Nestle India Ltd (NESTLEIND) Q4 FY22 Earnings Concall Transcript

Nestle India Ltd (NSE:NESTLEIND) Q4 FY22 Earnings Concall dated Feb. 16, 2023.

Corporate Participants:

Ambereen Ali Shah — Head Media Relations

Suresh Narayanan — Chairman and Managing Director

David McDaniel — Executive Director, Finance and Control and Chief Financial Officer

Analysts:

Avnish — — Analyst

Tejas — — Analyst

Avi — — Analyst

Anand — — Analyst

Alok — — Analyst

Rishi — — Analyst

Sheela — — Analyst

Presentation:

Ambereen Ali Shah — Head Media Relations

Welcome to the Nestle India Full-Year Earnings Call. I’m Ambereen Ali Shah, Head Media Relations Nestle India. I have with me today my senior colleagues from Nestle India management team. Mr, Suresh Narayanan, Chairman and Managing Director. Mr. David McDaniel, Executive Director, Finance and Control, and Chief Financial Officer. Mr. Sanjay Khajuria, Director, Corporate Affairs and Sustainability; Mr. Pramod Rai, Company Secretary and Compliance Officer.

Before we begin, let me read out the standard disclaimer. Except for historical financial information contained herein, this presentation may contain statements, which reflect management’s current views and estimates that could be construed as forward-looking statements. You are cautioned not to place undue resilience on these forward-looking statements, which hold only as of the date. The future involves uncertainties and risks that could cause actual results to differ materially from the current views being expressed. Potential uncertainties and risks include, but are not limited to, factors such as changes in general economic, political or market conditions, commodities and currency fluctuations, competitive product and pricing pressures, industrial relations and regulatory developments. Significant disruptions in the operations due to unforeseen events, including as a result of a spread of a disease, volume and mix and organic growth are the basis of Nestle’s internal reporting standards. Figures are regrouped, reclassified to make them comparable. Calculations are based on non-rounded figures, analytical data are best estimates to facilitate understanding of business and not meant to reconcile reported figures. Current year and previous year numbers have been restated to include the financials of acquired pet food business as per requirements of Ind AS 103 business combination under common control.

Answers to questions may be giving basis generally available information in public domain. No person is authorized to give any information or make any representation not contained in and not consistent with this presentation and have given or made such information or presentation must not be relied upon as have been authorized by or on behalf of Nestle India Limited.

As per the agenda today, we will have a presentation, followed by the question-and-answer session. Once the presentation is complete, I would invite you to exercise the raise hand option on MS Teams. Once you have raised hands during the Q&A session, my colleagues will enable your hike when you are first in the queue. I would request you to please then unmute yourself and state your name and organization before proceeding with your question. In the interest of accommodating as many questions as possible, we would be greatful if your questions are brief in nature. As per the entire proceedings have been recorded and will be uploaded on our website www.nestle.in.

I would now request Mr. Narayanan to please take over and make his presentation.

Suresh Narayanan — Chairman and Managing Director

Thank you, and good morning, good afternoon and good evening, ladies and gentlemen. It’s really a privilege for me once again to have this opportunity to have a presentation to you or discussion to you and discussion with you and, of course a dialog on the company’s performance, Nestle India’s performance and where we are today.

The theme of the presentation is consistency in the face of a stock. And on a lighter tone if I were to start there was — it reminded me of a very old hindi song that was probably a song of my generation. It went as this, it says [Foreign Speech] With basically for those who don’t understanding Hindi it means life is such a beautiful journey, but what happens tomorrow none of us know. And I think we live in volatile times, we live in times which are unpredictable, which are surprising and yet which are offering opportunities for organizations like Nestle and that’s really what I would like to focus on.

So this is the consistency in the face of a storm that I will be talking about. This also has shown enormous amount of resilience on part of the team because it is not easing to deliver results in a situation of volatilities and of unexpected events that keep happening around you. I think it’s to the credit of the team that they are able to withstand it and to take the business results forward and the consumer journey forward. Well, I talked about the last time that we met at the investor call, we talked about five essential themes, we talked about the worst performance that — contributing to performance. We talked about the fact that we wanted to secure growth, which matters because all trends (5:55) ladies and gentlemen margins, will start to come back, but growth is not there on the cards. There is no multiplicant, we don’t have something to multiply it in order to make that into operating profit or into net profit or into any measure of profits that we would like to have.

The third element was on PetCare and offering vibrant opportunities and of course, we talked about the integration of the PetCare business with the larger Nestle India business. We talked about the confidence and capability of strong brands are to withstand and I think that is the time when we started this entire journey of volatility and therefore it was still more that way ahead. And finally, of course, the entry to GERBER that we had made in India, premium toddler cereal that was launched at that particular point in time.

What is it that we will talk about today, we will talk about the financial highlights and underlying performance. I’ll first cover the full-year 2022 and then, of course, the last quarter of 2022. I will talk about unlocking our RURBAN potential, we talked about earlier, what is it that we have done in concrete terms? Where are we on our digital journey as an organization? And finally, what is our promise to stand up to the our nutrition opportunity, which is in the Millet category.

So let me take the first part, our financial highlights and underlying performance. This has been a strong decade of domestic sales growth. After 2011 this the year 2022 when we have seen the highest organic growth that has been recorded by the company at 14.8%. So therefore, when we think that this is the highest growth in the decade. This is really what the number show. And to note is the fact that last year too there was no base effect. So we didn’t have the base effect of sitting on a particularly low place and showing this growth. It was at about 11%, 10.7% on which 14.8% growth has been shown. But I’ll come to the texture of this growth.

So on a full year basis the growth has been 14.5% in terms of reported sales that takes us to a company, which is about INR168 billion. In terms of profit from operations, and I’ll come to this a little bit later despite the overriding compulsions of inflation and cost escalations, we have still managed to keep the profit levels at about 20%. Historically, as you know, the company has been anywhere between 20% and 21% and that’s where we are today. In absolute growth terms, it has grown by 4.2% from INR32 billion to INR33.7 billion.

Net profit on reported basis has had an improvement of 12.8% in percentage terms, a small dip from 14.4% to 14.2%. There was a one-off charge, as you know, the financing costs on the pension plan that was factored in last year. That green line on top tells you that it would have been normally 15.7% for 14.2%, but on a reported basis is 14.4% to 14.2%. And earnings per share on a reported basis is up by 12.8%. If you look at quarter-four 2022 the growth again has been solid, it’s been about 14%. We closed the quarter at INR42.3 billion of sales. What is encouraging is that the operating margins actually have turn the tide, have improved from 20.9% to 21.1%. In gross terms, that translates to 14.9%. [Technical Issues] where has the growth come from? You know that we have been sharing this data with you are divided really into five clusters mega-cities, which is cities with a population of greater than 4 million, metros between 1 million and 4 million, Tier 1 towns, less than 1 million, Tier 2 to 6, between 1 million and 100,000 and of course, rural India.

What this is telling you is that the growth continues to be double-digit in mega-cities. You see a little dip there from 23% to 12%. I think the consequence of some of the small pack sales where price increases have been taken is apparent as far as this is concerned. On a longer term basis, I don’t see much cause for concern because there has been upgrading that has also happened across categories, and you’ll come to that, as far as the overall category towards are concerned.

Metros continue to be strong. The urban story for Nestle India continues to be strong. You see that 15%, 17%, and 21%. So that is a number that we are, we are, we are quite confident of. In terms of town class 1, which is towns below the population of a million. Again, the growth has been strong. 14%, 16%, 19%, 19%. This has been the consequence of accelerated urban strategy, increased penetration strategy, increased focus on activities and activations in these towns. And that is really what has had a positive impact as far as sales are concerned.

Town class 2 to 6, which is really the less than 100,000 population, is where you find that the growth while still positive has come down from 13% to 5%. And this is where the pricing impact of some of our small packs, especially in the noodles category, has had some impact. The price increase there has been close to 40%, and that 40% has clearly had an impact. But this is not something that has not been anticipated by the company. In fact, positively on a margin accretive basis an upgrading has happened to the single packs and to the multiplex. And that is really helping the longer-term texture of growth of this company.

Last, but not the least, when there is a big question mark on rural India and rural growth, I do admit that the rural play of Nestle is only 20%. But you see the growth has been, again, fairly strong, 25% going up to 26%. Again, rural India for Nestle is clearly resonating and we are on a path to accelerated growth in rural markets as well. And I’ll come to why that is happening as part of the rural strategy that I will be evolving in a few minutes’ time.

Our route to market I think distribution is key, whatever when we talk about analytics and digital and advertising and promotions, the power and the resonance of a consumer goods brand lies in distribution. And that’s what I’ve learned in all my four decades in this business. And this is an area where we have been with single minded focus. In 2022, we accelerated our best direct reach from about 1.4 million to 1.5 million. Overall reach at 5.1 million. You would recall that in 2015, as a consequence of the Maggie crisis, our distribution has shrunk quite considerably. The build back in these years is now almost complete, in fact, fully complete. And we are now exceeding the levels of distribution that we have had lost during that particular period. This in part is of course the reason why also our RURBAN strategy is working for us.

We talked about margins and all of you would ask the question, operating margins have moved from 22% to 20%, 200 basis points. Look at the commodity headwinds that have hit the organization in 2022. If you look at a comparative pricing, this is a pricing chart that tells you in the last six years, milk prices are up by almost 40%. Milk powder prices are up by almost 57%. Edible oil prices have more than doubled. Wheat prices up by 30%. Cream coffee up by 45%. Packaging up by 44%. These are considerably high numbers. And if you look at even January of this year, where the consumer price inflation is reported at 6% plus the food inflation, which is primarily CV inflation, is reported at 16% plus.

So, therefore, food inflation is clearly an area of watch out as far as the company’s concerned. While we are confident of being able to mitigate part of it, and while we are confident of being able to take care of some additional opportunities for growth, premiumization and upgrading as we will come to there is considerably still some pressure under the bonut as far as the cost factors are concerned.

Here is the chart that I have shown you the last time, 8 out of the 13 commodities reported here. Once again, these are latest prices. These are not last year prices. These are breaching the 10-year highs that we have seen. So there is not that much of active relenting as far as the overall commodity basket is concerned. To put it in simple terms, if between 2018 and 2020, the company faced an average commodity inflation of 3%, in 2022, it faced a headwind of 6x 18.5%. That is the kind of enormity of the challenge that the company has taken on.

Now, it’s easy for the best of organizations to build under a pressure of 6x the key strengths that you’re able to take as an organization, but we did a few things right, and I’m very happy to share them. What is the first thing that we did? We are a company of scale. We are a company of relationships. We are a company of strong partnerships and also a global bandwidth that gives us the ability to read the markets a little bit better. Accelerated economies of scale and sharp procurement strategies were put in place from day one. We knew this storm was coming. We decided to take the right steps in terms of stocking, in terms of purchase, and in terms of taking positions on a few commodities that we were — where we were allowed to take such positions.

One of the intrinsic strengths of the Nestle organization has been the Shark program, Shark is fundamentally a program that delineates and that deconstructs the entire value chain of the company across product categories, across brands, across SKUs. Looking at each element of that value chain and seeing whether it must be allowed to grow, it must be stagnant. It must decline or it must be eliminated. This exercise has yielded for the company almost INR20 billion of savings in the last couple of years. And on an annualized basis, give us about 1.5% to 1.6% or 150 to 160 basis points of savings in 2022 as well. Where it not for the Shark program, we would’ve been in even deeper trouble as far as the overall margins are concerned.

I pay tribute to the fact that this has translated into over 7,500 projects across Nestle India. Cost reductions, enhanced efficiencies, speed, looking at elements of the value chain, what can be eliminated, what can be removed, what can be accelerated, what can be combined involves more than 3,000 to 4,000 people working on this project. In addition to whatever work they have got to do in the organization. This also demands, ladies and gentlemen, and I know that you all look at the numbers, but please do also look at the mindset. I’m very proud of the mindset of the 3,000, 4,000 people who have worked on these projects because they have looked at what used to be traditionally called zero-base budgeting. Is what they have tried to look at in their own value chains and in their own part of their value chains to make these savings happen.

Next, calibrated consumer insight-based pricing decisions. As a company in 2022, we faced almost 810 basis points of commodity and cost headwinds against an average of 200 to 250 basis points at best. You’re not going to be mitigating all of that by looking at Shark. It’s very difficult to get 800, 900 basis points of saving, you have to look at pricing. If I look at pricing, you can do it in two ways. One is what is called intelligent guessing, taking a few risks. And the other one is a more calibrated response, looking at the portfolio, the strategy on the portfolio, the premiumization opportunities, the geographic and SKU mix that you need to do.

And finally, of course, what your studies of consumer insights and consumer research tells you as far as what the elasticity of demand can be for your category and for your product. This was done across all the categories. Almost 80%, 85% of the portfolio, in a sense, has been touched in one way or the other. And I think this has been — has led to a strategy where impacts have been measured and responses have been calibrated. So it’s a two-way process. It’s not just one way that it has been done. And finally, of course, I pay tribute to the alignment, courage, and exceptional teamwork. Those of you are aware of the Nestle organization are aware that many of our business leaders are very young people. They’re extremely young. There are people probably who have faced this kind of onslaught for the first or second time in their careers, unlike people like me who have been in the trenches for a very long time.

So it takes a lot of courage as well, apart from the analytics and apart from all the data work that you can do to take the decisions that you take. But I’m glad that we took the decisions that we took and therefore you are here to see us deliver the performances that we’re delivering. So these five measures really helped us to take our journey forward in a terrible storm that we faced. So the profit from operations, as I said, from 22% to 20% on average. And you can see the chart before that, 21.7%, 21.1%, 21%. So we are getting back into that pen as it were of the kind of profitability that we would like to work with.

CAGR 12.6%, what’s encouraging is the reshape that you’re seeing 20.9%, 18%, which is the low point that we hit 20.1%, which was quarter three 2022, 21.1%, quarter four ’22. There are no guarantees, ladies and gentlemen in life, but what I’m happy to report is that the tide seems to have turned for us, at least in the last couple of quarters. Sustained net profit, I think the reason why you give us the valuations that you give us is also not only because of the operating margins, but also because of the profitability that we’re showing as a company. And of course, return on invested capital, which is arguably one of the highest in industry that you see. Again here, the return on the sustained net profit has been on average about 15.6% in the last six years. And once again, as a profit ratio 14.9% to 12.7% to 14.5% to 14.8%, again, both operating margins and the net profits have moved in the right direction.

What has this meant? What this has meant has been strong, almost double-digit across all product groups. If I were to give you an idea, ladies and gentlemen, of quarter four 2022, every single category, all these four categories and the business that I’m talking about has deliverd double digit. Every single category has delivered double digit. And I think — and all of them have had semblance or a reasonably good semblance of volume growth. So it’s not that everything has been room and room and everything is all because of pricing. It’s also because of some strong volume growth. Contractually means this, for example, has had superlative volume goods, liquid beverages. Nescafe has had the best year in 2022, best year. We are hitting market shares today, which are amongst the highest we have ever touched in this category. So there are things here that seem to be going the right direction as far as the business is concerned.

Milk products and nutrition 40% contribution, growing at about 9.5%, strong performance by both the nutrition and the milks part of the portfolio. Prepared dishes and cooking aids, despite, and I repeated despite the difficult situation that we had to take as far as some of these small packs are concerned, still a 15.6% growth and a contribution of about 32%. Confectionary a growth of 25%. And this is the second year in a row that we’re getting these kind of growths, 16% contribution. Coffee, I just talked about it, 19.2% growth, 11.4% contribution.

I received in the past questions on the out of home segment, which is relatively a smaller business for us. I’m delighted that once the pandemic clouds have lifted, the Nestle professional business has clocked a 39% growth in 2022. And what’s more important, ladies and gentlemen, is today almost 20% higher, I repeat 20% higher than the pre-COVID level of sales that we’ve achieved. I think a huge tribute to the team for the manner in which they have come back and restored the business model, and this is going from strength to strength.

Innovations, while we have launched about 110 new products in the last seven years, I must admit that in the last two years, the focus has been on the core. The focus has been to ensure that the bread and butter of this company, the core 12 to 15 brands of this company are sustained, are nurtured, are taken care of, are operated upon, and are way to deliver the best results that they can. No point in talking about 20 new innovations if I can’t secure the one big pillar that I’ve got. So crumbling edifices is really not what the strategy of Nestle India is. It is to secure the growth platforms and then to keep adding on an incremental basis. What that has led to is from 2016, from 1.5%, today we are at about 5.4%, albeit you could have the comment and rightly so, that from 2021 to 2022, it has moved from about 5% to 5.4%. I would say this is encouraging, but this is a sign of the consistency that we want to show on the core of the business rather than fitter our limited resources away on different parts of expansion, which all of which need resources to make them happen.

Significant value for investors, I think we continue to be looked at very favorably in terms of the investor community, in terms of what we’ve been able to deliver transparently and consistently. I’ve said this before and I repeat, Nestle India is about a company that is pouring consistently, by its consistency it may be repour it, but it’ll never be erratically brilliant. Because an organization develops and grows and thrives not by yoyos of growths and yoyos of activity, but by building on foundations, building on infrastructure, building on people, building on brands, building on channels, building on analytics, building on digital, building on societal capabilities, building on equity, and therefore building for growth. All this takes time, takes systematic effort, and it makes happen only when you focus on all these aspects.

We have tried to, under the circumstances, I would’ve wanted to do more, let me be very honest. But we have had a fairly consistent strategy in terms of media support, strong investment behind the pillar growth brands focusing on the core, improved efficiencies in buying media, targeted communication by leveraging consumer clusters, accelerating the digital spend and finally, of course, investing in building brand equity versus short-term promotions. One of the strategies that we adopted as a company is to move away from considerable dependence, which we never had, but we had it a few years ago of strong consumer promotions at all points in time to building equity for our brands and for our categories over a period of time. And that is also paying off for some of the major brands of the company.

The e-commerce business has grown very handsomely. It’s gone up by almost more than 10x in the last six years from 0.6% to 6.5%. It has grown by 41% in 2022 versus 2021. But I hesitate to add ladies and gentlemen, e-commerce is an important vector for growth, but it is not at the sacrifice of other channels of growth that we have, which is modern trade or organized trade and of course, 80% of the business still comes from the traditional mom and pop stores. My company has thrived, has lived and has achieved synergies by a balanced and judicious relationship between the different channels that operate in the market. I pride my sales organization and my customer organization to be able to maintain that relationship. And this is the way we would take it forward in these volatile times. Consistency is a hallmark of an organization that is clear and has a clarity of purpose of what it seeks to achieve.

What is our RURBAN approach and what have we done here? I’ve talked about this earlier, but I would just like to put some numbers to it. In the last couple of years, we have looked at a renewed trust on RURBAN. Why RURBAN? Because the media reach, the digital reach, the brand reach, the equity buildup, the resonance and the kind of aspirations that consumers have had across have enabled this journey to happen. The growth have accelerated gradually from 10.6%, 11.9%, 12.5%, 15% in 2021, 13% in 2022. Still very positive, but of course, there is an impact here of the kind of loss that we have faced because of the small-pack trading opportunities in this environment. Short-term, but nevertheless reflected in the numbers.

What is our ambition? RURBAN is not about just having nice apps in the hands of your salespeople. RURBAN is about building the nuts and bolts of distribution. For us it has spent taking an ambition of covering 120,000 villages above the population of 2,000, where I’m happy to report that in 2022, we covered a little over 91,000 villages. And the total villages that we covered today is about 165,000 when we were covering just about two years ago, about a third of that figure.

So I think there is considerable merit — about half of that figure, sorry. So there is considerable merit in building the rural reach in terms of villages, of course, focusing on the 2,000 population, which is where the potential as we measure it happens, but also accelerating this journey. So what have we done? Those villages have happened because of strengthening distribution infrastructure in terms of distribution touchpoints. So we had two years ago about 10,000 distribution touchpoint, which is wholesale hubs and redistributors as we call them, small distributors and wholesale hubs in selected markets. This exercise ladies and gentlemen is in about 13 to 14 states of this country that today has become about 14,000.

So fairly significant buildup of numbers. Why? Because you have to have a plan. The plan has to be in terms of number of distribution points, number of brands, number of SKUs, number of outlets, size and scale of activation and a methodology of identification of where you will move forward and why will you move in that direction? And I’ll come to all of this because this is important for the organization.

Scaled up HAAT activity HAAT very simply for those who are not familiar is village fairs. We have millions and thousands of village fairs in this country. And what we have done is to start that journey of having activation activities, simple advertising by voice promotions and sales of our brands in some of the rural HAAT lands and the rural markets, as we have defined them from 2,502 to 20,600 is what we have done. We’ve scaled up activities almost 10x in these places. All this pays for results. And you see it not only on the left-hand top corner, which is up there in the mountains in Ladakh, but also other parts of the country that go to make this activity happen.

Improving shop visibility, all the fundamentals of distribution. What I would like to emphasize here is that what we are doing is what is copybook distribution strategy 101. But again, sometimes in this age, we forget that it is not going to be about software packages that are going to deliver sales. It’s going to be about have those work and discipline and a huge amount of credibility with the trade that’s going to make it happen. Improved in-shop visibility again, we have developed what are called RURBAN Smart Stores, which are stores identified for specific visibility activities from 3,500 to 16,000.

We’ve started this project called Project Swabhimaan, which is empowering rural women. This is not new to the country, but it is certainly new to Nestle. We have looked at particular geographies starting from east rural and extending now into about five or six states, scaled up 2022 to 19 states, in fact, with more than 600 plus rural driven entrepreneurs, these are self-help groups that we are generating in order that they have a livelihood and the brands also have a pride place as far as consumers are concerned in these rural markets.

How do we do all this? One thing is to do what used to call in the old days pay and pray. Let’s go around and walk the markets and decide which one is better. Check with the distributor and check with the distributor sales, and check with whoever else you can. Today, it is all about increasing category relevance through segmenting the portfolio. So we have segmented the portfolio and here are some of the brands that are part of that segmentation exercise. More importantly, the backend of the RURBAN strategy is powered by data analytics and digital. With us, that I will talk about you in a second, will provide us information because of the data crunching that it does in terms of where to go, what to go with, what to sell, what not to sell, what kind of activities to do, and how to make and close the call successfully as a company. That’s the part of analytics that it will bring to the table.

So a distributor salesman going out into the shop will actually be able to know, here are the four outlets or here are the five SKUs that are a must-sell in these outlets. This is what I need to do in terms of offering to the retailer. This is what are the touchpoints that I need to establish. This is the power that is able to establish a must-sell SKU by the pin code of operation. This is part of the sales automation. Here’s a live picture of a distributor salesman going to a small rural market, and you see what he is able to do. So the backend is powered by the power of analytics and digital. The front end is powered by people and infrastructure, and that’s the way this model has moved forward.

Local campaigns have been run in Hindi. [Foreign Speech]. There are numerous fakes that are there in the market. And therefore this is a way in which we have used real people and real voices for rural India. There are no celebrities out here. There are all real people. And really this has worked extremely well for us in the geographies. And this particular one is coming from UP, of course, to establish the credibility and the equity of the fact that the consumer wants Maggie. But are you really getting, Maggie, is a question that you need to ask. So our digital analytics journey, this is not a nice to have. This, ladies and gentlemen, is an absolutely mandated need to have. Today, when I look at the power of analytics, there are different elements that we operate with D2C, sales automation, e-commerce, Nescafe, the email campaign, marketing and consumer insights and brand dot coms.

Numerous initiatives are being taken to integrate and enrich the power of data, the power of analytics, the power of digital, the power of commercial decision-making, and the power of outcomes. All of this really has made, the use of MIDAS and the integration of MIDAS into the business. And in fact, renewed under revamped structure for analytics and digital within the organization. Whether it is MarTech, or whether it is digital or whether it is MIDAS, all these are now business integrated to make the entire value chain come for us in terms of business.

In addition to that, we have looked at as a market, how can we manage transactions at scale so that we are able to release time of the operating management of the operating parts of the business to interact and deal with customers and consumers, as the case maybe. So the Nestle Business Services has been set up a few years ago. It has almost 190 people who work there. They’re looking at financial services, HR business services, procurement support services, talent acquisition services, tax support services, and customer managed services. What’s the icing on the cake is the fact that they are the best gender diversity that I have of any of my operations at almost 50% women, 48.7% women is what they’ve got. And the leadership is almost two-thirds women. This is a way in which the organization has over the period of years, this is not a 2022 initiative. This is an initiative in the last three years. But the cementing and the solidification has happened more in the last two years in order to make this a clear competitive advantage as far as the company’s operations are concerned.

Coming to the last bit, 2023, the UN year of Millets, I think this is an important milestone for the country. Millet, as you know, is 20% of global millet production happens in India. It’s a smart food with high nutrition content. Prior to independence this was the major form of cereal consumption in this country with the coming in of wheat and rice in large quantities and green revolution. Obviously, this has lost its charm, climate resilient and also, of course, water economies because it consumes a fraction of the water that is required by any of the mainstream cereal crops that we have in the country. What I’m very proud is, and this is where the power of Nestle R&D comes in, we are a science-based company. We are a company where science is translated into nutrition, is translated into products, is translated into propositions.

Therefore, it is science that takes the calling and not commercial interests that take the calling. So this is an MOU that has been signed by the Nestle R&D Center India, which is a subsidiary of Nestle S.A and Nutrihub, which is part of the ICAR-Institute of Millet Research. We are working with them quite closely on millet processing, health and nutrition benefits, millet sustainable regenerative agricultural practices, startup collaborations, etc. Millet processing is definitely something that is of a priority because millet while it is attractive as a source of protein and of vitamins, minerals is also one of the more difficult crops to process. Creating our millet moments. We are launching some new products. One of them I’ll talk about, but there are three brands that will be involved in it. Nestle Seregro, Nestle a+, and of course, Maggie. And as I speak to you, there is a very active journey in terms of new product development that is taking place to really look at placing millet in the nutrition map of consumers, and also placing India on the millet map of the world.

So this is the millet journey that we have started. Grain selections, this is meant for toddlers. This is made from Ragi. It has got off to a terrific start. And I must say that it’s been a very encouraging start. It is not — it is a product that is at a mild premium, but it is a product that has got a proven nutrition credentials and therefore it is also seen resonance as far as the consumers are concerned. So what are the key takeaways that I would come to at the end of this presentation?

First strong and sustained almost double-digit growth across all categories. We said we will secure the growth engine. We are securing the growth engine, and this is an important aspect. The foundations of this company are of the growth engine that we have created. And that is that, that we will focus on in order to come out of whatever difficult situations that we find ourselves in. Strong comeback of out of home. We talked about it. I think it’s an encouraging sign for us. Business contributions from here would start to improve, acceleration in e-commerce, entery into D2C, exploring new channels of growth, unleashing our power of sharp methodology for cost-effectiveness, efficiency and speed, accelerated digitalization, analytics and building scale competencies.

Next invested to unlock RURBAN opportunities. It’s a good growth journey. It has been a good story. We don’t intend to take the leg off the pedal. It’s going to only accelerate as we go forward. We are seeing signs of encouraging responses, and we will go that way even more resolutely in the coming months, in the coming years.

Pragmatic, bold, inside-based decision on pricing. This is not randomized, this is not knee-jerk. This is thought through in order to see how we can balance the books in terms of the growth versus profitability story that we’re able to make as a company. Power people in partnerships, I’m delighted to have an organization of more than — of almost 8,000 people where there is enormous amount of resonance, enormous amount of unity and enormous amount of alignment in what we seek to do, how well we seek to do, taking pride in what we stand for as a company and what we can deliver as a group of people.

And finally, of course, excitement and opportunity of millets both locally and globally relevant. All I can say ladies and gentlemen, is that storms will come and go. Volatilities will come and go. It is the strength of teams, the strength of brands, and the strength of conviction that is going to matter at all points in time. That’s really my simple message at the end of my presentation. Thank you all very much for your very patient listening.

Questions and Answers:

Ambereen Ali Shah — Head Media Relations

Thank you, Mr. Narayanan. [Operator Instructions] We have the first question from Latika Chopra. Latika, please go ahead. Latika, you need tounmute yourself. Okay, then let’s move on to Shirish, Shirish, please go ahead and ask your question. Shirish, please go ahead and ask your question. Okay, we will just come back and address this immediately. Shirish, go ahead. Avnish.

Avnish — — Analyst

Yeah, am I audible?

Ambereen Ali Shah — Head Media Relations

Yeah, you’re audible.

Avnish — — Analyst

Sure. Thanks. Firstly, Suresh, congrats on very good set of numbers in the current scenario. My first question is on the key category which you highlighted last two years good growth in confectionary is very strong. My question is not on the Nielsen, because in Nielsen normally we see that almost every brand claims and market share gain. In your case with the kind of growth you have seen, obviously, in Nielsen, you will see gains. My question is, what would be the growth of the confection and chocolates market in the last one year, what would be your sense? And where exactly gains are happening? And could you now accelerate further? Because the gap with the number one player is still extremely high. So does such strong growth open new avenues for you in this category? And I have two more questions.

Suresh Narayanan — Chairman and Managing Director

Yeah, no, thank you. Thank you, Avnish, thank you very much for that question. Look, our estimate of the growth of the market is about 10% to 12%. That’s the kind of ballpark growth in the confection market that we’ve seen in the last one year. We have clearly grown much higher than that. We saw the number 25%. We have had, therefore, market share gains, not only in overall chocolates category, but also in the white wafers category where we — quite an improved wafers category that we operated where again the market share gains have been significant. In fact, Avnish, we are aware and seized of the opportunity.

And if you look at the forthcoming capexes, the two big areas where big investments are being put up, one of them of course is the noodle category. And the second one is confection, is chocolates. So, there is a lot of putting the money where our mouth is. And not just allowing this to kind of come by us and not to do much about it. So, I don’t go with the — just with the Nielson figures, I have respect for Nielson. But again, we have our own internal measures in terms of brand performance, brand sales, building of brand equity, brand of choice, etc., etc., and also capacity utilizations. And the second largest — for a category that contributes number three in terms of overall category sales for the company, to be at the second place in terms of investments, says a lot.

Avnish — — Analyst

Sure, Suresh, sir. That’s helpful. My second question is on the data point, which looks a bit weak. So when I see the tonnage data that has slowed down meaningfully in Q3 versus Q4, and you also highlighted that in metro, the growth rate in this quarter has slowed down and you referred to the price hikes, etc., in the LUPs. So could you elaborate on this, which categories and is there a issue of market share loss? You did say that this doesn’t impact medium long-term, but in the past we have seen that in LUPs, whenever a price hike happens, there is a customer who shifts very quickly to the competition. So how are you addressing both these aspects?

Suresh Narayanan — Chairman and Managing Director

Sure. No, I think, it’s a good question. Honestly, the loss in momentum in the highly-priced sticky categories has been more a volume share that has been depleted during this period and not necessarily a value share for the category. So we have applied to do the balancing between — we knew, for example, when we took up the price of the chotu pack, that there will be an impact on volumes. I mean, there’s — we don’t need a GS to figure that out. But we were able to using consumer insight, calibrate it quite well on what we would actually be dropping by and what we need to do in the other parts of the portfolio. There are two or three actions that has been taken. One of course is that the mainstream and the premium parts of the portfolio have started to grow better.

Secondly, the small packs are not necessarily the best margin pack. Some of them are actually packs that we could do better in terms of the margin deliveries. This in a sense because of the commodity situation has improved our mix a bit towards better margin and better consumer value proposition SKU over a period of time. And if I were to index the growth, if for example, the mainstream grew at, let’s say, 100%, the PPP has grown at about 110%, and the premium has grown at 140%. So that is the other way in which we try and, and mitigate. So using portfolio, using channel geography, using selective activation is how we try and mitigate the kind of impact that we have had. But yes, I must be honest, in some of the SKUs that we have done there has been a volume loss, but I don’t believe, and the business doesn’t believe that these are permanent losses. These losses, we will recover as time goes by.

Avnish — — Analyst

Sure, sir. Thanks. My last question, quick question on the e-commerce when I see other companies in terms of percentage of domestic sales, you seem to be a bit lower, not a big gap, but a bit lower. That seems a bit strange given the very high premium positioning, more urban focus. So could you relate both of those? And second is now we are also seeing drying up of funding for a lot of these startups in terms of e-commerce. So would you be worried on that medium long-term aspect? Not on the historical numbers, but medium, long term?

Suresh Narayanan — Chairman and Managing Director

I think good question, Avnish. And you’ll go back to my presentation, one of the remarks I made, so the e-commerce is being looked at as an important channel, but not the only channel for business. You can take a strategic view of e-commerce or you can take a tactical view of e-commerce. Tactically, if I put in pumping more promotional money, I will get more sales. So the fact of the matter is that I will destabilize the equation in terms of trading terms between e-commerce, between modern trade and between traditional trade. This is something that we have been as a company very, very careful. There are — each company has its own philosophy, Avnish, you know it, you cover all the big companies.

Some companies are a little bit, — I would say a little bit — I would say arrogant, but a little bit watchy about it. They say, okay, fine, doesn’t matter. We take a punt on this, and we do a greater investment in e-commerce. Find some of it leaking back into the trade, of course, because not everything can be digested by consumers. What we have taken is a more prudent strategy that the trading terms are defendable in e-commerce, defendable in traditional trade, and defendable in modern trade. And that’s why if I have hired a sacrifice of, for example, 50 basis points in terms of contribution, I’m okay with it. Because I know that the overall pace of the business has been picked up by other channels as well, and defensibility and long-term sustainability of trading terms is an important aspect in this market. I mean, some people may choose to disbelieve it. I can tell you with all my years that it is probably one of the central pillars of accelerating growth in a market like us.

Avnish — — Analyst

Sure, sir. Thanks. That’s all for me. Thank you.

Suresh Narayanan — Chairman and Managing Director

Thank you.

Ambereen Ali Shah — Head Media Relations

Thank you, Avnish. The next question is from Tejas. Tejas, please unmute yourself and ask your question.

Tejas — — Analyst

Yeah. Hi, thanks for the opportunity, and congrats on good set of numbers, given the backdrop. Sir, since you started engaging with investor community in the current role, you have shown fearless commitment towards NPD strategy. But in our last two interactions, the last time you mentioned NPD as an outhouse, example, and today also you said that you’ll focus on core. So should we think that there will be some strategic pause on the NPD thrust that you created in the initial part of the tenure?

Suresh Narayanan — Chairman and Managing Director

No, I don’t think — good question, because I don’t think there is any — everything depends on the circumstance in which you’re operating. When you are operating with 800 basis points of commodity headwinds when you are operating with a portfolio that needs to be defended in terms of both growth and profitability and also needs resourcing. There is my priority as the CEO of the company going to go, he is going to go towards defending the core. Nurturing the new will happen only when I defend the core. Because otherwise, my resources for the future will not be able to be generated by spending 50% of my money that I have on the [indecipherable] behind new brands. Because the core brands will start wobbling under the circumstance.

So it is more because of circumstance that we have taken a more prudent strategy on innovations. I can assure you that that has not stopped the plans in terms of the pipeline. So the pipelines are quite full. The minute we see a relenting happening, you will see a speed. And certainly, apart from millet, there will also be other launches from the company that will come up. Just give a quarter or two to stabilize the situation in terms of the overall impact of inflation. And you’ll see the engine coming back again.

Tejas — — Analyst

Yeah, very clear, sir. So second, one noticeable point on your P&L for last two years has been on the employee efficiency part. Now, we all talk so much about inflation, which has been hurting everybody. I was just wondering, how do you keep your employee motivated with 2% and 7% kind of employee cost in last two years inflation? And is it largely around efficiency that we have worked or there is anything — any insight that you can share there?

Suresh Narayanan — Chairman and Managing Director

No, I think, some of it of course has been some economies as well. I mean, as you know, the pension plan having off that we have done has had benefits for the future in terms of the cost of servicing the kind of liabilities that we have got. That certainly is one of them. The other thing is, Vikas, the strategy of the company has always been to attract good talent, to give them good opportunities, to rerate them well. But we are not, and we don’t say that we are at the top of the market. I think any job has a combination of what you do, how you do it, and where you do it, and I think this combination seems to be working quite reasonably well for us.

Not to say that we don’t have attrition, we do have attrition. And not to say that we don’t have retention issues, we do have retention issues, but on balance, I think this is an organization where there are more people who are willing to stay than those who are getting out of the door.

Tejas — — Analyst

Sure. But sir, the current run rate, which is roughly 9.7% as percentage of sales, is it sustainable on employee cost?

Suresh Narayanan — Chairman and Managing Director

Well, employee cost, you know that math very simply, if I’m able to grow my business faster than employee cost, I will show you a declining percentage over a period of time. So the magic mantra, my friend, always has been that growth hides everything.

Tejas — — Analyst

Perfect. And sir last one, if I may, just one last question. So, in your opening remarks and even in your press release, you spoke on Nestle S.A’s contribution on developing science-based products. And I believe as the economy is evolving, the Nestle S.A’s contribution will actually grow further. So just wanted to understand how should we think about the general license fees or royalty agreement going forward? And just to refresh our memory, when is it coming for renewal?

Suresh Narayanan — Chairman and Managing Director

So, it comes for renewal in 2024, I believe. Let me be very, very clear. I think the logic for the royalty has not changed one bit. The 2,000 brands of Nestle are owned by Nestle. They’re accessed by Nestle India. And the science, the technology and the operation capabilities that we are getting knowledge and inputs on has been a significant part of our journey. The logic has remained the same between the last royalty agreement that we had negotiated and that we had agreed with the shareholders. And today, the logic has not changed one bit.

In the quest, for example, for the millet project, more than what Nestle India is able to leverage in terms of science, technology and operating capabilities. Nestle R&D is able to to do it. Why? Because Nestle R&D has got a facility in Abidjan, in Ivory Coast, which works on millets exclusively. So if I need the technology for this, am I going to be sitting with my factory fellows? I’m saying now, come on, let us look at a way of processing villages. Or am I going to tell Nestle R&D center my brother in the market, who’s part of the Nestle S.A investments to access capabilities from Abidjan and from the center in order to make these technologies happen. So that’s the simple logic for it my friend. It’s not a question of gifting away money, it’s a question of having a rational and clearheaded logic for what we are doing as an organization. Brands, R&D support, operations support are intrinsic parts of what we have as an arrangement with Nestle S.A

Tejas — — Analyst

Great. Thanks. Yes, very clear. Thanks. And all the best.

Ambereen Ali Shah — Head Media Relations

Thank you, Tejas. The next question is from Avi. Avi, please unmute yourself and ask your question.

Avi — — Analyst

Hi, sir. Am I audible?

Suresh Narayanan — Chairman and Managing Director

Yeah.

Avi — — Analyst

Sir, I just wanted to better understand the comment that you made in the press release about the domestic demand environment being very robust. This especially because what you — in the entire presentation, the LUP price hike impacting volumes, this three year CAGR kind of moderating, would love to kind of better understand the comment there?

Suresh Narayanan — Chairman and Managing Director

Look, I think it’s very clear, I mean, if you look at our last couple of quarters of growth, I mean, all the quarters in 2022 have been double-digit and with an underlying positive volume growth. The issue has been more quarter four, where we know the reason for that. We are coming out of it. And I think there is always a relativity in the manner in which we look at the market. But today, there is no reason to believe that we are having massive strong clouds in terms of the portfolio, the equity, the salience, or the relevance of our brands. And that’s the simple comment that is being made.

Avi — — Analyst

So it’s a more, a medium-term comment. Is that the right way to understand it?

Suresh Narayanan — Chairman and Managing Director

Well, my friend, you can nudge me whichever way you want to I never give you guidance for the future, read it the way you want to. But all I’m telling you is that the focus, relevance, and salience of our brands has not diminished despite the kind of commodity inflation and the volatility that we’ve seen.

Avi — — Analyst

Fair point, sir. And sir, the second bit is LUP about the price hike that you’ve mentioned. Do you see that in any way hurting the rural expansion? Because typically the understanding is that they are the key drivers or they typically lead the increase. Who would love to know your thoughts on that as well?

Suresh Narayanan — Chairman and Managing Director

I think, their numbers show it all my friend, 26% has gone up to 27% in the quarter when the price increases have happened. So it’s not to say that the Maggie chotu pack has not been impacted, but there are other parts of the portfolio PPP part of the portfolio, where we have managed to maintain the prices reasonably evenly. And those are the ones which are also tending to accelerate. The overall requirement in terms of Nescafe small packs, Maggie small packs, Masala Magic small packs, Munch, KitKat, all of this as a bouquet is going up in semi urban and rural markets. So what you’re seeing is a compound result of that, which is in terms of growth, moving up from 25%, 26% to 27%.

Avi — — Analyst

Perfect, sir. And lastly, sir, just a bookkeeping on the INR26 crores capex that we had announced, two years back or so, two, three years back when — if you could help remind us the timelines of the same when is it broadly done, how much is remaining? That’s all. Thank you.

Suresh Narayanan — Chairman and Managing Director

I don’t know, David, whether you would like to take that question on the capex.

David McDaniel — Executive Director, Finance and Control and Chief Financial Officer

I can, yes, for sure. Thank you, Suresh. And thank you for the question. The INR26 billion announcement was sometime ago now and this number will be exceeded in the coming years. We see that — we know we spent INR5 billion in 2022, and we see that the next two years will double and then grow further in 2024. So, the large amount of capex is coming in the next two years. It’s very clear we need this now. Many of our plants are at very, very high levels of capacity utilization. It’s been planned for a long time. As Suresh, says the investments are primarily foods and chocolates, but there are others as well. Next two years is a peak of the spending.

Avi — — Analyst

Perfect, sir. Thank you very much.

Ambereen Ali Shah — Head Media Relations

Thanks, Avi. The next question is from Anand. Anand, please unmute yourself and go ahead with your question.

Anand — — Analyst

Yeah, hi, Am I audible?

Suresh Narayanan — Chairman and Managing Director

Yes, you are.

Anand — — Analyst

Yeah, hi, Suresh. Thanks for taking the question. I mean just first question on the LUP part, I mean, the tonnage math suggest it is down 1%, but in your opening comments you did say that volume is up 3%, 4% so that you are referring to RIG?

Suresh Narayanan — Chairman and Managing Director

Yes. I was referring to the volume and mix grow, yes.

Anand — — Analyst

Got it. Got it. Okay. And this is the drag on LUP is largely on the chotu pack or this has been across the parts of portfolio as well?

Suresh Narayanan — Chairman and Managing Director

It is been primarily in that category. If you look at the growth in the last quarter, all categories other than noodles in tonnage terms have been quite strong. Noodle has made up, in value terms, has made up in terms of the single packs and in the multi-packs, but has lost out in terms of the LUP pack.

Anand — — Analyst

And in competitive terms, has competition reacted to this pricing…

Suresh Narayanan — Chairman and Managing Director

Pardon, I didn’t get your question.

Anand — — Analyst

So on competition terms in the chotu pack, has any competition reacted in the pricing or are they still checking to find things?

Suresh Narayanan — Chairman and Managing Director

Not really. Not really. I think most competition has stuck to INR5 in the hope that this would give an opportunity.

Anand — — Analyst

Temporary, you would be losing share in LUP on volume term as you said. But medium time, as you rightly said, it is structurally the right move. That is…

Suresh Narayanan — Chairman and Managing Director

I think, obviously, you don’t like it when something like this happens. But this is the reality when you move up, you move up the price points. This, looking at the inflation level, so might have been a decision that would’ve happened a couple of years down the road. But with the kind of impact that you saw between 3% and 18.5% is something that we could not have — when small pack is an important part of your portfolio, you can’t — and we didn’t choose to cut grammage and to sort of make it virtually anorexic as far as the product is concerned. We would rather give a product that has got some meaning to the consumer.

Anand — — Analyst

Got it. Can you salient between share, I mean, in overall Maggie noodles?

Suresh Narayanan — Chairman and Managing Director

Maggie noodle share are up my friend, overall value share are up.

Anand — — Analyst

I’m asking the salience of the chotu pack within overall noodle the INR5 pack.

Suresh Narayanan — Chairman and Managing Director

It’s about 15%, 20% of the volumes.

Anand — — Analyst

And just one last observation or texture of growth, I mean you have seen growth dip in mega cities in town class two to six, but it build up pretty well in some of the other parts, even in villages, even in metros. So I mean, any different trends you are seeing in any of these towns?

Suresh Narayanan — Chairman and Managing Director

Look, as far as I’m concerned, as far as the business itself is concerned, I think, the trends are fairly secular. We are seeing, we are seeing growth happening across town classes. As I mentioned, two to six, there was a impact, because of specific circumstances in the last quarter. We will see I’m reasonably confident we will start seeing this also bounce back because there are other packs as well. I mean, it’s not that we are only operating with one LUP pack. There are LUP packs across categories and all of them are starting to fire back now. And hopefully that the trend that you are seeing in the last couple of quarters with the energy and determination that we are having on the RURBAN strategy, will be able to help us come out of the situation sooner than later.

Ambereen Ali Shah — Head Media Relations

Thank you, Anand.

Anand — — Analyst

Rhanks a lot.

Ambereen Ali Shah — Head Media Relations

[Operator Instructions] The next question is from Alok.

Alok — — Analyst

Yeah, hi. Thank you for giving the opportunity. The first one is in continuation to the question on capex. So recently the global Nestle CEO made a remark about investing about INR50 billion in India. So just wanted to get your views on the same. Is it incremental? Would it be completed with a plant or how do we read into this statement? That’s the first question.

Suresh Narayanan — Chairman and Managing Director

Yeah, it’s a very clear statement that was made. He talked about investing INR5,000 cross or CHF600 million in the coming three years. Between 1960 and 2021, we have spent INR8,000 crores of investment and he has been very clear that the next three years we’ll be spending INR5,000 crores of investment. This is excluding any mergers and acquisitions that we might choose to make.

Alok — — Analyst

Yeah. So just to follow into that, when Daniel answered to the point that this year the capex has been about INR5 billion and the next two year, the capex would be significantly double of that. But if I were to combine that with the global CEO statement, it seems that there is much more capital which will be given towards X of the capex. Is that understanding then, correct? Then maybe the capex over the next three years would be maybe the ballpark of about INR3,000 crore and the rest INR2,000 crore would be for other investments?

Suresh Narayanan — Chairman and Managing Director

The capex alone, I mean, I think, what David told you was about INR5,000 include those and might delivering 2023, 1,222 [Phonetic] but 2023, 2024, 2025, that cycle itself will cover the INR5,000 crore that he was talking about. The next two years is likely to be substantially higher than what we have spend in 2022.

David McDaniel — Executive Director, Finance and Control and Chief Financial Officer

Yeah, if you like, I can be more specific. The plan right now looks like INR13 billion in 2023 and INR20 billion in 2024 and the balance thereafter. So, I said doubling in 2023, it’s a little bit more than that, and then it goes up further in 2024. So that’s the shape of it.

Alok — — Analyst

Okay, perfect. And just a small bit, directionally, when you talk about your RURBAN strategy, and the number says it all, it’s working quite well. Just wanted to pick your thoughts specifically on the nutrition portfolio in the overall RURBAN strategy? Now, here is my thought process that the price points are where they are, right? So, is there a thought to improve the penetration to reduce the price point and the pack size architecture, which may momentarily reduce the tonnage, but it helps improve the penetration, structurally and which can help you? So can you share your thoughts on the same? Thank you.

Suresh Narayanan — Chairman and Managing Director

So I think short answer is yes. I mean, it’s not going to be a single pack strategy. I think, milks and nutrition both have got salience in smaller towns and in rural markets. And I think the business is working towards kind of affordable, not affordable packs, let’s say relatively affordable packs as far as the business is concerned, which will be rolled out during the course of the year, if not already rolled out.

Alok — — Analyst

Great. Thank you very much for the clarifications.

Suresh Narayanan — Chairman and Managing Director

Thank you.

Ambereen Ali Shah — Head Media Relations

Thank you, Anand. And we’ll now take the last question. Rishi, please go ahead and unmute yourself.

Rishi — — Analyst

Hi. Am I audible?

Suresh Narayanan — Chairman and Managing Director

Yes, you are.

Rishi — — Analyst

Yeah. So, Mr. Narayanan pre-2012, right, we’ve seen milk and nutrition grow well in double digits. Post-2016 we haven’t seen double-digit growth in milk and nutrition. Now, given these structural change that’s happening in terms of increase in women workforce participation, increase or deterioration in terms of lifestyle and increased penetration of junk food in the diet, we should ideally be having more adoption of infant nutrition in the Indian market. So could you explain why we haven’t seen that double-digit growth in the last six, seven years? And how do you see this going forward? Then I will have my follow-up questions on this.

Suresh Narayanan — Chairman and Managing Director

No, look, I think, it’s incorrect to say that there has not been strong growth. The texture of the growth is different. Part of the growth in the past has also been largely price led and lower in of volume. We have today got us a strategy that is a bit more balanced in terms of volume and price, in terms of the penetration. The business itself is much better placed in terms of penetration and in terms of getting in more consumers, provided they’re not able to breastfeed their child. because that is always the best and the most efficacious recommendation that we have as a company.

The second part is that nutrition itself is vastly more exciting than just the category in the brands that you’re talking about. Some of our fastest growth has been in toddler brands. In Ceregrow, Ceregrow has been our fastest growing brand. It is in the nutrition category, it’s our fastest-growing brand. NANGROW LACTOGROW are all in the same range, and there is greater plans to, in fact, expand that portfolio quite dramatically. I mean, the Ceregrow, what was the first product I showed you in the millet range. Ceregrow grain selection millets.

So you can see that this is still a very attractive and a very robust area of Nestle’s engagement where — which benefits from incidentally from the R&D expertise that we talked about. And also from the fact that with an expanding opportunity base that we see there will be expanding horizons as far as the categories concerned. The category not just defined as the traditional nutrition products that we talk about, but in a more extended manner into new and more emerging categories of nutrition that we see. So I think that’s where we are. So it’s not a question of growing faster or slower. It’s a question of recalibrating and re-energizing the whole category. And that’s what our role is.

Rishi — — Analyst

Right. So, just to follow up on your strategy of prioritizing volume over pricing growth that had happened historically, could you give me, what would be the volume growth for milk and nutrition for the past year versus what was the pricing growth?

Suresh Narayanan — Chairman and Managing Director

Well, if you look at last year’s growth, which is about 9.5%, you would have a volume growth of about 2.5%, 3%, and you’ll have a pricing growth of about 6%.

Rishi — — Analyst

Right. So in a country — just one last question, it’s a bookkeeping one rather. So my guess is that the volume growth, which is only 2.5% in this category, given that we are combining milk and nutrition, I’m guessing our milk would be — nutrition would be much higher. So if you could just gimme, what was the mix, how much proportion of the milk and nutrition would be milk in 2016 versus what it would be today?

Suresh Narayanan — Chairman and Managing Director

I’m sorry. I’m very regret to say that I don’t give segments split up, sir. It’s milk and nutrition and then you’ll start — we’ll have questions on each brand, how much we are growing and what we are growing. My apologies to you, it will be milk and nutrition that we’ll talk about.

Rishi — — Analyst

Right. All right, sir. Okay. That’s it from my end. Thank you.

Ambereen Ali Shah — Head Media Relations

Thanks, Rishi. And the last question from Sheela. Sheela, please unmute yourself.

Sheela — — Analyst

Am I audible?

Ambereen Ali Shah — Head Media Relations

Yes, you are, Sheela. Go ahead.

Sheela — — Analyst

Yeah. Hello, Mr. Narayanan. So my first question was on the rural growth. Just wanted to understand Mr. Narayanan how satisfied you are with the rural group trend, which we have reported over the last three years versus what we thought? Yes, there were headwinds in terms of a slowdown, but at the same time we were expanding our distribution. So just wanted to get a sense on your satisfaction level there? And a follow-up on that also is, what is the share of overall LUP now versus say where we were three years ago, and where do you think it could go in the next three years?

Suresh Narayanan — Chairman and Managing Director

Good question, Sheela. I mean, firstly, let me tell you on a lighter note I’m never satisfied with anything. The day the CEO of the company starts getting satisfied with everything, then the period of complacency and stagnancy happens. But let me frame it in the context in which we are in and the overall trend of FMCG and rural markets. I’m quite enthused and encouraged by the growth that we have been able to record in rural markets. I mean, last couple of quarters has been strong double-digit growth. And yes, okay, the base levels are lower, but then that is always a good game that on a comparable low base if you can also still have declines, if your brands don’t have the salience root to justify the pitch to the consumer.

So I think the growth itself has been fairly encouraging. We find it on a secular basis, it is despite the kind of issues that we have hired in terms of the headwinds that the has faced and come out of it. So I think that is a positive. If you look at our PPP is roughly about a third of our portfolio. The rest of the two third is between mainstream and premium. The way I see it is that going forward, the share of PPP will probably start to come down over a period of time. And that’s how I would look at the ideal evolution of the market. It’ll still be not an insignificant portion, but it probably won’t be near the third that we talked about today.

Sheela — — Analyst

Understood. And just the final one, on the NPD slide, you have shown how the share of NPD has gone up as a percentage of revenues. There was also a point which was made that there are 30 new projects in the pipeline. Are these more pertaining to millets or is there more which we could see in the coming quarters or so?

Suresh Narayanan — Chairman and Managing Director

Good question you’ve asked. Yes, these are projects in the pipeline apart from millet, there are projects across categories. So it is not just exclusively to millet. Millet is one part of it, which has got — it’s a reason why I focused is, because it’s one of the important projects for the company. But yes, as I dovetail it with the earlier answer that I gave, I don’t think the company is running dry in terms of ideas on what to launch. The question is how do we calibrate it in the context of the overall A, cost pressures, B, portfolio pressures, and C, gastric capacity of the company to be able to manage the core and also to manage some of the new product launches that we are doing. Based on all these three, you’ll see the rollouts happening in the coming months.

Sheela — — Analyst

Would you be sharing any details, sir?

Suresh Narayanan — Chairman and Managing Director

Any more, pardon?

David McDaniel — Executive Director, Finance and Control and Chief Financial Officer

Details.

Sheela — — Analyst

I’m good, thank you. Yeah, I was checking on the details if possible because it’s part of the slide, right?

Suresh Narayanan — Chairman and Managing Director

Well, details, I mean, as I told you, it applies across categories. So, we are within milk and nutrition, which was my friend’s earlier question on why we think that it’s not a particularly great category. We think it’s a particularly great category. Speaking to the core strength of this company, there are products there. There are products in the confectionary space. There are products in the Maggie space and there are products in the coffee space as well. So all these — all the categories are being represented in terms of the 30 projects that I’m talking about. It is not 30 projects on millets and zero on everything else. It’s not in terms of that.

Ambereen Ali Shah — Head Media Relations

Thank you, Sheela.

Sheela — — Analyst

Understood. Thank you very much.

Suresh Narayanan — Chairman and Managing Director

Latika, doesn’t have a question. My old friend Latika, I thought, is she still on the call or she’s vanished?

Ambereen Ali Shah — Head Media Relations

No, we don’t her on the call.

Suresh Narayanan — Chairman and Managing Director

Okay.

Ambereen Ali Shah — Head Media Relations

So Mr. Narayanan, any closing remark from you?

Suresh Narayanan — Chairman and Managing Director

Well, let me firstly, take the opportunity to thank each one of you. I can’t off hand say how many people are there, but it looks like there’s a reasonably decent forum. I thank you all for your patient listing of my presentation and also of the answers that I have given in large part and that David has provided to in the course of this presentation. I think just three messages that I would like to leave with you for your consideration. Number one, the growth engine of Nestle India is important. Nothing that we will do will compromise on the growth engine of the company. What is the growth of the company penetration-led volume growth. We might be delayed, but we will never be denied. And whatever pressures we have, this is an aspect that we will not allow ourselves to slip off. Because if you don’t have growth, you don’t have very much else to celebrate.

Number two, innovations would be calibrated, innovations would be launched depending on the capacity of the organization to be able to secure the foundations of the core to be able to support the new launches. And also, of course, to be able to take these forward as an organization. Number three, the RURBAN journey of the company is strong, continues to be strong, is invested in with dedicated resources, and is an area of increased opportunity and growth for the company. So these are the three important elements.

And number four, if you would really look at it, the company seeks a balanced channel strategy as far as its growth tools is concerned. We will not be having undue preference privilege unless salience demands it between any one channel and the other channel. This is the strength of the organization. And this is something that we will deliver over a period of time.

Last point, the mindset of seeking efficiencies, value rationalizations, wherever possible and efficiency improvements wherever possible is a mindset of this company. The Shark projects that you are seeing are not one-off projects. They have been in this company since 2011. So they’ve been here for a long time and every year they’ve delivered for the company. We keep finding new opportunities, where you think that opportunities are exhausted. So this would be one of the key levers and strengths of the organization to combat, once again, a situation that we have in the market. We are more confident as a company of being able to combat it, but nevertheless, we’d be able to face the situation as it comes and as it happens. So repeat again. [Foreign Speech] Thank you all very much.

Ambereen Ali Shah — Head Media Relations

Thank you so much. And thank you everyone for joining in.

David McDaniel — Executive Director, Finance and Control and Chief Financial Officer

Thank you.