Marico Ltd (MARICO) Q2 FY23 Earnings Concall Transcript

Marico Ltd (NSE:MARICO) Q2 FY23 Earnings Concall dated Nov. 04, 2022

Corporate Participants:

Saugata Gupta — Managing Director & Chief Executive Officer

Pawan Agrawal — Chief Financial Officer

Analysts:

bneesh Roy — Nuvama Group — Analyst

Arnab Mitra — Goldman Sachs — Analyst

Percy Panthaki — IIFL — Analyst

Prakash Kapadia — Anived Portfolio Managers — Analyst

Avi Mehta — Macquarie — Analyst

Shirish Pardeshi — Centrum Broking — Analyst

Latika Chopra — JPMorgan — Analyst

Siddharth Bhattacharya — Anvil Wealth Research — Analyst

Ajay Thakur — Anand Rathi Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Marico Limited’s Q2 FY ’23 Earnings Conference Call. We have with us today 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 a question, please directly reach out to Marico’s Investor Relations team.

I now hand the conference over to Mr. Saugata Gupta for his opening comments. Thank you, and over to you, sir.

Saugata Gupta — Managing Director & Chief Executive Officer

[Technical Issues] accept my greetings of the festive season. There was little or no change in the operating environment for the FMCG sector in India during the quarter, except some improvement in the last month overall consumption sentiment remained largely muted due to persistent macro headwinds stemming from retail inflation holding firm, currency depreciation and liquidity pressures. The sector decline in volumes for the fourth quarter in a row as per Nielsen, led by a high single-digit decline in HPC, while Foods posted marginal growth.

Rural has been underperforming urban for a while but holds promise of the beginning of a recovery in H2 on the back of government interventions, reasonably good monsoon and higher crop realization. It does not mean all gloomy, however, and urban and premium discretionary categories fared reasonably well. Moderation in global commodities also bodes well for the sector. However, recent volatility in vegetable oils and firmness in Foods should be watched.

Coming to our performance. After a tepid Q1, it is reassuring to see domestic volumes in the growth territory in Q2 and optical 3-year volume ever at 7%. Further, there was an impact of about 1% in domestic volume growth in Q2 due to pack size reductions which we have affected for in substitute of price increases in value-added hair oils.

Delving into the India business, let me give you a flavor of the key trends in our categories and what is the strategy and outlook for the year ahead. We have seen a sluggishness in loose to branded conversion in coconut oil as copra softened beyond our forecast and corrected even during the off-season month of September and October. We believe this correction in copra is a reflection of the weakness in the overall sentiment in contrast to being predominantly [Technical Issues]. As a result, we have been playing catch-up in pricing in Parachute Coconut Oil despite being prompt in taking pricing calls as suggested by our forecasting model on pricing, while multiple price drops thus impacted sentiment, we are in the midst of another round of pricing cuts.

In view of this continuous price drops copra prices and consumer pricing should harmonize by December, given there is a lag of 6 to 8 weeks for these actions to translate in the marketplace. Therefore, we expect volumes to stabilize in H2 as we continue to maintain a strong hold in our market share and even comfortable on the margin front as well.

Saffola, on the other hand, recovered smartly after the Q1 blip as proactive pricing intervention and key packs synchronized with the moderation in vegetable oil prices. On the profitability front, we took one-time hit this quarter as we cut prices substantially at one-go and ahead of the market to some extent to avoid multiple pricing changes even while we consumed higher cost RM inventory. We also covered all the ground stock in the market to affect the price cut. The total impact of all these one-time measures was about 75 bps to a 100 bps on EBITDA margins but led to stable Saffola edible oil growth in Q2 and in October.

Once price stability sets in, we’ll balanced volume growth and profitability at sustainable levels. Value-added hair oils posted subdued growth as continuing headwinds in rural consumption showing up in the bottom of pyramid segment, even though the mid and premium segment did relatively better. Volume growth in Q2 would have been flat, if not for the pack size reductions done to effect price increases, it is also pertinent to note that the overall hair oil category has been largely tracking HPC growth and we expect this phenomenon to continue. We draw comfort from the sustained upward value market-share trajectory and we are focused on expanding our presence in the premium and our super-premium segment. We’ll continue to maintain our competitiveness at the bottom of pyramid, but will not resort to actively downgrading the category realizations by operating at unsustainable or near loss margins.

Foods, bounced back to healthy broad-based growth in Q2. We continue to lock share gains in oats and soya chunk categories. We also expanded our plant-based protein offering with the launch of Saffola Soya Bhurji and added a new Saffola Masala Oats variant with a crunch to the oats franchise, which also contains millet. This new variant or with millets and crunchiness is based on consumer insight and the ask in this segment. We’ll continue to further expand our portfolio of offerings in the rest of H2.

During the quarter, we also reinstated Saffola Honey and with the launch of two variants, Saffola Honey Active at a more accessible price and NMR tested Saffola Honey Gold at a premium for the enhanced assurance of purity. We expect to aggressively restart our market-share gain journey in this category with this dual portfolio strategy. We’ll continue to invest in broadening our presence in the Honey category. Two elements is also scaling up as per expectations, the current revenue run-rate of the Foods franchise keeps us on-track to reach the revenues of INR650 crores in FY ’23 and aspire to hit INR850 crores to INR1,000 crore mark in FY ’24. Premier Personal Care has been growing at a healthy pace sequentially and is now above pre-COVID levels. Beardo and Just Herbs continue to meet internal growth targets. Our Digital Brand portfolio is nearing INR250 crores in ARR and we continue to chase the INR450 crores to INR500 mark by FY ’24.

Moving to International business. We have delivered double-digit constant currency growth for the 7th quarter in a row, which is unprecedented, and with all markets contributing fairly amidst growing macro-uncertainty. Bangladesh has been resilient amidst challenging macro circumstances with healthy growth in the core and sustained ramp-up in the healthcare and baby care portfolio. Vietnam has been gaining momentum as HPC category growth in the region has been buoyant. We’ll will continue to broaden our play in the region. We also have been witnessing stable growth in Middle East and North Africa in the last 18 months. We believe MENA presents a sizable opportunity and we are investing to grow in the region. South Africa and the new country development business, which is primarily exports have been keeping up their tempo as well.

Looking ahead, we remain hopeful of more accommodating macro condition in H2, especially in rural, and expect to deliver mid-single-digit volume growth in our domestic business in H2, while the Y-o-Y volume growth in the core categories does not look exciting this quarter, on a 3-year CAGR basis Parachute has delivered 4% volume growth, Saffola Oils has delivered 8% volume growth and [Technical Issues] delivered 6% volume growth, which are reasonably healthy. We have also consolidated our market shares in more than 90% of our portfolio on MAT basis, which holds us in good stead once consumption sentiment picks up.

We continue to support our channel partners and maintain the ROI, especially where growth has been muted. We have also not curtailed A&P spend and continue to invest in the long-term health of our franchises and in diversification of portfolio. With a combined annual run-rate of nearly INR1,200 crores in Foods, Premium Personal Care, Digital First brands are gaining ahead at an encouraging pace and will continue to channelize incremental energies to achieve our aspirations to diversify beyond our core. We’re taking measured efforts to build a dedicated GTL for Foods and Premium Personal Care, which will help us scale these franchises disproportionately.

In International business we are confident of maintaining the growth momentum in the coming quarters even if Bangladesh moderates to some extent in the near-term, keeping external headwinds in mind. We are enthused by the diversification initiative in Bangladesh and Vietnam paying off. The replication of Bangladesh playbook into Vietnam and MENA have started to show definitive results in terms of uptake in growth every quarter. Gross margin should improve sequentially from quarter three as copra remains in the soft zone, while the recent volatility in edible oil keeps it watchful, having closed H1 at 19% EBITDA we maintain our aspiration to deliver 18% to 19% EBITDA margin in FY ’23. We continue to build fundamentally sound franchises in the domestic and international markets and push for the broad strategic levers of diversification, distribution, digital and diversity, which we believe will keep us on the path of sustainable and continued growth in the medium-term.

We also continue to make visible progress in our ESG program in each of our focus areas, creating shared value for all remains the ingrained purpose of our business, and will allow us to drive superior long-term performance. We are committed to achieving a net zero-emission in our domestic operations by 2030 and in global operations by 2040.

With that, I will now close my comments. Thank you for your patient listening and we will now take your questions. Thank you.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Abneesh Roy from Nuvama. Please go ahead.

Abneesh Roy — Nuvama Group — Analyst

Yeah, thanks. My first question is on soya would a plant protein, of course, the protein is exciting category and more so plant protein. My questions here, how has been the response in the initial pilot phase? Second is, when and what is the plan for larger SKUs currently it is INR15 SKU? How it is till now we haven’t seen any such offering, which makes huge sense on paper, but is there any idea why the industry till now hasn’t launched, given soya is that a large category and Indians are very active consumers? And how do you see the, say focus, between the more mass soya chunk versus say this kind of product for you for in medium and long-term strategies, so focus will be more to create this or to compete and take market share in the soya chunk, which is a much larger category, but has got two very entrants there?

Saugata Gupta — Managing Director & Chief Executive Officer

Okay. So, let me give you, I think, an overall no kind of a flavor. The same way we have worked on basically oats, if you look at oats, oats was that first concept, plain oats was a commodity, but we focused our energies into premiumizing the oats category and providing a value-added offering which converted this from a Western cold [Technical Issues] savory and we converted this category from breakfast to in-between meals. We’re just replicating that. We participated in soya; soya is doing very well, and it is expected to hit INR100 crores this year, but we believe that the growth opportunity just like we have done oats is to create innovate in this category and convert it into value-added and oats currently is the center of — sorry, soya now is currently center of plate, we want to convert this from center of plate into a snacking option, and I think while others have done it, I can’t say, but I think we have a track-record of innovation in Foods just like we have done in Masala Oats, we’re just replicating this model.

Abneesh Roy — Nuvama Group — Analyst

And in terms of the response in the pilot phase in terms of case, etc. I’m sure you could have met, that’s why you are taking to new cities, but just want to get some sense there? And second is on the larger SKU?

Saugata Gupta — Managing Director & Chief Executive Officer

No, no, this is a pilot right now. We just started it a week back in fact so like it’s been early days. Now if you notice, obviously, INR15 is a trial pack, as and when habit gets ingrained, we move, and this is exactly the same thing which we have done in Masala Oats also when we then moved it into the larger packs, so we will wait, drive trials, drive loyalty and move to the larger pack, but I think as far as plant protein is concerned I think in India we believe the growth is at the mass end and not necessarily the top-end, also in top-end number two, a lot of action that is happening in the top-end is in the frozen category, we believe that India will behave differently compared to mock meat, which is a very Western concept, and therefore, as I said that we will continue to drive value additions in the plain and we are not interested in participating only in the commoditized space, which is plain soya nuggets.

Abneesh Roy — Nuvama Group — Analyst

Sir, just my second question is on the India versus Bangladesh growth, 1% versus 10%, how much of this is because of the India rural slowdown, how much is it because of the category — the mix is different, I understand that, but is it remarkably different to warrant a 900-bps different? And third is, when I see the adjacent areas of Bengal and Assam, then how does it compare versus Bangladesh, because those should converge more versus the 900-bps pan-India and Bangladesh?

Saugata Gupta — Managing Director & Chief Executive Officer

I don’t think it’s fair to [Technical Issues] Assam, West Bengal versus Bangladesh because similarly, UK and Ireland might not have the same growth, okay. So, the way I look at it is this, that if you look at India, a significant deflation has happened because of the price cuts we have taken in Parachute and Saffola. Saffola in fact is around 18% drop from the peak, and Parachute, we have taken around 8% price drop, which is not the case in Bangladesh, okay. So, I think that would be the reason, so therefore if I had an inflation, I would have also delivered with a 3% volume growth and I also talked about this one that we had lost out 1% volume growth, because we didn’t take back price increases, instead of that we took a mileage drop, so if you equate that, I think it’s broadly in the same zone I would say. I don’t see any difference, and I believe having said that, obviously we have a relative dominant position as far Bangladesh is concerned, and Bangladesh has perhaps a little more economic headwinds than India at this point in time, but I think given our competitive strength and our diversification into some of the big areas we have coped with it better.

Abneesh Roy — Nuvama Group — Analyst

Sir, last question is on the VAHO downtrading, which you mentioned, and you also mentioned on the overall Hair Oils at you would not like to operate at unsustainably lower gross margin. So, wanted to understand that where is the downtrading happening, the consumer is moving to which products and when you say unsustainably low margins, what exactly are you referring at?

Saugata Gupta — Managing Director & Chief Executive Officer

Okay. So, what is happening obviously, and if we look at any category in HPC, because of the inflation and the current this one, both hit bottom of pyramid, whether it’s urban and rural. There we are seeing a downgrading happening in terms of — because I think in this kind of a category there is not titration in usage, so if we look at MSB or some other category there will be tight pressure in usage, in some categories like soap, hair oil and shampoos, you don’t see titration in usage, but you see a down gradation, and any high penetration category there is this opportunity for down-gradation because there are different price point, different brands please play, so we are seeing that happening in especially the fact that VAHO has a rural skew as a category and this is not just here, but some of the other categories in HPC, which is happening.

Now coming to the margin thing, what we’re saying is that, yes, it could be a very — a lot of players could have a short-term strategy of cutting A&P, downtrading and cutting margins to participate in this down-trading, we believe that of the long-term and neither if you notice we are not doing A&P cuts, neither we are take, so what we will say that we will not grow volume or market-share at a gross margin which is somewhat unsustainable over the medium-term, so as an organization we will not sacrifice the medium and long-term for some short-term.

Abneesh Roy — Nuvama Group — Analyst

Sir, one last follow-up here, so whenever we see inflation in FMCG, we see regional players coming back strongly in both of your key categories currently there is a deflation happening, so when you refer to all these kinds of some of the players take cutting down on ad spend and operating at a low gross margin, are you referring largely to influence there, in both these categories?

Saugata Gupta — Managing Director & Chief Executive Officer

No, I’m referring to all competition.

Abneesh Roy — Nuvama Group — Analyst

Okay. Sure.

Operator

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

Arnab Mitra — Goldman Sachs — Analyst

Yeah, hi. My first question was on Saffola, so you’ve seen this improvement in volumes. And last quarter you had specifically mentioned that there was a destocking also in plain, so is the volume growth including some kind of a restocking on that destocking, which had happened, which is why this high-single-digit volume growth may not sustain in Saffola going ahead? And a related question would be, have you had any price changes due to again the volatility in edible oils which happened in the end of October?

Saugata Gupta — Managing Director & Chief Executive Officer

So, on the price changes we’ll wait-and-watch. I can’t comment on it right now. Regarding destocking and I think that the destocking, which has happened the volatility remains, so STR we have not increased. And as you know the edible oil stock control limit also stayed on, it was just lifted 2 days ago. So, if you look at quarter two, we have not seen any increase in STR and as a practice given the kind of volatility, we also don’t want to increase STRs, but we hope as the price stabilizes, we will also increase — we will be able to do it but only when there is a stability in the system.

Arnab Mitra — Goldman Sachs — Analyst

Understood. My second question is on the volume growth what you mentioned mid-single digits for second half, now with your price deflation it will not be significantly higher in the second half, and would that mean revenues could actually go down from the current levels to a flattish level in the second half or are there other elements there?

Saugata Gupta — Managing Director & Chief Executive Officer

It’s very difficult to — because see Arnab I think there are two things one is the volatility continues if we look at the last two weeks there has been some volatility, yes maybe as Parachute, you will have some deflation, so I would say that there will be certain deflation but it’s very difficult to predict what will be the extent of deflation as of now.

Arnab Mitra — Goldman Sachs — Analyst

Okay. Understood. And the third question, and last question was on the Premium Personal Care business specifically where you had called on the INR300 crores turnover. How big was the portfolio in FY ’20 before the pre-COVID period and are the margins in this portfolio better than your average margins and hence as this grows which will help your overall margin profile or these Investments margins here are also going to be lower at least with the gross sales?

Saugata Gupta — Managing Director & Chief Executive Officer

Not really. I think we make significant higher gross margins, the A&P is broadly in line, so therefore the more we sell of this, it improves not only our gross margins it also improves the EBITDA profile. As far as the numbers are concerned, we have now crossed the pre-COVID levels. This was the segment which got impacted very to a large extent in FY 2021 and ’21, ’22, but we have now crossed back to pre-COVID levels, and the gross margin is significantly higher than the rest of the portfolio, so it actually helps in terms of our overall gross margin and EBITDA.

Arnab Mitra — Goldman Sachs — Analyst

And just a follow-up question on this, this is a segment also where all the new age B2C personal care brands are playing for male grooming as well as serums, so is your business also tilted towards that e-commerce led growth or this has been largely a general trade kind of a business which it used to be earlier?

Saugata Gupta — Managing Director & Chief Executive Officer

So, if you look at it, the good thing is that we now have a portfolio of brands in male grooming, so Beardo plays in the far more skewed towards Digital in fact, I mean, 90%, 95% is digital so we are starting to do the crossover into general trade. Set Wet’s significant portion is still driving penetration, so our job is to drive penetration although we do participate in e-commerce, so they have very, very significant presence in GT and in fact GT if you look at, in the last 5 to 7 years a significant portion of the growth has happened to the INR10 gel pack, so we have a penetration task to do as far as styling is concerned, and therefore this is a secular growth and not this one-go. Having said that, I think both in the serum and the male grooming categories we’ll continue to participate aggressively through innovations in the e-commerce and modern trade space, and with either brand extension or a portfolio of brands.

Arnab Mitra — Goldman Sachs — Analyst

Okay. Thanks so much.

Operator

Thank you. The next question is from the line of Percy Panthaki from IIFL. Please go ahead. Percy Panthaki, your line is in talk mode. Kindly go ahead with your question please.

Percy Panthaki — IIFL — Analyst

Am I audible?

Operator

Yes sir. Now you are.

Saugata Gupta — Managing Director & Chief Executive Officer

Yes.

Percy Panthaki — IIFL — Analyst

Yeah. I just I understand in the Foods portfolio we had some issues with Honey, so are those issues sorted out, what are our market, now we had lost some market share and do we continue at that or have [Technical Issues].

Saugata Gupta — Managing Director & Chief Executive Officer

I’m not sure what issues we have, normally if the issues are happening, we will know more than others, so I’m not aware of any issues. The only market-share loss, which you might alluded to is in the month of September we phased-out the old and phased-in the new, so there is no — market-share not impacted with the current strategy what we are doing is we are just replicating the Saffola edible oils strategy, as you know in Saffola edible oils, we used to have only Saffola Kardi and Saffola Gold and we introduced Active and Tasty at affordable prices so that me give the consumers choice, which also led to increased penetration increased market-share. What I can tell you is with this kind of a thing which is a far more affordable pricing a superior quality product, we expect to aggressively gain market share.

Percy Panthaki — IIFL — Analyst

Okay. So basically, the market share loss which you experienced that was more of some sort of change in the pipeline issue or what was the reason?

Saugata Gupta — Managing Director & Chief Executive Officer

No, there was no market-share loss, all I’m saying that, see we can take you know one data point, so in the month of September when we phased-out a product and phased-in this product, we started selling in October mid, love to flash out, and therefore we didn’t sell the new thing, there are in one or two places there could have been our market share dip, so there is no market share huge loss lost or something at least what we are seeing from these or something like that.

Percy Panthaki — IIFL — Analyst

Okay. My question was more on, you said in the Q1 call where you did mention that there was a market share loss in the segment, correct me if I’m wrong there?

Saugata Gupta — Managing Director & Chief Executive Officer

The GT in the last quarter we had said about the market share, that was in previous quarter. What we had said is that in MT and e-com we continued to maintain the whole share, that was in the last this one, but if you are referring to last quarter specific market share loss, nothing has happened. This was compared to the peak I talked about, but I talked about the last call there was a slight market share loss in GT which happened in Q1. And as I said in September, when we did the phasing there could be our market share loss, now that September data will only come in November — I mean whatever data we’re just indicating there is some slight this one loss in MT which will pick-up because we know how much is in the numbers in October, and I believe strongly that will actually drive market share gain with this dual strategy.

Percy Panthaki — IIFL — Analyst

Understood, Understood. And on the other segments within Foods, those and all the other sort of smaller products, any commentary you can give on which of them are sort of performing better than expectations, which of them leave some room for improvement, etc.?

Saugata Gupta — Managing Director & Chief Executive Officer

So, I think in terms of scale-up, I think soya nuggets has happened, in terms of the smaller ones, I would say that we are now starting to sequentially grow significantly in noodles and in peanut butter. I think we have a job to do in mayonnaise.

Percy Panthaki — IIFL — Analyst

Okay. And we stick to our earlier guidance for FY ’25?

Saugata Gupta — Managing Director & Chief Executive Officer

Absolutely. I think the current run-rate is trending towards INR650 crores and at INR850 crores to INR1,000 crores, including and you will see a lot more innovations coming in the next 6 months, it will be — I think we have got an operating model in Foods, what also is there that we have established, we are now slowly in the first top 6 cities are exclusive Foods GDM which will now expand. Our gross margin continues to improve as quarters go-by, and we get skilled, and therefore I think we have a very decent playbook as far as Foods is concerned.

Percy Panthaki — IIFL — Analyst

Okay. My second question is on the Digital brand, there also we had a target of I think INR400 crores to INR500 crores by FY ’25, so any kind of progress you can share on that?

Saugata Gupta — Managing Director & Chief Executive Officer

Yes, so you had circular in the presentation we are now — had alluded to in the last this one that if we can get to INR50 crore run-rate by quarter two and then a INR300 crore run-rate by the end-of-the year we should be in-line, so we have hit that INR250 crore run-rate, and all the four brands are in-line with the acquisition assumptions. We also continue to look at inorganic opportunities in this area, so a mixture of that we are pretty hopeful of again hitting that INR400 crores to INR500 crores mark.

Percy Panthaki — IIFL — Analyst

And of the four brands that we have here, what is your comments in terms of which ones are really doing well and which ones are sort of yet to be scaled-up?

Saugata Gupta — Managing Director & Chief Executive Officer

So. I think Beardo is I think on a virtuous cycle of growth. And both Just Herbs and True Elements are scaling up well.

Percy Panthaki — IIFL — Analyst

Okay. That’s all from me. Thanks, and all the best.

Saugata Gupta — Managing Director & Chief Executive Officer

And we believe that Fittify is something which has significant potential now that we are going into gummies and all that.

Percy Panthaki — IIFL — Analyst

Right. Right.

Saugata Gupta — Managing Director & Chief Executive Officer

But True Elements to be honest is a Food brands, but if you talk of Digital. I think Just Herbs and Beardo have scaled up and we believe that Fittify is another brand which has the potential for scaling up.

Pawan Agrawal — Chief Financial Officer

So just to clarify Percy that [Indecipherable].

Percy Panthaki — IIFL — Analyst

Sure. Sure.

Pawan Agrawal — Chief Financial Officer

Purely from a numbers perspective.

Percy Panthaki — IIFL — Analyst

Yeah. Sure.

Operator

Thank you. The next question is from the line of Prakash Kapadia from Anived Portfolio Managers. Please go ahead.

Prakash Kapadia — Anived Portfolio Managers — Analyst

Yeah. One question from my end you know historically in this inflationary environment FMCG companies were relatively better, but this time around we demand seems to be muted for quite some while, so what is happening, is it just rural, is it the continuous rising inflation beyond few months? And what is happening on the LUP side, so what was the LUP contribution for us say pre-COVID, what is it now, what is happening especially in rural India, if you could give some thoughts, that will be helpful?

Saugata Gupta — Managing Director & Chief Executive Officer

Yeah, I’ll give you a broad flavor. I think, see in the past yes you are right that some vendor is moderate inflation, sometimes the brand, the leaders gain market-share, the difference this time has been that perhaps and this happens when there is significant food inflation especially at bottom of pyramid both in urban and rural, you see that people titrating on FMCG, okay, because they don’t want to compromise on food, and this is why you are, seeing that what has happened in I think during the COVID time and this one is that this we are seeing only at the bottom of pyramid and that’s the reason if you look at premium discretionary whether in rural or urban continues to do well, and it’s just not FMCG categories, you see in auto, you see in jewelry and other things, the discretionary sector continues to do well.

In FMCG what has happened also is that in HPC since the categories are well penetrated and you have a plethora of brands struggling price-points, you have an option of actually people downgrading from a premium branded, this one brand, if you look at all HPC or beauty and personal care you can see that this one is happening. Having said that, at the top-end, which is being basically modern trade and e-com service brands, you are actually seeing that is not impacted and that is seen in all categories where slightly luxury or premium discretionary does not get impacted. So yes, they are downtrading and LUPs are growing, and the impact is higher in rural than urban. There is one more factor which was there, if you look at COVID time, the premium discretionary had got impacted higher than what other bottom of pyramid or the large brands and a lot of premium discretionary brands have a lower base in 2021 and ’21, ‘ 22 and therefore that is also coming back. I’m showing optically higher growth.

Prakash Kapadia — Anived Portfolio Managers — Analyst

Sure. Sure. And if you could quantify the LUP contribution if you have it ready?

Saugata Gupta — Managing Director & Chief Executive Officer

No, we are not going to get you into each of contribution, we will not be able to provide at this point.

Prakash Kapadia — Anived Portfolio Managers — Analyst

Fine. And in the opening remarks you did mention about you being confident of rural recovery, so is it just going to be government-led or government getting into election mode, what gives you that confidence or visibility or now the base is already so bad growth has to normalize and come back?

Saugata Gupta — Managing Director & Chief Executive Officer

It’s a combination of both. You’re right. It’s a combination of both. Because if you look at at the rural, that shrinkage started sometime in Q3 last year.

Prakash Kapadia — Anived Portfolio Managers — Analyst

Right. Understood. Thank you. All the best.

Saugata Gupta — Managing Director & Chief Executive Officer

Thanks.

Operator

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

Avi Mehta — Macquarie — Analyst

Hi, sir. Just wanted to check on the volume growth expectations, if I recollect, in the first quarter you had shared an expectation of moving back to the medium-term targets of 8% to 10% volume growth by second half. But there seems to be some sort of moderation in that expectation. I just wanted to appreciate what has driven that, if you could kind of give some comments on that please.

Saugata Gupta — Managing Director & Chief Executive Officer

I think when we gave that comment we expected that the global geopolitical and the situation will have a solution, that solution hasn’t happened. We continue to experience that inflation and therefore given the current conditions we believe that we are we at this point in time we should be able to deliver mid-single-digit kind of a number.

Avi Mehta — Macquarie — Analyst

So, sir, would it be fair to say that on an overall growth basis that mix of volume and price, the price aspect has kind of risen which is why you are kind of changing the volume aspect, is that the way to see is it, that the right way to kind of?

Saugata Gupta — Managing Director & Chief Executive Officer

No, not really, not really, I’m giving this on the basis of the current consumption scenario. See, as I said that I think — and the other reason I said is that we normally don’t have a [Technical Issues] normally as you know in copra, this is off peak season you normally don’t have them [Technical Issues]. So, Parachute, we continue to take price reduction and every time unlike Saffola which is an urban brand, in Parachute it takes six to eight weeks for pricing to realize and get stability, so that stability of pricing can only happen in December and therefore while H2 will recover, I mean and that’s the first. Second shift is our assumption on rural growth and overall BPC growth and our endeavor is to better, and this has happened that whatever has been in the VAHO. I think the VAHO decline is in minus 6, but we have performed, so we have gained some market-share, but I think we are estimating that what was our estimate of the category growth when we talked about it and first week of August versus, there has been a little bit of a change.

Avi Mehta — Macquarie — Analyst

Okay. Okay. Understood sir. Sir, the second part was more of trying to appreciate in the Foods segment, now I understand that you have chosen…

Saugata Gupta — Managing Director & Chief Executive Officer

I just wanted to add something, even if you do mid-single-digits, our 3-year CAGR will be high-single-digits in-line with the medium-term aspiration. So, you need to look at the 3-year CAGR, the 3-year CAGR will be definitely high-single digits in volume growth.

Avi Mehta — Macquarie — Analyst

Okay. Got it sir. Got it. Sir, the second bit was on the Foods side, now I understand you’ve chosen categories which are large unorganized like soya and offer very strong opportunity for growth, but do you see any concerns that such launches make Saffola a more generic food brand versus the health focus brand that it currently is?

Saugata Gupta — Managing Director & Chief Executive Officer

Okay. So let me just give you the perspective, as far as Saffola is concerned, we are entering into categories which are scaled, but at the same time which are health focused, okay, so Saffola is a brand which encourages people to live a healthy life. So, if you look at soya, is a plant protein and it’s a very good substitute in terms of better-for-you products, so I think if you look at the journey of Saffola, it started-off in 1990s as a therapeutic brand, moved into a preventive space and as we entered with Foods it then became a better-for-you kind of a product and therefore it’s a healthy way of life, so wherever we enter will offer an alternative which is better for you, a peanut butter, which doesn’t have sugar, which has jaggery, mayonnaise which is creamy or less fat, oats which is anyway into heart health but with masala and we will not compromise on the taste, so yes we are modifying in terms of the — because if you look at food, if you don’t get into categories which have scale and operate in niche then Saffola the total addressable market would not have got realized the expansion and would have under-leveraged the strength of the brand. So, I don’t think we’ll compromise on health, but I think it will be better-for-you rather than just functional, so the other route to Saffola could have been getting into nutraceuticals and functional foods, but that would have not given scale. We believe that Saffola was very, very underleveraged as a brand for health, and we will continue to enter categories, and this is in-line with our ambition of getting INR1,000 crore in Foods.

Avi Mehta — Macquarie — Analyst

Okay. Clear sir. Thank you very much. That’s all from my side. Thanks again.

Operator

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

Shirish Pardeshi — Centrum Broking — Analyst

Hi, good evening. Thanks for the opportunity Saugata. I am reading on Slide 7 where we have given the numbers, so what I see that PCNO, that volume decline is 3% so just was interested what is the quarter two category volume decline?

Saugata Gupta — Managing Director & Chief Executive Officer

Slightly more it will be, because we have gained a little share, so just about — but it’s shed more. As I said, two things happened given until the pricing settles down but inflation you have seen, one is that the loose to branded conversion has gone down and maybe what is also happening is that but people are, what I call in households which are dual households, the dual household is basically a typical household where there is dual usage of unbranded-branded our SOR could have gone down, these are the combination of this.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. Just one follow-up on the PCNO, you said you have taken a drop in price, so is the pack size is dropped or the prices come down from INR37…

Saugata Gupta — Managing Director & Chief Executive Officer

Absolute prices, PCNO has taken price cut, absolutely.

Shirish Pardeshi — Centrum Broking — Analyst

So, this INR37 has become INR35?

Saugata Gupta — Managing Director & Chief Executive Officer

Yeah.

Shirish Pardeshi — Centrum Broking — Analyst

So, 100 ml was priced at INR37 previously, so that has dropped to further down.

Saugata Gupta — Managing Director & Chief Executive Officer

Yeah, that right.

Shirish Pardeshi — Centrum Broking — Analyst

But just one clarification, you said on Saffola you have given the benefit to the trade also for the price drop, for PCNO also you’re doing?

Saugata Gupta — Managing Director & Chief Executive Officer

No, you can’t because, see Saffola is very, easy one is the HTR is very low, so it’s very, very focused distributed work which are huge contribution of modern trade and e-com where you can even quickly give the benefit to the trade. In PCNO you can’t and given PCNO is a mass distributed brand, to give you an example and we have done this based on Nielsen where the pricing is there by the time you take price drop in primary or in the factory it takes at least six to eight weeks especially in rural areas to see that price in the shops, because the average HTR can be INR40, INR45 also.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. Got it.

Saugata Gupta — Managing Director & Chief Executive Officer

In Saffola, it operates on 8 to 10 days.

Shirish Pardeshi — Centrum Broking — Analyst

Got it. My second and last question on the foods, assume that you have done INR300 odd crores in Foods, what is the contribution for non-Saffola product — non-oats products, sorry?

Saugata Gupta — Managing Director & Chief Executive Officer

We don’t want to get into this one, but all everybody everything is getting growth including oats, so I can’t get you a breakup of this, but it is — everything is there, oats is delivering growth if you’re wanting to that.

Shirish Pardeshi — Centrum Broking — Analyst

No, no I’m more interested because we have taken a lot of intervention launching the subcategories and adjacencies so how that adjacencies are faring well that was more interested question?

Saugata Gupta — Managing Director & Chief Executive Officer

No, as I said that it is a broad-based growth and also which as I said that we believe that in terms of scale after oats and Masala Oats, soya nuggets and Honey is in terms of scale they are the biggest.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. Okay. Okay. Wonderful. Thank you and all the best to you and the team.

Operator

Thank you. The next question is from the line of Latika Chopra from JPMorgan. Please go ahead.

Latika Chopra — JPMorgan — Analyst

Yeah, hi. Thanks for the opportunity. Hi, Saugata. I just had — I just wanted some detail or some color on 3-year volume figures for Parachute and VAHO, how is that between urban and rural for both these categories?

Saugata Gupta — Managing Director & Chief Executive Officer

We can, I think we can do that offline, because I don’t have ready made on this one, because what has happened is this rural-urban, I think when the COVID started rural was growing higher than urban and since the last couple of quarters it’s been the urban which is growing higher than rural.

Latika Chopra — JPMorgan — Analyst

So yeah, I know but from a qualitative perspective you know typically you would aim for rural to drive better volumes for probably both these categories from a volume perspective, so do you think that kind of — and I’m talking about 3-year CAGR, just taking care of all the disruption or maybe even if you take a 5-year period has rural volume growth on a normalized basis matched your expectations, or you feel there is a reason to probably tamper for the growth expectations for both these segments. I know you’re pegging it to BPC, but in the last 4, 5 years?

Saugata Gupta — Managing Director & Chief Executive Officer

No, no. So, I think rural — see this rural phenomenon is very, very recent, okay, and if you really look at it in PCNO actually PCNO has — if you look at PCNO in the — if you take a 5-year perspective if you knock-off this year, I would say rural would have outperformed urban. Now it is only in this year where we are seeing this phenomena and the reason also has been that in the COVID year obviously there were more disruption perhaps in urban, so I don’t think in terms of — and I talked about I think we gave you the number there has been a 4% volume growth in Parachute in a CAGR period and value-added 6%, so if you discount this year I think broadly it has been in line with that prediction it is this year where it has been a little tepid, I would say.

Latika Chopra — JPMorgan — Analyst

All right. And the second clarification I wanted was on Saffola edible oils, have you seen any further price reductions post-September in this category?

Saugata Gupta — Managing Director & Chief Executive Officer

No.

Latika Chopra — JPMorgan — Analyst

No. So, basically pricing is now stabilizing as we look into future.

Saugata Gupta — Managing Director & Chief Executive Officer

You never know, because in the last few days, it’s very difficult to predict, but what we have said is that we, have a strategy now in place based on our learnings from Q1, how to manage volumes and margin.

Latika Chopra — JPMorgan — Analyst

Sure. Perfect. Thank you so much.

Operator

Thank you. The next question is from the line of Siddharth Bhattacharya from Anvil Wealth Research. Please go ahead.

Siddharth Bhattacharya — Anvil Wealth Research — Analyst

Hello, am I audible?

Operator

Yes, sir. Please proceed.

Saugata Gupta — Managing Director & Chief Executive Officer

Yes.

Siddharth Bhattacharya — Anvil Wealth Research — Analyst

Yeah, I’m sorry for certain voice in the backdrop. I just wanted to understand our Foods strategy for the HoReCa segment. Are we looking at that segment for our portfolio if at all, how do we strategize to go about generating sales and getting market share in that segment?

Saugata Gupta — Managing Director & Chief Executive Officer

So, I think given that we are a small player, I don’t think we are now — we are focusing on that segment at all. See Foods for us is you know something which has to deliver higher margin in Saffola edible oil, because we are diversifying and expanding the total addressable market for Saffola, so in this context given our size, I think this is a channel of HoReCa which is not profitable, and only for scale players and certain categories it works, so as far as we are concerned in the immediate future, we don’t see us participating in that category.

Siddharth Bhattacharya — Anvil Wealth Research — Analyst

Okay, because I thought anyhow it would be a product that would fit well in that segment, so that is why I’m asking this question.

Saugata Gupta — Managing Director & Chief Executive Officer

Yeah, but if you see you will see a significant — if we look at the average gross margin HoReCa channel will be lower than Saffola edible oil, so the basic purpose of doing food rather than total addressable expansion and improving the Saffola overall gross margin will be defeated, if we participate in HoReCa channel at this point in time. In any case I think given the category penetration of some of the categories especially oats and all we have a huge task ahead in the next 3, 4 years and there is huge headroom for growth in retail itself.

Siddharth Bhattacharya — Anvil Wealth Research — Analyst

Got it. Got it. Thank you thank you for answering my questions.

Saugata Gupta — Managing Director & Chief Executive Officer

Thank you.

Operator

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

Ajay Thakur — Anand Rathi Securities — Analyst

Hi sir. Thanks for taking my question. Sir, the first question was more on the international market where most of the FMCG companies actually had come out with the inflation-led impact on margins and growth, so just wanted to understand how things stacks up right now given the volatility in terms of the currency might have reduced and also the input cost inflation, I believe should help stabilize, so from going-forward can we expect a better traction in the international market from that perspective or we can still expect in the coming quarters impact of currency volatility and input cost inflation on the gross margins?

Saugata Gupta — Managing Director & Chief Executive Officer

Two things, one is as far as growth is concerned I think we have continued to deliver very steady growth, independent of all the volatility that is there. Now as far as currency is concerned, yes, perhaps the significant part of the depreciation is over. Having said that, on a Y-o-Y basis that will continue. I don’t see some of them in the markets the currency appreciating versus the dollar or appreciating versus the rupee, and as I said I’m no expert and nobody can predict, but that is the current feed. As far as costs are concerned, yes, you are right, I think as far as costs are concerned, input costs are concerned that should ease out and therefore maybe International business will add to little bit of the gross margin sequential improvement we’re talking about. Having said that, I think we have significantly good EBITDA as far as International business is concerned, and therefore, our focus will be also to ensure that given these markets especially Bangladesh, Egypt and all which continue to maintain has inflation and some currency there is to maximized growth, that is an important thing and gain market-share, continue to gain market share, each of the franchises are participants. Having said that, we are lucky because if we look at Vietnam and Middle East very participant that is reasonably insulated from all this.

Ajay Thakur — Anand Rathi Securities — Analyst

Okay. Thanks. The second question was more on the domestic part of the business, wherein if you were to look at our hair oil portfolio that would be contributing a major chunk of the revenues and given the last maybe over 3 years period when we have seen the volume growth being slightly softer than maybe the historical averages of around 10 odd percent in that context, so how do we kind of see growth being re-energized in this space because we are the market leader and finally that will obviously help us in terms of the growth momentum coming back?

Saugata Gupta — Managing Director & Chief Executive Officer

So let me address it in three segments, okay. The first, as far as Parachute is concerned, as I said that once the pricing settles down and we have been chasing pricing. Once pricing settles down, and we have been picking price drops in line with this one and while maintaining margins we believe the volume growth will start inching up. As far as value-added hair oil is concerned, I don’t think we can significantly impact category growth, we will continue to gain market share and this will mirror the overall BPC or the HPC growth. Having said that, we will continue to aggressively grow Foods, we will diversify Digital Brand and if you really look at it in the last 3 years and as I spoke about that we have around INR1,200 crores of this business and they now contribute to a significant portion of margins, significant portion of turnover. As far as edible is concerned, I think it’s stabilized. I don’t think the volatility is — well the volatility to an extent will be lower going forward and if you really look at it, I think we are — if we look at 3-year period of Saffola we are pretty confident of giving high-single-digit growth in Saffola also over the medium-term. So, in summary the joker in the pack is return of rural — revival of the rural consumption, which we believe will slowly happen. And we are also entering on perhaps a little softer base.

Ajay Thakur — Anand Rathi Securities — Analyst

Understand. Quite helpful. Thank you, sir.

Operator

Thank you. Ladies and gentlemen, we take that as the last question for today. I now hand the conference over to the management for their closing remarks. Over to you.

Saugata Gupta — Managing Director & Chief Executive Officer

To conclude, it was encouraging to see improving trends in our domestic business and the top-quartile performance in the International business. While we anticipate traction in the domestic core categories to stabilize soon, the positivity is thanks to the diversification of the domestic portfolios to Foods, Premium Personal Care and Digital are exciting and we will continue to stay on aspirational targets along the way. The show of strength from each of the international market is heartening and we will ensure that we do not take our foot off the pedal here. Amidst volatility in the global commodities and cost pressures, we will aim to deliver stable profitability and remain bias towards accelerating growth while investing towards the long-term health of our brands. If you have any further queries, please feel free-to reach-out to our IR team and they’ll be happy to address this in. Please stay safe and take care.

Operator

[Operator Closing Remarks]