Marico Ltd (NSE: MARICO) Q2 2025 Earnings Call dated Oct. 29, 2024
Corporate Participants:
Saugata Gupta — Managing Director And Chief Executive Officer
Pawan Agrawal — Chief Financial Officer
Analysts:
Abneesh Roy — Analyst
Avi Mehta — Analyst
Vivek Maheshwari — Analyst
Arnab Mitra — Analyst
Manoj Menon — Analyst
Harit Kapoor — Analyst
Tejas Shah — Analyst
Mihir Shah — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Marico Limited Q2 FY ’25 Earnings Conference Call. We have with us the senior management of Marico represented by Mr. Saugata Gupta, MD and CEO; and Mr. Pawan Agrawal, CFO. [Operator Instructions]
Before we get started, I would like to remind you that the Q&A session is only for institutional investors and analysts, and therefore, if there is anybody else who is not an institutional investor or analyst but would like to ask questions, please directly reach out to Marico’s Investor Relations team.
I will now hand the conference over to Mr. Saugata Gupta for his opening comments. Thank you. And over to you, sir.
Saugata Gupta — Managing Director And Chief Executive Officer
Yeah. Hi, good evening to all those who have joined the call and hope everyone is doing well. I would like to begin by dissecting the broader market landscape during the quarter gone by, after which I’ll touch upon our performance and strategic objectives going forward. The sector exhibited stable demand trends with rural outpacing urban on a year-on-year basis for the third quarter on the trot, while pricing growth trended up. For a better read on ongoing consumption pattern, let us break down the performance of each market segment.
In urban, we continue to see buoyancy in consumption in the top end and upper-middle-class segments, which aligns with the growth seen in most of our newer portfolios of foods and premium personal care, including the digital-first brands. However, among the middle and the lower middle class in urban, food inflation and muted sentiment overall has affected the consumption. In the bottom of pyramid segment in urban, there’s a similar situation, although this segment is partially insulated from the impact of food inflation by government schemes. And lastly in rural, there’s a gradual improvement in demand sentiment, which has been aided by above-normal monsoons, sustained government spending through MSPs and free foodgrain schemes. Looking ahead, this pattern and trajectory of demand should help in sequential improvement in our volume growth going forward. However, food and retail inflation trends would be key factors to be monitored as we move in the coming quarters.
Moving on to our performance, the sequential uptick in domestic volume growth was led by steadying trends across the majority of our portfolios, which also reflected in the healthier trends in offtake growth, and more than 80% of the business either gained or sustained market share and penetration on a MAT basis. Domestic revenue growth moved up along expected lines as volume growth was supplemented by price hikes in coconut oil portfolio and favorable reversal in pricing cycle in Saffola oils. Pricing growth is likely to pick up in H2 in view of the sequential rise in commodity prices, which will further aid domestic revenue growth through the course of the year.
From the channel perspective, alternate channels continue to gain salience vis-a-vis general trade. While the share of alternate channels has been on the rise in tier 1 market, we are also taking concerted effort towards reviving growth in our GT business which we believe will remain the dominant channel, especially in tier 2 markets and beyond.
After the successful initiation in the preceding quarter, Project SETU extended to four more states, taking the tally to 10 states. The execution at state level has progressed as planned, supported by robust governance mechanisms to ensure sustainable outlet expansion. Implementing mindset and operating model changes at this scale can be time consuming, especially when significant consumption tailwinds are absent. However, we believe, given the early trends, this three-year commitment will structure, reset, and transform the long-term potential of our GT sales infrastructure, leading to higher growth. In addition to improved direct reach and weighted distribution, Project SETU will drive market share gains across categories in urban and rural markets, as well as enhance assortment levels in urban stores, thereby enabling the diversification and premiumization in the domestic business in an accelerated manner.
Delving into domestic business, we shall touch upon the key trends in each of our categories. Parachute Rigids witnessed a healthy pickup in volume growth, even after observing the impact of ml-age reduction in one of the low — in the key price-point packs implemented in lieu of a price increase. The volume impact of ml-age reduction was circa 1% at the brand level. The brand gained 120 bps gain in volume share on a MAT basis. Revenue growth moved to double digits, aided by pricing intervention made at the start of the year.
Given the sequential rise in copra prices, the brand has taken another round of price increase of circa of 4%, which will flow through in H2. Flanker brands include Nihar Coconut Oil and Oil of Malabar, continue to grow in mid-teens, thereby shielding the franchise from deep discounting competition. Saffola Edible Oils delivered flattish volumes while the pricing cycle for the brand turned slightly favorable after eight quarters. Building up on last year’s #RozKaHealthyStep message, the brand launched the Step-Up For Your Heart campaign to mark the World Heart Day, which reinforced the brand’s purpose, which is to encourage consumers to inculcate exercise for a healthy heart.
The recent hike in import duties has led to a steep increase in vegetable oil prices, and we have taken a price increase of at least 15% in response to the same. However, I hope the duty hike does not spark any volatility in the market, which will lead to trade-led headwinds we have encountered in the past. Value-added hair oils remained sluggish amidst persistent irrational competition at the bottom of pyramid segment. During the quarter, we have gained 110 bps in value market share as mid and premium segments of our franchise fared relatively better. While we are the category leader, we also believe that is not ideal for category growth when other key players resort to consistently pulling back ATL spends and employing only trade-led pricing strategies or consumer promos. This diminishes the share of voice of the category. We believe that this irrational competence should ease out given the current situation, unless logic doesn’t prevail.
We will continue to focus on brand and category investments in the mid and premium tier of VAHO and not deviate from basic fundamentals of category building by matching unsustainable tactics in terms of pricing at the bottom end. We believe that a trajectory of a franchise has bottomed out in this quarter, and we expect gradually improving trends ahead of the back of visible ATL investments, brand activation leading into the festive season, and gradually improved rural consumption sentiment in mass BPC categories.
Food surpassed INR1,000 crores in annual run rate in Q2. It is extremely heartening to see that the aspirations we set four years ago during the beginning of COVID period are close to factifying, and it has been one of the amazing, I would say, in terms of the addressable market expansion and diversification journey and growth in foods. Saffola also recorded mid-teen growth, and our newer franchises also fared healthily. We introduced Saffola Masala Millets this quarter to broaden our millet-based range and meet the rising consumer demand for healthier options. This product aims to blend the nutritional advantages of the millet with enticing savory flavors. Furthermore, both True Elements and the plant-based nutrition portfolio from Plix continues to demonstrate impressive growth.
Premium personal care maintained strong momentum this quarter driven by the digital-first portfolio, which crossed INR525 crores in annual recurring revenue. In Q2, we expect to clock an exit ARR of circa INR600 crores this year. Beardo outperformed expectation and is on track to achieve a double-digit EBITDA margin this year. Just Herbs and Plix personal care range also continued to gain traction. We believe Beardo and Plix have the potential to scale to INR500 crores ARR each in the next three years.
Additionally, the company began selling Kaya products on select online channels starting mid-September 2024. The composite share of foods and premium personal care, including digital-first brands and the domestic business, moved up to 21% in H1, furthering the portfolio diversification agenda of the India business. The rapid pace and scale of diversification has enabled us to navigate recent periods of consumption volatility and post decent volume growth. We will continue to drive 20% to 25% plus CAGR in these portfolios accompanied by visible improvement in their profitability. We were able to affect the structural shift in foods gross margin last year and expect profitability to inch up as we scale over the medium term. We maintain our aspiration to attain double-digit EBITDA margin at digital-first brands by FY ’27.
In the international business, we continue to witness strong double-digit growth momentum. Bangladesh demonstrated visible resilience and robust profitability despite operational challenges that gradually diminished in the latter half of the quarter. We continue to believe in times of volatility and adversity, the strong gets stronger and the weak gets weaker. The medium-term growth outlook remains strong in Bangladesh. Vietnam also reported growth on the back of recovery in HPC demand. MENA posted a stellar performance fueled by strong growth in the Gulf region and Egypt. South Africa grew impressively as well as both the haircare and healthcare franchises was growing in double digits. NCD, or New Country Development, and exports continued to be another consistent growth driver. Diversifying our international business has not only bolstered our growth prospects but also improved its medium-term margin potential.
To sum up, consolidated revenue growth is likely to move into double digits in the second half of the year. We’re extremely confident of that. We’ll strive to deliver double-digit revenue growth for the full year as well. We expect this to materialize if we’re able to continue delivering a sequential uptick in volume growth in the domestic business in the second half. Given the higher-than-anticipated degree of inflation in copra prices, coupled with the sharp import duty hike in vegetable oils, we focus on our stated volume-led revenue growth aspirations while there could be a slightly moderate lag in operating profit growth vis-a-vis revenue growth during the second half of the year.
Last but not the least, we have always prioritized sustainability in our business operations. Our Sustainability 2.0 framework is demonstrating positive progress across each of the eight key focus areas. We are confident that our commitment to creating shared value for all will drive sustainable and differential growth in the long run.
With that, I will now close my comments. Thank you for patiently listening. We’ll now take your questions and wishing all of you a very, very happy Diwali.
Questions and Answers:
Operator
[Operator Instructions] The first question is from Abneesh Roy from Nuvama. Please go ahead.
Abneesh Roy
Yeah. Thanks. My first question is on the urban demand, which you mentioned is stable. You did mention that at the lower end there is a challenge of food inflation and muted sentiment. Now, if I see QSR sector, pizza and burger sector, they have faced seven quarters of slowdown. Now, when I see your numbers, good set of numbers, foods 28% growth, premium personal care trending ahead of expectation. So, in your these two segments, which are more indexed to urban, because they are more catering to mid and premium, would you say that the risk in coming quarters is not something you’ll be worried on?
And second, of course, is in terms of the Plix performance, etc., if you could give more details, because you did mention that 28% is the food growth, but the Saffola Oats growth is mid-teens, which means other segments have also done well. And last point on urban, you said food inflation and muted sentiment. Now if food inflation cools off, say, in one quarter, would you also discuss the muted sentiments, what is the issue there? Those will be the first questions.
Saugata Gupta
Okay. So, I think, let me just address one thing, which is if you see our diversified business, which is premium foods, the foods part of it, the entire digital brands and then serum and male grooming, a lot of them cater to the top, as in the upper-middle-class, masstige segments. Now we believe that the consumption has not got impacted in that segment. We also throughput a lot through OT, including e-commerce and modern trade, where our shares are disproportionately higher because we have invested ahead of the curve. The other thing which is there is that you must realize that our digital brands, we, unlike some of the standalone digital brands, don’t have to scout for capital. We don’t have substantial bleed. In fact, most of them are positive or a very, very low bleed. Therefore, our ability to invest and grow and also tap into the Marico system has significant cost advantages. So, in one way, our call in terms of — and also in food, we are challengers. In most of the things we are doing category building, we are gaining share. So, our call in 2020 to aggressively diversify perhaps is helping us in this current situation.
Now, coming to the — if you see the middle class, this one, I think, the two things which are there is: one is there has been inflation, the food inflation and general retail inflation. The sentiment is a function of sometimes what happens, we could see, for example, let’s look at certain sectors or where there is, for example, opportunities, how do people in the middle class, the sentiment increases if there is significant increments, significant job opportunities, those are the drivers of sentiment. And sometimes those sentiments are slightly muted today if you look at some of the news that is emanating out there. Now, obviously, as soon as the food inflation cools down, I think, urban will recover, but some part of the urban. So if you look at say mass food categories which cater to the middle class and the lower middle class, yes, they may be impacted in the short term.
Now coming to you wanted some color on Plix. As I’ve said that, we believe that Plix has the potential to become a INR500 crores brand. It operates both in personal care and food. Obviously, our food growth, some part of the food growth is led by the digital brand. Having said that, I think, the good thing is that if you look at our organic part of the food, which is essentially the oats and the masala oats business, has grown in mid-teens, and they are a significant portion of our INR1,000 crores ARR, the core business, okay. And I think, we believe that one of the things we have said that today perhaps in the Saffola franchise, for example, food contributes to 30% of the Saffola franchise. We believe over the next three years, this number could be 50%, and I would really hope in the next five to seven years, the Saffola franchise will become more than 60% plus, which will become a dramatic transformation in both the margin and the profile of the consumers and the total addressable market expansion this brand can go to.
Abneesh Roy
Sure. My second and last question is on the Saffola Edible Oils. So, when I see Q2, we have seen the number one edible oil company, Adani Wilmar, see double-digit volume growth. So, here if I see Saffola Edible Oil is clearly a premium part of the urban consumption, and it is health focused also, which is a very clear theme. So, in second half, what will be your expectation on Saffola Edible Oil, because this time it is flat versus, say, double-digit for the economy? And now the pricing is going up for both, and there is the challenge of overall urban demand. So, if I put all this, where is the issue? Is there some level of now cannibalization say from the economy edible oil also having very similar edge to what Saffola has, or is it just a transient issue of say the pricing, etc., changing past few quarters? So where is the issue when you see the volume difference between your growth and, say, Adani Wilmar’s growth?
Saugata Gupta
I think, firstly, the margin expectations from the brands are completely different, and therefore, we don’t want to deliver volumes at any cost. And for us, as I said, ultimately, as long as the food franchise makes much more margins than edible oil franchise, and therefore that has been our focus. So, therefore, we are not going to sacrifice the threshold level of margins for getting volume.
Secondly, you must realize that our set of consumers also, and as you know, the brand also encourages people to lead a healthy life. And therefore, the average consumption of oil is slightly lower than at the mass end. It’s a combination of those. And as an organization, we are okay in ensuring that we do a certain level of profitable, controlled growth. Now with the 15% price increase, obviously, my revenue growth will be decent. But as long as we maintain margins, we are happy. Our entire focus is to ensure that we keep a certain level of margins and get measured growth in Saffola Edible Oil, while continue to aggressively grow foods.
Abneesh Roy
Understood. That’s all from my side. Thank you.
Operator
Thank you. The next question is from Avi Mehta from Macquarie. Please go ahead.
Avi Mehta
Hi, team. Thanks for the opportunity. Sir, I just wanted to double-click on the margin a bit. Now, given that you have taken another round of price increase in Parachute and our comment that there is no competitive concerns from price discounters, could you please elaborate whether your comment of being watchful on margins in second half, does it suggest a material revisit of the earlier expectations of flattish margin in FY ’25?
Pawan Agrawal
Avi, if you look at H1, we’ve been able to hold the margins at 21.6%. The earlier guidance was that, at a full-year level, we will try and hold the margins. Now, if we look at the cost pressures, it is definitely higher than what we had anticipated. If you look at the copra prices, which had spiked in quarter two, we have seen spikes in quarter three as well. And also this edible oil duty, which was a surprise. So, to that extent, yes, cost pressures are slightly higher than what we had anticipated.
Our focus will be, of course, to drive the volume and revenue growth. As far as margins are concerned, we’ll still try and see as to how much we can maintain the margins for the full year. At best, there could be a compression of 40 to 50 basis points. In H1, we’ve delivered double-digit profit growth. We’ll try to deliver healthy profit growth in H2 also. But purely from an operating margin standpoint, I think, at best, there could be a compression of 50 basis points.
Avi Mehta
Sir, you mean at worst, right?
Pawan Agrawal
Yeah, at worst, yeah, it won’t go below that.
Avi Mehta
Okay, okay. Got it. Perfectly clear. The second question is on, I know it’s early stages for Project SETU, but would love to get any early insights on how are you seeing the benefits flow through in the initial states where this was rolled out and where we have some history.
Saugata Gupta
So, I think, I’ll give you a very macro flavor to it. I think, the approach is to do direct rural distribution. We believe direct distribution is a source of long-term competitive advantage because you have far more control. We are also deploying significant technological tools in order to ensure far better quality of execution. Now that the fact that the rural demand is improving, we believe that will lead to both higher growth and growth of market share and assortment. I think, usually, assortment is something that happens when there’s direct distribution, or the wholesaler usually carries high-velocity brands, which are leader brands and pull-based.
In urban, it will lead to significant diversification. As you know, we are not present in a number of chemist, cosmetic outlets, or specialty food outlets. For example, in South India, there are a lot of bakeries. In West India, there are stores which sell dry fruits and food. Now, we will never cater into the store.
Now, if you have to succeed in our new portfolio, I think, SETU will help. Thirdly, because right now our new food business is disproportionately skewed towards OT, GT expansion in food will also help in terms of margin, also long-term margin protection. And thirdly, this will set up — this SETU should set up the distribution for tomorrow for our digital brands to experiment with GT.
Let me tell you something, just distributing digital brands, D2C brands in GT can give one-time sale and a lot of people, especially during earnout and other such events do it. But then they have to take back stuff also subsequently. So, we are not in a position — we believe that only to sell few SKUs there. But I think our ability to do that, once this is done, for example, selling some True Elements, selling some of the Plix, for example, you are selling INR20 coconut — INR30 or INR20? INR20 coconut water, we are selling — some of the SKUs already started to experiment with that.
Avi Mehta
Got it, sir, got it. So, fairly clear on this. And by when do you think you’d be able to quantify or give us some better color on the likely benefit in terms of financial…?
Saugata Gupta
Yeah, I think in the — I would say, after Q4, because then you would have had two, two, three quarters of different — because today we are still experimenting, prototyping, we are changing and chopping some of the ideas. And as you know that, these things work far better when there’s tailwinds. Right now, consumption tailwinds are not there. It’s just that at least rural it’s improving, urban it’s somewhat a little volatile. So, it takes a little time. We are happy to be patient on it and get it right. We are wedded to it for three years. We believe that will be transformational in terms of reconstructing our GT profitability and creating moats for long-term growth. So, we are committed to it, and we will get it right. We are extremely confident of getting it right.
Avi Mehta
Thank you. Perfectly clear, sir. And happy Diwali.
Saugata Gupta
Thank you so much. Thank you so much.
Operator
Thank you. Next question is from Vivek Maheshwari from Jefferies. Please go ahead.
Saugata Gupta
Hi, Vivek.
Vivek Maheshwari
Good evening, Saugata and Pawan. Hi, good evening. A few questions, Saugata, first again on the industry bit. I know these are very difficult to forecast, but do you see a scenario for last few quarters even say last couple, rural was somewhat under pressure and then urban was doing well. Do you think that there can be a scenario where rural actually picks up reasonably well and continues to show the trend that we are seeing, but urban actually continues to disappoint in the foreseeable future, which again pulls down the overall performance of the sector?
Saugata Gupta
So, let me just give you a flavor of it. I think if the food inflation is not sticky and it cools down, it will definitely improve the urban growth. Having said that, you must realize also some of the last year or if you look at this year also, the urban base was higher. In the case of rural, the base was lower. The rural is a combination of MSP, some of the government schemes, the rainfall and all, I think, the factors for an immediate gradual improvement are slightly more positive.
Having said that, I think, as I said that at the top end, and we are that way a little lucky that in the top end, we don’t see any impact at all. And if you see our digital brands and most of our premium personal care and even food, where we are really challengers that operates at that end. Yes, there are also some channels play, like for example, if you are over-skewed, we are seeing much more growth in maybe quick commerce versus a modern trade. So, it all depends on the kind of portfolio you have, and that perhaps will determine the growth trajectory of different players.
Vivek Maheshwari
Okay, got it. The other thing, Saugata, is again on VAHO, which has been asked to you at different points of time over the past few quarters. But VAHO numbers, again, you have gained market share, and I think your number is minus 8. And again, I’m sorry, I’m asking you this directly, but do you genuinely trust the market share number? Because are you seeing a scenario where the market itself is declining, or you think that there is some anomaly, there are some regional players who may be cropping up and taking away share? Because it’s baffling to see VAHO actually not performing. There were periods where it did perform, but through the course of five, seven years, if you look at the growth, it’s very anemic compared to how well you have done in — and there have been business cycles that we have seen in both Parachute and Saffola. But unfortunately, that cycle has also not showed up in VAHO. It has been fairly muted growth.
Saugata Gupta
See, sometimes there is a — see, offtakes are okay. I think, there’s always a lag between secondary and offtakes. Sometimes that happens, as seen last year also in Parachute. I think, let me just tell you, I think we believe it’s bottomed out.
Now, having said that, there are two things. We took this call of not participating in going down the rat hole in terms of just trying to do price matching at the bottom end of the pyramid. So if you look at it, this value decline also is happening because of the fact that, there is a higher BTL, realizations are going down, people are not spending the KSP [Phonetic]. So, if I look at MC [Phonetic] number, it will be different, because what is happening is players are converting ASP into BTL, which is bringing down MR [Phonetic].
Now, we have chosen now to not — we’ll selectively participate and have started investing behind the middle segment. We don’t participate in the super-premium segment, which is almond [Phonetic] and hair fall. And the share gains are happening there. The reason we are gaining value share is because we are perhaps growing slightly in that end. And there is a significant stress at the bottom of pyramid.
Now, it’s unfortunate that, when we face a little bit of irrational competition, there’s nothing much we can do. Having said that, our actions at the middle of the pyramid and at a mid-to-high RPI indicate that this thing has bottomed out, this decline has bottomed out. So, I am unlikely to shock you with a minus 10 or a minus 11 next quarter if that’s the case.
Vivek Maheshwari
No, sorry. So, just couple of follow-ups. So, one you are saying when you say bottom out, as in terms of there will be growth from this quarter onwards.
Pawan Agrawal
What we meant is that this is the worst as far as VAHO is concerned. We will definitely have better performance going ahead. We would expect to deliver positive growth, but let’s see. I think this is clearly the bottom of purely from our performance standpoint.
Saugata Gupta
And the reason is, as I said, that we are now clear on the strategy because in the last few quarters, we were into this chasing the wholesaler game which we are closing [Phonetic].
Vivek Maheshwari
Got it, got it. And in terms of, one more thing, Saugata, do you see a period of let’s say sustained three, four years where VAHO could grow in reasonable double digits? Is that something that you think can be the base case here?
Saugata Gupta
Double-digit growth is very difficult. I would love to do it, but let’s take one quarter or a couple of quarters at a time. But I think the immediate task is to get the thing back on track. We believe that as Pawan also alluded to, that the worst is over in terms of the decline. But I think we need to wait for a couple of quarters on this. And as I said, that if the rural sentiment improves, SETU starts kicking in, maybe next year we should see better performance.
Vivek Maheshwari
Got it, got it. Last question on Plix portfolio again. So, I saw your presentation slide and I know this was always there, but the personal care [Indecipherable] under Plix as against plant-based nutrition. I know there are examples of someone like a Himalaya. But do you think a personal care and nutrition can be under the same brand umbrella and can be scaled up without having any conflict, confusion or whatever it may be? Are there many examples of that other than Himalaya?
Saugata Gupta
No, no. So, I think in Europe if you see the, the trend is plant-based skin food and hair food, and that is how the brand is moving towards. And if you see anything like, for example, there would be things which will help in your sleep, relaxation, rejuvenation, and functionality. So, whatever we do, there’ll be functionality. I think what we are trying to do in Plix is, as I said, that hair food and skin food, and that’s how a lot of brands are moving.
Now, fortunately for us, the brand name itself and the positioning allows it to stretch. Having said that, you’re absolutely right. We always keep a strong eye on in terms of that we should not overstretch the brand.
Vivek Maheshwari
Okay. And just a small follow up. So, when you think about Plix for you, is it let’s say the nutrition brand or does it become more like a protein brand for you or it is personal care or do you think it is equally spread between the two when you think about the strategy?
Saugata Gupta
It’s a good-for-you brand, and the source is plant based. And it is in the area of nutraceuticals, hair food, and skin food.
Vivek Maheshwari
Got it.
Saugata Gupta
Which nourishes. Which nourishes you either way, whether it’s hair, skin, or body.
Vivek Maheshwari
Got it. Thank you. Wishing you all the best and happy Diwali in advance.
Saugata Gupta
Thank you. Thank you.
Operator
Thank you. Next question is from Arnab Mitra from Goldman Sachs. Please go ahead.
Arnab Mitra
Yeah. Hi, Saugata and Pawan. My first question was actually on your performance this quarter as well as your outlook seems significantly better than many of the other FMCG companies. You’ve, of course, outlined certain reasons. But I just wanted to check, is it also a factor that you have done a lot of channel inventory corrections over the last four, five quarters due to this channel shift that is happening, and therefore, you are in a better position in terms of channel inventory which is helping you deliver better numbers while maybe many of your peer set have to correct that? So, just wanted to understand is your channel destocking that you were planning behind us by and large and are you now well set in terms of the urban GT?
Saugata Gupta
So, I think, see one of the things that is helping us, if you realize that in the last few quarters we were facing deflation. Now when we are facing deflation, as you know, in urban GT was anyway stressed. What happens is if you face deflation plus the fact that you are declining, your costs go up by an X percentage that leads to a significant ROI stress.
Now, in places like especially in the south and west, which has a significant Parachute skew and maybe a big metros like a Bombay, Delhi, which also has a Saffola skew, this inflation is going to help us in terms of managing distributor ROI in the immediate term. Having said that, we continue to be concerned because if you ask me, the growth of some of the alternate channels, it’s coming at the expense of maybe kirana, or coming at the expense of modern trade. So, we continue to be partnering them in terms of ensuring, and it is in our interest that we have a viable GT system.
So, as and when the need arises, we’ll do it. See, keeping stocks is an inefficient way of usage of capital. So, at the same time, I would say that in the next two, three quarters, because we have these revenue tailwinds that will help us in terms of managing ROI.
Pawan Agrawal
And just to add a couple of points, Arnab. One is, of course, Saugata touched upon distributor ROI. Now given that we have pricing-led growth, largely driven by Parachute, which is more in the south and west of our country. So, over there, I believe that distributor ROI will be fixed, but there could still be certain regions, geographies where ROI could be a challenge, and therefore we may take certain calibrated calls to support distributors’ ROI. That’s one.
And number two, as far as SETU is concerned, yes, there could be some stock adjustments on the B2B and wholesale side for us to expand our distribution. So, that adjustment might still happen. So, it’s not that it’s completely clear, but depending on how the ROI works out, depending on how SETU expands in certain markets, some of those calls might still be taken in quarters to come.
Arnab Mitra
Thanks. That’s very helpful. My second question was on Saffola. See, in Parachute, we have seen this pattern that when commodity goes up, you take price hikes, you tend to actually also accelerate volumes given the setup of the category. In edible oil, what is your expectation? We are getting into an inflationary cycle. You’ve taken a 15% hike. Could it have a significant negative impact on volumes because this is an expensive product, the absolute price gap is quite large. Any sense of what you expect to happen on the Saffola volumes in the near term as this pricing goes into the market?
Saugata Gupta
So, our pricing model suggests, as you know, that post Ukraine, we had a pricing up to INR230. So, I think the yield point as a threshold level where volumes really get impacted is closer towards INR200. Today I think we are INR185.
Pawan Agrawal
Yeah.
Saugata Gupta
We are at INR185. We should be comfortable at this level. Having said that, the problem that happens is we don’t know because, given the fact that this has led to inflation, if there is some adjustment in duty or some other response, those volatility leads to the trade destocking. To me, that is what we are worried about. But at INR185 price point for Saffola Gold, we are comfortable our last pricing model sensitivity stress test which we ran suggested anything hitting INR200 becomes a problem.
Arnab Mitra
Understood. And my last question was on Plix and Beardo where you’re looking to potentially these brands could become very large over the next two years. Fundamentally, what’s the gross margin profile of these brands? And at scale, do they make the Marico average EBITDA margins once these brands scale up?
Saugata Gupta
Absolutely. I think Beardo I think is anyway hitting double-digit EBITDA this year. And we should be able to do it at scale, and we are broadly confident because we have high gross margins. And as I said that one of the things we will not make a mistake is that once we experiment with GT, we’ll have a very, very limited this one because while the temptation to go into GT can give you short-term top line, but long-term, without an offtake model and without a mass A&P model, long term there can be an issue in terms of profitability.
Pawan Agrawal
And also just to add, Arnab, as Saugata said, Beardo will end up with a double-digit operating margin. Plix also either will be positive or marginal bleed. And we had also given a guidance that over the next three years, we definitely expect the overall digital business to move into double-digit operating margins. And we discussed in earlier calls as well that there will be two different models of growth in digital business. One could be a significant growth of 70%, 80% with a significant bleed. And second could be the model that we’ve adopted where we are okay to grow at 25%, 30%, but growing profitably. I think second model works well for us, and we’ll stick to that. And we hope to move to double-digit operating margin for the entire digital business as a whole by FY ’27.
Arnab Mitra
Understood. Thanks. That’s it from my side. All the best.
Operator
Thank you. Next question is from Manoj Menon from ICICI Securities. Please go ahead.
Manoj Menon
Hi, team. I got a few questions, but I’ll just start with what my friend asked a little earlier on the digital brands. I recall, around 12 months back, you actually had, there was an exchange release which spoke about you got a new EVP Digital, which was maybe my understanding, the first in the industry. And 12 months later, when I look at the performance, it definitely seems to be one of the important interventions you would have taken, which is working. Only one question here, rather two I would say, could you just quantify the online, offline salience in the D2C brands which you have, maybe not D2C anymore. Secondly, I just also want to understand let’s say the offline journey which you had in the last 12, 24 months and the learning, particularly in the aspect of demand planning. Because when I look at some of the peers in that segment who would have gone from online to offline, one of the challenges which I find they’re facing is to increase the demand planning accuracy. So, two questions, your offline journey, and point number two, the demand planning part. Thank you.
Saugata Gupta
I think our offline numbers are not very high, it’s marginal. We continue to focus on online. I think two things I would say, our experience on offline. For offline to happen, you need the right price point. For example, I think we are experimenting with ACV on Plix for INR75, while the other one is I think sellout is INR200 nearly. Am I right? More, INR250 plus. Similarly, we are doing coconut water. So, the first thing is get the price point right. There’s no point trying to sell high AOV stuff out there. Number two, that’s a learning from not only FMCG for other industries, but if I’m discounting heavily in e-comm and there is no point trying to do a GT with the same packs, because the GT guy will then realize, or the consumer will realize anyway I can get it cheaper in e-comm.
To create a portfolio with the right pricing and have a limited set of SKUs. So, for example, in Beardo, we believe that not more than five, six SKUs. The demand generation problem that happens is if you get into this display and a beauty advisor model, you need at least a turnover — an offtake of INR75,000 to INR1 lakh per store to break even. And theoretically, then what happens in the BA model if you are stuck with 100 stores selling INR60,000, you can never make profits. In Excel, you might make it. In reality, you will never make it.
Manoj Menon
Understood. That’s very clear. I’ll honestly have a follow-up on this little later, team. Just only one thing which I understood on the initial part of the comment is that, so most of the growth is still driven by online which means that let’s say the offline piece is yet to happen in a material way.
Saugata Gupta
It’s not material, but at the same time I believe it’s growing. And similarly I must say that, especially amongst all these brands, as I talked about these two price points, SKUs in Plix, similarly True Elements, especially in food, I think, food has a far more better runway for offline, while personal care I still strongly believe that you need to saturate and drive penetration in online. We also have had successful experiments on quick commerce I think in terms of some of our personal care brands. So I think we haven’t yet saturated it, but our entire GT run will be measured. Just to give you a number in GT amongst the digital brands, it will be right now around 15% to 20%.
Manoj Menon
Understood. I would say it’s a good performance, actually. Lastly, on this aspect, if I move on to the other one, any experiments, anything you have done let me try if I can, I don’t know, please feel free to disagree with me. If you consider Marico as an offline-first thinking DNA, trying to let’s say take a D2C offline, any experience you have done where let’s say you could do far better than D2C trying to do offline in terms of all your forecasts getting right.
Saugata Gupta
Yeah. So, as long as it’s limited, it’s fine. But I think I can’t do a model of taking 100 or 150 SKUs assortment. I don’t have that capability. That’s a different capability. See, I think let me just rephrase what the Marico vision is. I think we need to be seen in the next three to five years as a legacy FMCG company is also who has transformed itself to a successful consumer digital company. And I don’t think globally many companies have done that kind of a transition. And coexisting both models, okay? It’s not that one at the expense of other.
Pawan Agrawal
And just one clarification, Manoj. This GT 15%, 20% is basically offline. So, which could be both GT and MT.
Saugata Gupta
With even modern trade, it also includes modern trade, yeah? So brick-and-mortar is 15%, 20% includes modern trade, yeah?
Manoj Menon
Understood. No, no, very clear. Thanks so much. In the interest of time, I’ll have just quickly push through two more. Honestly, when I was looking at this slide number 7, which essentially talks about 4% volume growth in Parachute, overall growth of 5%, it’s a bit surprising that the perception that Parachute is probably — the growth of Parachute needs to be uplifted with the other businesses. One question on VAHO, that’s more of an observation. Honestly, I’m a little confused, actually. So, where is the consumer going? Is he or she just simply downtrading, or is he prioritizing consumption or per diem [Phonetic] consumption has reduced currently?
Saugata Gupta
Significant downtrading has happened. I think also shrinkflation has happened. As you know, in order to keep the price points in brands like Shanti Amla and all 10, 20, we have taken significant ml-age cuts. And this has happened in other categories like soap and including this one that people don’t increase transactions proportionately. So it’s been a combination of that, but there is a significant downtrading. And as I said, I alluded to that, something which I want to break the mold is that if other players don’t invest and get into A&P equal to zero and put all their monies into trade inputs and running BOGOs, as a market leader, if I try to do that and say that I want to grow that, that is long term not good for me. We have taken this call and this shift will happen over the next two, three quarters is that we’ll start investing behind driving category growth. Because if the total spend in the category goes down by 50%, 60%, somewhere it impacts category growth.
Manoj Menon
Fair enough. No, fair enough. Actually, that’s loud and clear. Just lastly, relaying one thought which I have heard largely from long-only investors is about Bangladesh. While the current quarter performance may not fully reflect the changed equation on the ground, etc., etc., if there is a parallel when we think about what happened to a Burger King in Indonesia. I know that it’s not a statement, it’s a sensitive one for you to comment upon, that one of the worries which investors have is that, this can actually happen in Bangladesh.
Saugata Gupta
See, we continue to be, as I said, convinced about the medium term opportunity in Bangladesh. And I think, at the same time, as a long-term international strategy, we have been consistently reducing our dependence on Bangladesh. And within Bangladesh, of course, accelerating the innovation. But I keep on repeating this, that the strong gets stronger, weak get weaker. We are a listed company in Bangladesh. And we have reasons to believe that the medium term, this one is very much intact. But having said that, as I said, that we will continue to accelerate the diversification in both top line and the bottom line from Bangladesh. If you look at the growth, especially in MENA where I believe there is a huge headroom for growth in market share, Egypt is a large market in hair oil. We are not present at all. We just launched, and we are doing well. We are aggressively gaining market share in the Middle East. We are doing well in Vietnam or New Country Development. So, that part of the business, just as we have done a diversification agenda in India, we want that non-Bangladesh business needs to grow by 20%, 25% over the next three years. If you can do it, we will have achieved that accelerated diversification.
Manoj Menon
Thank you. And one last thing, Saugata, again, a sensitive one for a public forum. So there is a two-year extension for the MD and CEO done about 18 months back. There’s still six months to go. Any qualitative comments? I do recall…
Saugata Gupta
There’s still 18 months to go. Don’t worry.
Manoj Menon
Okay.
Saugata Gupta
And Marico, as I said, I think Marico will continue to grow. So, you don’t have to — there’s 18 months, so there’s a lot of time left.
Manoj Menon
Yeah.
Pawan Agrawal
We’ll come back to the Street at the right moment.
Saugata Gupta
At the right moment, we will do it. Don’t worry about it.
Manoj Menon
Super. Thank you. Happy Diwali.
Saugata Gupta
Happy Diwali.
Operator
Thank you. Next question is from Harit Kapoor from Investec. Please go ahead.
Harit Kapoor
Yeah, hi. Good evening. So, just on the ad spend side, you’ve seen the standalone entity seeing two quarters of declining spend. I understand that some of the digital-first brands don’t get reflected in the standalone numbers, given that they’re part of the subsidiary piece. But just wanted to get your sense on, has there been any ATL versus BTL shift on the core, or you’ve not needed to — you need to spend competitively, but it’s still showing a decline. So, any thoughts on that and outlook going forward?
Pawan Agrawal
So, in fact, we had discussed this in the last quarter as well, and reasons are very similar. For example, first of all, we’ve invested adequately in focused categories of CNO, premium, VAHO, foods, and PPC [Phonetic], to ensure that our share of voice is intact, number one. Number two, which is from the last three quarters, you would have noticed that we’ve started this master brand campaign on Saffola franchise and that has helped us to optimize the A& spends in Saffola. Otherwise, we were spending on multiple smaller initiatives under Saffola. Thirdly, I think in BOP in VAHO [Phonetic], of course, there has been a cut due to intense competitive activity which we have discussed at length, where, of course, some of the monies have been diverted towards pricing and trade mobilization. And lastly, I think we’ve also rationalized some of the spends in the alternate channels of MT and e-comm. So, these are the reasons why you will see a little bit of cut in the A&P spends. But going ahead, I believe that you will see a upward trend in A&P spends and should definitely improve. However, at a consol level, if you look at it, we have increased the A&P spend at about 8% and overall A2S [Phonetic] is about 10.9% to 11%. So, this is a pretty healthy number as compared to where the industry is at.
Harit Kapoor
Very clear, Pawan. Second thing was on the food side. So, first half growth has been very strong, even if you ex out Plix. If you could just give a sense of, apart from oats, where have you seen the high pockets of growth in the subcategories that you are there now in, any qualitative view also on that would be very helpful.
Saugata Gupta
So, I think we are just prototyping a revised version of snacking. We are prototyping masala millets. We believe that this one has potential and also muesli. And also if I look at honey and soya, they are steady. They are not giving exponential growth, but they continue to be steady. So, I think the total aspiration is food to grow 25%. We continue to be confident this part of the business, which is the core foods, the Saffola part of foods to grow in double digits every quarter.
Harit Kapoor
Got it. And one last bookkeeping was on the standalone side. While you explained the higher other income at a consolidated level, please give a sense about why the standalone number looks even higher at INR300 crores odd, if you can help with that.
Pawan Agrawal
It is because of dividend that we have got from Bangladesh subsidiary to the extent of INR231 crores odd. So, that is what is spiking the number. Outside of that, of course, the reasons are the sale of fixed assets and one favorable settlement of one of the disputes. All this if you keep aside, then the growth is in the normal range. The big part is Bangladesh dividend.
Harit Kapoor
Got it. Understood. Thank you very much.
Saugata Gupta
Thank you
Operator
Thank you. Next question is from Tejas Shah from Avendus Spark Institutional Equities. Please go ahead.
Tejas Shah
Hi, thanks for the opportunity. Saugata, with all the major FMCG companies flagging off an urban slowdown and at the other end quick commerce guys are again which are heavily indexed to urban demand are showing strong growth. So, just wanted to check if our saliency in the quick commerce channel is as high as GT and the slowdown observation is not the outcome of key channel, which is GT, losing market share and overall urban demand shift that we are witnessing.
Saugata Gupta
So, I think obviously there’s some transition happening and shift in demand happening, but I think one of the things we always ensure, and it is good for us is actually our OT saliency continues to be higher and our market share in each of the categories which we participate are higher in OT than in GT.
Tejas Shah
Okay. Second, just one small observation. If I look at our employee cost as a percentage of sales, it has increased from 6.5% roughly that run rate pre-pandemic to now 8% this quarter. Does this suggest that the incremental growth or the nature of growth that we are chasing demands hire very different kind of talent, so employee cost will remain at elevated level than versus what we saw pre-pandemic level?
Pawan Agrawal
So, there are two things. One is, if you look at, we’ve added a lot of new businesses in the last three to four years. Over there, employee cost as a percentage of sales is slightly higher. And again, these businesses are becoming large. So, therefore, that is also impacting overall as a percentage of sales. Secondly, in this particular quarter, of course, there is an impact of the phantom stock, which is shared-based payment, which is linked to the stock price. And since the stock price has done well, there is an impact on the current quarter. If you have to exclude that, then the growth will be in the range of about 8%, 9%, which is in line. So, largely the addition of new businesses which is slightly higher employee cost is skewing the sales percentage number. But again, it’s also a function of how your revenue grows. For example, if there is a higher pricing led growth, the operating leverage will kick in and this number will compress going ahead.
Saugata Gupta
So, I think just to add, so the moment we start delivering double-digit revenue growth in second half, this percentage will go down. And just to add that one of the reasons, of course, because of skill, the fixed overheads or employee costs as a percentage of sales in digital business are high. It will come down. And also another reason you must realize that traditional FMCG company outsource a lot of things. Here a lot of thing is insourced. Like, for example, we do a lot of content advertising development insourced as opposed to using agencies. So, that which is shown as some other expense comes into employee cost here.
Tejas Shah
Very clear. That’s all from my side. Best wishes for coming quarters and best wishes for Diwali to the team. Thanks.
Saugata Gupta
Thank you so much.
Operator
Thank you. We’ll be able to take one last question. We take the last question from Mihir Shah from Nomura. Please go ahead.
Mihir Shah
Hi, guys. Congrats on a good set of numbers and thank you for taking my question. Pawan, one small clarification first on the operating margin contraction of 40 to 50 basis points that you called out. That was for the full year, right? Not for the second half. Is that correct?
Pawan Agrawal
Yeah, that’s for the full year. That’s for the full year.
Mihir Shah
Got it.
Pawan Agrawal
In H1 we’ve been to hold up. Now, there are a lot of moving parts. That’s the estimate that we are giving at this point in time. We’ll try to better this number. But as of now it looks like maybe at 40 to 50 basis points there could be contraction at a full-year level.
Mihir Shah
Got it. No, that’s clear. Firstly, on Saffola, the import duty hike that was on palm, soy, and sunflower and not on rice bran. Does this help in improving your competitive pricing in any way? And when was the 15% price hike implemented? And how should one think about volumes on the back of this 15% price hike?
Saugata Gupta
So, firstly, the entire market shoots up. Unfortunately, the domestic oil also, independent of import, it goes up. And I guess one of the reasons this import duty was done so that better realization for farmers. Now, as I had alluded to earlier, that we believe that at the current levels we seem to be reasonably comfortable. Last time when we took a price increase in 2022, we had moved to INR230. We had seen the volumes getting impacted and whatever modeling suggests, anything close to INR200 and INR200-plus our volume gets impacted. As of now, I think at INR185, we seem to be okay.
Mihir Shah
Thank you, Saugata, for that. Secondly, on foods again. Can you talk a bit on, what is the ballpark contribution maybe of your core brands of oats, honey, and chunks? Because I wanted to get a sense of the journey of foods from 2 times to 4 times that you’re talking about from ’24 to ’27. Which other brands do you see that can help you — what will be the glidepath to that journey, basically? How much more of new brands do you think that can add, and maybe some categories that you are thinking about? I understand Plix is there, but other than that.
Saugata Gupta
No, I think the contribution of the core is significant, okay. I’ll just give you a construct of the growth rather than — so if you look at food, I think, the biggest one is oats and I think millet masala, which we have not seen an adjacency to it. We are obviously participating in now breakfast with muesli. We have a presence in snacking and immunity and soya. Now soya and honey are obviously not growing exponentially, but the construct is that we want to have the organic core growing in double-digit and ensuring maybe the Plix plus two elements growing at 30% plus so that you have a weighted average of anything between 25%.
Mihir Shah
Got it, got it. Okay. That’s all from my side. Thank you, guys, and wishing you all the very best.
Saugata Gupta
Thank you.
Operator
Thank you very much. We’ll take that as the last question. I would now like to hand the conference back to the management team for closing comments.
Pawan Agrawal
Thanks for listening in on the call. To conclude, the first half has largely met our expectations. So far, we have delivered on the key performance parameters as laid out at the start of this year, in terms of an improving volume and revenue growth trajectory in the core and overall domestic business, maintaining the robust double-digit constant currency growth momentum in the overseas businesses, as well as holding up on to the operating margin of the base period, and we’ve delivered double-digit earnings growth in the first half.
In the context of current consumption environment and sharper than anticipated rise in commodity prices, we will take calibrated pricing actions to alleviate the pressure on margins and stay the course on our stated aspirations. That is it from our side. If you have any further queries, please feel free to reach out to our IR team, and they’ll be happy to address. Thank you and wish you all a great festive season ahead.
Operator
[Operator Closing Remarks]