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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to Q4 FY '22 Earnings Conference Call of Prataap Snacks Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mit Shah from CDR India. Thank you, and over to you, Mr. Shah.
Thank you. Good evening, everyone, and thank you for joining us on Prataap Snacks Limited's Q4 and FY '22 earnings conference call. We have with us Mr. Amit Kumat, Managing Director and CEO; and Mr. Sumit Sharma, CFO of the company. We will begin this call with a brief opening remarks from the management, following which we will open the forum for an interactive Q&A session. Before we begin this call, I'd like to point out that certain statements made in today's call may be forward-looking in nature and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. I would like to hand over the call to Mr. Amit Kumat for his opening remarks. Thank you, and over to you, sir.
Thank you. Good evening to all the participants, and thank you for joining our Q4 and FY '22 earnings conference call. I trust all of you have gone through our presentation, which was shared with you earlier. I'm pleased to report that we have delivered a healthy all-round performance during the quarter and full year despite a challenging macro environment. Our revenues during the quarter grew by 17%, significantly outgrown the industry growth rate. On an annual basis, revenues marked a healthy improvement of 19% Y-on-Y. The growth was primarily driven by an uptick in demand and consumption, the addition of new retail outlets through our distribution network and enhanced reach and effectiveness over existing distribution. I'm also happy to share that we have recorded a strong addition of around 1.5 lakh new retail outlets during the year. As of March 31, '22, our total retail outlets were around 21.8 lakhs against roughly 20.3 lakhs as on March 31, '21. Further, our telecalling initiative implemented in key geographies are also supported the growth momentum. These initiatives helped us enhance the efficacy of our distribution network, resulting in better coverage of territories leading to higher volumes. Going forward, we'll steadily extend with 2 additional geographies. On the raw material front, this quarter, there was continued increase in prices of palm oil and other commodities across the landscape. The combination of rising cost of palm oil and laminate for packaging have impacted EBITDA margins by almost 700 basis points during the year. While these prices were already rising from the start of the fiscal, the Russian-Ukraine war which broke out in Feb has further disrupted the global supply chain leading to a sharper and more severe price escalations in commodity prices during the month of March. However, we were able to partially mitigate some of these cost increases by our ongoing cost optimization initiative, implementation of our direct distribution model, grammage rationalization along with higher price realization. Additionally, we have also accelerated implementation of our direct distribution model strategy across all regions and completed it ahead of schedule. This along with our cost mitigation measures assisted us in restricting the impact on our margin during the quarter and full year. Let me now quickly take you through our financial performance during the quarter and financial year ended March 31, '22. In Q4 '22, revenues grew by 17% year-on-year at INR 3,614.6 million, EBITDA stood at INR 49.4 million when compared to INR 139.2 million in quarter 4 '21. PAT during the quarter was at INR 29.5 million as against INR 71.3 million. In the year, revenue grew by 19% year-on-year to INR 13,966.2 million, operating EBITDA stood at [ INR 553.1 million ], translating to a margin of 4.2%. PAT excluding the exceptional item due to loss by fire at Kolkata plant stood at INR 169.1 million. On the demand front with normalization in activities, increasing travel and the reopening of economy, we are pleased to share that the footfall in our touch points have nearly touched pre-COVID levels. As I had alluded earlier, our existing retail touch points have completely reopened and we continue to add newer touch points in key geographies. These new touch points has had a significantly increased offtake. With the new academic year starting from June, we remain confident that the demand of our key products will surpass the previous benchmarks. In view of the resilient performance, the Board of Directors has recommended a dividend of INR 0.50 per share on a face value of INR 5.00 per share. The government has undertaken several initiatives to boost food manufacturing and local production within the country. In one such step in '21, the center announced the PLI scheme for the food processing sector with an outlay of INR 10,900 crores. The scheme is aimed at augmenting domestic manufacturing capacity of the food processing industry and also [Technical Difficulty]
Members of the management, we cannot hear you at the moment. Ladies and gentlemen, we would request you to please stay connected while we check the audio for the management. Ladies and gentlemen, thank you for patiently waiting. We have the management reconnected. Over to you, sir.
Thank you. The government has undertaken several initiatives to boost food manufacturing and local production within the country. In one such step, in 2021, the center announced the PLI scheme for the food processing sector with an outlay of INR 10,900 crores. The scheme is aimed at augmenting domestic manufacturing capacity of the food processing industry and also at attracting investments in the sector. The scheme covers 4 main segments such as ready-to-cook or ready-to-eat foods, processed fruits and [Technical Difficulty] with incentives linked to local production and sale of products. In December '21, we secured PLI under ready-to-eat [Technical Difficulty]. We received approval under...
Sorry to interrupt you, sir, but your voice is breaking up.
Okay.
Sir, over to you.
On the CapEx front, the investment commitment aggregates to roughly around INR 105 crores, of which we have already invested INR 20 crores. The balance of INR 85 crores will be invested between us and our contract manufacturing partner by end of '23. To summarize, we have delivered an encouraging performance in the fourth quarter and in '22, given the backdrop unprecedented macro challenges with nearly year-on-year growth in the high-teens, we have outpaced the growth of industry. We believe we can grow even faster in the quarter ahead with the onset of normalization, as well as our strategic business initiatives to enhance our distribution network in terms of scale and effectiveness. However, the outlook for raw material prices remains challenging, and we are seeing severe pressure on our margins due to unusual rise in prices of key inputs. The outlook for the immediate terms remains constrained by the disruption in global supply chains, a spike in several soft commodities and agri products due to Russia-Ukraine war and the rising prices of palm oil following the ban on export by Indonesia. As a result, we see continued pressure in the immediate term. There is some improvement expected over the medium term as steps taken by the government to alleviate inflationary pressures are expected to contribute to cooling down in prices of soft commodities. Further, the reduction in excise duties on fuel and oil should help to alleviate some of the inflationary pressure. Further, Indonesia has lifted the export ban and there are also several steps being taken to develop alternate cooking oils, which are expected to lead to reduced prices of palm oil in the future. There has been a tremendous amount of effort to address the challenges and the structural changes that we have undertaken in the businesses have definitely elevated the margin profile of the business. This has helped to partially offset the severe impact of rising inputs, and we are working towards driving further gains even in the current scenario of unusually high input prices. We believe these efforts will be more visible over the medium term as the macro environmental normalizes. We remain very confident of delivering higher growth in the quarters to come, which supported by our efforts to structurally enhance margins should also enable us to accelerate shareholder value creation going ahead. On that note, I conclude my remarks and we can open the floor for questions.
[Operator Instructions] The first question is from the line of Ashutosh from Systematix.
Yes. So my question is on direct distribution. So you mentioned that it has been implemented in all regions ahead of schedule. So can you give more clarity on that? Like as far as I know, it was implemented in Delhi, and then I think the pilot run was going on in Mumbai. So if you can highlight like how the plant has actually scaled up [Technical Difficulty]...
Sorry to interrupt, Ashutosh. Your voice is breaking up. We cannot hear you clearly.
Yes. So I'm saying that on direct distribution, the management has highlighted that it has been implemented in all regions ahead of schedule. So if the management can clarify on that? As far as I know, it was implemented in Delhi and then I think pilot run was going on in Mumbai. So if you can clearly highlight like in which all regions this has been implemented? Actually, on the retail footprint, so the company has already added standard [indiscernible]. What would be the target for FY '23? And lastly on the palm oil, sir, you highlighted that the Indonesia has lifted the ban. So going forward, we expect some kind of moderation in the prices going ahead. So if you can highlight like what kind of margin range you expect going forward, that would be really helpful, sir? That's it from my side.
Thanks, Ashutosh. Let me take the first question first. Basically, on the direct distribution side, we started with MP first and then we did in Delhi. But with the spur in the raw material prices, we thought that we had to take some severe actions to be as one will be implemented across the country. There was some pressure from our super stockist and the channel margin and the salespeople, but eventually, we got everything done. So as of today, 99% of our sales are through direct distributions or super distributors. So there is a difference between super distributor and super stockist. So super -- like if you take example of Delhi, we used to have one super stockist and 110 distributors under them, now they have around 25 delivery points in Delhi, these all our super distributors, they do the retailing on their own and they supply to the similar distributor if required. Our net channel margin, which used to be around 14% for Delhi has come down to almost 10% now. And it has been implemented across the country. There are few exceptions but probably -- everything will get settled probably next 1 or 2 months' time. On the third question of palmolein prices, palm oil basically hit very high because of the COVID period and labor not available in Indonesia and Malaysia and then the prices across the group started going up. So if you see our last year price, probably average would be around INR 70 last [ 5-year ] average, which is currently at more than INR 150. But with the labor going -- the labor availability going up in Malaysia and Indonesia and Indonesia is starting the export against their stock, I personally feel that prices should go down considerably probably even 10% to 20% next 3 months' time. On the EBITDA front, probably, Sumit can take the question on that.
Ashutosh, on the EBITDA side, as you know, it's a highly volatile situation as far as the raw material pricing are concerned. And it's really very difficult to predict as of now what -- how the prices would move in near term. So short term, there may be some volatility. However, it looks like that prices will definitely come down as Indonesia has also lifted the ban on exports. So in medium to longer term, we are pretty much confident to expansion in the margin. However, in short term, there will be some pressure, which is being mitigated through various process initiatives.
Okay, fine. Fine, sir.
[Operator Instructions] The next question is from the line of [ Ankit Gupta from Bamboo Capital ].
Sir, this year, we have ended with the top line of around 1,380 crores -- [ INR 1,383 ] crores on a consolidated level. Even the schools will have hopefully no further COVID waves, and this will be like the 2 years after COVID that schools will also be starting for the entire year. So how do you think the growth will be for the company on a consolidated level for FY '23?
Since we are targeting in high-teens, definitely should be much better than what we have been doing for the last 2, 3 years. 2, 3 years have been exceptionally best, probably the growth rate was bad, but this year, definitely, it could be much, much better. It could be in the range of [ 20% ].
Okay. That is good to hear. Sir, secondly, on the grammage front, we -- the industry has been going through a very tough and even the industry leaders are facing the challenges on the margin front. And so do you think -- has there been any initiatives taken for reduction of grammage, especially in a INR5 and INR10 pack? And how do you see the competitive intensity going forward given such high raw material price increase?
If you see the overall impact of -- in the EBITDA margin is probably very, very well, it should be close to 10% to 12%. So we have done many changes, out of that one change has been the grammage changes. The impact of that is not much. We have reduced by 1 or 2 grams in the INR5 pack in most of the categories. But the major impacts by which we could mitigate these higher prices was through the channel margin and through the PTR. We have increased the price to the retailer and reduced the channel margin. And we have also done some optimization at the factory level, which has also given us 1% extra margin. So there were 3 main levers: optimization at the plant level; second, increasing the PTR, that the price to retailer level, reducing channel margin, and 4 for grammage reduction. So we have done a little bit of grammage reduction across the category.
So when was this grammage reduction done?
This was probably in last 30 to 45 days.
Okay. Okay. And sir, last 6 months, how much grammage have we reduced on an average, let's say, in a INR5 packet?
I think it should be in the range of 5%, 5% to 6%.
Okay. But the raw material side has been -- the palm oil side are more than doubled in FY '22. So do you think there is further scope for reduction in grammage in coming 2 months?
I think with all the changes what we have done, we have almost come to our past of pre-COVID levels as far as margins are concerned, though it will take some time to implement because if you reduce the pack size, you reduce the change -- you reduce the grammage, it will take some time. But I think going forward, raw material prices can only come down from here. It is very difficult for the prices to go further up, at least we are assuming that.
Okay. But -- okay. And sir, with all the measures that we have taken on January trend and at the plant schedule, when the raw material prices stabilize or come down, what can be the steady state EBITDA margin that we can target over the next 2, 3 years?
Definitely, we are targeting double-digit margin.
Okay, okay, okay. That's good to hear, sir. I wish you all the best. And sir, last question...
With all the changes we have done, it could be very difficult for us not to get a double-digit EBITDA margin if the raw material prices improves a little bit also.
Sure, sir. And sir, when do you think that the gross margin compression that we have seen in the past 2, 3 quarters, given the prices currently in some of the steps are diminishing government, as well as some -- hopefully, some reduction in prices would happen over the next few days or in the coming months, when do you think that we can come back to our original -- earlier gross margin level of around 28%, 30%, which quarter do you think -- do you expect that will happen?
Yes, certainly, with the increase in the gross margin and better realization, definitely, there will be expansion in the gross margin. However, it also depends on the reversal of the raw material pricing. So any reversal in the raw material pricing definitely will help us to improve our gross margin. And we can reach to the previous range of gross margin, which was somewhere between 30% to 32%.
Sure, sir. Sure. So can we expect that it -- hopefully, the prices stabilize now, there should be some improvement in gross margin from Q2 or do you think the first half itself has been badly impacted? Gross -- even we know that there has been significant pressure on the gross margin, do you think there can be some improvement from Q2 onwards?
Yes, we hope, we hope for this.
Okay. And sir, lastly, on Avadh. Avadh, the growth that we have seen in Avadh over the post acquisition hasn't been that much. Last year also, if you look at it, the growth in Avadh has been less than 10% of our -- like has hardly grown in the high single digits. So how do you see Avadh growth going forward? And I think we had made some management changes as well in Avadh. So do you think like how can we grow at higher growth rates in Avadh going forward?
If you see Avadh was a super value brand compared to all other value brand in the country, with the higher raw material pricing, the impact in Avadh was much, much, much higher than compared to all other companies. So we were forced to reduce the rate considerably in Avadh compared to our Yellow Diamond products. So they were definitely hit in the market. But going forward, we have changed the complete strategy in Avadh as far as sales is concerned. We appointed a full sales staff who've taken a new team on board, and we definitely expect it to grow in the line of YD, Yellow Diamond only. We are looking at a high-teens growth in Avadh also this year.
Sure, sure. So Avadh will also grow in line with the overall company level growth of, let's say, high-teens or 20% that we are expecting?
Yes, definitely, definitely.
[Operator Instructions] The next question is from the line of [ Rishabh Singh ], an Individual Investor.
So you mentioned that you had to cut channel margins and increase PTR ahead of schedule to manage increase in high input costs. So I just wanted to understand if there has been any negative impact on sales because of this? And if it has been, how long would you see it continue?
There were some impact in few places where the distributors basically decided not to work with us. There were some impact where we could not supply to the distributors directly. But if you see the major sales come from supplying to the retailer and offtake from the retail point, so there was no problem in that point. So most of the places, I think most of the places, there was no problem. There was some problem at 1 or 2 places, and few places, where sales have increased because of this. So I don't see any problem in direct distribution as far as sales is concerned. There's a temporarily impact of supplying the stocks directly to the distributors.
Okay, okay. That's great.
[Operator Instructions] The next question is from the line of Akhil Parekh from Centrum Broking.
Thanks for the opportunity, and congratulations on the progress that we have made so far. My first question is on the contribution from INR5 pack. Where do we stand at the end of FY '22? And how -- what are steps we are taking basically to move away from impulse purchases?
So I think our contribution from INR5 is close to 90% today, and our target is to take this 10% to 25% in next 2 to 3 years' time.
Okay. And what are the concrete steps we are taking basically to move away from this INR5 pack?
There are 2 things we have done, basically, the appointed sales staff will directly go on A and B class outlet who can -- who primarily sells only INR10 products. And secondly, we forced all the distributors to take minimum INR10 inventory, some percentage somewhere, where it was 5%, we have forced them to get to 10%, so that the sales can increase. So these are the 2 steps we have taken to increase sales beyond INR5 MRP.
Okay, okay. And any numbers you can highlight like in terms of our penetration in Class A and Class B outlets, where do we stand right now?
I don't think we have that exact number. On the urban and rural graph, we have a number of around almost 50% urban and 50% rural. In A and B class outlets in urban, it is very difficult to give the number. But I think our presence has much better scope to improve in A and B outlets.
Okay, okay. And secondly, Avadh Snacks, Avadh is very strong in Gujarat. How has it done in terms of increasing the reach in terms of the nearby geographies basically?
So, Avadh, basically, we have stated in parts of Maharashtra and parts of Rajasthan and parts of MP due to higher logistic costs and the bigger pack, it becomes very difficult with the increased raw material pricing. So we have made different packets for outside region of Gujarat, and we are relaunching Maharashtra, Rajasthan and MP again in Avadh. We hope that at least we can get 30% to 35% sales outside of Gujarat in probably a year or 2.
Okay. And right now, it would be a?
I mean, 15%, 17%?
Okay, got it. And any -- I mean, any qualitative feedback you can share about the product in the new geographies, which we are trying at like in Maharashtra, Rajasthan and MP?
Basically, Avadh is primarily in Namkeen and Pellets only. We are also putting up Extruded line in Avadh Rajkot. So I think all the products within are similar, but basically, when you go outside the geography of Gujarat and you have to supply in 500, 600 kilometer radius, the transportation cost is very high. So we are trying to cut down a little bit grammages and on the pack side. So that we can supply [ viability ] to all these places.
Okay, got it. That's all from my side, and best of luck for coming quarters.
[Operator Instructions] The next question is from the line of Mayank Vaswani from CDR India.
Sir, more of a suggestion and a question, sir, in Amit ji's opening remarks, there was a bit of unclear line, so we couldn't hear the comments on the PLI scheme. So I would request if the management could just share some comments on the PLI scheme and the related CapEx over the next year or so?
Yes.
Thanks, Mayank, for highlighting this PLI-related stuff. So we got the approval under the PLI scheme from the ministry of food processing. The PLI -- for the PLI scheme, there is a base year, which is FY '19/FY '20. And whatever sales -- whatever incremental sales we have over the base year we'll be getting the incentive as per the PLI policy. The base year, the PLI scheme is for 6 years from FY '22 to FY '27. For first 4 years, the base year will be FY '19/FY '20. For FY '26, the base year would be FY '22. For FY '27, base year would be FY '23. The incentive rate for 4 years is 7.5% of the incremental sales, for 5th year, it's 6.75%, 7th year, it's 6%. We are committed to invest almost INR105 crores under the PLI scheme for capacity expansion. We already invested INR20 crores in FY '22. And around INR85 crores, we are going to invest in the current financial year in the combination of exclusive 3P operations and our own investment.
The next question is from the line of Nilesh Shah from Envision Capital.
My question is on the growth outlook. How do we see demand really playing out on the ground? I mean, given that there are inflationary pressures which is impacting consumer sentiment, do you think this is impacting a category like ours? I understand it's like a low price category and a slightly more value pack and it does not require large amounts in terms of spending. But do we think that in any way consumer demand is impacted because there are media reports which suggests that the overall FMCG sector has got impacted. So just wanted to understand your experience in recent times in terms of consumer demand?
Till date, we haven't seen any impact of the inflationary pressure on our demand. Our demand basically only comes on when the schools are closed, probably people can't move around. With the current scenario when the schools had opened and there is no shutdown, hopefully, there is no other shutdown in the country, I don't see any problem in demand in our category at least.
Okay.
Just to add on, Amit ji, sorry. Again, in this inflationary scenario, we are getting the advantage of down-trading. So I think it's a lower price point, the INR5 and INR10. So we are also getting the advantage of down-trading. So we're not seeing any negative impact on the demand side, basically particularly for our kind of product and price points.
Okay. The second question is on our margins. So I understand in the short term, of course, margins can be under the pressure, but we seem to be confident of getting into double-digit EBITDA margins when the situation normalizes. Now if I were to kind of historically look at our margins, EBITDA margins, they've been in the range of 5% to 9% for several years. And given that our category is competitive, what gives us the confidence that we can break out of this range of single-digit EBITDA margin to whatever the low double-digit EBITDA margin? I understand we have taken certain productivity measures, efficiency measures, rationalized distribution, all of that. But given that we are in a competitive category, don't you think at some point of time, competitive pressures will catch up, which will, in a way, somewhere cap our EBITDA margins even over the medium term?
I think it's a good question. But if you see, I have said in my remarks also, basically, we have done 4 changes to improve our margin. The number -- the first and the second thing changes were reducing the channel margin and increasing the PTR. So these 2 margins have nothing to do with the competition because if we remove the super stockist and if we can save growth, let's say 2% to 3% from the channel margin and 1% or 2% from the PTR, that doesn't affect the competitiveness in the market. Any other changes like reducing the weight probably will have impact on the competition, but there -- these 2 changes by reducing the channel margin and increasing the price to retailer has no impact on competition. So I believe these were the inefficiencies for last many years which we have been able to remove now.
The next question is from the line of Kunal Patel from Equilligence Capital Advisors.
Sir, my first...
Sorry to interrupt you, Mr. Patel, your audio is not clear. I would request you to come on the handset mode and ask your question.
Sir, my first question is regarding our distribution model again. So by when can we streamline our distribution model completely like we have done in Delhi? Is it possible to replicate it in other states? And do you see overall, this will add up to around 200 basis points, 300 basis points to our margins?
I think, as I said earlier also, we have implemented this across the country, except with the exception of few places. So it's already being done. There's so much pressure because of the raw material pricing, one fine day we decided 2 months back that there is no way going back and we have to implement it across the country and we did it.
It was done in a phased manner. So initially, we started with North India and Western market, and then we have rolled it out to Eastern and Southern market. The expansion or -- of the direct distribution in Eastern and Southern market was done in quarter 4, more precisely somewhere around March month. So the full benefit of that saving will reflect in quarter 1 onwards.
Okay, okay, okay. Sir, my second question is regarding newer geographies. So how has been the response in some of our newer geographies that we have entered in the last couple of quarters? Also, are we seeing any success there, and how are we planning to scale up the business in those states -- in those areas?
Yes. As we said probably in our earlier conversation that we are trying to expand market in UP, Punjab and South India. So UP, we have seen very good results, especially in the Eastern UP region, but still we are trying to figure that -- figure our way out in Western UP and there's some good work in Punjab. With all the distribution changes what we have done in South India, if we take another 1 or 2 months to stabilize. So the 3 target markets are basically UP, Punjab and South -- Southern India.
Okay. Any new - newer geographies apart from these 3 states that you are planning to enter?
There are a few smaller geographies, which we are also doing right now like Uttarakhand, but the main concentration is on UP, Punjab and Southern India.
Okay, okay. And finally, sir, any status on the Kolkata plant fire insurance scheme, anything on that?
Kolkata -- with respect to Kolkata fire, we are expecting Surveyor to submit the report by end of this month to the insurance company.
Okay, okay, I get that.
And we get the communication from insurance company. Thank you.
[Operator Instructions] The next question is a follow-up from the line of [ Ankit Gupta from Bamboo Capital ].
Sir, on the telecalling front, we have seen decent success in some of the geographies where we had implemented this. So have we implemented it across geographies or it is yet to be implemented, it is still implemented in some of the areas?
We have implemented in very few geographies, probably around 10 cities in the country right now. Hardly 10% of the sales come through telecalling. With all the changes in the distribution model and removing the super stockist, that activity has been put on hold for some time, we will restart it probably another after 1 or 2 months, but they are currently operating only almost 10 cities in the country.
Sure. And sir, just wanted to reconfirm that the additional savings that we can get by -- that we can get by eliminating super stockists. I think we had said that we can save at least 2% to 3% on the margin front. Is that the right statement today?
Yes. Definitely, yes.
Sure. Okay.
On the channel margin, by increasing the PTR, we should be able to save anywhere between 2% to 3%.
Sure, sir. Sure. And sir, on the grammage reduction front, how are you seeing the -- some of our larger competitors like Lays or [ Reno ] or Frito-Lay and some of the large regional computers like [ Malawi ], how have they reacted to such unprecedented rise in raw material prices? How much reduction have they done on the grammage front?
The grammage reduction has been done in the line of the competition only. It is very difficult to reduce grammages on your own, but because of the higher raw material prices, everyone has reduced the grammages, we have also done that. And it is in line with the competition, not aggressive in reducing the grammages. We are more aggressive in reducing the channel margin than reducing the grammages, that is the last resort for us always.
Sure. So like the competitors have also reduced grammages [ beginning of '22 ]?
Yes.
[Operator Instructions] The next question is from the line of Rohit Balakrishnan from ithoughtPMS.
Sir, am I audible?
Yes.
Yes. Sir, this is again the question on your channel margin that you've reduced. So I had a question on this. So, I mean, was these channel margins high in the past, I mean compared to your competitors or is they -- don't you expect any sort of impact on your sales because you will be now offering lower channel margins, just some clarity on this?
So if you see the competition, most of the players are basically big players, but they are regional players, like there are a few very big players in Gujarat, in Northern India and the Western India, but they are supplying their own geographies. So their channel margin was always lesser. Their channel margin was almost between 8% to 9% and we were offering some 12% to 14%. We have been able to reduce the margin because we have been started producing the -- at different location, at different third-party location across the country. Now we have plant in Northern India, Western India, South India, across the country. So we were inefficient compared to our competitors. With these new changes, we have become a little competitive in that segment.
Okay. Got it. Understood. So in that sense, I mean the distributors that you are working with, they are -- I mean, they were early more from -- I mean, they were getting more margins from you, but now will be at par with -- you will be at par with others. Is that the right understanding?
No, no, no, no. We haven't reduced the distributor margin, the distributor margin is same. We have reduced one layer in between. So if you take the example of Bombay, we have 2 super stockists probably were supplying Western and Central India and they were supplying to distributors, now most of the Bombay, probably they are directly supplying to the distributors. So there is extra costs involved as a super stockist margin and the onward freight which is the cost for the super stockist will supply to the distributors. So we are trying to save on that margin. We haven't reduced the distributor margin.
Understood. Okay. So, I mean, just again, maybe a very basic question, sir. But is this the way the industry is -- like your peers are structured or this is something that you're doing very differently from the peers?
I think in the national -- if you talk about the national player level, probably we have done it very different compared to all of them, but if you talk about regional players, they were always directly distributing because they were operating in a 300, 400 kilometer area.
Okay, got it. So basically what you're saying, sir, now because you have a much wider geographic footprint, you can do this because you have -- it will be much more efficient versus having a multi-layered structure. Is that the right understanding, sir?
Definitely, definitely, yes.
Got it. That's helpful, sir. Just the second question was, sir, if you can talk a bit about your sweet portfolio, the complexity and that part of the portfolio, we had targets of increasing that, how is that shaping up, if you can just share a bit on that?
I'll just share, the sweet snacks has been okay for us, not that good as we planned. Unfortunately, the COVID has hit that most because they were primarily targeted towards the kids only. So we have -- we are revamping that. We have just launched recently one more product by the name of [ Swiss Roll ], which is doing good for us. I think it will take another 1 or 2 quarters for us the sweet category to stabilize and grow.
Okay. So what is the percentage of sales that sweet contribute at this point of time in FY '22, sir?
Anywhere between 3.5% to 4%.
Got it. And...
And possibly we'll take it to 7% to 8%, but we are far away from that right now.
Okay. Sure. And any -- assuming obviously, there are no disruptions going forward. Do you -- I mean, where you intend to take it to 8% in the next 2, 3 years, is that a fair assessment or it will take more time?
7% to 8% is the target for sweet and snacks.
In the next 2, 3 years?
Yes.
Okay. Sure, sir. I'll join back in the queue if I have more questions.
The next question is from the line of Nilesh Shah from Envision Capital.
I have a follow-on question in terms of our capacity utilization. So just want to understand that currently, what's the kind of capacity we have, where do we think we can basically take the capacity utilization to, and what would that mean in terms of revenue potential from our existing facilities? And then, of course, we're being a fresh investment as well under the PLI scheme. So how much will -- how much can that potentially add to our revenues over the -- over a period of time?
So the current utilization is roughly around 60% on a blended basis, however, there are multiple manufacturing facilities. So for individual plant, it may vary -- it ranges from 35%, 40% to say 85%. Under the PLI scheme, we are submitted to invest around INR 85 crores during the current financial year. And we are planning to put up some plants, 1 plant we are planning to put up in North India is UP is the target market for us. We are planning to have a facility in North India for Namkeen and Extruded products. We are anyway -- we also have a plant in Kolkata, however, it got fire. Again, we are restoring the same facility, we're investing in the same plant. In near term, we are also planning to have 1 plant in South India because currently, we have 1 facility in Bangalore and we have 3P operation in Potato Chips. So we are planning to put up another plant in South India.
Okay.
I think with this capacity investment, we will be good for next 2 to 3 years' time in terms of fresh investment for capacity expansion.
Okay. So just, I mean, over the next, say, 2 years, if I have to kind of look at FY '23 and FY '24, what would essentially be the total capital outlay that or our CapEx plan over the next 2 years? And would we have enough cash currently to do that or we would need to resort to some more borrowings? If you could just basically walk us through the funding plan as well?
Sure. So as I said, in current financial year, we are targeting CapEx roughly around INR 85-odd crores.
Yes.
And with this we'll be good for next 2 to 3 years' capacity requirement. For FY '24, we would need some maintenance CapEx that includes replacement of some old machineries and some capital investment for vehicles, which is not part of PLI. So for FY '24, there won't be significant CapEx, but on a -- conservatively, we can assume somewhere around INR 20 crores to INR 25-odd crores. So both put together, INR 100 crores to INR 110 crores for next 2 years would be the capacity investment for the CapEx.
This include both Kolkata and Bangalore?
Yes, yes, everything, everything.
Okay.
Currently, we have around INR 65 crore free cash. So we don't see any requirement for borrowing for CapEx that can be done with the existing cash available and the internal accruals.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Thank you very much, everyone, for taking out the time and joining our conference call. Thank you so much.
Thank you. On behalf of Prataap Snacks, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.