so therefore the telltale signs are to destruct the demand and therefore–so that the inflation actually comes down and that’s the pressure that we are facing and we are not seeing this actually going down, so the only reports for companies like us to consolidate our position and maintain margins as much as we can and gain market shares. And get to a trajectory of growth through gaining market shares and consolidating your position that is about Dabur is doing. As far as the urban and rural is concerned, we have seen rural decline at around–from a category perspective declined by around 4.55 to 5% and urban is just there which is actually flat–which is also flat on back of the emerging channels like e-commerce and modern trade,doing well and they are opening up after the huge backlog of COVID, but festive season has brought in some glimmer of hope for us we hope that will last and this will sustain.

Mihir Shah — Nomura — Analyst

Got it understood. And I hear your comments on ad spends that you mentioned and the promotion but only on gross margins again you did mention that you you’re expecting–or you are expecting raw-material inflation to ease to about 6%, you have already taken 6% pricing. So does that really mean that from next quarter onwards on a Y-o-Y basis, you will not have material pressure on gross margins. I mean is that understanding correct.

Mohit Malhotra — Chief Executive Officer

No, not really, we did sequentially, so it’s actually Q2 has been relatively better than Q1 and Q3 will be better than the Q2 but if you look at year-on-year there’ll be inflation of around 6% though but if there is a price increase of 6% that’s not good enough, to offset the inflation of 6% you need to take a price increase of roughly around 10% or 11% to offset inflation of 6% material prices because we operate at a gross margin levels of around, 45%-50%, so that’s how it is, so there will be some pressure on the margins for year-on-year but sequentially there will be operating margin improvement definitely.

Ankush Jain — Chief Financial Officer

So what we can say the contraction in margins will come down significantly from currently 50 odd levels it will–the contraction will come down significantly. In gross margins on a Y-o-Y basis at least by 50%.

Operator

Thank you. Our next question is from the line of Tejas Shah from Spark Capital. Please go ahead.

Tejas Shah — Spark Capital — Analyst

Hi team thanks for the opportunity. So my first question pertains to rural demand and if we see among FMCG players for last almost eight-12 quarters, there is no consensus on rural demand and that has been pushing for quite some time. Overall it looks more reflexive and led by recency bias for each company but by and large it has been tepid for long and when we see this in relation to discretionary categories, they have been talking about a lot of premiumization and rural penetration led growth, so how should we actually try to marry those two trends where discretionary categories are coming with reasonably better commentary on rural demand and FMCG players and are we seeing any such divergent trends within our basket in favor of discretionary portfolio in rural.

Mohit Malhotra — Chief Executive Officer

So, I don’t know, there is no right explanation. I don’t know what you are saying but as far as we are concerned the way we see it that rural demand has been tepid and we have been seeing downtrading which is actually happening in the rural areas and our LUPs are doing well and the inflation impact in the rural areas has been more as compared to in the urban areas so there has been a cutting back of the pack sizes also which has happened in the rural areas and those products are doing well for us, so we have seen INR10 price points and INR20 price point actually doing well, INR1, INR2 price points are also doing well. Our shampoo sachets are performing better than the shampoo bottles, as far as the premium products doing well in the rural we have not seen that happen at Dabur but theoretical explanation could be the case of recovery which they say, but we have not seen that span out in the rural areas especially for us. That is more evident I think in urban but not in rural.

Tejas Shah — Spark Capital — Analyst

Sure, that’s helpful. Second on broader capital allocation that we are seeing FMCG players across is there is a disproportionate trust on putting money organically and inorganically both on food side of the portfolio, many HPC guys are actually now acquiring as such on that site including what we have done now, so does it mean that HPC as a basket is not as attractive on inorganic route except some D2C initiatives and broadly we are seeing a lot of opportunities on the food side or how should we read or there is nothing to read on this.

Mohit Malhotra — Chief Executive Officer

No-no. I think very good point actually made. The way I see it that in a inflationary environment like this, when companies are all taking price increases there are some categories which are more elastic and some categories are inelastic. The food market and the staple market in India because it’s so unbranded in nature, that is very inelastic in nature so no matter how much of inflationary pressures are there and the market passes on that inflationary pressure to the consumer this is an inelastic demand, so the demand will always be there whether it’s edible oil or it is a food and that’s why the food category is growing at a fast pace and the decline and, what happens is in a discretionary category we see the pressure being too much and people cutting back on discretionary environment and that’s why discretionary product don’t do so well and India is a large unbranded market so lot of inorganic play will happen in India and we will see a lot of consolidation from unorganized to organized which will happen in India that’s why you see a lot of deals happening in foods, that said I think the personal care market is also very low penetrated in this country and if you look at examples of Southeast Asia or examples of Middle-East, I think the penetration levels of personal care are low and there is so much of catching-up to be done in personal care but I think the times are not great, these are inflationary times, these times are not great too for us or for any D2C player to scale-up premium product or personal care product but I think on a long-term basis personal care should also see a lot of deals which will happen in addition to foods.

And in addition to healthcare which is becoming salient and which are the three buckets that we have our businesses so it’s not that we are shifting our resources into foods, we want our foods to be around 20% thereabout saliency and also put thrust on HPC portfolio and healthcare portfolio which is the window to Dabur’s equity in the long-term.

Operator

Thank you. Our next question is from the line of Sheela Rathi from JP, sorry, from Morgan Stanley, please go ahead.

Sheela Rathi — Morgan Stanley — Analyst

Hey, thank you for giving me the opportunity. Hi Mohit and team. My first question was with respect to, you’re talking about 95% market share gains across the category and I think this is a very strong delivery. Just wanted to understand is there any category that we are seeing larger competitive intensity both from large players as well as the B2C side.

Mohit Malhotra — Chief Executive Officer

Sorry, Sheela. I didn’t get the last part of your question.

Sheela Rathi — Morgan Stanley — Analyst

Are we seeing any more competitive intensity coming through either from large players or also on the B2C sites.

Mohit Malhotra — Chief Executive Officer

Yes, that’s right. So there are couple of categories, so that’s 5% is where we are facing competitive intensity for example hair oils is somewhere that we are facing huge competitive intensity and that comes from one of the larger players and at a lower-price point, so as you know Dabur Amla a high-priced player and we compete with competitor who is at half our price and therefore we have a flanker brand strategy, we need to strengthen or invest money in a co-brand protected by creating moods with our flanker co-brands so that is a strategy which is intact and that is to head the competition that we’re facing from almost like a market-leader in the hair oil category, barring that I don’t think we have any competitor wherein we are really worried in the healthcare portfolio. We had a competitor making entry but. I think it’s got washed away and we’ve only strengthened our position, so barring hair oils, I don’t think anything else worries us except in the skincare portfolio we are facing some pressure from local small players which are very regional players which are undercutting us like in Fem bleaches we face some competition from very local players which are Punjab based or UP based etc but that is something that we can easily counter reasonably well as we have deeper pockets as compared to them and one can maneuver. As far as D2C is concerned, not really. I don’t think we are facing any pressure on D2C as a matter of fact, any category D2C where we are entering we are seeing our market-share gains are instantaneous in D2C because consumers sees the trusted legacy and that is specially in the healthcare category than HPC category, much better with Dabur as compared to a smaller D2C player.

Sheela Rathi — Morgan Stanley — Analyst

Understood. Thank you. my second question was with respect to the food and category expansion especially on the distribution side, where do we see the distribution network being in the next three years and just as a part to it, you talked about the playbook on the online side or the e-commerce side which is working out very well, do you think on the F&R portfolio the same strategy will work-out or you would need to be more aggressive on the GT side or the MT side.

Mayank Kumar — Business Head – Foods

Yeh, so I just talked about some sort of distribution expansion strategy that we dealt with our beverage portfolio, especially after getting into the drinks portfolio so just to give you a flavor of the next three years as that is what you are talking about, so we have started this journey from North and East, next season we’ll be expanding majorly in Central, West and South part of India. So that’s how we will play-out in the next three years so we are slowly and steadily building up our rural network and creating our own rural footprint rather than writing on the CPG or the FMCG footprint earlier we used to write on the FMCG footprint but now with substantial business coming in we are creating our own foods footprint because the kind of outlets that we cater to, the kind of routes that we cater to, the kind of beverage that we cater to are very different from FMCG outlets and we are also pointing people who have an experience of beverage category in terms of distribution and that is giving us a lot of synergies and that is really helping us scale the distribution very very fast, so that’s how in the next three years it will pan-out, we will reach out to newer town classes, rural market, newer outlets because the ND kind of outlets are very very important. So that’s to answer your first part of the question.

As far as the second part of the question is concerned, because of the weight value ratio, beverage portfolio is not so conducive for e-commerce that’s what we see but what has happened really is quick commerce which has now become very-very important for us. That has really helped the beverage portfolio and as quick commerce goes up it will really help the beverage portfolio and that is what we are seeing. Our earlier quick commerce used to contribute about 15% of the revenues for beverages, as far as last year is concerned, amount have gone up to 30%-32%, so quick commerce is really helping us and. I think that’s the way forward for beverage In the coming years.

Mohit Malhotra — Chief Executive Officer

Yeah but that said, I think in the GP also distribution becomes significantly important to Mayank’s point and therefore we are putting up a separate infrastructure in place in GP also for ramping-up our drinks business which is already exiting INR200 crores and in three years time we want to build it to a INR500 crore portfolio in drinks.

Operator

Thank you. The next question is from the line of Ajay Thakur from Anand Rathi, please go ahead.

Ajay Thakur — Anand Rathi Group — Analyst

Hello sir, thanks for taking my question. So. I had one question, first question was more on the celebrity-led advertisement that we are witnessing from Dabur side so, any thought process change over there or are we looking at–so for instance we have already seen even three brand endorsement by the likes of Amitabh Bachchan, Deepika Padukone which we have brought in, so what is the thought process change that we are trying to see over here and would that be kind of catering to or trying to solve certain problems that we would have seen those kind or is it. Going to be addressing more of your market-share or some other kind of thought process over there. so that’s the first question.

Mohit Malhotra — Chief Executive Officer

So there Dabur is already been working on a template or playbook off the celebrity advertising and this has been working well for us and it helps us to gain market-share but this is also towards solving specific problems for us like in Red Toothpaste we are very salient in the South of the country and then in South our market shares are much higher as compared to North of the country. In North Patanjali is a strong player and Baba’s foothold is much higher as compared to Dabur;s foothold in UP, MP, Bihar which is Hindi heartland and in Hindi heartland to fight that kind of followership that Patanjali have, we needed a bigger name and that’s why we signed up with Amitabh Bachchan to gain share in the North belt for us and we’ve made some two-three creatives and all the creatives talk about taking shares from white or plain toothpaste and that’s what and even in Dabur Amla we signed-up with Deepika Padukone but Amla has always been taking the top-notch celebrities so from Kareena Kapoor we’ve moved on to now Deepika Padukone and hat’s also towards increasing our market shares. Yes.

Operator

Thank you. The next question is from the line of Vishal Punmiya from Nirmal Bang Institutional Equities. Please go ahead.

Vishal Punmiya — Nirmal Bang Institutional Equities — Analyst

Yes, thank you for the opportunity, So first question is basically a clarification on the price increase, so we had around 6% price increase for the quarter, any additional price hike that we took in 2Q FY23 or it is just the flow-through of the previous price hike.

Ankush Jain — Chief Financial Officer

Yes, hi Vishal this is actually a combination of both, so this would be a flow-through as well and our estimate is two-thirds is flow-through and one-third would be the fresh price increases.

Vishal Punmiya — Nirmal Bang Institutional Equities — Analyst

So what is the weighted-average price increase that we took in 2Q FY 23?

Ankush Jain — Chief Financial Officer

The weighted-average price increase is 6%, including the flow-through.

Vishal Punmiya — Nirmal Bang Institutional Equities — Analyst

Okay, no, so additional price hike during this quarter would be around 2%-3%.

Ankush Jain — Chief Financial Officer

Yes, around 2%, one-third of that which will now comes with full effect in subsequent quarters.

Vishal Punmiya — Nirmal Bang Institutional Equities — Analyst

Okay, understood and secondly on Badshah, based on the revenue mix that you have given I’m assuming that, 15% is exports, so if you can basically break-up the 3-year CAGR for the domestic business and exports business and any overlap of regions in exports for Dabur international business and Badshah business.

Mohit Malhotra — Chief Executive Officer

Yes, export has been very marginal or miniscule for the Badshah business roughly around 5%-6% of their business but I think exports holds a huge potential especially in areas where Indian expat population which is essentially in the Americas and in the UK, so and we feel there is a huge opportunity and Dabur has got a massive infrastructure of distribution there which can be leveraged for the Badshah business there and we feel in due course of time this 5% of turnover will definitely go up to roughly around 10% in a shorter period of time just by leveraging our distribution because of the huge expat population already holding and the expat population that too from the region which is the Maharashtra and Gujarat, Gujarat being more so in Middle-East and Americas.

Operator

Thank you. The next question is from the line of Aditya Agarwal from Deloitte. Please go ahead.

Aditya Agarwal — Deloitte — Analyst

Hi, thank you for the opportunity. I wanted to ask you on your beverages portfolio, like we have seen that the dairy beverages portfolio has been going good in the current year so what’s your outlook and performance for the current year on the same.

Operator

Hello Aditya, can you please repeat your question.

Aditya Agarwal — Deloitte — Analyst

In the current year we have seen that the dairy beverage portfolio has been going good for the industry. And how on the same line as the Real brand performing and what’s our outlook going forward for the same.

Mohit Malhotra — Chief Executive Officer

So, we are very optimistic and hopeful on the entire beverage portfolio because our strategy is to build this for scale-up the Real brand and earlier we were only present in the juices and the nectar category now we’ve expanded the total addressable market from roughly around INR1700 crores-INR1800 crores to moving out to around INR8000 crores-INR9,000 crores and into the drinks space and if you look at the J&N category juices and nectars where our market-share is in the range of around 65% and 67% as compared to the drinks category where our market-share is pretty miniscule, less than 10%, so therefore the total addressable market has actually gone up for us and we see the 10% market-share only scaling up in due course of time and therefore that 90% headroom of market share is still there with us. That’s what we alluded to before in terms of infrastructure expansion, distribution reach, advertising, new Saks being added, new variants being added and now we are also proposing to enter the Fizz market which is a carbonated fruit beverage market. We should be starting our production in the coming season in Jimmie to harness that particular category. Yes.

Aditya Agarwal — Deloitte — Analyst

Okay I was saying that in the current quarter on a standalone basis we have seen for the food and beverage businesses the profit margin has gone up to 16.6% from traditional 13.5% to 14%, so are we envisaging to keep this at the same level or are we going to go back to the 14% level.

Mohit Malhotra — Chief Executive Officer

No, margins we will keep increasing as the benefits of scale keep coming in so, I think as we scale-up the business we’ll be leveraging our S&M cost and even if the investment is there the indirect cost we’ll leverage and also the fixed assets will be leveraged and while its the CapEx where we are putting up investments but think the margins–the operating margin level will keep going up as we scale-up the business.

Operator

Thank you. Ladies and gentlemen that would be our last question for today. I now hand the conference over to Ms Gagan Ahluwalia for closing comments.

Thank you and over to you, ma’am.

Gagan Ahluwalia — Vice President Corporate Affairs

Thank you. Thank you everyone for your partners. The webcast and transcript will be available on our websites soon. Thanks and good night.

Operator

[Operator Closing Remarks]