A couple of years ago, I was here speaking to Sunil D'souza about the journey at Tata Consumer Products. The revenues are now closer to $2 billion. Where does the next billion dollars come from? And back here, the same very place. Sunil D'souza with me. Thank you so much. Always a pleasure speaking with you. And let's start with that itself. I mean, a billion dollars added over the last 5 years in your revenue. Where does the next billion dollars come from and when?
So, Mangalam, as a company we have said we wanted to be a premier food and beverage company and then a total FMCG company. I think we're about 30-35% of the way there. We've still got a long way to go. The good part is over the past 5 years, topline double digit, 13% revenue, 14% EBITDA, 23% net profit. I think it's been a good run for the last 5 years. Going forward also, we're continuing to target an aggressive growth rate, double digit top line again. EBITDA margins, we're extremely aware we are one of the lower ones, so that will grow far faster than topline. And the aim is to double TCPL in double quick time. If we continue at this pace, I think we'll get there.
Okay, so you know one of the things that you had said also in the past, that you were 15 minutes into a 2-hour long movie. How far along have we gone since then?
I would probably be 30-35. It's 30-35. So you've still got a long way to go.
You've been speaking about decommodifying your business. Since then you've made a couple of acquisitions. The increase that has come in from your non-commodity products in sales has also visible, but still there is that element of commodity. If you could give us a number, where does that number stand at right now versus what it was earlier and what's your target here?
So, Mangalam, let me answer it in two different ways. If you look at commodity and margin pressure, you're absolutely right. Last quarter actually my EBITDA was about flat compared to last year despite topline growing 17%, which in percentage wise we had gone down. Now that is for two specific reasons. A is tea in India and it's coffee in the US. Now coffee in the US is a global issue. It's not only me. And we've announced a price increase effective June. So we will be getting back on the US margins quickly. The India margins were a question of supply demand in the last season and this season if everything is right we should be coming back to par very quickly. Number two, the way we've constructed our portfolio today is primed both for topline as well as margin expansion. I'll tell you why. So I broadly my portfolio is now three different parts. A is a steady India tea, India salt and the international business which will grow mid to high single digits and continue to deliver decent gross margins, predictable gross margin. There'll be those one-offs on the tea, salt, etc. from time to time, but broadly predictable. The second piece is a fast growing huge TAM opportunity of Samp, right? Per capita are low, branded penetration is low, the commodity penetration is low and therefore Samp is close to double digit margins. Ready to drink is slightly lower than my base but very very fast topline. So that gives me the topline leverage. And then I've got this entire set of slightly lower TAMs, very very strong brands, very high margin, which is Capital Foods, Soulful, Organic India. These pieces, Organic India supplements is a 70% margin, roughly 2x my base. Capital Foods is roughly 50% my base. So these are also fast growing but relatively lower TAM, so these will add to the margin profile. And as long as the theory of building the distribution system and the costs are mostly baked in, margin expansion at the top will drop to the bottom. That's the whole logic.
So you know let's take all of these pieces individually. Let's start with Organic and Capital Foods. Last year because it was a year of consolidation and you were trying to fix the inventory etc. and understand the business itself, you were pretty much at the same level as what it was in FY24. I remember you telling me that at a business case level Capital Foods could actually do 30% margins versus the 20-24% that when you acquired it. Even Organic you were hoping of a manifold growth out there largely because of one its quality of product and secondly the distribution mismatch. They were available in what, 28,000 outlets that time versus yours which is close to 4.4 million. How much of that has already happened right now? In how many outlets are these products available and what are the EBITDA margins of these products? What can we expect in the next couple of years?
So, Mangalam, we don't count every category EBITDA margins, because then it's a mathematical exercise to allocate cost because it's a common distribution, common backend system. Therefore we look at gross margins for the category. My manufacturing and sales is a fixed costs item below that. So if I look at gross margins, like I said, Capital Foods is 50% accretive to where I am. Organic India the base products are 50%, supplements are 2x of where they are, so highly accretive. Now it did take us some time because overall we've still grown Capital Foods by about 30% from when we acquired. Last quarter was a huge number simply because we are cycling weak numbers also last year. But we do think we can grow it 30% consistently. It took us a bit of time both for Organic India and Capital Foods because understanding the categories, the category dynamics, the outlets which mattered for weighted distribution, and the kind of backend stuff that we had to do to make sure that we maintained the margins. We probably took around four to five months more than I thought. We probably thought we will get it in a quarter. It probably took us five six months to understand the base stuff. So roughly half the year and from then on it has been an acceleration. So in the initial phase we did expansion on the numeric piece and then we figured out we were missing out the weighted. So we paused, we fixed the weighted. Now that we fixed the weighted, now you will see an expansion of two things. One is you'll see an expansion of distribution. And more importantly you'll see a portfolio expansion happen. 330 crore was this quarter. 500 crore per quarter run rate happens sometime in the middle of this year or start. We should be getting the second half of this year should be peacefully that kind of run rate.
And what about you increasing the TAM in these? You spoke about Soulful, you spoke about Organic. I mean these apart from what these brands stand for, there's a lot more that they can stand for as well. Are there any thoughts of increasing the positioning, expanding the positioning of Organic India and Soulful beyond what they are right now?
Absolutely, Mangalam. The theory was that very strong brands with very strong propositions could leverage into adjacencies very very quickly. Let me give you some examples. Soulful, we've just entered rusk. Rusk is a huge huge segment across the country. The good part is a large part of it is also locals and unbranded and therefore that journey will happen branding. So we're in the process of right now identifying plans to expand that. That's example number one. Example number two, when you said Capital Foods, in Capital Foods is desi Chinese. And one of the big big TAMs which was not tapped aggressively in the past was noodles. Now noodles, the 10 we were only playing in the multi-pack segment aggressively. But the bigger segments if you look at it is the 10 rupees and the 5 rupees. The 10 rupees there is money to be made, very decent money. You have to just get in there and get this thing. And I've got a differentiated product. I will never play mainline noodles with cheap things. But there is a differentiated play to be had and we're just about starting off expanding on that route. That's number two. Capital Foods, the other thing I think we talked about it briefly is the Korean craze. Korean, yes. Can desi also turn into desi Korean? Absolutely. It has every right to enter that very segment and all of that. So you will see a range of Korean cuisine launches coming out under portfolio very shortly.
And as you increase your adjacencies, you also expose yourself to competition from incumbents which are fairly strong in their processes. I mean you spoke about noodles, the market share of the market leader is fairly high. They are also fairly aggressive when it comes to competition. Similar is the case with Rusk in the organized space at least. Britannia is top of the pops, they are expanding their share as well. How do you compete with these guys?
So in all these categories, I am not going into the belly of the market. I'm playing a differentiated play.
But you are still eating into their incremental.
I am, but I'm not targeting a 50% share of noodles. I'm not targeting a 50% share of rusk. I am targeting a different segment which is a profitable niche and I can own the segment. I'm not trying to discount my way and gain share out there.
Let's talk about NourishCo now. Start of last year you said it'll be 1,000 crores. Last year you didn't anticipate the competition that came in. You ended about 850 crores. So it's a given that 1,000 crores happens in FY26. What's the growth path here? Because there is strong competition and I was reading a note that came in from Bira 91 which said that 59% of their volumes are actually generated from no or low sugar products. Functional beverages are doing extremely well. Are you considering entering the sports drinks what say the others are doing right now?
So, Mangalam, in NourishCo we've consistently maintained that we will not go up against the majors. We will do a differentiation. No fizzy drinks, so we will not get into carbonated drink. I would say in the next 15 days you'll see a sports drink come out. And we entered energy but we didn't get it right. We're in the process of rejigging it. You'll probably see a relaunch pretty quickly. You will see a slew of functional drinks. We're back on the growth path overall. For the last quarter I grew 17 on volume, 10 on value. But I exited March as a 38 on volume and 26 on value. So there's no reason I will not grow 30% consistently here on. A little bit of recalibration which you have to do. But in my mind, in businesses which are fast growing in emerging markets, that is par for the course.
And electrolytes in your plans or what's the scene?
We're looking at that category very very closely. Actually I was in Chennai and Hyderabad and I did see a plethora of offerings out there. But it's a very fragmented space. So I do think there is an opportunity to play out there.
You're also one of those who were in the same team that was responsible for inventing what Sting, which is currently the toast of the nation when it comes to growth etc. So what stops you all from getting so aggressive there now?
So we do, like I said, when the base business starts to not perform, if I may put it, we got to put that right first. So we focused on that. Right now we're back on the base business. Now you'll start seeing. We just got into alkaline water. Alkaline as a trend is catching up. It's just availability which is an issue and I do think we can circumvent that availability. We did a pilot in Bangalore, went off very well. So now we're going to roll it out very very quickly. So let me say, I'm not only chasing the big spaces. I'm chasing the niche spaces in which I can carve out a differentiated, strong, profitable, long-term sustainable business.
Is anything dairy related on the cards?
No, we are not. See dairy, Mangalam, let me be upfront. Either you are in dairy or you're not in dairy. In my mind, there is nothing you add to dairy.
So then how do you address the need for or the high demand for protein products in the country?
So protein is a space we know we got to get in at some point of time. We did try a small trial with something. I think we learned a lot and we also learned that it's not as simple as just putting a product and getting out. We need strong science backing for that. So we've taken a step back, evaluating it and we will come back.
So when you say that you're looking to decommoditize your business, so you look at Samp is growing extremely fast but a large part of their revenues again comes in from pulses that also is a commodity. So I mean how do you then decommodify yourself?
No, no, so it's a mix in the portfolio. Like I said, Samp and ready-to-drink exist for the topline at decent margins. And in Samp also, when you look at decommoditizing, I'm not playing the belly of the market in pulses. I am not into unpolished. If I get into unpolished, I get into the vast majority. I'm still in the polished pulses. I'm at a 10% premium to the local leader in every single geography and therefore I will make money. I built a strong backend which can predict the ups and downs of the market including when is the sowing season, how much is sold, what is the output, will the price go up down. So therefore I've started doing forwards.
Have you done that in tea as well?
