Marico Ltd (MARICO) Q3 FY22 Earnings Concall Transcript

Marico Ltd (NSE:MARICO) Q3 FY22 Earnings Concall dated Jan. 28, 2022

Corporate Participants:

Saugata Gupta — Managing Director & Chief Executive Officer

Pawan Agrawal — Chief Financial Officer

Analysts:

Percy Panthaki — IIFL Securities — Analyst

Avi Mehta — Macquarie — Analyst

Abneesh Roy — Edelweiss — Analyst

Vivek Maheshwari — Jefferies — Analyst

Harit Kapoor — Investec — Analyst

Ravi Srivastava — Bay Capital — Analyst

Palak Shah — Infina Finance — Analyst

Vaibhav Badjatya — H&I Investments — Analyst

Sheela Rathi — Morgan Stanley — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Marico Limited Q3 FY22 Earnings Conference Call. [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 any body 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.

With this, I would now like to hand the conference over to the management for their opening comments. Thank you, and over to you. Yes. Good evening to all those of you who have joined the call. I hope all of you, your friends and family are keeping safe and healthy. Yet another COVID variant has emerged across the globe, while the number of infections has risen to record levels, the severity has been largely controlled by the expanding vaccination coverage and a seemingly milder variant. Therefore, fortunately, the impact on public health and economic activity has been minimal. Coming to the operational environment during the quarter gone by in India, sustained inflation in the economy has certainly impacted disposable incomes and consumer spending, especially in FMCG which is also evident in the sequential moderation in quarterly market growth as per Nielsen figures. Given the relative susceptibility to inflation, rural has seen a visibly higher slowdown than urban. In this challenging context, we outperformed the overall market growth, both in volume and value terms in the quarter as well as on a 2-year CAGR basis. On a 2-year CAGR basis, domestic volume growth was 7.3% and revenue growth of 15% was in line with our medium-term aspirations. This was enabled by consciously channelizing energy investment towards driving market share and penetration gains in our categories. Nearly 95% of our portfolio logged market share gains and penetration gains on a MAT basis. While rural consumption has been slower of late, we are optimistic of a recovery with more stimulus and SOVs likely in the upcoming budget, a good monsoon season and a healthy sowing season. In International market. International Business, we had another strong quarter of high teens constant currency growth, with all markets posting healthy growth. The business has steadily become a mark of stable and a model of a profitable, sustainable growth even as its profitability has expanded over the last decade to being in line with the Domestic business today. On a consolidated basis, gross margin was lower YoY but improved sequentially and should continue to inch up in the forthcoming quarters. As alluded to earlier, we ramped up A&P investments by 14% year-on-year and prioritized brand building for the long term over preserving short-term margins in the face of input cost headwinds. As a result, EBITDA margin was higher sequentially but still under pressure on a YoY basis. We’ll now delve into the India business performance in the quarter and outlook going forward. Parachute Coconut Oil delivered a stable quarter with a 2-year volume CAGR of 4% despite the moderating consumption environment, exhibiting its competitive — by gaining 220 basis points in rigid packs on a MAT basis. We have been proactive in passing on value to consumers and we’ve been taking pricing culls in quarter 3 and quarter 4 right now. Given that copra prices are further softening in Q4 this time around, which is typically the off-season. We expect an uptick in volumes in Q4 despite an exceptionally high base of Q4 last year on the back of brand equity focused activation in the core and noncore markets. And I think for the first time, taking proactive and accelerated pricing culls. The medium-term potential of 5% to 7% volume growth CAGR is very much intact. The Saffola franchise posted healthy double-digit growth. Saffola edible oil had a soft quarter due to higher in-home consumption in the base and weak trade sentiment, on account of a volatility of a declining trend in edible oil prices, thereby leading to substantially low STRs in trade. Now that the crude prices are hardening and the descent in edible oil price has arrested, prices have stabilized in a range. We have also taken some pricing intervention just now in January. And therefore, now Saffola is extremely competitive in the marketplace. And therefore, we are confident of improving growth trend going ahead. Foods continued to be on accelerated growth momentum. We are confident of reaching about INR500 crores in foods this year. The Saffola Oats has retained the #1 position in value terms in the overall oat category, which includes plain oats and masala oats. The brand has its highest market share in Honey, despite gaining traction, and there has been modest in category growth, as you know that in the base, there has been 2 years of COVID. The brand has taken a high market share, an all-time high market share of 13% in modern trade and a 23% in e-commerce, which is heartening given that these channels account for 30% of honey category in India. We expect to continue to gain market share in GT in the coming quarters. In Soya Chunks, it has exceeded external — internal expectation and it’s scaling up to gain mid-single-digit share in a rather short span of time. Oodles though lower, slower than planned is being prototyped in select GT market, we remain invested and we’ll drive awareness and market development for the brand. It’s early days for the new Chyawanprash, but we continue to gauge the tractions closely and build awareness and visibility for the brand. We are cognizant that every initiative, new initiative in food may not turn out to be a quick fire success. But we have longer gestation period than some. And therefore, we’ll certainly continue to back such NPD sufficiently. And in fact, one of the things we have corrected and got the model correct in Foods is we have a strong innovation pipeline. We have a strong execution skills, and we will remain resilient and ensure that we stay invested in all those brands, which we have launched in the past 1 year. Value-added Hair Oils grew in double digits on a 2-year CAGR basis and gained value market share of 80 bps during the quarter. While category growth sentiment has muted the performance of the Bottom of Pyramid segment, the mid- and premium segments showed better traction. In line with our intention to drive higher value share gain by driving a richer mix and participating meaningfully in the premium segment, we launched Parachute Advanced onion oil and Jataa ayurvedic hair oil for men, both digital first brand broadening our presence in the anti-hair fall market. We will continue to launch more digital-first brands in the premium segment of VAHO. As consumption growth trend normalized, we’ll continue to aim for double-digit value growth in hair oils over the medium term. The premium Personal Care portfolio remains steady. Livon Serums is now well ahead of its pre-COVID run rate. Male grooming is steadily recovering. Having said that, I think the current Omicron wave with people, again, would have disrupted a little bit of growth, but it will pick up very soon. Beardo and Just Herbs too tracked in line with our internal target and our acquisition assumptions. We remain positive on the growth prospects and discretionary consumption and out-of-home activities are picking up. Moving to International. Bangladesh has gone from strength to strength as we continue the diversification journey through accelerated growth in the hair care and baby care portfolios. We have also launched Saffola Honey in Bangladesh, along with cooling oil and broadening our play in foods and hair oils in the region. Southeast Asia came back smartly as pandemic led restrictions eased in Vietnam. The MENA business is also treading on a steady growth path and forayed into hair oils in Egypt and Foods and Middle East, thereby expanding the total addressable market in the region. South Africa has also been stable on the back of a health care portfolio. While we are expecting volume growth trajectory in the Domestic business to improve in the near term, starting with Q4, we need to continue to focus our energies towards 5 strategic priorities so that we can deliver healthy, sustainable and profitable growth over the medium term. Firstly, we’ll invest in core programs brands and drive premiumization across the portfolio. We have also enhanced our pricing model through net revenue management, and we believe we will reap rich dividends over the medium term. Secondly, we’ll continue to be aggressive in driving market share gains and market development in a food category, we have forayed into and as well explore a couple of new launches in Q4 and early FY23 in order to build INR850 crores to INR1,000 crores portfolio by FY24. Next, we believe our efforts towards go-to-market transformation in urban and rural will enable us to maintain our competitive edge over the long term. Our investment in automation and analytics also enhancing the productivity of entire sales and supply chain network besides investing in chemics, cosmetic and food outlets in urban. We will broaden our digital play through both organic and inorganic group as we scale our aspirational target of INR450 crore to INR500 crore digital-first brand business by 2024. Next, we believe International business has gone into a rhythm of robust growth along with healthy profitability. We now have an institutionalized capability, which will enable us to replicate the Bangladesh model in other geographies. We’ll be expanding the total addressable market, especially in MENA and Vietnam, which will help us to broaden our play in these geographies and in turn of the overall International business diversification of markets and portfolio. Our institutional cost savings programs allow us to remain competitive and deliver profitable growth during inflationary cycles and adverse operating circumstances. While input pressure should ease here on, we continue to set aggressive targets to fund incremental investments in brand building and market development. And we will realize even in this quarter, contrary to other players in this sector, we have continued to invest behind brand building and add a 14% increase in A&P in spite of so much input cost pressures. Last but not the least, ESG is integral to our purpose and existence. We continue to make steady progress across the key pillars of the ESG program. Details are available in our earnings presentation. I would like to close my comments by conveying my gratitude to all the Marico members and associates for their tremendous grit and resilience during the rather extended period of COVID. It is this collective spirit that keeps us firmly tied to a common purpose of making a difference in the lives of all our stakeholders. Thank you for your patient listening, and we’ll now take your questions.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] Our first question is from the line of Avi Mehta from Macquarie. Please go ahead.

Avi Mehta — Macquarie — Analyst

Hi, thanks for the opportunity. I wanted to kind of just double click on the EBITDA margin performance or expectations. Now you had indicated that fourth quarter would start witnessing the benefits flowing through to EBITDA margin, and it’s kind of played to that script. Just wanted to understand, when you say flowing through, would it be wrong to expect 19% plus margin coming through in that time? Could you kind of give us a sense on what are the targets that you have in mind?

Saugata Gupta — Managing Director & Chief Executive Officer

So I think let me give you a generic. I think the gross margin will continue to improve. As far as EBITDA is concerned, you will see definitely a YoY improvement in Q4. But going forward, definitely, especially in Q1, given that we are expecting a significant deflationary copra, and I hope by that time, crude will also cool down. I think you will expect the kind of a normalized EBITDA coming from Q1 definitely.

Avi Mehta — Macquarie — Analyst

And the normalized range would be?

Saugata Gupta — Managing Director & Chief Executive Officer

I mean the long-term range, which is a 19% last year.

Avi Mehta — Macquarie — Analyst

Okay. Perfect. I just want to reconfirm that. And second, I wanted to kind of just hear your thoughts on the rural side. I mean last quarter, you had argued that we do not think there is a slowdown in rural. But now it’s the second quarter and multiple peers have also argued that there is some concern on rural demand. You’ve highlighted that your expectation — industry expectations are of government support. But barring that could you kind of help us understand your thoughts on rural outlook?

Saugata Gupta — Managing Director & Chief Executive Officer

See, it’s a combination of two things. First, obviously, there is an optical one because we had a very high base, okay? Secondly, as you know, whenever there is high inflation, especially if there is a food inflation, other inflation, the share of wallet towards FMCG perhaps swings a bit. And there is also a risk of downgradation. I think as a combination of this is happening. And what we are hoping is I think that if — and I’m sure the government is cognizant of it, and we expect some of the support in the rural just wanted to continue, and if monsoon and everything and the sowing season is good, this will ease up because also we are slightly a very high base. In our case, particularly if you look at our volume growth, we are cycling of 15% and a 24% volume growth base in Q3 and Q4, respectively. So if you look at our sequential run rate, absolute number, it doesn’t look that bad. But obviously, YoY, the challenge is higher.

Avi Mehta — Macquarie — Analyst

So exactly. So I mean, what I was trying to kind of understand is the expectation, does that build in a rural uptake? Or how do you kind of–

Saugata Gupta — Managing Director & Chief Executive Officer

I think there could be some improvements, we were also expecting somewhat overall inflation to settle. You must also realize as far as we are concerned. I think this time, we have been reasonably proactive in pricing intervention in Parachute. Having said that, it takes 4 to 6 weeks too, for the market to actually see that price because as you know, the total STR plus your we finished good stock and everything. So I think one of the things in Q3 in our power brand, Parachute and Saffola pricing was also not right. Having said that, I think this time see, having been extremely proactive in pricing given that we are — we now have a fairly good pricing model in place, and we have taken this one, I think we should be in a better position actually to get some growth in spite of the fact and that’s what I said that even — we have a very, very high growth base in Parachute in Q4, but we should be able to improve the performance.

Avi Mehta — Macquarie — Analyst

Perfect. Thanks a lot. Thanks, I’ll come back in the queue for other questions. Thank you very much.

Saugata Gupta — Managing Director & Chief Executive Officer

Thanks.

Operator

Thank you. The next question is from the line of Percy Panthaki from IIFL Securities. Please go ahead.

Percy Panthaki — IIFL Securities — Analyst

Hi, Saugata. Just wanted to get some understanding on the Saffola oils portfolio. So as per my calculation, and please correct me if I’m wrong, the YoY volume decline in Saffola this quarter would be approximately at around double digits. So just wanted to understand if that is true, then why is it such a big decline even on a 2-year basis, if this 10%, 11% kind of number is actually in the ballpark then even on a 2-year basis, we are at around 3%, 3.5% kind of volume growth on a 2-year CAGR basis, which is also very low. So any thoughts on this?

Saugata Gupta — Managing Director & Chief Executive Officer

Maybe your estimation is slightly higher than what actually is. I think there has been a moderate decline, but certainly not what you are estimating. Having said that, I think there are two reasons, I think. If you really look at it, I think we have a very high in-home consumption base. The second thing, as I said, there is a combination of inflation. And as you know, whenever there is a gradual slide in prices, two things happen. One is our pricing chases the — every time it chase the kind of a deflation in edible oil. We are not a commodity player that we’re going to take pricing culls everyday. We take it on a certain frequency.

Number two, traders reduce the STRs. So if you look at all this — and that’s why I said that penetration in Saffola has not got impacted. What has got impacted is that component of higher consumption, which, as you know, in October, November, what happened is, I think, everything opened up, and therefore versus last year compared to last year, I think there was far more out-of-home consumption than in-home consumption of food. So I think that will start correcting itself. And this quarter, we have a better pricing in the market. And I think the good thing — I won’t say it’s a good thing, but the fact that this gradual sliding volatility is not good for the brand. We always do better relatively when there is stability and inflation rather than sliding deflation. So given the current situation, I think things will get corrected itself. And I think you have to look at a 2-year CAGR, the 2-year CAGR is broadly in line with the medium-term aspiration, maybe a tad a little lower, but I think it’s fair. And I expect that in any case, we are looking at in the Saffola franchise value growth, the value growth aspirations are reasonably on the mark.

Percy Panthaki — IIFL Securities — Analyst

Understood. Secondly, I wanted to sort of look at a little bit into the future in FY23. So the model, I think, for FY23 will be that since input costs are declining, there will be no sort of YoY price growth in FY23 or very, very small price growth if at all, and the growth will be volume led. And in this kind of an environment where there is pressure on the consumer and the volumes are on — I mean, under pressure, does that really put a question mark on the overall top line growth of the company? And also, given that input costs are sliding, how should we look at your margins next year? So do we see a model where next year is going to be mid-single-digit kind of top line growth, coupled with a low double-digit kind of EBITDA growth due to margin expansion? Would that be a fair way of looking at your next year?

Saugata Gupta — Managing Director & Chief Executive Officer

I think that’s too premature because see there are two elements of it. What is relatively certain is yes, I think there will be copra deflation. Therefore, if we get our pricing right, I think we will get good volume growth in Parachute. However, there will be a deflation component in Parachute. It’s very early to comment on the situation on edible oil or crude because as things stand crude is inflationary. So it will be difficult to comment on the other part of the business. But having said that, I think one of the other good things that will happen is we have put in place significant cost management exercise, which will also — a lot of which will also will accrue next year. So all I can say is that there will be significant comfort on the margin front is concerned.

Now obviously, we’ll keep gunning for growth ahead of the category growth. Now a lot will depend on how the economy shapes up. But I think we are — what we are sure is this, that we will continue to have a dominant portion of portfolio continuing to gain market share, dominant portion of the brand gaining penetration. The Food journey is going to be intact. The digital brand journey is going to get accelerated. And the Parachute part is clearly certain. It’s difficult to take a call on the rest of the business. In terms of that will all depend on the rural growth and the inflation in terms of how it will shape up.

But I think one thing is definitely going to be comfortable as the margin front will be far more comfortable than what we were at this year. And therefore, that will give us a leeway to continue to invest in our A&P. And as you see our A&P will again, which had gone down to some 8%, 7%, some of the quarters, we are definitely confident of actually investing behind 9% plus in A&P.

Percy Panthaki — IIFL Securities — Analyst

Sure. So, all in all, you would be fairly confident of growing profits in double digits next year, right?

Saugata Gupta — Managing Director & Chief Executive Officer

See, again, I said we’ll be comfortable. Now how much is very — like I said it’s very premature given all the volatility.

Percy Panthaki — IIFL Securities — Analyst

Sure. No problem. Understood.

Saugata Gupta — Managing Director & Chief Executive Officer

Yes, I think we will — as I said, the operating margin will certainly — next year than this year.

Percy Panthaki — IIFL Securities — Analyst

Understood. And last question, if I may squeeze in. On the digital brands. I know that this information is sensitive and you would not like to give out brand-wise. But all your 4 digital brands put together what kind of net sales do you think they can generate this year FY22?

Saugata Gupta — Managing Director & Chief Executive Officer

I can give you a broad ballpark and we talk in net realization. Unfortunately, I don’t have the luxury to talk in GMV. But I think it should be in the line of anything of broadband of INR150 crore to INR200 crore.

Percy Panthaki — IIFL Securities — Analyst

Okay. That’s very useful. Thanks a lot.

Saugata Gupta — Managing Director & Chief Executive Officer

This is an exit quarter annualized kind of a number.

Percy Panthaki — IIFL Securities — Analyst

Right.

Saugata Gupta — Managing Director & Chief Executive Officer

But it’s net realization, I’m just clarifying, not GMV.

Percy Panthaki — IIFL Securities — Analyst

True. Yes, its a net sales basically, right?

Saugata Gupta — Managing Director & Chief Executive Officer

Yes, net sales.

Percy Panthaki — IIFL Securities — Analyst

Right. Thank you very much.

Operator

Thank you. The next question is from the line of Abneesh Roy from Edelweiss.

Abneesh Roy — Edelweiss — Analyst

Yes. Thanks. My first question is on Saffola Oats. So if you could give us the gross split between Plain and Masala Oats for you and the industry, now versus, say, 3 years back, I wanted to understand what is driving this #1 position and the 560 bps gain in market share? And second related question is, Pepsi has also launched a bit different masala oats wherein they are giving the masala sachet. So they don’t have the premium kits you are offering. They are trying to offer a more value product to consumer by offering masala sachet. so wanted to understand consumer behavior-wise, will it be having an impact?

Saugata Gupta — Managing Director & Chief Executive Officer

So I think it’s difficult for me to give a breakup. All I can say is that, obviously, we were far more dominant in Masala Oats than Plain Oats. But over the last 1 or 2 years, we have made significant forays in gaining in Plain Oats also now that we have this kind of, this scale, we have a profitable — significantly profitable model in which we can operate. As I said, I think it’s still a category expansion task and therefore, the category penetration in this is still low. As you know, what we started off by taking Western breakfast concept, which was folded into savory and hot and moving it from breakfast to in-between meals. The journey is far from complete. And I think, yes, I mean there could be 1 or 2 players that are adding into this segment, but I think there’s a huge category penetration task, which needs to be achieved.

Abneesh Roy — Edelweiss — Analyst

And Saugata, on the premix versus the masala sachet?

Saugata Gupta — Managing Director & Chief Executive Officer

I mean as I said it’s consumer ultimately, consumer decides, I mean it’s very difficult to comment. Our endeavor always is to deliver based on consumer insights and trends to deliver consumer delight at the lowest possible price — cost and higher value.

Abneesh Roy — Edelweiss — Analyst

Sir, and one follow-up on Oats. Foods has grown strongly at 28%. And you mentioned Saffola edible oil slight in-home consumption, which was high in the base or those kind of issues. So in Oats also the in-home consumption in the base, would that be a challenge? And any sense you can give what could be the growth this quarter? You have given 28% of food, but there are multiple new products also there.

Saugata Gupta — Managing Director & Chief Executive Officer

But I think Foods, we are also starting to cycle a higher base, but anything 25%, 30% growth in Foods will bring us nearer to our aspiration in FY24. So it’s important that we grow Foods every quarter by 25%, 30% minimum. Oats had also grown. So it’s not that Oats has not grown. Regarding in-home consumption, Oats, as I said, the penetration is so low. As long as penetration increases growth will happen. I think it’s a question of penetration. And as we said this quarter also, this year, we have started gaining market share in Plain Oats also. It’s a combination of gaining market share in Plain Oats and driving penetration in Masala Oats. So therefore, the in-home consumption factor is not that much of a factor unlike in Saffola, where, when a person stays at home, especially a typical Saffola consumer who tends to eat out, who tends to travel, whenever that person tends to stay home, the consumption multiplier is very high.

Abneesh Roy — Edelweiss — Analyst

Sure. My second question is on Bangladesh. So your new product, Red King cooling oil. So I want to understand here the main #1 player here is again the same Emami which is dominating in India. And second, brand expansion in Hair Oil in India has been quite challenging by many of the players. You have done well in Amla, but you have not seen success by other players outside their core. So how is your positioning and pricing different versus say, Emami in Bangladesh?

Saugata Gupta — Managing Director & Chief Executive Officer

Mr. Roy, I think it’s a differentiated concept. But as I said, that as you know, in Bangladesh, we have a significantly dominant position in distribution and overall capability. And we have a proven model in diversification, whether we have done well in shampoo of baby. And therefore, in hair oil, again, in value-added hair oils, we have been steadily increasing share, whether it’s in hair fall, whether it’s in perfume and all that. So this is one more endeavor. Having said that, the way to look at it is that it can be a reverse osmosis kind of thing also in the sense that if you — if a prototype or a mix is successful in Bangladesh it also means that we can work starting with the East of India, it can go reverse also.

Abneesh Roy — Edelweiss — Analyst

Sure. And last quick question. If I see the ad spend by Colgate and Unilever. Colgate down 24% YoY, Unilever 14% on absolute basis. And you have done a very proactive increase of 17% in the India part of the business. So is it going largely in the new products in this quarter? And what is the thought process when slowdown is there and crude has again started going up. So would you reconsider this 9% guidance that you’ve given say in the advertising spend because other companies are cutting. We have picked up from the TV broadcasters also that FMCG has clearly cut down significantly. I wanted to understand what has driven this quarter?

Saugata Gupta — Managing Director & Chief Executive Officer

9%, I gave an indication of next year. And in our case, as you know, so we have a slightly different mix where we faced unprecedented inflation starting from quarter 1 of this year on copra. So given the fact that we will get some relief in copra. Number two, I think we will continue to fund — yes, you are right, in terms of investing behind three things, one is, the digital part of the business, the Foods business. And also, as you know that even in value-added hair oil premiumization, you will see much far more action. And I think we have a very, very strong innovation calendar reasonably ready over the next 6 to 12 months. I strongly believe that compared to in the past in terms of our execution capability, our resilience as well as our ability, and we might suffer some setbacks, but every time we fall down, we’ll come back running. And therefore, our approach to innovation is far more in terms of both risk-taking and aggression appetite has changed because we believe that our execution capability has improved substantially. So all this will go towards this. And I think in Foods, we now have a reasonably working model.

Abneesh Roy — Edelweiss — Analyst

Sir, that’s all from my side. Thanks a lot, Saugata.

Saugata Gupta — Managing Director & Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Vivek Maheshwari from Jefferies. Please go ahead.

Vivek Maheshwari — Jefferies — Analyst

Hi, good evening, Saugata.

Saugata Gupta — Managing Director & Chief Executive Officer

Yes, hi.

Vivek Maheshwari — Jefferies — Analyst

I have a couple of questions. First is on the VAHO portfolio. So let’s say, near flat volumes, what is the — and I mean the release says that you have gained share. So what is ailing the VAHO market? And I would have imagined given the kind of base you have had if I take, let’s say, 3-year CAGR, for example, given that 2 years back, you have had a decline, the volume growth comes to about 4% CAGR. So what needs to change for this portfolio, given you are sitting on a low base if we take up the last few years? Shouldn’t this number — or does this number disappoint you?

Saugata Gupta — Managing Director & Chief Executive Officer

No. So I think it’s aligned with the market. So at the end of the day, as I said, that there is a significant — there are two things that are happening. There is some growth that is happening and — see the VAHO growth if we look at the last year had been fueled a lot by the Bottom of Pyramid. So whenever there’s a rural slowdown, the combination of down gradation and even the Bottom of Pyramid has slowed down. We have not done well so much in the premiumization. We believe now we have the wherewithal to improve our track record as far as premiumization is concerned. Now you can take a 3-year cut, but I think we are taking a 2-year cut. I think we are okay with the kind of performance we have in a 2-year cut. If as and when — and I believe that the category growth will start improving, especially I think the biggest decline in VAHO, if we look at the Nielsen numbers in the category, I think the biggest impact has been in the sense that it happened in the rural sector. And also Q3 and Q4 had very high basis. So I believe it will start improving Q1 onwards.

Vivek Maheshwari — Jefferies — Analyst

Right. Got it. Second, on the price changes that you mentioned. So could you just quantify what is the change that you have taken in the month of January?

Saugata Gupta — Managing Director & Chief Executive Officer

No, I don’t want to get into exact numbers, but I think we took some price drops in October, then we have taken in December and January, and we are taking one price drop now. And this time, we have been, unlike in the past, taken proactive price. We believe that right now, fairly, I think our pricing in Parachute and in Saffola is in line with the market. Saffola will be competitive given that they’ve actually accrued — crude rallies and a vegetable oil might go up in the next 2, 3 months.

Copra, actually, will follow reverse. There could be — as you go into the season, there could be a further depletion. And if it’s necessarily we’ll take another price drop. We are not going to be shy on taking price drops. Our endeavor is to ensure that volume growth happen and not short-term margins. I think margins in any case, we are coming off from a low margin. So margin is not the problem at all. And that’s the reason in spite of a very, very high base of Parachute growth, we are confident that we’ll be able to deliver volume growth Parachute Advanced even in Q4.

Vivek Maheshwari — Jefferies — Analyst

Right. That’s good to know. But Saugata, when you say that you have been proactive, I’m guessing this will be let’s say, in some ways ahead of the competition. That’s what you mean when you say proactive or it is more of a reaction that you are talking about?

Saugata Gupta — Managing Director & Chief Executive Officer

I’ll tell you what, again, let me give you — when we had an unprecedented inflation, it’s not that we took price increase in line with inflation. When I mean proactive is that we will ensure that broadly, the RPI, the relative price index or the price premium versus unbranded and a smaller player, that doesn’t go up. Whatever was there in inflation, you broadly keep in deflation. Normally, what happens is doing deflation that price premium index usually tends to go up because we tend to take much more margin. So I think this time, we are being extremely careful on that.

Pawan Agrawal — Chief Financial Officer

And this Pawan this side. Just Just to add to what Saugata said. So when we saw first signs of deflation, what we did was we took price correction and accrued of that. And when we saw further deflation, then we took price correction in the consumption packs. And this was far more proactive as compared to, let’s say, when we take price increase, where we typically wait and then take a price increase. So two interventions we have taken and the third intervention we are taking in January.

Vivek Maheshwari — Jefferies — Analyst

Right. Got it. And 2 more quick questions, Saugata. One is this urban, what you have put out on your presentation deck because ultimately for you, the salience of urban is far higher. So while the discussion is a lot more on rural, but even urban decelerating. Is that just a base issue? And I’m guessing it will not entirely be base issue. So urban itself is also slowing, which is also a worry, right?

Saugata Gupta — Managing Director & Chief Executive Officer

While this might be, you must realize that all our new endeavor, whether it’s in Foods or in digital are very urban skewed. So somewhere it neutralizes and cushions that. While in rural, we don’t have such a cushion.

Vivek Maheshwari — Jefferies — Analyst

Got it. Got it. And lastly, Pawan, quick one. Any comments on the staff cost, which has gone down?

Pawan Agrawal — Chief Financial Officer

Yes. So YoY you look at that there is some correction and there are 2, 3 reasons for that. First of all, there was a higher charge to the P&L in the base quarter on account of some cash settled, share-based payments as the stocks had appreciated in the base quarter, whereas in the current quarter, stock price has corrected. Secondly, also in the base quarter, we had one-off sales incentives for frontline members in the wake of COVID, which is not there in the current quarter. And lastly, there are some one-off reversals in the variability of reasons for a couple of reasons based on the projections for the full year. But if you look at the YTD charge, Vivek, you’ll find it in the range of about 6% to 7% growth, which is broadly in line with what the staff costs would be growing at.

Vivek Maheshwari — Jefferies — Analyst

Got it. Thanks, Pawan. Thanks, Saugata.

Saugata Gupta — Managing Director & Chief Executive Officer

Thank you.

Operator

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

Harit Kapoor — Investec — Analyst

Yes. Hi, good evening. So, just had two questions. Firstly, was on Parachute side, you seem extremely confident of a return to volume growth. Just wanted to understand that some of these interventions which you’ve already made in the market, are you already seeing the benefits of that, say, during exit quarter 3 or early quarter 4, and that kind of is driving your confidence?

Saugata Gupta — Managing Director & Chief Executive Officer

See, I think the model suggest on your price index is right, volumes automatically happened. So as I told you that there is a 5 to 6week gap that takes place because of the STRs and all distributer stock cover and the depot stock cover, which we have in Parachute. Yes, if you are saying that whether January has been better than December trend, the trend is better, obviously, when the pricing is right. Having said that, if there is further deflation, if I don’t take pricing action, again, that will get neutralized. So we have to be prepared to take further pricing action.

Harit Kapoor — Investec — Analyst

And you also mentioned that you’re the only player in the space that has gained market share. So is this like a broad-based gain across competitors? I don’t want specific names, but would it be specific to somebody? Because number is quite large.

Saugata Gupta — Managing Director & Chief Executive Officer

No, I think it’s been — I think what we have seen is if you look at this process has got accelerated ever since the onset of COVID. I would say that organized players would have a better chance of gaining market share. In this case, also during times of sustained deflation, if you — we had in the past when you had not taken proactive pricing culls, there is a vulnerability of losing market share. If you look at history, we gained market share in doing inflation. We lose during deflation. Having said that, in absolute inflation when there is significant food inflation and overall absolute inflation, obviously, sometimes we also tend to lose market share. I think it got to do with pricing and distribution.

And I think the other thing, while we don’t talk about it, whatever you call it, cluster strategy or mini-India strategy. I think we’re now having a trade strategy or an activation strategy, which is divided into multiple clusters. And therefore, that is also paying dividend. For example, we — as you know that our Parachute tax strategy across channels and other things are also different. I think that is also playing dividend that we are targeting specific places to maintain market share. And let me tell you also in spite of the so-called competitive intensity, whether it’s in coconut oil and hair oil, I think we have been steadily and we have not, hardly lost market share in any of the quarters in the last 3 years as we look at the last 2, 3 years.

Harit Kapoor — Investec — Analyst

Great. The last question was on the margin side. So if I think participant already asked this. But if you look at ’23, you’re going to see deflation sequentially and YoY across some of your key commodities. You will pass on a bit of it, obviously, through to drive volume. But you’re also going to see A&Ps are going to be in the 9% or range you mentioned. So is there a possibility of a materially higher kind of operating margin above your 19% threshold? Just wanted to understand that. I mean you seem to have a lot of triggers for margin expansion moving into next year.

Saugata Gupta — Managing Director & Chief Executive Officer

It’s very difficult, as I said, to predict right now because I think we have a little more certainty on copra. We don’t have a certainty on crude. And therefore, on vegetable oil business which has also impact on packaging and therefore, that also. So it’s a little difficult to say. Having said that, I think, obviously, the pressure that has got released on copra. I think if you look at the peak copra last year versus now, it will certainly aid in that. The other part of the margin expansion will also happen because of the denominator effect.

Harit Kapoor — Investec — Analyst

Right.

Saugata Gupta — Managing Director & Chief Executive Officer

There is no inflation component in your top line. So that will also aid your — the percentage operating margin — EBITDA percentage.

Harit Kapoor — Investec — Analyst

Right. And also, there will be initiatives on costs that you spoke about last quarter, which should come into-

Saugata Gupta — Managing Director & Chief Executive Officer

That should be accruing, yes. But having said that, as I said, that we will continue to invest because I think we have an agenda, we are determined to do two things. One is having a scale in both the digital and the Foods business and especially and they are showing momentum. We seem to have got some of the things right. And therefore, we shall not shy away from investing behind growing these businesses. Similarly, as I talked about, the International business, we will be very, very focused on replicating the Bangladesh model in both Middle East and Vietnam because we now believe we have a what I call the building blocks for a repeatable model of growth. And therefore, we should not shy away from that also.

Harit Kapoor — Investec — Analyst

Got it. Thank you.

Operator

Thank you. Next question is from the line of Ravi Srivastava from Bay Capital. Please go ahead.

Ravi Srivastava — Bay Capital — Analyst

Hi, Saugata. Hi, Pawan.

Saugata Gupta — Managing Director & Chief Executive Officer

Hi.

Ravi Srivastava — Bay Capital — Analyst

I wanted to ask you a question on digital A&P. So can you just talk to us about the mix of A&P? How has it moved in the last 3 to 4 years from where it used to be in digital to today where it is in digital? And what are the different areas of –

Saugata Gupta — Managing Director & Chief Executive Officer

Ravi, it is significant, now it has crossed 20%. Now the way we look at it, there are three kinds of buckets of brands. We call it digital first brands, primary digital brands where e-com and modern trade constitutes 40% of the brand, a brand like that will be a Livon maybe. While digital first brand there is a Beardo or some of the things which we have now launched. And then there is core market brands. Now — and some brands in the group A, the digital spend could be as high as 80%; in group B, it could be 40 and maybe — and still in other brands, it could be either high single digits. So our weighted average digital spend is now crossing 20%.

Ravi Srivastava — Bay Capital — Analyst

And where was this number, maybe, say, 2, 3 years back or 3, 4 years back — 5 years back?

Saugata Gupta — Managing Director & Chief Executive Officer

It will be in a single digits. 3, 4, — 4 years back, it was definitely single digits. Yes.

Ravi Srivastava — Bay Capital — Analyst

Second thing I wanted to understand was your mix on digital or you talk about e-commerce is roughly 8% of sales, right? What is the mix there versus what the company’s mix is? So I just want to understand what are the consumers there buying?

Saugata Gupta — Managing Director & Chief Executive Officer

So if you look at — I will take one category and I think I’ll explain to you. So if I look at hair oils, value-added hair oil as a space, if I look at the premium side of the business. So we have an overall market share of, say, 36, 37. The potential — now that side, maybe our market share has been single digit. I’m not telling you the market share but broadly it is single digits. So there’s a huge opportunity, which perhaps — some of the new age players, the start-ups are expanding, they have — and that is at a realization of 4x to 5x in terms of realization of average RFP or the selling price. There, we have not participated, but now we are clear now — I mean I think the biggest learning from Beardo and Just Herbs, you now have significant digital marketing capability. We know how to do performance marketing. We know how to do search. We know how to do a working model of what I call test and learn and fill fast and 60-day innovation cycle.

So what you’ve seen in Jataa and Parachute Onion Oil is just a just kind of a glimpse, and you will see much more of it. And let me tell you, it makes much more sense to expand the addressable market through power brands like Parachute Advanced or this one. So we believe that, that is a huge share to be gained from there because right now in that share of the premium e-com market in value-added hair oils is an example. It’s the same story maybe in serum. We are much better in male grooming because of our participation in Set Wet and Beardo. But in these two, we have a far lower market share than what we have GT and MT.

Ravi Srivastava — Bay Capital — Analyst

Understood.

Saugata Gupta — Managing Director & Chief Executive Officer

And in some reverse case, some of the new launches in Foods where we have disproportionately high market share. So I think what it tells us that if we know the model to do it. Next year, we have a 23% market share, 23% to 25% market share in that category, in cost.

Ravi Srivastava — Bay Capital — Analyst

Saugata, I have 2 follow-ups on this. One is just your thoughts on how big — forget about next year or a couple of years later I’m talking about 2030. How big can e-commerce as a segment for you can be in terms of percentage of sales? That’s one. And what I’m trying to basically get at is, can these traditional categories also sort of start seeing more salience on online?

And second is you guys have been at the forefront of digital media spend, I’ve seen your take TikTok videos. And a lot of other spends, which you guys have done much sooner than most other let’s say, players. Can you talk to us a bit about those different mediums? What are the mediums which are doing well? Where is your incremental digital spend. Within that digital spend space, which are the platforms where you are spending a lot more? And where is consumers sort of moving towards. Those two things if you can elaborate? So I think the second one I will not get into details. I think all I can say is that we have invested significantly in digital marketing capability or investments in Beardo, Just Herbs and similar kind of — and the kind of talent today we are hiring, we are hiring talent from start-ups is giving us a significant capability in that space. And therefore, and we have allowed the digital businesses — and I keep on saying that the only good thing, perhaps, I have done for the digital business is not to let — I mean, 20 Marico MBAs get into and try to improve Beardo. We have let them be, and therefore, there are a significant amount of innovation and experimentation there. And therefore, that gives us the opportunity to be at the leading edge of capability development, okay? Now that has helped, I would say. And we are trying to do a culture change within the mother ship in terms of those learnings to be coming transmitting back to the mother ship. And therefore, this digital foray in terms of onion oil and Jataa, you will see some moral support endeavor from the mothership, okay? Now regarding that thing about that split of 2033, first of all, I am not a visionary at all. It’s very difficult to predict especially in these volatile times. For example, I think e-commerce growth in the post-COVID, could have happened in 4 years, got compressed into 1 year. So all I can say in India, it will be an and growth. And there is nothing at all an ‘or’ growth. Therefore, I think India will not behave like China. India, in terms of the traditional trade, modern trade never behaved like some parts of Southeast Asia or Europe. So India will be a different model. Some of the disruptions today, please don’t undermine the neighborhood kirana. The neighborhood kirana in terms of transformation, I think, has been extremely agile and smart. The GTM distribution system will get automated, consolidated. There’s a significant transformation in the GTM system. So I would refrain from saying that what will be the thing about e-commerce. I believe it will be an and growth. And there, we are significantly transformed GT, which will continue to perhaps be dominant even in 2026 and beyond. Understood. Thanks, Saugata, that was very useful.

Operator

Thank you. [Operator Instructions] The next question is from the line of Palak Shah from Infina Finance. Please go ahead.

Palak Shah — Infina Finance — Analyst

Hi, sir. Thank you for taking my questio. Firstly, congratulation on good set of numbers. Just wanted to take your feedback while we keep discussing on a YoY number for rural and urban growth. Can you just give, shed some light on the 2-year CAGR would be in the performance for both rural and urban?

Saugata Gupta — Managing Director & Chief Executive Officer

Sorry, I didn’t — you want the 2 year CAGR of?

Palak Shah — Infina Finance — Analyst

2 years CAGR. Also how do you — how is the performance on a 2-year CAGR for an urban and rural? And I am talking specific to Marico.

Saugata Gupta — Managing Director & Chief Executive Officer

Yes. I think, 2 year CAGR is fine. I think 2 year CAGR is in line. There is no stress in 2-year CAGR. I think what has happened is it has been rural and especially in, I think, general trade, which has slowed down as far as this quarter is concerned. So 2-year CAGR is broadly in line, as you know, last year, specifically for Marico, we had a significant growth, volume growth of 15%. And therefore, GT had a tremendous performance. So had e-com.

The only change that has happened, I would say is that this year, relatively modern trade has performed much better and e-commerce growth, which happened unprecedented e-commerce that has slowed down a bit.

Palak Shah — Infina Finance — Analyst

Got it. And secondly, on your proactive pricing on the Parachute side. Is this similar to what we tried in 2018 where we tried to predict the commodities copra prices and then accordingly take our pricing interventions? Or this is only-

Saugata Gupta — Managing Director & Chief Executive Officer

For 2018, we got it wrong. So 2018, we delayed the thing. I think 2 — I think 2 years, we have not done a good job. This year, I would — I’m not going to give a pat on my back right now, but I think we have been a little more proactive all I can say.

Palak Shah — Infina Finance — Analyst

Got it. And that’s the two questions from my end. Thank you so much. And all the very best.

Saugata Gupta — Managing Director & Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Vaibhav Badjatya from H&I Investments. Please go ahead.

Vaibhav Badjatya — H&I Investments — Analyst

Hi, sir. Thanks for providing the opportunity. So I have a question on the premium end of the VAHO market. So there’s a large market there, which is currently captured by the competitor. And they’re trying to do a lot of things by launching dry fruit, oil and also in Hair and Care. So but if you look at the overall market, it has not grown too much. Within VAHO, I’m talking about the premium end of the market. So what do you think that — why that overall market has not grown? I’m just not talking about last 2 to 3 years. But over last 7, 8, 9 years, there has been no growth in that end of the market. So what can change going forward and how we can drive that category is something I’m trying to understand.

Saugata Gupta — Managing Director & Chief Executive Officer

Let me just tell you, I think in terms of there are three vectors of growth which has happened in terms of growth in the premium. One is the problem solution, which has been — and I’m not including cooling because cooling is not for hair nourishment, cooling has a different benefit which in fact — but other than cooling, there are two vectors of growth. One has been problem solution, which has been driven by hair fall. And the second one has been sensorial, which is likely driven by non-sticky hair oils like almond or our Hair & Care and aloe.

I think as far as we are concerned, we have been reasonably successful in aloe. And we have a presence in value-added in the hair fall segment in the South for ayurvedic. So I think that is one area we need to and we will see for, I think, a more aggressive action in hair fall. Because if you don’t succeed in hair fall, you don’t succeed in the premium end of the VAHO market.

But the other end of the VAHO market, which has developed and which not organized large players which are there have taken, but they have been taken up by the start-ups and that market has become significant, especially in the digital side is the, what is the e-com is the thing of the onion oil or Apple cider vinegar based care or I mean. For the onion oil are different. I think that is why we are trying to get a foray.

Now our — obviously, these are baby steps. But I think we believe that at least both in hair fall and in the digital brands, I think we have, I think, learned from the past and driven execution capability. So the one which we haven’t been able to tackle so far, I think is almond. But having said that, you see people don’t go by species, but the people go by sensorial and benefit. And therefore, I think what is also happening, especially in the Hindi heartland, if you see, there is a far more growth at the Bottom of Pyramid, which we are participating in.

And in the Hindi heartland categories, if you look at even some of the other hair oil players, while they are launching a lot in the Bottom of Pyramid, it is also cannibalizing a lot from their premium brand. Now in our case, the premium market share in the North end is very low. And for us, it’s okay because we have nothing to lose there because the market is moving towards the Bottom of Pyramid.

Having said that, if we can get higher share in value-added hair oil and participate better in digital brand and I think as far as digital brand capability is concerned, I can confidently say that we are reasonably good there. And I’m confident that we’ll be able to get a garner share. As I give you an idea that we have maybe single-digit share in that compared to a 36% market share in the overall market.

Vaibhav Badjatya — H&I Investments — Analyst

Got it. And on the — specifically within the premium and specifically within the almond market, there is a large market which is captured already by someone. So what’s your strategy on that? And how do you want to tap that and gain some good revenues from there because that’s a highly profitable large market, which is available.

Saugata Gupta — Managing Director & Chief Executive Officer

Yes, but might not be a me-too strategy might not work. So we are trying out — I mean I think as I said, that ultimately, people here don’t go for — they go for benefit as opposed to species as such. So if there is an opportunity, we’ll definitely — we are looking into that opportunity as such. But just a me-too strategy did not always work.

Vaibhav Badjatya — H&I Investments — Analyst

Okay. Understood. That’s it from my side. Thank you.

Saugata Gupta — Managing Director & Chief Executive Officer

Thank you.

Operator

Thank you. Next question is from the line of Sheela Rathi from Morgan Stanley. Please go ahead.

Sheela Rathi — Morgan Stanley — Analyst

Hi Saugata. I just had one clarification in terms of the launch of the onion oil. If I understood correctly, this is a digital-first brand, and you have launched it more in the rural market. Is that understanding correct? And if you could just-

Saugata Gupta — Managing Director & Chief Executive Officer

No, no, why stick with only the e-commerce share. There’s no joint to the rural market.

Sheela Rathi — Morgan Stanley — Analyst

Okay. So it’s more of an urban play and only on the e-commerce side.

Saugata Gupta — Managing Director & Chief Executive Officer

Right now in e-com. But obviously, given the strength of the brand and if it does mixed action standard we’ll definitely expand into an offline.

Sheela Rathi — Morgan Stanley — Analyst

Right. So this is more of a foray into the urban market on the digital side. Is there any initial feedback because we already have an entrenched player there? So is there any — I mean, how are you trying to….

Saugata Gupta — Managing Director & Chief Executive Officer

I’m sure you can go to Amazon.com and see the bestseller ranks.

Sheela Rathi — Morgan Stanley — Analyst

Sure, we’ll do that. Thank you very much.

Operator

Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference over to the management for their closing comments. Thank you, and over to you.

Pawan Agrawal — Chief Financial Officer

Thanks a lot for listening on the call. To conclude, we had a resilient quarter 3 performance in the current market context with healthy top line growth, both in India and international markets. As mentioned, we expect an uptick in volumes in the domestic business going ahead in spite of higher basis. The Intenational business should continue to outperform. With cost pressures easing, we expect gross margins and earnings growth trajectory to improve while maintaining optimal investment in brand building and market development. If you have any further queries, please feel free to reach out to our IR team, then we’ll be happy to address the same. That is it from our side. please stay safe and take care.

Operator

[Operator Closing Remarks]