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“Volume growth across the businesses, tea, foods, foods were strong, international has come back to the party, 11% top line growth,” says Sunil D’Souza, MD & CEO, TCPL.
What should we start with? There are lots of things this time.
I would say the thing to start with is the quarterly results. I think we delivered a decent set of results, 9% top line, 26% EBITDA growth and 31%, if I take out the one-off, which is charge relating to some 20-25 years back, 31% growth on EBITDA, on group net profit.
Volume growth across the businesses, tea, foods, foods were strong, international has come back to the party, 11% top line growth.
Our growth businesses keep on firing, overall a 42% growth and all the businesses are plus 40% now. EBITDA margins are now north of 15%, working capital down 7 days. We actually generated 40% more cash in Q3 this year versus Q3 last year. Close to 3,000 crores of cash was sitting on our balance sheet and I say was because we are going to use it now for the acquisitions. The other thing, I will take it up front, your favourite topic of ROCE, 260 bps up year on year. So, that is something which we keep on watching. Market shares overall, while if you take the MAT number, slightly softer. We hit record shares in December, all-time highs, close to 39 plus now in value terms. Quarter-on-quarter beverage shares are up. In fact, we have gained close to 30 bps on volume, our closest competitor has lost 30. Distribution is on track we have 4 million outlets now. Innovation, like you mentioned, is now 5.3% this quarter versus 3% last year. So, all in all, business firing on all cylinders and more importantly, we are adding new engines of growth with Capital Foods & Organic.
One observation, which is that you are losing market share in your tea business and that decline has continued for the fifth quarter on the trot now. Is that a conscious move?
So, actually speaking, we quote the moving annual total, so it is a sum total of the last 12 months. And that is why I said, if you look at the last 12 months, it is a negative 68 bps, 0.68%.
But if you look at quarter-on-quarter, in value, we have gained 16 bps. But more importantly, volume, we have outgrown our competitor.
We have grown by 30 bps versus competition, which has lost 30 bps, so not too worried out there. It is a basic question of execution. And our focus on growing the premium end of the teas is coming back.
So, the mix is very strong. The Indian beverage business now gross margins are up by 500 bps so on a very strong wicket. I would not be overly worried. We have just got to get execution done behind our plans.
The acquisition, which in a sense has got everyone talking and thinking, for a company that was really growing organically, has taken a big leap forward. What was the thought behind it?
We have always maintained that we want to be a premier FMCG company. And in the premium FMCG company, we said, we will first focus on growing our food and beverage business before we venture into the broader FMCG. So, these moves are part of our growth into the larger FMCG business, so to speak. Three years back or four years back, when we started our journey, we had mapped out the entire food and beverage universe. And you have to remember, we started life as a tea and salt company, effectively, which are basically commodities.
So, one of the big thrusts was to get into value-added foods and beverages. And when we looked at the landscape and what we could do organically, we had mapped that out.
And that is why you see our innovation numbers very strong as we expand in the categories or the brand that we have and we play with. But then we also said, we will grow both organically and inorganically. And when both these assets came into the market, when we evaluated them, we figured, given the fact that we have a strong S&D system, given the fact that we built a strong R&D, digital infrastructure backbone at the back and the fact that we have a global footprint, we calculated the value that we could generate.
Capital Foods, hats off to Ajay Gupta and his entire team for having built a very, very strong brand with Chinks. Literally, market leaders, number one, number two positions in all the categories that they operate.
I think it gives us a platform to rapidly expand into the value-added food space. Organic India, very, very strong backend. One of the biggest things, we spent the maximum amount of time understanding the fact that it was really organic.
Once we convinced ourselves of that, then we looked at the portfolio. Herbal supplements are a trend across the globe, not only in India, but we have got opportunities to grow outside India.
Organic foods, per se, is a trend which is catching on. These people have fantastic products. They were just limited by distribution, so to speak, 24,000 outlets. We thought we could really multiply it. We have got the base infrastructure on which we will plug on these platforms.
There is significant amount of cost that we can take out in the middle of the P&L, apart from the fact that we will grow top line at significantly higher levels than where they are today. All in all, fulfils a very small portion of our ambitions, so to speak, towards becoming a large premier FMCG company.
This acquisition would be funded via internal cash, which is there on your balance sheet and also right issue. So I am assuming in this case, the promoter, which is Tata Sons, they would be participating in their holding post the right issue could go higher?
Right now, we have said we are going to utilize the significant amount of cash lying on our balance sheet and we have announced a rights issue of Rs 3500 crores. Yes, the promoter does back up saying that they will subscribe to any unsubscribed portion of the rights issue per se. So one step at a time; right now, that is what we have announced.
And when will the right issue will be announced?
We have already got approval from the board. We have already started working towards the rights issue. I think overall within, I would say, about four months or so, we should be coming out in the market.
Three years out, once the acquisition integration would be on, I mean, about 18 months to 24 months is the minimum time you would require to look at integration, supply chain, distribution. What will happen post that to my favourite number, which I always ask you, return ratios? I am phrasing it differently this time so that you cannot pre-empt it.
Let me say, actually, Capital Foods, we had the final closing board meeting on the 1st and we started invoicing on the first evening. We have already finished a substantial part of the front end integration. By February 15, we should be done and dusted. In the next, I would say, probably 70, 80 days or so, we will finish the organization integration as well as the back end.
So within 100 days, we should be done. Organic India, we expect to close sometime in March, I would say. And again, the target would be to finish integration within 100 days. The reason why is we quickly remove any uncertainties that are lingering around in both sides.
The go forward is clear, and we get to executing plans. So we do aim to start creating value very quickly. Number two we are absolutely focused on return ratios, as I said, we are 260 bps up in this quarter versus same quarter last year.
So that keeps on inching up. So the base business, we would continue to increase ROCE. But of course, as we grow, as it requires capital, we are building a platform for the future. But from wherever we are, there will be a target of significant increasing of ROCE numbers.
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