FMCG Revival On The Cards In FY25? | NDTV Profit
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00:00Hello and welcome, you're watching NDTV Prophet, I'm Mahima Vachrajani, well today's focus
00:12is on Bikaji Foods International and we're joined by Mr. Manoj Varma from Bikaji Foods
00:18and you know he'll talk to us about how the future of the company holds, like welcome
00:24to the show sir, you know my first question to you is on the PLI part of things, you know
00:30what is the kind of consistency that you're observing here, you know in the next five
00:34years will you continue to bid for the same and what is the kind of inflow that you're
00:39expecting?
00:40Thank you Mahima for the opportunity and talking to NDTV, talking about PLI, I think this is
00:48one of the governments incentive which has gone by very very smoothly, we already have
00:53got for two years in our books and third year is what we have made provision for because
00:58as per the financial rules for the year, relevant to we'll have to book it, so thus far we have
01:05already made a booking of 95 crores to our books, overall what we are to get is 261 crores
01:13over next three more years, so that's how it will go by.
01:18Okay and you know I want to shift focus to your frozen business part, you know what is
01:23the kind of status here first thing, how aggressive are you on the frozen business part and how
01:30are things looking like from a longer perspective, let's say end of FY25, end of FY26 and you
01:37know overall also margins in frozen business are better than the normal snacks business?
01:44So frozen is too nascent a business now for the industry and for we as a company as well,
01:51it's a futuristic investment what we have now made in this stuff, good part was that
01:57we already are into frozen business in our exports market and this therefore would definitely
02:02give us quite a support or uplift to improve our exports business, howsoever this will
02:09also help us to get into domestic business, I mean eventually as we get into QSR business,
02:15so this would be a very strong back-end support to us.
02:19So if you speak in a very short term manner, it may not look as bright but then this is
02:24a futuristic investment and in the times to come this will definitely help us getting
02:30growths or developing another room for growth for the organisation.
02:35Got it, but the margins are better in frozen business or no, they are same as the snacking business?
02:40See, it's about pricing, there is not very much competition in this stuff, so definitely
02:44company will look at that this should not be margin eroding business for us.
02:50Got it and you know with respect to competition, you know snacking business still faces a lot
02:55of competition from the unorganised space, right?
02:58So what are the kind of trends that you are observing overall in the snacking business
03:02with respect to competition from unorganised players?
03:05I think let's talk about category first, when you say competition, so in the category space
03:11no competition falls in.
03:13So after mild slowdown in demand last financial year what we heard and read and also felt
03:19in the marketplace, there is an uptick in the first quarter what we have witnessed and
03:24this is both in urban and rural.
03:28Snatch curry as a category I believe has done better than overall food industry in
03:33quarter one.
03:35In terms of competitive space, yes, I mean everyone is looking now for the space is same
03:40and all competition are there to play, it's a battleground, everyone is putting their
03:44best effort, hence it is intense.
03:47But the way we look at it is that it's better for category growth, I mean more competition
03:53there definitely will be a category growth as well and will always be a law of origin
03:59survival of the fittest that who does the best, who brings the best offering will definitely
04:04take the lead, that's where it is.
04:06So it's not a place wherein there is no competition.
04:10Got it.
04:11And so considering all of these situations going forward in FY25, will you be looking
04:15for some kind of discounts on your products or will you be considering some kind of price
04:20hikes and if yes then what products will you consider these price hikes?
04:25Many many years, last year was the one year wherein the prices or the commodity prices
04:32softened and companies decided to pass this benefit to the consumer, hence if you see
04:38that last year volume growth and the price growth were hand in hand for the category
04:44and if I talk about BKG per se, volume growth was by far higher than the value growth, which
04:51essentially means that we pass the benefit to the consumers.
04:55Now this year what we feel is that it will be about 2-3% price increase will be there
05:01now in course of the year.
05:03Got it.
05:04And with respect to your product mix, it's not changed much as compared to FY23, it's
05:09remained the same overall, considering the trends, in terms of contribution to margin
05:16it's remained the same.
05:17So do you expect the same going forward or do you see some kind of mix in terms of product
05:21mix because as far as I understand in the industry, the western snacks are picking up
05:26pace.
05:27Yeah, in the past western snacks has done better and today if we speak, western snacks
05:34contribution to overall fractionally is higher than the traditional snacks and this is nothing
05:39but an outcome of that western has been growing faster.
05:43But last year what we have seen is that the growth of western and traditional snacks has
05:46been the same and this is what we believe that now the trend would continue.
05:51So both would be growing almost at the same pace plus minus something.
05:57So that's where it is.
05:58So it's not that just western is growing.
06:02I would want to make a point here that improving gross margins or the product mix, one is the
06:08category mix, the second is product mix.
06:11So within the category, let's say when we speak about namkeen, so there's a huge range
06:17of namkeen.
06:18So we make about 60 plus namkeens within it and there are some namkeens who are at a higher
06:22gross margins, who are not as high.
06:25So there is something what we keep doing is that to improve the mix within namkeens.
06:29So the category level, it would look same, but within the category mix, there is a change.
06:34Got it.
06:35And in respect to your focus mix, there was some kind of lowering of exports in the mix
06:42entirely in FY24 as compared to FY23.
06:45Do you see the same trend to continue in FY25 or do you see a larger portion coming from
06:52exports as compared to domestic?
06:56I think these are two different questions.
06:58There's a different mix in exports what we do.
07:01For example, in frozen business, sorry, in exports business, about 40% of the business
07:07is frozen foods itself and which will continue to be going forward.
07:12What we believe is that the frozen growth would be faster in that case with the capacities
07:18liberating the price, which are on having new products and all.
07:21So frozen would grow fast and hence higher contribution in the exports business.
07:26However, in domestic business, frozen has hardly a role to play.
07:31In domestic business, we have another set of focuses, which our teams are working on.
07:35They focus in that concentrated effort to drive them faster.
07:40And with respect to raw material price trends, you said that raw material eased in FY24,
07:46edible oils, pulses, flour, including laminates and corrugated boxes.
07:50Now corrugated boxes, the GST also has been lowered on them.
07:54So going forward, what is the kind of benefit you're expecting in FY25?
07:58Do you expect raw material prices to be within the same range, or do you expect them to go up?
08:03It will be very unlikely that if it stays same.
08:07So there is a likelihood that no, it would move, but I think not the way it happened
08:12in say, 21, 22, and which is what is the reason that when we say that this year, we should
08:20see 2 to 3% price increases.
08:22Okay.
08:23And, you know, with respect to that, do you think that your margins, which have increased
08:28from 11% operating margins, from 11% to 17%, do you expect them to be sustained at the
08:33same level?
08:34Or do you see an upside or a downside from there?
08:38First, let me correct you, it's not 17%, it's about 13.5%.
08:44What we have planned and budgeted for is that year on year, we should be increasing or improving
08:50by 50 basis points.
08:53And we wish to be at about 15%.
08:56That's the target now the team Intel we are working on.
09:00And this is just not on the gross margin or on the COGS, there are other parameters as
09:06well on the efficiency side, on the capacity utilization side, which is what would help
09:12us, you know, improve these bottom line margins.
09:15Okay.
09:16And one last question with respect to capacity expansion, any kind of capacity expansion
09:21plans going ahead in FY25?
09:23I think we have built quite a capacity for ourselves.
09:27We are at about 44-45% utilization currently.
09:32And we believe that now the kind of growth what we have been delivering and the plans
09:36what we have going forward, so in another three, four years, we should be able to reach
09:40about 80% utilization on this.
09:43So till then, there's no plan in increasing capacity, it is to now utilize them more.
09:48Got it.
09:49Well, Mr. Verma, thank you so much for giving us those insights on Bikaji Foods and taking
09:53our time and speaking with us at NDTV Profit.
09:55It was a pleasure speaking with you.
09:57We'll talk to one sector, which has of course, big, the big budget bed, in fact, is going
10:03to be consumption.
10:04And that's what most people believe on the street and who better than Abhish Roy, Executive
10:07Director at Newama Institutional Equities joining in to talk to us about that.
10:11We also have Vipul Bhowar, Senior Director and Head of Equities at Waterfield Advisors
10:16joining in with a broader perspective on the budget.
10:18Abhish, I'm going to start with you first.
10:22In the lead up to the union budget, the consumer sectors anticipating announcements that will
10:27drive rural growth.
10:28Over the last couple of months, the rural sectors already began to show signs of increasing
10:32demand.
10:34What do you feel or what do you think should be on the wish list in terms of consumption,
10:38rural consumption in specific, with regard to this budget?
10:42Yeah, thanks.
10:44So we expect in the union budget, government to take steps to address the slower consumption
10:51in both rural and urban in the lower end.
10:55So we have seen, yes, there is some improvement in the rural volume growth for consumer companies,
11:01but still, it is below expectation.
11:04Frankly, if you see India's per capita consumption in FMCG in the rural area is around $20, which
11:13is around one third of the urban per capita consumption.
11:17But in most parts of the last few years, if you see, rural has been growing slower than
11:22urban.
11:24Last few months, it seems to have reversed, very early days, I'll say.
11:28But ideally speaking, rural FMCG should grow much faster than urban.
11:34One additional challenge is because of the telecom hike, which happened a few weeks back,
11:38of almost 15% to 20% kind of hike, again, at the lower end, there will be a problem
11:48in terms of the rural FMCG outlay, because there will be more spends on telecom.
11:54So due to all these reasons, we expect the government to increase more stimulus programs
12:01in for the rural, post the new government coming into power.
12:06The first step by the government was towards more housing, more rural stimulus clearly
12:11focused, seems to be for the coalition government.
12:14So it could be through different measures, for example, more MSP hikes, more NRGS outlay.
12:21NRGS outlay anyway is more of on demand.
12:24So last few years, we have seen the budget for NRGS may not be high, but eventually the
12:30actual spend is much higher.
12:32So we expect more such programs for the salaried class, especially for the lower end, we expect
12:38lower taxation, more exemption, because we are seeing stress in the lower end of the
12:45urban consumption also.
12:46So it will be a mix of all this.
12:48So yes, the FMCG companies are hoping that some of these will come through.
12:53So we are watching that very closely.
12:55And data is backing that Abhish, in fact, rural consumption for the first time overtook
12:59urban consumption in more than five quarters.
13:02So clearly, the urban consumption of the lower end of the urban consumption is also or has
13:06been struggling.
13:07Abhish, if more stimulus has to come in, and it's going to push rural consumption, because
13:12there is a significant part of industry that believes that measures will be populist.
13:18Where do you think the uplift will come in?
13:21Will it be discretionary spending or non discretionary in your opinion in the rural piece?
13:26I would say it will be more towards the staples, because in this lower end of the consumer,
13:34this is the more important, more day to day, more necessity kind of a spend.
13:39So I would say that if the stimulus program comes, the bigger beneficiary will be the
13:45FMCG companies.
13:46Discretionary will also benefit, but large part of that will be more towards the unorganized
13:53part of consumption, unbranded, those kind of players, rather than necessarily going
13:57towards the listed organized players, there will be some benefit for sure.
14:02So players like WeMart, for example, they are into UP, Bihar, and there if the rural
14:07stimulus programs are also more indexed there, because of much higher rural population, for
14:12example.
14:13So such companies will also benefit, but my sense is the benefit will be more towards
14:17the staples companies.
14:18More towards staples, Abhish, we'll talk about that in a little more detail, but I'll bring
14:22in Vipul as well.
14:24Vipul, most people believe that it's going to be about two Cs, this budget, construction
14:28and consumption.
14:29We'll talk about consumption, because like Abhish said, and we both agree that this budget
14:34may be a little more populist, you've got a bunch of state elections coming up, rural
14:39consumption requires a push at this stage.
14:42What do you feel?
14:43What do you feel the focus of the budget will be, and with regard to consumption, what are
14:47your expectations?
14:48Sure.
14:49Thanks, Amina.
14:50Hi, Abhish.
14:51So today, mostly 40 to 45% of the population is dependent on agri-income, one way or the
14:59other.
15:00And there is no doubt that there'll be some sort of a stimulus, some sort of a direction
15:06towards increasing their consumption or increasing their purchasing power.
15:10So that is for sure.
15:12But at the same time, I think what Abhish also highlighted, that one segment which we,
15:17I think the government will focus on is also the urban poor, where most of the population
15:24which had moved from urban cities to rural in the pandemic and now wanting to shift back,
15:31they too are struggling.
15:32So holistic approach towards increasing consumption would be looked upon.
15:38And that is where I think, so instead of just focusing on rural income, I think they should
15:43focus on consumption at the overall level.
15:46That is what the government should look at.
15:50Also, you look at the private consumption is also slowing down.
15:53So in a way, while the discretionary consumption is also slowing down, so in a way, I would
15:59say from a consumption point of view, rural, of course, but at the same time, I think it
16:04should be a holistic approach towards increasing consumption.
16:08On the construction side, I'll just take 30 seconds.
16:10I think one sector which was beaten down, I think there has been a decade of slowdown
16:15was the real estate.
16:17And if construction has to be talked about, I think the real estate is one sector which
16:24actually pushes across all segments.
16:28So the rural consumption also benefits, the infrastructure also benefits.
16:33So right from cement to all the way down to electrical goes to wires.
16:37I think this is one sector where I think the government should focus on.
16:41And I think they are, they have introduced enough of incentives, and I think they should
16:44continue to push this sector.
16:46I think the last time, I think it was 2012-2022, it's been 10 years where the real estate as
16:51a sector has seen a slowdown, and now it has started seeing an upcycle.
16:55I think they should focus on continuing this upcycle.
16:58Abhishek, I don't know whether I can ask you this with regard to budget or generally an
17:04outlook because you're, I mean, you've got this right more often than others.
17:10What is your picks?
17:12If you've got to pick the budget theme and even extending that out a few quarters, where
17:17if you obviously said you prefer staples, so in the staples piece, what are your top
17:21bets and why so?
17:23Sure, so what we have seen is in the last two months, there has been a good rally in
17:28most consumer stocks.
17:30Many of the consumer stocks, in fact, are at an all-time high also.
17:34We see that post the weak Q1 results, for example, Asian Paints comes out on Wednesday.
17:42And similarly, HUL comes out next week.
17:44There are such laggards which have still not gone back to the all-time high or even one
17:50year high.
17:51So post the results, in fact, our sense is ITC, HUL, and Asian Paints could give a good
17:58catch-up rally.
18:00So these are stocks in which near-term triggers are a bit missing because of the weak numbers
18:05in Q1 because of one-offs or because there was a price cut, etc.
18:11But that doesn't derail the longer-term story for these three companies.
18:15So these are the valuation comfort plus reasonable recovery stories.
18:19Otherwise, in terms of good play on the rural, Imami, Darbar, Britannia, Godrej Consumer
18:26continue to be our preferred picks.
18:30We also continue to like Varun Beverages and Nestle.
18:35But in those two stocks, the valuation comfort is not there.
18:37So generally, we are positive on most of the consumer names.
18:42But the comfort on valuations will be ITC, HUL, and Asian Paints, and even Berger Paints
18:48because those stocks are still well below their all-time high.
18:51Right.
18:52We'll talk about QSR as well in a little more detail, Abhish, with you because I know you
18:55track that closely.
18:56And also Titan and Kalyan Jules, I don't know what's happening there.
18:59But just before that, Vipul, over to you.
19:01I mean, I know you're an advisor and hence a lot of the calls that you'd give are more
19:06strategic in nature.
19:08But if you've got to play a tactical strategy and you've got to play budget, what would
19:12you recommend on the buy list between now and the budget and maybe a quarter in?
19:17So two sectors.
19:19One is, of course, agrochemicals.
19:22I think this is one sector which has been underperforming for a while.
19:29And I think there is a lot of, I think, attraction which can happen there.
19:33So agrochemical would be one theme to look at.
19:37And the second would be housing finance companies, which will be focusing towards small-ticket
19:42rural housing.
19:44So these are two themes which should be looked at.
19:47I think structurally also they should benefit with the monsoon in line and things in place.
19:56So these are two things which I think should be the biggest beneficiaries in going to the
20:02budget and going forward as well.
20:04I think that is one.
20:05These are two things I think can be played pre-budget, post-budget as well.
20:09And I guess the valuations are compelling, so may still look like good, attractive at
20:13the current market price.
20:15Abhish, QSR, you know, you had a little bit of action on the likes of Zomato, which hit
20:19a record high on Friday.
20:21You have a listing coming up from Swiggy anytime soon.
20:24How are you viewing the QSR space as a whole?
20:26And also a quick word on retail, if I can get that.
20:30I know I'm being greedy, but anything on Titan versus Kalyan Jules, Kalyan's got a bunch
20:35of brokerage buy calls that have come in this morning.
20:38Sure.
20:39So on the retail and discretionary space, definitely we are a bit more selective.
20:46So we continue to like the more expensive names like Trent, because there again the
20:52growth metrics will be much stronger than the sector average.
20:55We also like WeMart, the quarter update was quite decent in my view, and coming back of
21:03the double digit SSG is a positive, and the rural recovery and the budget should also
21:08help because it is more focused on UP-Bihar kind of market.
21:12On the QSRs, yes, my sense is the recovery will start from Q3.
21:17In Q1 again, we have seen that because of the severe heatwave, especially in-store dining
21:23has been weak for most of the QSRs.
21:26There clearly Jubilant Foods and RBA and Sapphire and Debian, all are still well below that
21:3352 week high, but our sense is Jubilant Foods is clearly gaining market share in the dominoes
21:40with free delivery in most of the days, they are also growing much faster than Pizza Hut.
21:46So they could see more recovery in the coming quarters.
21:51Coming to jewellery, if you see clearly Titan, we expect weaker numbers to continue even in Q2.
21:57So Q1 at 9% growth was weak in the jewellery business, but even in Q2, the base margins
22:05are much higher and Kalyan is growing much faster because of the much higher franchisee
22:09growth which they have, plus the smaller base also.
22:13So overall competitive intensity in that space, jewellery space is quite high, because gold
22:18prices have moved up, so the local jewellers are able to offer more discounts, but within
22:23the organised also, Titan clearly with the higher base and because it has more indexation
22:29to the studded diamond, it is facing near-term headwinds in terms of slower growth.
22:37Of course, long-term, the risk of the lapron diamond remains with almost one-third of the
22:42business in jewellery coming from diamonds, Titan has the higher risk.
22:47So we will be underweight on Titan from near-term perspective.
22:50So we will prefer Trent and maybe some of the QSR in that space plus Vmart.
22:56But as of now, Titan remains underweight for us.
23:00Right.
23:01Vipul, we are also at the thick of the earnings season now, as we see, with 36% of Nifty companies
23:06reporting earnings this week.
23:08A quick one, what are you expecting from the earnings season, a more holistic view just
23:12beyond the budget, because I think that's also what's going to be significant in terms
23:16of market movement?
23:18So sector-specific, I think where we see valuation comfort, you rightly pointed out, and most
23:28of the sectors are now, I think, recovering is technology is where there is valuation
23:33comfort.
23:34Where there will be growth traction and it will continue is in capital goods infrastructure.
23:41I think the budget will give us more clarity on the capex.
23:44So that is where it will continue.
23:46Autos is where we'll see growth continuing.
23:50Where there is valuation comfort is technology, FMCG, where there is valuation comfort.
23:55But market is a discounting machine, market has already discounted more or less the earnings.
23:59I think this is something which is where we need to cherry-pick on individual businesses
24:06rather than picking on a holistic basket approach.
24:10But yeah, but this is something where we look at.
24:13I think financials, too, look interesting in terms of valuation.
24:18But I think in financials, the focus will be more towards non-lending side of financials
24:22and less towards lending, because in the non-lending side of business, which is the AMCs, the asset
24:27management companies and the wealth management companies are seeing a lot of traction.
24:32And that is where the focus would be.
24:34So overall, expecting a stronger growth overall at a market level, valuations might look expensive,
24:42but if someone is willing to take a one-year forward view or a one-and-a-half-year forward
24:46view, I think markets are not extremely overvalued.
24:50Markets are fairly valued.
24:51Right.
24:52Vipul, thank you very much.
24:54Abnish, always a pleasure to have you on the channel.
24:56We'll hopefully connect with both of you on earnings soon.
25:00With that, we're completely out of time.
25:02Thanks for watching.
25:03There's a lot more programming on the other side, so keep it with the channel.