Marico Ltd

NSE:MARICO

Q4-2025 Earnings Call

[Operator]

Ladies and gentlemen, good day, and welcome to Marico Limited Q4 FY '25 Earnings Conference Call. We have with us the senior management of Marico represented by Mr. Saugata Gupta, MD and CEO; and Mr. Pawan Agrawal, CFO. [Operator Instructions] Please note that this conference is being recorded.

Before we get started, I would like to remind you that the Q&A session is only for institutional investors and analysts. And therefore, if there is anybody else who is not an institutional investor or analyst, who would like to ask questions, please directly reach out to Marico's Investor Relations team.

I now hand the conference over to Mr. Saugata Gupta for his opening comments. Thank you, and over to you, sir.

[Saugata Gupta, executive]

Yes. Hi. Good evening to all those who have joined the call, and I hope all of you are doing well. With FY '25, having come to a close, I would like to begin by sharing a quick overview on the operating environment during the quarter gone by, after which I'll touch upon our performance and strategic objectives for the year ahead.

During the quarter, consumer sentiment remained largely stable, supported by improving rural demand and mixed trends across mass and affluent urban segments. Margins for most players are under pressure due to input cost pressure. Easing retail and food inflation is encouraging for consumption trends going ahead. In addition, a healthy monsoon season, higher MSPs and continued government spending should support the uptrend in rural growth.

It is important to note that the growth of listed companies alone does not provide a comprehensive picture of consumption trends. Commentary from unlisted players, including Indian subsidiaries of multinational corporations, D2C players and regional brands indicate the [slide] commodities, although we maintained the strong momentum in new businesses, which furthered the diversification agenda.

Offtakes remained healthy with more than 90% of the portfolio gaining or maintaining market share and more than 80% sustaining or improving penetration on a MAT basis. While alternate channel gained salience particularly in Tier 1 markets, general trade remains sluggish. We are making concerted efforts to revive general trade growth through Project SETU, which is progressing well. Under SETU, we'll focus on rural outlet expansion at a pan-India level, while deploying strong control frameworks to ensure sustainable outlet expansion across markets.

Quick commerce has rapidly scaled up to 3% of the India business for the India domestic business, where we are building assortment across categories to effectively capitalize on the potential of this channel.

Delving further into India business, I will now share some perspective on the performance of our key categories. Parachute had a muted quarter as a result of consumption titration, which is typical during hyperinflationary cycles like the one we are witnessing currently. In addition to price hikes, we had implemented ml-age reduction in select packs over the last 6 to 9 months.

Adjusting for the impact of ml-age reduction, the brand recorded low single-digit volume growth in Q4. Revenue growth was in the 20s aided by pricing. Parachute maintained its stronghold gaining 70 bps market share on MAT basis. Given the extended firmness in copra prices due to lower arrivals in the market, the awaited correction is most probably going to happen towards Q2. As prices move from the current hyperinflationary zone to a moderately inflationary zone in Q2, which should be the case for most of the year, we expect volume growth to pick up.

Our robust supply chain capabilities will give us an edge and allow us to be far more competitive. We are already seeing first signs of supply chain disruption among local players, and it is heartening to see competition taking significant price increases and reducing BTL. All this will be tailwind for the brand for volume growth to pick up sometime in Q2.

Saffola edible oil is impacted by sharp price hikes taken in response to the elevated global vegetable oil prices while revenue growth in the coming year will be aided by pricing to some degree, we expect volumes to be steady as long as vegetable oil prices remain stable. Our priority is to maintain special level of profitability as a portfolio while maintaining basic volume growth.

Value-added hair oils continue to show sequential recovery after bottoming out in Q2 this year, led by healthy performance in the mid- and premium segment of the portfolio. We'll continue to drive growth in this segment while undertaking focused interventions at the bottom of pyramid segment. The franchise has gained 120 bps in value market share. We are confident of sustaining this improving growth trajectory through next year, backed by continued innovation, ATL investment and focused brand activation. This strategy of driving growth through mid- and premium segments and holding the bottom of pyramid will help in driving margins with mix improvement as value growth continues to improve from quarter-on-quarter.

Foods delivered robust value growth of 44% Y-o-Y in Q4 and 30% growth in FY '25, surpassing the INR 900 crore mark in annual revenues. The oats franchise has grown double digits in FY '25. While the core portfolio of oats, honey and soya chunks have fared well. We are also seeing green shoots in the recent launch such as Muesli. In Q4, we launched Saffola Cuppa Oats, a 4-minute ready-to-eat offering combining oats, millets, and crunchy multigrain bites. Furthermore, True Elements and the plant-based nutrition portfolio of Plix maintained accelerated growth momentum. The Foods portfolio has reached 5x of the FY '20 scale, and we expect 25% growth over the medium term to reach about 8x of FY '20 scale, while we continue to improve profitability in the category.

Premium Personal Care sustained strong momentum during the quarter, led by Digital-first portfolio. The Digital-first portfolio exited FY '25 at a INR 750 crore ARR, much ahead of aspirations.

We now expect this exit ARR to be 2.5x of FY '24 ARR in FY '27, up from the previous target of 2x. [indiscernible]

has scaled 4x in FY '21 has reached near double-digit EBITDA margin, just crossed INR 100 crore revenue mark in FY '25. Plix Personal Care Portfolio has been gaining visible traction. Plix has delivered single-digit EBITDA margin this year. We continue to see marked improvement in profitability in the Digital-first portfolio and maintain our aspiration to achieve double-digit EBITDA margins by FY '27.

Moving to international business. We have sustained a double-digit constant currency growth momentum in Q4 and FY '25. Bangladesh posted double-digit growth in Q4 and FY '25 and has stood as a symbol of resilience amidst a challenging operating environment. MENA maintained its growth trajectory with both the Gulf region and Egypt very well including consistent share gains and competition and a robust performance in NPD and diversification. South Africa also maintained its consistent run. Vietnam had a relatively slower year with mid-single-digit growth due to sluggishness in some of the key categories. We expect recovery in the coming quarters. Our new country development and export market has also been scaling up well.

To sum up, we have achieved most of our strategic objectives set at the start of the year. We have achieved double-digit consolidated revenue growth aspiration for FY '25. They were supported by improving volume growth trajectory in the India business and broad-based growth in overseas market. The diversification journey across markets has shown significant traction with profit improvement, and we have been resilient against unprecedented input cost inflation.

In India, core category growth was subdued in FY '25. We expect a gradual pickup through FY '26, aided by improving consumption sentiment across urban and rural, increase of hyperinflation pressure [indiscernible] commodities and a significant traction in valve. Our sustained investment in scaling the Foods and Premium Personal Care Portfolio has visibly reshaped our revenue mix, delivering differential growth even a bit softer mass consumption demand.

The composite revenue share of Foods and Premium Personal Care in the India business stood at 22% in FY '25, representing a combined ARR of nearly INR 2,000 crores. We'll continue to aggressively diversify the portfolio through these in line with our medium-term strategic priorities and expect this portfolio to expand to 25% of domestic revenue by FY '27.

The rapid scale-up of these portfolios have been accompanied by significant improvement in their profitability, resulting in the share of India net contribution moving to double digits, which is 5x of FY '22 levels. In Foods, we have structurally expanding gross margin by 1,000 bps over FY '24 and FY '25, on a cumulative basis, and we expect gradual margin expansion as the business scales in the medium term.

If we take a step back, you'll realize that our model is unique since our aspiration or ambition in digital business has always been far ahead of the resource available at hand given the balance sheet and P&L guardrails of a well-run listed company. This forced us to engineer a profitable and sustainable growth model, which does not rely on cash burn. Among that's why in digital brands, we now have 2 distinct cohorts at different stages of their growth journey. The first cohort consisting of Beardo and Plix, which are profitable at the EBITDA level are going to be on accelerated growth path. We expect these 2 brands to cross INR 1,000 crores in combined ARR this year with a clear focus of driving operating profitability with skills.

We focus on accelerated growth in Beardo and Plix, along with further EBITDA placement. On the other hand, Just Herbs and True Elements, though not yet at breakeven, will focus on sustainable 20% to 25% growth and leveraging scale and synergy to achieve breakeven at the earliest over the next 18 to 24 months.

On the overall basis, we will drive synergies and costs and leverage 1P data across our digital business to unlock further efficiencies. We'll now be tapping economies of scale, which is available to a house of brands. With a large-scale strong mothership in our case, which we believe is a strong edge over stand-alone D2C brands. We firmly believe that we are on track to be one of the most successful digital FMCG companies in the country. The international business has navigated transient macroeconomic and currency headwinds in select markets. Our consistent endeavor in any market if you deliver top quartile revenue and profit growth. We have achieved this in Bangladesh and South Africa. We are progressing steadily on this journey in MENA, while we have delivered on top line growth, our margins are improving to top quartile.

In Vietnam, there is some ground to cover and working on GTM transformation portfolio diversification is underway. We also made more visible progress in premiumizing our portfolio across markets with innovation and expansion into Premium Personal Care categories like shampoo, skin care, hair styling, excluding hair oils and baby care. This premium portfolio in international business have grown at 24% of the FY '21, '25 period. As a result, the premium business revenue share in the international business rose from 20% in FY '21 to 29% in FY '25.

We will continue to invest aggressively towards diversifying this portfolio, expand the total addressable market and driving market share gains in each of the markets. We are confident of sustaining strong double-digit constant currency growth international markets while gradually unlocking the margin upside from scale benefits of the medium term. The experience has given us confidence that we can also try some of these initiatives in the Indian market in the days to come.

The consolidated operating margin of FY '25 ended just shy of 20%, and we have delivered resilient bottom line performance without any negative surprises despite input cost pressures being significantly higher than for the rest of the sector. We have also made aggressive investments in A&P throughout the year, staying true to our strategic intent of continually strengthening our core franchise and accelerating diversification. A&P spends were up 35% in Q4 and up 18% in -- 18% in full year FY '25.

Now if A&P had grown in line with our top line growth, our EBITDA would have moved -- I mean, full year to 9% and would have delivered 20.3% EBITDA margin for the full year. Now A&P sets you up for future growth. And therefore, as an organization, we have resisted the temptation to manage short-term margins by cutting A&P and sacrificing future growth.

In this context, our leadership position in 90% of our portfolio, low price elasticity in our resource engine and the master brand Parachute across markets is the strongest most.

This has helped us to take 30% price increases in Parachute with the one which has been taken last week without any significant volume impact. In addition to the pricing power exercised by our master brand Parachute, the margin resilience reflects the leverage and air cover provided by the premiumization benefits from the high-growth segment with the India and international markets, which will further get accelerated by the VAHO growth expected this year, the culture of frugality, the strength of our institutionalized cost management framework and the effectiveness of our advanced procurement and supply chain capabilities.

Also, the profit dependence on Parachute will continue to be systematically further reduced. As we drive growth and profitability in the high-growth segments with the India and the international business and are confident of visible improvement in VAHO growth. Hence, we have the capacity to deliver top quartile growth and invest behind A&P without giving margin shocks.

Moving into next year, we expect to sustain double-digit revenue growth and strive to deliver double-digit operating profit growth. We have scaled the INR 10,000 crore revenue milestone this year, and we are now gearing up with intent and focus to chart the course to the next INR 10,000 crores to move to INR 20,000 crores. A key aspect that is instrument in our journey has been the mixed depth and longevity of our talent of our teams across all levels of the organization.

Last but not the least, sustainability remains central to our strategy. Our sustainability 2.0 framework is delivering strong progress across all key focus areas and moving us towards our 2030 goals. We are confident that our commitment to creating shared value will drive long-term sustainable and differentiated growth.

With that, I conclude my remarks. I would like to thank you once again for your support and belief in us. I firmly believe that we are at the beginning of a virtuous flywheel. I can assure you that me and my team are working tirelessly with utmost passion to realize the dream. Thank you.

[Operator]

Should we begin with the question-and-answer session, sir?

[Saugata Gupta, executive]

Happy to take questions.

[Operator]

[Operator Instructions] We'll take our first question from the line of Mihir Shah from Nomura.

[Mihir Shah, analyst]

Congrats on a great set of numbers. So firstly, on copra. Copra has remained firm longer than expected. On gross margins, I hear you take another price increase in Parachute leading to 30% pricing and you're not seeing any volume backlogs because of that. That's great news. But on gross margins, how should one think about that going forward? And when should one expect gross margins to start showing improvement or the pricing that you've taken to tied over the inflation. And we can start seeing gross margins to sequentially improve from here on? And for FY '26, any level of gross margin that you have in mind that you can share? So that's on question one.

[Pawan Agrawal, executive]

Okay. So as far as gross margin is concerned, of course, for the next 1 -- hello, am I audible?

[Operator]

Yes, sir. Mihir, can you please mute your line. There is some disturbance on your line.

[Pawan Agrawal, executive]

Yes. As far as gross margins are concerned, given the fact that the copra prices have been higher than what we had anticipated, it will remain under pressure for the next 1 quarter for sure, and then you will see as to how the copra prices behave. And just to give you a sense on copra prices, typically, copra has 18- to 24-month cycle, and this cycle has lasted longer. And the reason being the Northeast rains were not great leading to lower crop availability. But we are hoping that by end of quarter 1, we should start witnessing some softening. While there could be some pressure on margin on account of that in the next 1 or 2 quarters, we expect margin pressure to ease out starting end of quarter 2.

But having said that, I just want to allude to 1 point, which also Saugata mentioned that since we have pulled multiple levers of profitability over the last 1 or 2 years, like expansion of margin in foods, digital businesses, some of the fast-growing premium businesses and also international business scale up of the premium portfolio.

Our dependence on copra as a lever of profitability has come down and will keep going down over the next few years. Also, Saugata mentioned that VAHO, we definitely expect a better improvement -- a better performance in the next year. And if VAHO comes to the party ex of whatever pyramid, that will also aid margins. So we are not overly worried about copra prices. But yes, for the next 1 quarter, margins will be under pressure. Hopefully, from quarter 2 onwards, we can start seeing some improvement.

[Mihir Shah, analyst]

Great. Secondly, on Foods. Foods has delivered a strong growth since past few years. Can one say the low-hanging fruits of placing new products and launches is behind and growth probably can moderate a bit from these levels? I understand that the guidance that you've given indicates a 25% CAGR continuing. I just wanted to double check if that range can sustain. And any new subcategories that you were thinking of adding or you will probably scaling the current portfolio up? So that's on Foods.

[Saugata Gupta, executive]

See, if you look at Foods, I think there is a huge run rate for growth. And the reason is that we have not even tapped the GT at all for good so far. In fact most of our Foods has been OT SKU. I think we have also now significantly leveraging the growth of quick commerce. So therefore, in terms of -- there's a significant distribution initiative available, the penetration of oats and masala oats is still low in our country. And therefore, we have a penetration task.

And as I said that I'll give an example of honey. We have double-digit market share in organized trade. We have single-digit market share, low single-digit in duty just because our distribution has not -- we have not yet focused on our distribution as we were -- other initiatives which were there.

One part of the SETU, which is urban part of the SETU is also about driving food and chemist and cosmetic outlets. So -- and also, I think there is True Elements and True Elements also, I believe there's a brand with a strong equity and huge potential. You will see expansion into some new categories, which we are planning in True Elements also. So therefore, we are extremely confident, and as I ask that growth.

And number 2 is as I said that while oats and masala oats, which is the core continues to grow double digits, we have significant opportunity in Muesli and some of the other categories and honey. Muesli, again, we have been so far expected ourselves to OT. We are just about testing the waters in GT. But to give you a perspective, if we are available in all Masala Oats outlets, which we distribute Muesli and Muesli is available as a category. I mean there is a 4x, 5x opportunity in Muesli also. So we are not at all -- I think one of the things we are doing in the last 2 years is to ensure that we get the profitability, right? Now I think we have to get the GT distribution right in Foods.

[Operator]

We'll take our next question from the line of Avi from Macquarie.

[Avi Mehta, analyst]

I just wanted to ask 2 questions. First, on the expectation that we have of driving or aspiration of driving double-digit value growth in FY '26 in India. Could you share your thoughts on what have you built in from an oil price perspective, especially given the recent correction in palm? Just an understanding or is that a risk? Basically what I'm trying to appreciate is while I get the point of copra deflation not panning out, my only concern was, are you not worried about deflation and Saffola pricing hurting our ability to reach double-digit growth in FY '26. And what gives you confidence there? So that was what I was trying to get.

[Pawan Agrawal, executive]

It is built on 3 different goals. One is our core business, where we definitely expect, first of all, the volume growth predicted itself to improve. And we definitely expect that the first half of the year, the inflation net growth will definitely support. That's one.

Second is Foods, as we just mentioned that we definitely expect Foods to continue to grow at 25% plus. So that's the second build. And third is, of course, the Digital-first businesses, which is growing at a much higher clip. So if you do the math around these 3, you'll arrive at that double-digit top line growth is fairly possible in FY '26.

[Saugata Gupta, executive]

So just to add, I think we have delivered 7% volume growth. Full year, we delivered 5%. We expect the volume growth next year to be -- I mean, full year annualized to be more than 5% and 7% now has become almost like a base case for us, 6% to 7%.

[Avi Mehta, analyst]

Got it. Okay. Okay, sir. Sir, the last bit on the margin front, while I understand the input cost, et cetera. Could you share how should we look at SETU and any quantum of benefit from that initiative? .

[Saugata Gupta, executive]

I think the -- yes, the SETU, I think the objective of SETU is to improve our quality of direct distribution. As you know that our total distribution to direct distribution ratio was higher, which means that our direct distribution was lower than some of the benchmark organizations. So the first impact of SETU will happen in terms of the quality of distribution in rural. It will help in range selling. It will also help in gaining market share and also drive some of the diversification agenda. Like basically, what happens is if it goes through wholesale, wholesale only takes the high-velocity brand or the leader brand.

When you do direct, you expect a better range selling. The second part of SETU, of course, is the urban part of SETU, where we do food and chemist cosmetic, which is the second phase of SETU. But I think the first thing of SETU is to improve our quality of rural distribution. As you know, we don't sell [sachet] nor we sell food.

So our rural -- gross margin of our rural portfolio is fairly good. And therefore, our breakevens are pretty compared to if we had a very [sachet] or something other portfolio, okay? So I think we will start seeing the results of SETU. SETU is doing decently well and the impact will start happening this year. You will see the impact on volume growth. And one of the things we expect is, SETU is going to aid VAHO growth.

[Avi Mehta, analyst]

Okay, sir. So essentially, the first level of improvement will be the volume growth trajectory in particular in VAHO and the second leg could possibly come from a range selling in urban India, which should happen over...

[Saugata Gupta, executive]

But also, I think in some markets, Parachute rural share also would improve.

[Avi Mehta, analyst]

Okay, sir, from current level [indiscernible]. Okay sir. Okay. That's all from my side. .

[Operator]

We'll take our next question from the line of Harit Kapoor from Investec.

[Harit Kapoor, analyst]

I just had 2 questions. One was specifically on this quarter, Foods growth at 44%, it has come off even a pretty good base. Actually, the base growth was over 20%. So this is the highest growth quarter for us in the year for Foods. So I just wanted to get a sense of anything incremental that we've seen in Q4, whether it's been a little higher on distribution or certain brands or in the portfolio which have done incrementally better because this number is higher than what we've seen probably the last 8, 10 quarters. So just wanted to get your sense on that.

[Pawan Agrawal, executive]

No, it's a combination of 3 elements. One is our core foods that we said that have grown double digit in the full year. There is 2 elements, and there is Plix. So all the 3 are driving the growth. And as I said, that obviously 44% may be a number which is slightly higher than our aspiration for the full year. But I think one of the other things we have done, as I said, is that we, in the last 2 years, have significantly made efforts to improve the profitability of Foods. And therefore, one of the things we are going to do is that now that the profitability has improved, that can be at least and going to GT in a little more meaningful way and also scale up things like honey and Muesli.

And if I really look at it, the other driver of food, which we are now witnessed and we are -- if you look at interestingly one piece of data, if quick com has been contributing to 3% of in FMCG and especially in BPC, in food, quick com contributes only 7%. Quick com is a big driver of food. And between Plix, True Elements and Saffola, we are also investing significantly quick com to drive Foods growth. Having said that, I think as long as I think we will be happy if we can deliver 20% to 25% plus growth in Foods over the next 2, 3 years.

[Harit Kapoor, analyst]

Fantastic. The second thing was on Parachute. So there's a 30% increase now on prices. Could you just give us sense of what's happening in the market? I mean, where is this regional unorganized player in terms of the RPI between Parachute and the regionals or unorganized? And you did speak about some supply chain issues that the competition is having which -- due to which they are also having to take price increases. So if you could just explain these couple of things that would be helpful.

[Pawan Agrawal, executive]

So we -- what happens is that when inflation happens, in relative terms, we are more competitive because we observe some part of the cost. Also because of our procurement efficiency, our consumption cost is not like what we have the buying cost or the market cost, okay? So -- now what is happening is a company of 2 things. There are 2 different things. One, for the small players, because of the high cost of procuring copra and the fact that they are risk-averse in buying copra at this rate because suppose copra prices go down, they'll be stuck with that, okay?

So as a result, what happens is that their stock pressure reduces. So what we are seeing, and this has just happened in the last couple of weeks, we are seeing competitive presence some of the smaller brands are less -- in terms of the availability has become a problem because also they have to get working capital to buy copra at I mean this kind of a price, okay?

As far as branded competition is concerned, I think last year, we saw a little unreasonable competition where perhaps they are not making margins. They are now taken price increase in line with the cost increase and sometimes disproportionate, which also helps us in some way. And therefore, what we are confident about is that as soon as the hyperinflation settles to inflation, it's unlikely there will be a major deflation. As I said, on commodity, I can't predict -- nobody can predict. But as it settles down in Q2, you will see the volume growth happening. And also, as I said, that there is also a 1%, 2% drop, which has happened due to the ml-age drops, which will be anniversarizing as we move to the second half of the year.

[Operator]

We'll take our next question from the line of Abneesh Roy from Nuvama Wealth.

[Abneesh Roy, analyst]

This is Abneesh Roy. My first question is on the quick-commerce, do you see the bargaining power increase for you given new players are expected to enter this. Already you're doing so well with 7% in food. So would you expect that now with bargaining power increasing, maybe this can even grow faster, given new players entry?

[Saugata Gupta, executive]

So just to clarify, I said for the food category as a whole, 7% for us, the different brands have different contribution, but for food are higher than BPC. So coming to bargaining, I think it's -- see, the way we look at any new channel is that you need to have a -- you first need to understand the shopper. So I believe the quick com shopper is different from the shopper in a marketplace. It's different from a shopper in modern trade, and different from a shopper in GT, for example, in quick com, we believe convenience plays a role. Impulse categories have a higher throughput in quick commerce.

And given the fact that a shopper in a marketplace has browsing time in quick commerce, if you are not in the first 4 in the screen and it's a vertical mobile screen, you don't stand a chance. So therefore, I think it's important to understand that, therefore, how do I create a portfolio, which is tailor-made for quick commerce, and it is not cannibalistic. Having said that, yes, there is some -- quick commerce is taking some share from maybe marketplaces, they're taking some share from GT. And therefore, what we need to do is to ensure that and keep a tailor-made portfolio, ensure that we drive offtake and not just give price discounting and not have cannibalistic sale. As long as that as the category grows, I think we'll be able to ensure that we are not profit dilutive in any segment.

[Abneesh Roy, analyst]

Sir, my second question is on the international business. Sales growth has been quite decent past few quarters. My second question was, if you could discuss volume growth in Bangladesh and MENA, how the trends have been? And how the mix has changed. You can compare versus last 1 year versus, say, 2 years back, so that a longer time frame can be taken. And would you be worried on the benign crude oil prices for the MENA growth from a 1-year perspective, would that impact or it's mostly now specific to company rather than the crude oil from a growth perspective in MENA region?

[Saugata Gupta, executive]

Not really. I think crude oil is not -- actually, we are a challenger in MENA. We are growing. I think there is enough opportunity headroom for both market share gains and profitability as we scale up. A significant portion in volume growth because there's very little inflation in MENA similar with Bangladesh. I think the one big change that has happened is if you look at Bangladesh, 4, 5 years ago, Parachute coconut oil was 90%, it is now sub 60%. And it is -- so we have, as I mentioned in my opening remarks, the share of premium has now gained significant critical market.

We are growing, whether it's in shampoo, baby, we have launched shower gel in Middle East, and we have launched body lotion in Middle East. And the other interesting thing was we were not present at all in Egypt hair oil. In the last couple of years, we have -- and we are gaining rapid market share. There's the headroom for growth. So this -- according to me, is significant headroom for growth in MENA for both top line market share and profitability. In Bangladesh, we have been resilient, and the diversification agenda continues.

[Abneesh Roy, analyst]

Sir, my last question will be on the A&P spend. So India's largest consumer company also has cut its margin profile from the next 2, 3 quarters' perspective because they've seen that macro seems to be improving, and they want to invest. So is that also a thought process -- one of the thought process in Q4 because Q4 run rate is much faster than in terms of growth versus the full year. And if you could tell us if most of the increase in ad spend is for digital and foods essentially in Q4?

[Saugata Gupta, executive]

So I will -- I think -- see, sometimes it's not fair to compare a particular quarter because there could be certain new launches. Having said that, I'll give you a perspective of full year. Full year, I think we have grown by -- A&P has grown by 18%. Yes, we have significantly invested behind the diversification agenda in the international business. Having said that, we are doing 2, 3 things. We are converting also some BTL to ATL in core. We will continue to invest behind core also. And let me tell you one thing, sometimes you fall into what I call the SOV track. SOV track means that if competition doesn't spend, you think very good, I will also stop spending.

As a category leader, it is our responsibility to drive category long term. We are here to grow the category long term. We are not going to sacrifice for the long term for some short-term quarterly margins. We never believed in that. We have never done this. So therefore, we'll continue to continue to invest behind the core. And A&P will be broadly in the same line, which we have done now. And I think we are also taking significant efficiency, as I said, that we will -- having if I spend A&P at the same levels of -- so this year -- I mean, last year or this year, we are also doing a significant efficiency program on the A&P as I talked about, which is cutting down on nonproduction spend, cutting down from BTL to ATL, so that actually we continue to drive media. The other thing you must realize today, thanks to all the digital brands, our digital buying capability and digital scale of media buying is one of the largest in the industry, which is not -- which is commensurate to a size of a larger FMCG player.

So therefore, the digital media buying efficiency, thanks to Plix, True Elements, Beardo and Just Herbs has also grown manifold, so as the digital marketing capability. So that gives significant efficiencies. And for the first time, what we are doing is we are buying, for example, digital media together.

[Abneesh Roy, analyst]

Sir, the last quick follow-up on your Digital-first. It has done quite well, and you have been one of the early movers and early M&A you have done, and most of them have done well. From an FY '26 perspective, will it be more of stabilizing these 4 to a better profitability with a very good growth? Or you think you need one more M&A because we do see lot of D2C start-ups available. And we are also seeing other listed companies also starting to do. You have been one of the early start-ups, but now we have seen other companies. So if you could discuss from a FY '26 perspective, it's more of stabilizing the current 4 brands here?

[Saugata Gupta, executive]

So as I alluded to during my opening commentary, we see 2 cohorts in the digital business. The first cohort consisting of Beardo and Plix. We expect the ARR to hit INR 1,000 crores plus as far as these 2 brands are concerned. They're already profitable. We don't need to do extra cash burn to do disproportionate growth, I think we'll accelerate the growth in these 2 brands. At the same time, get scale efficiencies and continue to improve EBITDA.

As far as the other 2 brands are concerned, which is Just Herbs and True Elements, we will now grow maybe 20% to 25% on a sustainable basis, but accelerate the kind of the -- ensure breakeven period so that in 18 to 24 months, we see some site of a breakeven. And therefore, overall, like if you look at the blend, we are well positioned over the next FY '27 to move the overall digital business EBITDA to double digit. Now yes, there are -- there could be brands available, but we will continue to use the same model. We firmly believe that it is much better to take a majority stake, learn from the founders rather than doing 100% because that gives us a far better way of integrating. And as we keep on integrating our experience and capability keeps on increasing.

[Operator]

We'll take our next question from the line of Karthik Chellappa from Indus Capital Advisors Hong Kong Limited.

[Karthik Chellappa, analyst]

Okay. Great. And congrats on the quarter, and also congrats to Saugata on the reappointment. So I have 2 questions. The first one is, if I were to look at our India P&L for this quarter, the absolute EBIT has actually declined. So despite having about INR 400 crore extra revenue, the EBIT itself hasn't improved much. So how should I see this? And how much of this is, you think, because of raw material inflation impact and how much of this could just be a mix impact?

[Pawan Agrawal, executive]

So I think, Karthik, you're referring to the segmental results that we published over their EBIT, you would see there's a marginal decline. But it also includes the digital and also if you look at, there was a one-off hit in the base in other income, right? Those are the 2 reasons why your EBIT is on a decline. If you were to adjust the digital business, bleed, et cetera, your EBITDA for quarter 4 for India business has actually grown by about 4% to 5%.

[Karthik Chellappa, analyst]

Okay. So the 2 biggest drags are basically the digital hit and the other income, right?

[Pawan Agrawal, executive]

Correct. That's right.

[Karthik Chellappa, analyst]

Okay. Great. My second question is, as far as the Foods business is concerned and the serum and male grooming business is concerned, could you give a sense of what kind of annualized run rate we are running at if I take fourth quarter as a base. .

[Saugata Gupta, executive]

So I think Foods full year, we did INR 900 crores. So therefore, you can expect at least a 25% -- 20% to 25%, minimum 25% plus growth in the food business. Now I'm not getting into serum specifically, but I think serum as a category is growing, and we are also growing.

[Karthik Chellappa, analyst]

Okay. Great. Because in the third quarter, we have disclosed the run rate for Foods at about INR 1,000 crores. So if you have done INR 900 crores, that means that is -- that pace is accelerating, right? That's a reasonable influence. .

[Saugata Gupta, executive]

So usually, Q4 is a slightly slower this one for food, we are shy of INR 1,000 crores in run rate in Q4, but we usually, as you know, in Q2 and Q3 are the peak usually this one for food, especially during the festive season, Diwali and other things and all the gifting that happens. So we are slightly shy of INR 1,000 crore run rate in Q4, and that is -- but despite that we have a 40% growth rate. So I think you can take a 25%, 30% at least minimum growth rate for Foods as we move towards next. And I think we have said that we have given our FY '27 aspiration in any case.

[Karthik Chellappa, analyst]

Excellent. Just one clarification. The 30% price increase cumulative we have taken in Parachute. That's over what period?

[Pawan Agrawal, executive]

So starting from last year quarter 1, if you look at quarter 4 results, we have taken about 23% price increase, 32% value increase of a 1% decline in volume. So that's 23% price increase. Very recently, we've taken another round of price increase of about 8%, 9%. So..

[Saugata Gupta, executive]

That is just going into the market just now -- it's gone actually into the market last week.

[Pawan Agrawal, executive]

Yes. .

[Karthik Chellappa, analyst]

Excellent. Okay. That's all from my side, and wish you and the team all the very best for FY '26.

[Operator]

[Operator Instructions] Next question is from the line of Abhijeet Kundu from Antique Stock Broking.

[Abhijeet Kundu, analyst]

Actually, we have very commendably shown about 13% growth in gross profit during the quarter despite all the inflation and the price hikes we have taken. So gross probably something which is -- growth is something which is very important at this point in time.

So my first question was in Project SETU, you said that VAHO would be one of the -- one of the main beneficiaries. I also agree. Does Project SETU improve your presence in under-indexed geographies of VAHO or it would be both in under-indexed and the existing form geographies because you will get more depth as well. That is the question.

[Saugata Gupta, executive]

Yes. So let me give you a perspective. So if you look at historically, Parachute strong markets are basically the South and Maharashtra. And value-added hair oil markets are strong in the North. Having said that, I think in strong markets of the South and Maharashtra, especially South, this will help in diversification by putting the second or the third brand in because we have huge distribution already.

In the case of some of the under-indexed markets, like in the North, like UP and all where we are under-indexed, there also, we see VAHO growth. So basically, what it will do is in the South -- we will diversify it will help VAHO. It will also help in Parachute rural market share because rural where we will now go direct. In the north, it will significantly improve and the performance of VAHO especially under-indexed markets. So we are actually relatively more under-indexed in the -- our distribution -- direct distribution in a lot compared to South.

[Abhijeet Kundu, analyst]

Understood. And how has been the competitive environment in VAHO and also in case of Saffola edible oil? Because in edible oil, there has been very sharp inflation. Companies have shown growth, but the volumes have been impacted. Your volume has been relatively been insulated. The impact has been lower. So how has the market share behaved there in case of edible oil? And how has been the competitive environment in VAHO? Because you say that your key competitor has increased prices in coconut oil as well as in other oils. So -- so just a perspective on that. .

[Saugata Gupta, executive]

So first, let me clarify, I mentioned only coconut oil as far as edible oil is concerned, see, we have taken a conscious decision that we will ensure we give a modest volume this one, and we will definitely not sacrifice margins. We will operate at a threshold level of margin. And as you know, in any case, Saffola operates in -- with a significant SKU in OT, organized trade as well as metros. So therefore, we believe that we'll be able to give modest volume growth as long as there is no significant volatility as far as the raw material is concerned.

I think in coconut oil, what has happened is that the competitive -- perhaps in the last year, we were facing 2 sets of headwinds. As you know, the FMCG market during COVID and the immediate period post COVID, a lot of smaller players had gone out of circulation or their presence had reduced. Sometime from '23, '24 onwards when inflation happened, a lot of the small players started getting into the market. And obviously, 1 year, we witnessed maybe because of inflation some of the -- our biggest source of growth in coconut oil is unbranded to branded, that slowed down and in such, sometimes it went reversed.

What we are now seeing in this period of inflation and if you look at this hyperinflation, small players' ability to buy their working capital and the ability to store, they don't have position building and all that, they become much more uncompetitive. At the same time, we have seen a case of organized competition also taking significant price increases, so that they don't make a negative gross margin, which both of it will help us. And that's why we are confident that Parachute volumes will start coming back in a couple of quarters. And number two, as I said in the second half of the year, the anniversarization of the ml-age drop will also stop to a large extent.

[Abhijeet Kundu, analyst]

And how has been competitive environment...

[Saugata Gupta, executive]

I just wanted to add something. I don't think any master brand -- and that is our pricing power. That is our -- we operate in a low price elasticity. I don't recall any master brand having the guts to take 30% price increase.

[Abhijeet Kundu, analyst]

Very clear. And about the competitive environment in VAHO, any intensity has reduced or something that has happened?

[Saugata Gupta, executive]

Not really. But as I said, what we have taken a conscious call, which I alluded to in the last quarter also, there are 2 sets of things. One is the bottom of pyramid where there is a competitive intensity that is far more trade-driven intensity in terms of people moving from ATL to BTL, but there is premium and semi -- we are focusing on the bid and premium. We will continue to invest ATL. We are not -- as I said, we are okay. I mean it doesn't matter if I share our things because it is our job as a market leader to drive category growth. We are seeing the first this one. If you look at our trajectory of VAHO between Q2, Q3 and Q4, every quarter, we have shown an improvement. And we are now pretty confident that this year, we will turn positive, and it will improve as with every quarter.

[Abhijeet Kundu, analyst]

Okay. And the last one is, what will be the effective tax rate in the next 2 years?

[Pawan Agrawal, executive]

You can take it at around 22%.

[Operator]

[Operator Instructions] We'll take our next question from the line of Nihal Mahesh Jham from HSBC Securities.

[Nihal Jham]

Congratulations on the good performance. So a couple of questions. First, on the Foods part of it, just wanted more clarity on where is snacking in the overall scheme of things. Has that also achieved a certain threshold profitability and it's an important part of the 25% growth that you are targeting or more in the pilot stage and maybe the growth will be beyond FY '27 for that segment?

[Saugata Gupta, executive]

So we continue to be in the pilot stage. I think it's important first to get the GTM right. As you know, snacking is not an OT SKU this one because if you have to get snacking to scale, we have to get our GT in food right. So I think we are first -- there are -- if I look at it, the first thing is we'll continue to -- in terms of the food growth as far as Saffola is concerned, there are 3 things.

First is to continue to invest behind increasing penetration in oats. We will continue to drive honey, and we want to scale up Muesli, snacking comes next. I think -- and therefore, I don't see snacking achieving scale this one.

And of course, as I said that you will see significant some new category entry in True Elements and Plix continues to do well. And I believe that nutraceuticals, where Plix operates the headroom for TAM expansion continues. I think, Plix operates in some of them.

But definitely, we can get into some other things, like if you look at a nutraceutical band, you have 5 elements in any nutraceutical company. And one is waste management, one is cardiovascular health, diabetes, gut health, bone health, stress and sleep. Now Plix tomorrow, it's -- the name is agnostic.

It can operate in all. And therefore, the headroom for growth in Plix is tremendous. And I believe that Plix is a very strong equity. It has strong digital capability. We have founders and us, we are working together, partnering and having -- creating this explosive growth. And therefore, there is enough headroom for growth. Therefore, for us, food is a 3-vector growth and not a single growth.

[Nihal Jham]

Sure, sir. Just one follow-up here. So try to think that new categories of food will be more niche just the historical trajectory of food has been and, say, for a large category like snacking, where it's hypercompetitive will always not be a very core focus in terms of driving it ahead.

[Saugata Gupta, executive]

No, I think if you look at one thing, what we are doing is one step at a time -- if you look at food, I would first do a few things, get scale and then attempt the next one rather than doing many things because one of the experiences we have had is that when we -- the moment we got breakeven in oats and Masala Oats, which scale the -- the profitability develops. So therefore, one of the things we will do, we do a few things to scale rather than doing many things subscale.

[Nihal Jham]

Understood. Second question was on Beardo and the larger D2C portfolio that it's commendable reached a double-digit margin despite revenue is much lesser than some of the other larger D2C names who originally started out as D2C. So just wanted to understand what has been the path to achieving these kind of margins at this scale? Is it measured A&P? Is it more focused on profitability and less discounts? Or is this a right mix of channels, if you could just highlight that.

[Saugata Gupta, executive]

I think I alluded to my commentary being a listed company, our ambition or aspiration has to be greater than resource. We don't have the luxury of having resource greater than ambition.

[Pawan Agrawal, executive]

And also just to add, we've discussed in the past that there could be 2 different models of growth in digital business. One is exclusive growth of 70%, 80% with a significant cash burn. And the second one, which is the calibrated growth of 20% to 30% with a very high focus on profitability improvement. And latter is what we have taken the approach, and we are absolutely comfortable with this, and we will continue to have this approach for the rest of the digital businesses. While Beardo has reached double-digit operating margin, but others are also on the way. And we believe in the next 2 years, our aspiration of reaching double-digit operating margin for the entire cohort we should be able to realize.

[Operator]

We'll take our next question from the line of Sheela Rathi from Morgan Stanley.

[Sheela Rathi, analyst]

Congratulations, Saugata for your reappointment. My first question was with respect to the opening remarks you made that the growth for the listed FMCG companies may not be the right way to look at it or not necessarily representative of the overall growth. So just from your perspective, what would be your sense on the growth last year for the overall consumer space? .

[Saugata Gupta, executive]

I can't [hazard] again. But all I can say is that the D2C and the smaller brands don't get captured and some of the unlisted companies. So it could be tad higher. That's all I can say.

[Sheela Rathi, analyst]

Understood. And second question is very similar to what Nihal just asked on with respect to Beardo getting to double-digit margins. Just from your lens, again, what would be the gestation period? Is it fair to say that the gestation period for a personal care D2C brand is about 5 to 7 years, whereas for food, it could be much longer. So what would be that number for food businesses when we are pursuing a similar digital first kind of a therapy as well as right GTM strategy rather?

[Saugata Gupta, executive]

So I think it's very difficult. I don't want to do that. But what I can tell you is this is obviously food brands, I'm not talking nutraceutical. Nutraceuticals obviously has high gross margin. I don't think there is a profitable model for digital-only food business in this country. So they have to get into GT. And if you look at some of the brands which have scaled up, they have gone into GT for the proportion of GT in a food founder brand is always higher than a personal care. While personal care brand, perhaps I would say they should not go into too much into GT.

[Sheela Rathi, analyst]

Understood. Actually because that's the best thing, right, with respect to the journey for us on the Beardo side on how the profitability has moved.

[Operator]

We'll take our next question from the line of Anurag Dayal from PhillipCapital.

[Anurag Dayal, analyst]

Sir, one question I have on GT channel. It has been under pressure for quite some time, and you allude you to some of the steps taken to ease pressure. Apart from our SETU initiative, could you tell us what are the steps which we have taken? And when you see growth recovering in the channel?

[Saugata Gupta, executive]

I think we believe that the urban GT will continue to be stressed because I think if you look at the organized trade share in the top 5, 6 cities, it's increasing, also with growth of quick-commerce, quick-commerce is also taking a slice from GT.

Having said that, what we are trying to do is ensure that through a significant number of steps, we want to manage and ensure that our partners continue to get ROI. But I believe there is significant opportunity and GT will continue to be very, very critical and a source of competitive advantage.

There are -- continue to be -- there will continue to be entry barriers in the smaller towns, mid and small towns and rural. And that is why we are investing a significant portion of our effort in SETU because rural, I don't see OT impacting rural even in 5, 7 years, okay?

And that is where I think a lot of our SETU initiatives and SETU investment is going. And we believe that for large FMCG players, defocusing on GT is not a great thing to do, but we should be -- at the same time, it's an and growth in India. It's not an or growth like what has happened in some of the other Western markets. GT will continue to be ever important even in 2030.

[Anurag Dayal, analyst]

So sir, are we doing a differential SKUs for...

[Saugata Gupta, executive]

Obviously. I think our entire effort is to have channel-specific portfolio channel-specific SKU and keep on reducing channel conflict and cannibalistic growth.

[Anurag Dayal, analyst]

And one more question I have on Bangladesh. Now it's very commendable that we achieved double-digit growth in a tough environment. However, the dividend payout has been a record high in FY '25. So I just want to understand the reason behind it. Does it indicate that the growth opportunity in Bangladesh is now limited and maybe you're looking at the international markets, how to understand that...

[Pawan Agrawal, executive]

Surplus cash lying on the balance sheet, and it is only put in to return it back to the shareholders rather earning interest income on that. We are not compromising any investment opportunity. If you look at the NP also continues to grow. And we believe that through continued investment, we will continue to grow in double digits. So it's more of a surplus line in the balance sheet that has been brought back.

[Operator]

Ladies and gentlemen, we'll take that as a last question for today. I would now like to hand the conference over to management for closing comments. Over to you.

[Pawan Agrawal, executive]

Thanks for listening on the call. To conclude, the year has been marked by significantly positive outcomes in each of our strategic objectives, even while the operating environment has been challenging, despite sharp input cost pressures, our core portfolio have remained steady, and we have sustained investment towards the accelerated scale up of Foods and Premium Personal Care portfolios in India and premium categories in the overseas markets to build high growth levels, which are not only margin accretive, but will also systematically reduce commodity exposure over the time.

As a result, we are working towards the revenue and profit construct, which will be far more resilient and predictable across business cycles. While we will need to navigate inflationary pressures in the immediate term, we remain confident of delivering top quartile performance in the coming year and the medium term. That is it from our side. If you have any further queries, please feel free to reach out to our IR team, and we'll be happy to address. Thank you, and have a great evening.

[Operator]

Thank you. On behalf of Marico Limited, that concludes this conference. Thank you for joining us, and you may now disconnect.