Patanjali Foods Ltd (PATANJALI) Q3 FY23 Earnings Concall Transcript

Patanjali Foods Ltd (NSE: PATANJALI) Q3 FY23 Earnings Concall dated Jan. 27, 2023

Corporate Participants:

Sanjeev Asthana — Chief Executive Officer

Kumar Rajesh — Chief Financial Officer

Analysts:

Dhiraj Mistry — Patanjali Foods Ltd. — Analyst

Abneesh Roy — Nuvama Institutional Equities — Analyst

Ankush Agrawal — Surge Capital — Analyst

Jeevan Patwa — Sahasrar Capital — Analyst

Kuldeep Gangwar — ASK Investment Managers — Analyst

Vikas Mistry — Moonshot Ventures — Analyst

Bharat Shah — ASK Investment Managers — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the 3Q FY ’23 Earnings Conference Call of Patanjali Foods Ltd., hosted by Antique Stock Broking. [Operator Instructions]

I now hand the conference over to Mr. Dhiraj Mistry from Antique Stock Broking. Thank you, and over to you, sir.

Dhiraj Mistry — Patanjali Foods Ltd. — Analyst

Thank you, everyone. Good morning all and welcome to the call. I would like to thank the management of Patanjali Foods Ltd. to allow us to host the call. We have with us Mr. Sanjeev Asthana, CEO of the company; Kumar Rajesh, CFO of the company; Chintan Kotak IR.

And now I would like to hand over the call to the management for their opening remarks. Over to you, sir. Thank you.

Sanjeev Asthana — Chief Executive Officer

Good morning to everyone and wishing everyone a very Happy New Year. I would start with the performance highlights of what we did in quarter three and walk you through in terms of the highlights of the performance that has just gone by.

So from a revenue chunk [Phonetic], we did INR7,964 crores of revenue, which is a drop of about 7% from the previous quarter. Our EBITDA went up from INR205 crores to INR405 crores, which is up almost 97%. EBITDA as a percentage of revenue is about 5.1%, where we should have [Technical Issues]. PBT is INR344 crores versus INR154 crores.

Broadly in terms of the segmental-wise performance, we had — the big three segments that we have, is the edible oils portfolio, second is the Foods portfolio and third is the feed extraction portfolio. And then there are associated businesses like windmills. So I will go through one by one on the revenue and the margins that we gained on these businesses.

So on the Foods, we did INR1,570 crores versus INR2,400 crores that we had in the last quarter. Our overall margin EBITDA was INR174 crores versus INR622 crores that we made in the Foods, and the reasons for the drop, both in terms of the revenue and the margin, and I will pick it up later on the call.

On the Oil segment, we did INR6,067 crores versus INR5,917 crores, which was marginally up. But in terms of EBITDA we did close to INR196 crores of EBITDA this quarter versus negative of INR451 crores what we’ve had in Q2.

On the Seed Extraction side, versus INR440 crores in the previous quarter, we did INR689 crores. And on the EBITDA side, versus INR24 crores, there was a margin drop of INR2 crores, we did INR22 crores. On the windmill, we had an income of INR6 crores in the quarter. So in total, the EBITDA for the quarter was INR405 crores versus INR205 crores in the last quarter.

In terms of the highlights of the business performance in this quarter, Foods as a percentage of the revenue for the overall company is now nearly 20%, which is a very positive sign and in our stated intent that we would like to take it 50-50 over next five years. So that we are very much on course for that. Oil growth, we did more than 10%. It’s in double digits versus the overall industry growth of 5%. So that has been a very positive sign, as we continue to notch up larger numbers.

Biscuits, we have grown nearly 15%-plus, and the number of retail outlets we increased from 4 lakhs to 8 lakhs, and that march continues well and our margin profile in the biscuits have improved as well, and I will give the detailed breakup of the food business also.

The Oil margin, we did 3.2% in a market which was extremely volatile, where the prices have continued to swing between minus 10% to plus 10%, and that has continued to change. We have worked on revamping the entire nutraceuticals business, so a lot of work which is going on, on some parts of rebranding, some parts of new distribution structures, the work on direct-to-consumers is fully getting onstream [Phonetic]. And likewise, multiple other initiatives including launching of flavored and different sports nutrition, etc, that is going on.

During the quarter, we had two additions to the leadership team. Mr. Pawan Arora who came from ADM Agro. He has joined as the Head of the Consumer business, where he looks after the Nutrela business. And Mr. Apoorva Kumar, he has come with long experiences of Amway, of nearly 20 years-plus, and he has joined in the team.

In the Oil palm segment, we signed two new MoUs with the Government of Nagaland and Government of Tripura. Tripura, we have been allocated 103,000 hectares of land. And Nagaland, we have been signed for three districts in Nagaland, the areas are being determined.

We set up nine new nurseries. Our imports of sprouts, which is the basic material which you have to place in the nursery, that has gone up exponentially. We have done more than 5 million sprout imports this year. The plan is to do 10 million sprout imports next year, and from ’23-’24, which is the coming year, and after that ’24-’25, which are going to be huge kick-up years for our Oil palm plantation.

Our international business, as I had mentioned in the previous call, and the call before that has continued to gain momentum. We have done almost INR16 crores of exports of biscuits on two segments that we’re focused on. And added to the food business as a connectivity, we did — second part was on [Indecipherable] dry fruit imports, and which is going to basically dovetail into the Foods business. So rather than buying from the trading community, we’re buying — we’re importing our own and adding value to it by processing it and then exporting.

In terms of the new product development, there’s a lot of work which has gone in. I mentioned about — in the sports nutrition by adding multiple different flavors, which are catching the eye of the gym goers. Likewise, this is a year of millet. So we are working quite actively on the — number of millet-based products, and you will soon see, hopefully, in next two months, these getting launched.

In the ready-to-cook segments, on the Nutrela side, there’s a lot of work which is going on. So next three months, we’re going to see multiple different launches which are going to happen, and which just going to basically be driving this growth in the areas.

One more in terms of the HR issues we had — second year in the running, we were awarded the Great Place to Work, so which is the idea being that, both in terms of the employees and the teams and the leadership team, their motivation doubles and making Patanjali Foods an attractive place to work. So a lot of good stuff has gone in.

I’ll come to something which is — I wanted to share, on the food side. So in terms of the breakup of the Foods business, it comprises of basically four distinct segments that we have. And in the four distinct segments, we broadly have areas like — Foods that we took over from Patanjali Ayurved. The second one is the biscuits business that we have. And third is the nutraceuticals business and fourth one is the TSP, the texturized soya proteins, which we — fall under the Nutrela brand.

So in terms of the revenue, it dropped by INR352 crores. Basically, couple of things happened that there was a heavy inventory push in the quarter two, which we made. And as I had mentioned last time in the call also, in the previous quarter, the sustaining the revenues and the margins of quarter two would be impossible, because there was a lot of — this first quarter that came in, which was a lot of push that we did in the marketplace and that has carried forward.

So why the revenues have dropped? So one was the revenue on account of the Foods. Second one was the nutraceutical category, where we had again sort of started on the new distribution category of yoga karyakartas, who typically are associated with Patanjali, and there are more than 1 lakh of them. So there was a big push that we had in terms of pushing the inventory towards them. They were the super stockists in the distribution system, there is a big push that we had towards the nutraceutical products. So that had a drop.

And the third one was that, in terms of all the schemes that we continued giving to the market, post the Diwali and the wedding season rush, after that this has continued to basically gain momentum and that has carried forward in terms of contributing towards growth.

In terms of the Foods margin, what we have always maintained that it makes — consistently it should be between 15% to 18% business that we will have. Against that 15% to 18%, our margin this quarter was 11.08%. So there is a — 4% less than what we otherwise would have anticipated. And of course a very substantial drop versus the previous quarter. But this is something which is one-off, because there is a carryover of the previous quarter, which has had an impact. And there are certain categories under which this has undergone a certain amount of change, that we’ve had. And we’re expecting that we should get back to the regular run rate on the food side from this quarter onwards.

Oil has stabilized. Our businesses within that, whether it’s nutraceuticals or biscuits and others, continues to move apace and move fairly well. And rest of the businesses are kicking in pretty decently. So in terms of the — how the next quarter would look or how the quarters after that would look, I think we’re pretty much towards normalization of our revenues and margins, and the growth rates what we have mentioned before and the margin profile that we have mentioned before, should be pretty much in line with what we have mentioned. And the highlights, I have already given.

So now I’m open for — with this, I will close my remarks and I would — I am open for questions from investors.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Abneesh Roy from Nuvama Institutional Equities. Please go ahead.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Yeah, thanks for the opportunity. My first question is on the two things which you mentioned on the 1 lakh yoga karyakartas, and the fact that you’ve hired a very senior person from Amway. My question was yoga karyakartas and the Amway distribution is something, which are both very innovative and normally, most other FMCG companies obviously don’t do that, because Amway, again, has a very differentiated model.

Wanted to understand how do you see these two verticals? As in, why have you hired that person from Amway? Would you plan to do some level of similar distribution in the medium, long term? And on the yoga karyakartas, you did mention that the dip in the Foods business was partly because of that, I understand that. But is there a big opportunity here? Because this has been available in the Group for a long time, so why did we not tap it earlier?

Sanjeev Asthana — Chief Executive Officer

Yeah. So I think there are three parts to the question. So, one is the Amway person, we have not hired for multi-level marketing, because there are obviously lot of regulatory challenges there. And he came with his expertise in the nutraceutical business. As you know, that’s a significant player in the marketplace and he carries a long experience in that business. So that was — the hiring was on that perspective — on that basis.

The second question is, yes, it’s a strength which Patanjali has, and last quarter sort of we started that. It takes time in the inventory getting — sort of passing through the system. The customers in that — those camps gaining traction with what we offer, so it is taking its time. But that is something which we are extremely bullish about. And — so that’s a more of a direct marketing model which we’re adopting, where the distribution system is being tied up to yoga karyakartas, who would in turn distribute it to their followers, and that’s the model we are following.

And to the last part of your question that why have we not followed — pursued this earlier, I agree it could have been. And this is something — so we are making the first attempt on nutraceuticals, because that is something which people who come for yoga are directly sort of connected to that in terms of their health concerns and all that. So the ability to relate to what is being offered is much better, besides becoming an income enhancement opportunity for the yoga karyakartas etc. So we are quite positive about it, and it would take a couple of quarters for that to start to stabilize. So we did a pilot, we ran through that last quarter and we continue to work very closely with them.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Sir, my second and last question is on the Reliance FMCG forays. Of course, they have extremely ambitious plans, and is this part of your business? I think they will be a bit more aggressive given it’s a large market. I understand post their entry it will be good for the branded piece to pick up for all players. But would you change your strategy medium/long term whenever Reliance increases aggression? In your core products, still it is early days, that’s why my question is more from a medium/long term, how do you see such a large conglomerate entering large parts of the commoditized part of FMCG — so-called commoditized part of FMCG?

Sanjeev Asthana — Chief Executive Officer

Right. So I’ve spoken before to the media also, because this obviously has aroused a lot of curiosity, in terms of how that would impact. See, broadly, if you look at the overall category of Foods is humongous. So we, from an overall India perspective, occupy a very minuscule part of that and likewise for Reliance as well. And Foods is a highly distributed business. So in terms of the core of Foods that we have is extremely differentiated. Our competing points might be very few and very limited number of categories. So I’m not anticipating any sort of direct impact on our business.

So, for example, things like Chyawanprash and medicated juices and ayurvedic-based products and all that in the Foods portfolio, that is totally away from that. And likewise, in very few categories, perhaps, there might be competition. We respect Reliance. So I think that’s an incredibly competitive large company, so we respect them. But I don’t believe that there will be sort of any substantive impact in the near term. Yes, over the medium term to long term if things sort of do start to impact, we will certainly respond. And then we welcome competition of that kind. I think that builds up the market and builds up the category itself.

Abneesh Roy — Nuvama Institutional Equities — Analyst

Sure. Thanks. That’s all from my side. Thank you.

Sanjeev Asthana — Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Ankush Agrawal from Surge Capital. Please go ahead.

Ankush Agrawal — Surge Capital — Analyst

Yeah, morning sir. Thank you for taking my questions. Firstly, can you give the split of revenue between the food business for different categories…?

Operator

Sorry to interrupt you Mr. Agrawal. Sir, your voice is not clear, sir. It is sounding a little muffled.

Ankush Agrawal — Surge Capital — Analyst

Is it better now?

Operator

It is still there. There is an echo from your side.

Ankush Agrawal — Surge Capital — Analyst

Just a second. Now, is it better?

Sanjeev Asthana — Chief Executive Officer

If you remove the speaker — from the speaker, I think it would get better, it’s like very unclear right now.

Ankush Agrawal — Surge Capital — Analyst

I’ll do one thing. I’ll just get back in the queue. Thank you.

Operator

[Operator Instructions] The next question is from the line of Jeevan from Sahasrar Capital. Please go ahead.

Jeevan Patwa — Sahasrar Capital — Analyst

Yes, sir. I have actually two questions. So first question is, on sustainable basis, how you see the food business doing in FY ’24? So can it be like INR6,000 crore portfolio with 15% to 18% margin, can we assume that?

Sanjeev Asthana — Chief Executive Officer

So what we have maintained is the food business typically should generate 15% to 18% margin that we maintain. It could be 100 basis points less, it could be 200 basis points more, but broadly it will be in that range. In terms of the revenue, what we acquired versus what we already have, I think we should be, in terms of the revenues next year pretty much close to about between INR5,500 crores to INR6,000 crores of revenue.

Jeevan Patwa — Sahasrar Capital — Analyst

Okay. And in the Oil business, can it be like 4% margin is a sustainable margin, operating level I am seeing?

Sanjeev Asthana — Chief Executive Officer

Oil business is quite volatile. So in terms of the objective that we have is, that we want to sustain a margin range of 3% to 4%. And 4% if we do, it’s obviously a good performance. We have done this in past, much better than that as well. But I would say from a guidance perspective, between 3% to 4% is safe to assume, and that is something that from a targeted basis, is what we are aiming for right now. And so — and it’s — because there is a lot of volatility and we’re careful about that. But I think, in general, if we look at the past two years of performance and if we look at the current year as well, I think barring a blip that we had in quarter two, in general, we should be in the range of 3% to 4%.

Jeevan Patwa — Sahasrar Capital — Analyst

Okay. Perfect, sir. Thanks a lot.

Operator

Thank you. The next question is from the line of Kuldeep Gangwar from ASK Investment Managers. Please go ahead.

Kuldeep Gangwar — ASK Investment Managers — Analyst

Good morning, sir. I just wanted to know the breakup of the food business across, like what you acquired, and then Nutraceutical and TSP, and how has been the operating profit over there, or EBITDA over there?

Sanjeev Asthana — Chief Executive Officer

Yeah. So, if I’ve understood your question right, it was just slightly unclear, but the food business that we acquired from Patanjali Ayurved was INR4,000 crores, in which it was split almost one-third, one-third, one-third between ghee, edible oil portfolio and the other foods. So the edible oil portfolio gets reported with the edible oils. So I will not address that.

So basically, on an annualized basis, the business that we acquired was close to INR2,700-odd crores that we took over. And of that INR2,700 crores, the split — so that is one which is on annualized basis. The other two, three components of that is nutraceuticals business, the biscuits business that we have and the CBD, the Nutrela brand that we have of TSP, soya nuggets etc, that you see in the marketplace. So this quarter, we have done INR1,570 crores of revenue in that segment, where the Foods has been INR1,083 crores. Nutraceuticals have been INR11 crores. Biscuits have been INR306 crores and Nutrela, the soya nuggets, has been INR135 crores, and others have accounted for INR47 crores. So that is a split in terms of the revenue.

And as I already explained earlier, that the change in the margin construct and the drop — it happened in two categories. Basically, we had in the Foods, certain parts of the business, the sales dropped because they were pushed aggressively in quarter two and things like ghee and honey and certain medicated juices. The second one was the nutraceutical pipeline was very aggressively full. So basically, you have to see two and a half quarters which were rolled into one in the last quarter, so that happened.

Biscuits, we dropped marginally because this is completely off-season for Biscuits in general, because in the winters, typically the demand goes elsewhere. So versus INR352 crores, we did INR306 crores. And Nutrela we did about pretty much — the run rate that we have, about INR135 crores. We have got INR550 crores that we do annually. So that is how the split in the business was.

And income-wise, as I mentioned earlier, that change happened, so totally 11%. And I think from a guidance perspective, maintaining an expectation of 15% to 18% will be the range as we go forward on the Foods part. And I’m expecting from this quarter onwards, we should pretty much engage [Phonetic] on the same path of 15% sort of EBITDA and a growth rate of 15% overall among the four segments.

Kuldeep Gangwar — ASK Investment Managers — Analyst

Sure. Second part, like this quarter close to INR1,570 crores was the revenue. So is it the right quarterly revenue run rate for the Foods business? Like if I’m thinking in annual terms, in FY ’24 [Speech Overlap]

Sanjeev Asthana — Chief Executive Officer

Boss, I’m missing your — sorry, you’ll have to repeat that question. I think it’s very [Technical Issues].

Operator

Mr. Kuldeep, if you have placed the call on speaker mode, can you please switch on the handset mode? Your voice is not clear, sir.

Kuldeep Gangwar — ASK Investment Managers — Analyst

Hello.

Sanjeev Asthana — Chief Executive Officer

Yes. Yes, you can ask, Kuldeep, now.

Kuldeep Gangwar — ASK Investment Managers — Analyst

Yeah. So I am saying like this quarter in food business, there was close to INR1,570 crores revenue. So, is it the sustainable pace which we should consider in the Food business side in the coming quarters?

Sanjeev Asthana — Chief Executive Officer

Yes, of course. I think, pretty much we should be on course, and barring marginal change in terms of the revenue, we should be pretty much on course for that.

Kuldeep Gangwar — ASK Investment Managers — Analyst

So my question is like in FY ’24, this number should be, overall combined, more than INR6,000 crores, right, INR6,000 crores to INR7,000 crores, because it’s having all the components; nutraceutical, biscuit, Patanjali Foods combined. So…

Sanjeev Asthana — Chief Executive Officer

I mentioned earlier in the call itself that we should be close to INR6,000 crores, irrespective, for the next year. In fact, it could exceed that as well, between the — if we look at the overall sort of run rate that we have, we should exceed the INR6,000 crores next year.

Kuldeep Gangwar — ASK Investment Managers — Analyst

Sure. And last bit, this Oil business, you’re maintaining that margin profile of 3% to 4%, either in coming quarters or for medium term. That is the correct understanding, right?

Sanjeev Asthana — Chief Executive Officer

Yes, that’s right.

Kuldeep Gangwar — ASK Investment Managers — Analyst

Okay, sure. Thanks a lot. I will come back in the queue.

Sanjeev Asthana — Chief Executive Officer

Thank you.

Operator

[Operator Instructions] The next question is from the line of Vikas Mistry from Moonshot Ventures. Please go ahead.

Vikas Mistry — Moonshot Ventures — Analyst

Hello, thank you for giving me the opportunity. Sanjeev, my question is on Oil palm cultivation. We have 60,000 hectares of it. Can you let me understand the economics of it, how — 1,000 hectares will give how much revenue, something like that?

Sanjeev Asthana — Chief Executive Officer

Okay. So that will take a lot of time. I can give you a simplified version and maybe after this, we can talk offline as well. But briefly I’ll tell you. We currently have 64,000 hectares under — which is planted, which is split over nine states, but the dominant one is Andhra right now, where we have major part of the work done. Then we are between Telangana, Karnataka, parts of Rest of India, and the big, aggressive push that we have in the Northeastern part.

So basic economics is that the margin profile is pretty much on the 15% — typical 15%, 16%, depending on the value of the palm oil, against a very fixed formula. So it becomes like an annuity income that we generate out of the business. And in terms of the — depends on the yields in which state and how it is, but I can give you the further perspective on that. But, in general, annually, we typically end up making close to INR200 crores from the business in the Oil palm, which is pretty much consistent income that we have and which will sustain itself. So as we grow — as more and more trees come into maturity and start yielding fruit, this margin will continue to go up. So it is pretty much dependent on how fast we execute and how soon these trees start to mature and that profile builds up.

So I’m expecting that while on a steady base, we will see a good progress over next four or five years, but the big jump will come after six years when we will see a dramatic increase in the plantation that we’re doing now, and they start yielding fruits on the fourth year and eighth year onwards they start to mature. So then we should see a big bump in the income.

Vikas Mistry — Moonshot Ventures — Analyst

Can you give me the figure that after five years, what can be the revenue potential from 1,000 hectares — per 1,000 hectares?

Sanjeev Asthana — Chief Executive Officer

1,000 hectares, I can give the — so from — you want to look at per 1,000 hectares basis?

Vikas Mistry — Moonshot Ventures — Analyst

Yes. How much revenue it can generate after five years, let’s say, if it goes to the maturity phase?

Sanjeev Asthana — Chief Executive Officer

Okay. So maybe I can give you an example on a per hectare basis. So we typically have about 20 tonnes of fresh fruit bunches that we take, and about — typically in terms of the yield on the Oil side, it is running at about 16% to 17% that we have. And so in terms of yield basis, about INR1.5 lakh per hectare should be the revenue, and there about 15% margin is very safe to assume.

Vikas Mistry — Moonshot Ventures — Analyst

Okay. And the next question is on that — on Foods portfolio. We have very good margin on TSP side and other nutraceutical businesses, and we are having aggressive targets of increasing also, and we are going for premiumization. I think 15% is too low, I think we can make much better than that?

Sanjeev Asthana — Chief Executive Officer

So I’ll explain that. That even the Biscuits typically — while this quarter we did well, but in general as a business it is between 5% to 8% business, because by the very nature of the product sort of mix that we currently have, we are working very actively towards premiumization. You will see multiple launches of the premium biscuits that we are going to be doing this quarter. But it will take time to take roots.

The Foods portfolio is 15%. The nutraceuticals typically is about 30% margin business, and Nutrela as well. So yes, it can pick up. But I think on a conservative basis, if we look at the growth momentum, I think 15% to 18% is a safe bet to take and which is quite aggressive because even the Foods portfolio configuration that we have, as I mentioned earlier, ghee is a high margin product, but rest of the products, which typically would be falling into some medicated uses and others, they are pretty good.

The third part of that, which is towards the atta and pulses and rice and all that, typically our — the margin profile is limited. So to that extent, [Technical Issues] and aggressive, should be anywhere between 16% to 17% we should do.

Vikas Mistry — Moonshot Ventures — Analyst

Okay. My last question is that, our brand has some [Indecipherable] more of a Bharat kind of brand, lot of premium kind of brand. What kind of branding and product velocity we are trying to make sure that — or this notion has to be changed?

Sanjeev Asthana — Chief Executive Officer

So, Bharat actually is a strong USP that we have and — but it’s a very good question what we are working towards that there is a contemporary India and there is a traditional sort of base that Patanjali has and we are working towards straddling both. So as I mentioned earlier that the urban distribution, the premiumization, the nutraceutical push, in fact, in terms of rebranding not by name, but in terms of what kind of packing and positioning etc that you’re putting forward, so that effort is going on fully apace, and you will see a lot of sort of change in the way the company is positioning itself, without diluting any of the core value that we have. And we will be modern, we will be contemporary, we will be a smart company, which is facing the consumers with confidence and I’m reasonably hopeful this gradual shift in our strategy, will bring good fruits to the company performance.

Vikas Mistry — Moonshot Ventures — Analyst

It’s good to hear, Sanjeev. Thanks a lot and keep up the good work. Thank you.

Sanjeev Asthana — Chief Executive Officer

Thank you.

Operator

[Operator Instructions] The next question is from the line of Ankush Agrawal from Surge Capital. Please go ahead.

Ankush Agrawal — Surge Capital — Analyst

Yeah. Hi sir. I believe I am audible now?

Sanjeev Asthana — Chief Executive Officer

Yes.

Ankush Agrawal — Surge Capital — Analyst

So again on the split of Foods business that you gave. So just to clarify the numbers, you said nutraceutical was just INR11 crores for the quarter?

Sanjeev Asthana — Chief Executive Officer

Yeah. As I mentioned that the sales of nutraceuticals, you should see in the perspective of almost nearly 2.5 quarter’s of sales done in one quarter and on account of the new distribution channels and businesses that we did. So that is the basis, and this will pick up momentum again. I think I’m expecting that by middle of next month, we will be getting back to the normalized number.

Ankush Agrawal — Surge Capital — Analyst

Sir, how much was honey and atta for the quarter? Last quarter it was INR192 crores.

Sanjeev Asthana — Chief Executive Officer

Specifically, honey and — Rajesh Ji?

Kumar Rajesh — Chief Financial Officer

Yeah. This is INR132 crores in this quarter as compared to last quarter. In terms of honey, it’s less than last quarter.

Ankush Agrawal — Surge Capital — Analyst

Okay. Sanjeev sir, one thing I wanted to get your sense more on this QoQ volatility, the revenue and margins for the food business. I mean it’s highly unusual for an FMCG company to have this kind of seasonality. So I mean, one part that you have covered obviously, is the last quarter there were some distribution in the expansion-led numbers. But if you can highlight more on how much quantum of that was opening up of distribution, and it will help understand that better, because it looks too volatile for an FMCG company in that.

Sanjeev Asthana — Chief Executive Officer

Yeah. So I’ll explain that. As I mentioned, and I’ll repeat that. Our revenues dropped by about INR352 crores, versus the — in terms of the Foods alone, where the big differential was. And second differential was that, where we saw a drop in the nutraceutical revenue. So nutraceuticals was a very unique case, where we were filling up the pipeline quite actively, and that had an impact on the results of this quarter, because for pipeline to find its way through the primary, through the secondary sales and the tertiary sales, it takes its own time. So that is one reason, which as I mentioned, that I’m hoping that it gets stabilized.

Foods was very exceptional case, because last quarter was the first time that we took over the Foods business. There was a heavy surge in demand that we witnessed and there was a lot of push with the sales team that came over, started putting through the pipeline. There was a lot of primary sales which were generated to get to the distributors and super-stockists. So that was one reason why the sales suddenly saw an upsurge in the last quarter.

This quarter, part of that has continued, sort of, in terms of going forward. Some parts were seasonality that one can explain, in terms of — when the season change certain sort of items tend to sell less. So that is one reason. But as I mentioned earlier, so some seasonality of differential will be there. But I would ask you to look at it not just as Foods on a standalone basis, but on an overall basis, that we would expect that we maintain that run rate of INR1,500 crores to INR1,800 crores.

Next year, we do expect that we will be INR6,000 crores-plus on an annualized basis, and that is broadly the orientation that we want to keep in our business, that sometimes there is some pickup, because lot of businesses that we have, have got seasonality to it, especially in the Foods business. Nutraceuticals is a pretty steady business. Nutrela is also very — has got seasonality of six months of high demand, and even biscuits have seasonality effect. So we will iron that out, but on a blended basis, I think that it’s pretty much safe to assume that between INR1,500 crores to INR1,700 crores of revenue is what we expect to do.

Ankush Agrawal — Surge Capital — Analyst

So what would be the trade receivables number as of December end?

Sanjeev Asthana — Chief Executive Officer

Rajesh ji?

Kumar Rajesh — Chief Financial Officer

Yeah. This is INR2,100 crores approximately as at December end, you can say.

Ankush Agrawal — Surge Capital — Analyst

Okay. And we continue to maintain a view that by the end of Q4, we will get to see this number go down?

Kumar Rajesh — Chief Financial Officer

Mostly.

Ankush Agrawal — Surge Capital — Analyst

Okay. Lastly, Sanjeev sir, on the oils business, so in the last con call you had mentioned that, of about INR150 crores of losses that we’ve booked, half of the losses were on the mark-to-market loss on the inventory side, which you said that you had recovered given that the oils prices have recovered from the lows of September. But if I see this quarter, our EBITDA is much lower than even that number. So in the normal course of business, we haven’t generated much of the margins this quarter, because if I consider that some part of the [Indecipherable] obviously would have lost again. But still — I mean, the number is still lower than even that number.

Sanjeev Asthana — Chief Executive Officer

So the Oil market, I just want to give you a perspective on the volatility on the Oil market, so that you should understand as to under what circumstances this is being done. So during the quarter itself, the high and low between the Palm Oil was INR99,000 a ton was the high and low was INR81,000. So the range was INR16,000 a tonne of swing [Phonetic]. Likewise, in soya oil it was — the change happened was INR31,000 a tonne, it swung from INR137000 to INR106000. And Sunflower Oil swung almost INR39,000 a ton, from INR156000 to INR116000.

So I would say that the massive drop that you saw in Q2, which of course was unprecedented and it impacted everyone, this quarter was extremely volatile, and I think within that our expectation should be clearly that the range should be between 3% to 4%. And on the low side — we will be happy that on the low side we never dropped below 3%, and on the high side, keeping our expectations at 4% I think is a very reasonable expectation for the business, where if we maintain something like INR34,000 crores of revenue that we expect to do in the oil business, broadly, I think we should be pretty much in the range of — between 3% and 4% margin and I think that’s a reasonable INR200 crores kind of margin that we should do. Some quarters we’ll do better, some quarters we may do marginally worse, but pretty much that would be the range.

Ankush Agrawal — Surge Capital — Analyst

And lastly, on the promoter stake sale, any timeline on that, sir?

Sanjeev Asthana — Chief Executive Officer

So, as you know that December 31 was the date that we had. We have sought some time. So, I think very soon you will hear progress on that. And we’re expecting to hopefully complete it within next few months.

Ankush Agrawal — Surge Capital — Analyst

Okay. That was very helpful. Thank you.

Sanjeev Asthana — Chief Executive Officer

Yeah, thank you.

Operator

[Operator Instructions] The next question is from the line of Bharat Shah from ASK Investment Managers. Please go ahead.

Bharat Shah — ASK Investment Managers — Analyst

Yeah. Asthana sir, two questions. One, to take it from the questions the two earlier participants asked, that was about the Oil business, where second quarter was an unprecedented global volatility, so that’s understandable, one. And some amount of — I understand that volatility still has affected third quarter. So do we see this now kind of getting normalized from the fourth quarter, barring any new shock we should see the Oil business stabilizing in terms of behavior from the current quarter, that is the fourth quarter?

Sanjeev Asthana — Chief Executive Officer

So, Bharat bhai, there are two parts to the question I’ll answer. One is from the aspiration and own plan perspective, I already sort of gave the answer that between 3% and 4% we would like to maintain the margin. In terms of the — what to expect from the market side, market side seems to be stabilizing, barring some major shock on — the war sort of intensifying or the major monsoon failure in South America at this late stage, because markets are volatile there and maybe the change in China, sort of, situation with them opening up the economy suddenly.

Our bigger challenge is the regulatory one, which is very difficult to anticipate and plan for. So, for example, the new mandates that are getting sort of started with — in Indonesia on the biodiesel side. Malaysia sort of wanting to do the same. Big change in — Indonesia starting their own exchange versus Malaysia. The challenge that we have in South America, as I mentioned earlier, in terms of Argentinean currency, because Argentina is a major exporter of soya oil into India. So that has a big impact — sunflower oil.

So the problem is the — in the marketplace, is that market part we can do still well, where the supply and demand is concerned and the fundamental factors are concerned, technical analysis, etc, we do okay with that — we do pretty good on that. The challenge is the regulatory events and something which we could — look, it’s impossible to plan for that.

So I do anticipate that we should stabilize and having said that, I am just giving one small caveat on the regulatory actions, which have a very substantive impact on how the commodity markets behave.

Bharat Shah — ASK Investment Managers — Analyst

Sure. So barring any major shock again of a global kind, or any out-of-turn regulatory action, from the current quarter onwards we should be seeing the progression of Oil business normalizing in terms of the kind of margin behavior that we normally expect to see, between 3% to 4%?

Sanjeev Asthana — Chief Executive Officer

That’s right.

Bharat Shah — ASK Investment Managers — Analyst

And while the margin may be modest in the Oil business, I suppose, given the large turns — the return on capital employed, overall, in normal situation is very satisfactory in Oil business?

Sanjeev Asthana — Chief Executive Officer

That’s right because there are multiple turns that we do in a year. So, currently, which is between 5% to 6%, we want to sort of grow that to 7% to 8%. I think we can do that and margin profile is — the return on capital deployed is very decent.

Bharat Shah — ASK Investment Managers — Analyst

I see. And Food, you explained that third quarter there was an unusual combination of factors and that affected margin. Second quarter was exceptional, both in the top line as well as margin due to the value effect, plus special situation. And from the next year, that business, in the guardrails that you provided, you expect that to normalize?

Sanjeev Asthana — Chief Executive Officer

Yes.

Bharat Shah — ASK Investment Managers — Analyst

One final thing, on a more long-term basis, can we kind of highlight what kind of growth rate we expect and what kind of operating margins we believe we should see? So Oil separately and within the food business, biscuits, Nutrela, our other food business and nutraceutical, if you can highlight what kind of — on a five year basis, if we have to look at three to five year basis, what kind of growth rates you believe would be made on a per annum compounded basis, and what kind of margin progress we would see over that timeframe?

Sanjeev Asthana — Chief Executive Officer

Right. So in the Foods, very clearly, I see that on — pretty much on a consistent basis, we are targeting for 15% growth year-on-year, on a compounded basis. In the biscuits business — and this is better than where the market trends are. Biscuits, we are witnessing very solid growth right now. But I would assume that 15% year-on-year growth in revenue, we should certainly be able to attain.

Nutraceutical, that market is expanding quite rapidly. We have gone through lot of learning also in the last year and this year, so I expect that the range of revenue growth should be between 20% and 25% year-on-year. And lastly, on the TSP side, I’m expecting that our growth rate should be about 10% on the low side, and on the higher side 15%, but there we are witnessing lot of smaller players, larger players sort of coming in as a competition. But we pretty much have a very solid leadership position and we continue to expand our distribution. So we should be on that course in terms of revenue terms.

Margin profile-wise, Foods, we have stated that 15% to 18% margin is what we should get in the Foods. Biscuits, the current range is 5% to 8%, but this quarter was exceptionally better, but I would — our effort is that, as we move towards premiumization, we start hitting 8% to 10% sort of margin profile in this one, and preferably towards the double digits as we go towards that.

Nutraceuticals, there is a blend of margins. We target 30%, clearly is targeted, but I think it is safe, as we have built up more aggression and there’s a lot of incentive structures that you run. So we are saying that between 25% and 30% margin is what we should do in nutraceuticals. And TSP, what is currently at about 15% — 15% to 18% will be the construction range. I don’t anticipate that it will drop. But also at the same time, it may not exponentially go up either. So broadly, that is the profile of both the revenue growth and the profitability growth, is what we can safely look at.

Bharat Shah — ASK Investment Managers — Analyst

And on the oil?

Sanjeev Asthana — Chief Executive Officer

On the Oil side, the market is growing between 3% to 4% year-on-year. Last year — last quarter was about 5%. But there was — as I mentioned that due to Diwali and opening up of economy and weddings etc, it went up. Typically it’s 3% to 4%. We are growing definitely between 6% to 8%, and I think if we can maintain that growth momentum, we should be in a good position to continue expanding our market share and continuing growing at the cost of our competition, both the larger and the smaller ones.

Bharat Shah — ASK Investment Managers — Analyst

And well the margins, 3% to 4% you mentioned, but over the period of time, I think with the overall size of the business expanding, hopefully that margin also can lift up a bit over a period of time?

Sanjeev Asthana — Chief Executive Officer

It logically should, but I’m just careful about the margin profile, because I’m just providing for the one-off exceptional events or the sudden change in the price profile. So that’s what we’re providing for. Of course, we would like it to be between 4% and 5%. But I think it is safe to assume that, it will remain in the broad range of about 4%.

Bharat Shah — ASK Investment Managers — Analyst

I see. So to summarize the Oil business, we should do better than the market and grow more like 6% to 8%, and margin 3% to 4%. And if the base expands, hopefully again [Technical Issues] move in the category of 4% to 5%. And as far as the overall larger food umbrella is concerned, biscuits, we should be doing much better than the market in kind of 15% compounded over three to five years, while margins to be at 5% to 8%, you are saying, with the premiumization should move, you can push into — closer to that double-digit.

Nutraceutical will be high growth and will be high margin, both, at about 25% growth rate, and margins closer to 30%. And Nutrela, you said growth rate should be 10% to 15% and margins will be in a stable range. Neither will increase much or decrease much, at 15% to 18%. And the remainder of the Foods business, 15% growth rate and 15% to 18% margin. Is that a good summary of what you said?

Sanjeev Asthana — Chief Executive Officer

Yeah, absolutely.

Bharat Shah — ASK Investment Managers — Analyst

Alright. Thank you. Thank you, Asthana sir.

Sanjeev Asthana — Chief Executive Officer

Thank you, sir.

Operator

[Operator Instructions] The next question is from the line of Kuldeep Gangwar from ASK Investment Managers. Please go ahead.

Kuldeep Gangwar — ASK Investment Managers — Analyst

…Just three, four bits. Like, advertisement spending in food business and overall. Second, like what is the distribution reach now and what you’re targeting in coming year? And third on the capex part, like what should be the expectation in coming years for the company capex?

Sanjeev Asthana — Chief Executive Officer

So I think you mentioned about advertisement. I think, advertisement as a run rate typically should be between INR200 crores to INR300 crores per annum in terms of — because certain new categories, etc will require that push. What was the second question you had on the capex?

Kuldeep Gangwar — ASK Investment Managers — Analyst

Capex as well as distribution reach currently and [Speech Overlap]

Sanjeev Asthana — Chief Executive Officer

Yes, distribution reach. Yes, that’s right. So as I mentioned that typically our distribution is about — in terms of a million retail outlets that we reach directly, we reach — and I’m talking for all the businesses, because going business by business can be there. But, like, for example, I mentioned 800,000 outlets that we have in biscuits. So it’s different for different businesses. So we reach 1 million outlets directly.

We have additional reach for about — the secondary reach, which does not get accounted for, as direct distribution should be about additional 1 million. And we are growing that between — anywhere between 10% to 15% almost, annually. So in terms of overall growth rate, I think by the end of five years, we are expecting typically that direct retail outreach should be closer to 2 million and indirectly, we should be adding another maybe 0.5 million. So we should be in retail points of nearly 3 million-plus stores in the country.

Kuldeep Gangwar — ASK Investment Managers — Analyst

What about capex in the coming year?

Sanjeev Asthana — Chief Executive Officer

Capex, typically — so capex I’m splitting between two distinct areas. One is what we’re going to be spending on the Oil part going forward, and which most of the capex will start to build up from year after. I think this year we’ll have some but most of it will be year after we will start sort of picking up on that. And otherwise, our capex run rate should be in the broad range of INR150 crores to INR200 crores. Part of that is going towards the maintenance of the plants. Some parts are towards — we are creating the capacity and the rest are totally greenfield, this one, but typically INR150 crores to INR200 crores is our capex range.

Kuldeep Gangwar — ASK Investment Managers — Analyst

And within the food business, what is the mix of in-house manufacturing and outsourcing?

Sanjeev Asthana — Chief Executive Officer

Most of our manufacturing is in-house. I would say that I don’t want to — I can give you that number separately, but I would say it will be — close to 90%-plus would be in-house.

Kuldeep Gangwar — ASK Investment Managers — Analyst

Last bit, nutraceutical, overall FY ’23 revenue expectation and FY ’24, what should be the expectation and the [Indecipherable].

Sanjeev Asthana — Chief Executive Officer

So broadly, in fact, I think we should be in the ballpark range of about — in the nutraceuticals business, if you look at the overall basis, we should be close to INR600 crores in this year and — on an overall basis.

Kuldeep Gangwar — ASK Investment Managers — Analyst

And ’24, it should be having 20%, 25% growth, right?

Sanjeev Asthana — Chief Executive Officer

Yeah. So, I mean, just — I’m a little careful on that part fully, because it’s still a very distinct and different kind of category, and in terms of the overall basis as to what exactly will the base be — I mean with this continuation of the Q2, as I mentioned, and some changes this year. So, for example, right now as I speak to you today, we are at about INR516 crores, and I’m very careful in terms of projecting, but so typically — but next year, we should certainly be crossing — certainly it will be INR600 crores-plus, it could be closer to INR700 crores as well. So that’s the objective with which we are moving forward. And as of now — as we speak, YTD, till the third quarter, it is INR516 crores.

Kuldeep Gangwar — ASK Investment Managers — Analyst

Sure. And like — you mentioned about Food business?

Operator

I’m sorry to interrupt you Mr. Kuldeep, but your voice…

Sanjeev Asthana — Chief Executive Officer

Boss, your voice is very unclear, Kuldeep. [Foreign Speech]

Kuldeep Gangwar — ASK Investment Managers — Analyst

Is it clear now?

Sanjeev Asthana — Chief Executive Officer

Yes.

Kuldeep Gangwar — ASK Investment Managers — Analyst

So last bit, like food business when you are saying 15% CAGR, it’s overall food business combined? Like Nutrela, nutraceutical, Biscuit and acquired food business from Patanjali? Is it correct understanding?

Sanjeev Asthana — Chief Executive Officer

Yes.

Kuldeep Gangwar — ASK Investment Managers — Analyst

Okay. Sure. Thanks a lot.

Sanjeev Asthana — Chief Executive Officer

I think we’ll have to sort of wind up the call in two minutes, because we’ve got some media interaction.

Operator

Sure. Sir, this was the last question. I would now like to hand the conference over to the management for closing comments.

Sanjeev Asthana — Chief Executive Officer

Thank you. So, broadly, as I mentioned in the call, that we had a good performance in this quarter. The outlook will — it will continue to stabilize, I think, coming out of a situation what we faced, new business acquisitions, new product launches that we’ve done. So there is a lot that we took on our plate. All of that continues to go towards the stabilization. And I’m expecting that while lot of things in terms of be anticipating and changing etc may not exactly go in line with — many a times our plans. But broadly I’m expecting that Q4 should be stable and should start giving us very good sort of results as well. There are solid plans that we have in place. There is a good team that is backing it and working it. There is a good thinking within the promoters, in terms of how do we take it forward. And, above all, I think we have the capacity that how this company is going to go forward and will start to build up. We should see a lot of uptick and growth in the coming quarters.

So with that, I close my comments, and thank you so much to all the investors who have taken time out to participate in this call, and really appreciate your support and the time that you’ve taken.

Operator

[Operator Closing Remarks]

Kumar Rajesh — Chief Financial Officer

Thank you very much.