“For us, overall rural is growing faster than urban but that is an anomaly because we always had a lower share in rural than urban. We are dramatically increasing the number of wholesalers and therefore our reach into rural areas and we are focussing on the specific packs which go into rural areas. We aim to take that number up significantly,” says Sunil D’Souza, CEO & MD,

What are the demand trends, currently especially when it comes to out of home consumption products given that in the international markets, inflation has clearly weighed in on the performance in the second quarter? What is the reality on ground zero?
Before I get into it, just a very top level view of our numbers; we declared results on Thursday – 11% top line growth, 4% EBITDA growth and 36% Group net profit. All our businesses are on very strong footing; India beverages is almost flat – negative 2%; foods on a roll at 29% growth, international up 7%, India growth business is up 50%, ready to drink up 64%, Sampann 37%, Soulfull 112%.

Financially, we are on a strong wicket. We have improved margins in all our India businesses. India EBITDA actually was up by 25%, improvement on margins on packaged beverages. The group business is growing and improving gross margins by 30 bps. Strategically, we feel we are in a good spot. Yes there is softness in India beverages, but we have held market shares. Salt will continue to grow market shares. We had talked about 1.5 million outlets by March and we are already at 1.4 million. So we will exceed that.

A&P we are continuing to power ahead, we are now at 6.4% for the half year versus 6.1% last year. We are getting leverage on cost. Employee cost for example is 30 bps better, innovation 2x what we launched last year. So all in all, we feel good but there are two pieces specifically which are showing in our numbers for this quarter: a) In the India piece there is a bit of softness in demand very specifically semi-urban, rural and more I would say Hindi belt. But the good news is everyone was predicting that as we get into the festivals and as the monsoon normalises we will see demand coming back. It is very, very early days but we are seeing a better second half of September and early October.

We will have to distil the festival numbers out of it. So I am not making a comment. I do think we will see pressure; it will be less than last quarter but we will see pressure for at least a quarter on that piece. Out of home, Covid is behind us and we are up and about. Our NourishCo businesses are mostly out of home and we are up by 64% and feel good about that.

Our Starbucks business is on a very strong wicket. We are up by 57% versus last year. Our same store sales versus pre-Covid is up by 24% and they are EBIT positive. As regards international, I it is a perfect storm hitting us out there whether it is inflation, demand and currency. We got to tackle it and get plans in place. We are seeing much more than what we anticipated on inflation both in the US and UK and we are geared for that.

In the UK, the new pricing is already in force. In the US, we have already announced it. Accepting it takes a bit of time with the retailers. Currency is an issue, we have both transaction and translation because all tea internationally is bought in dollars but we sell it in the UK in pounds. We know what the pound is doing and when one translates it into Indian rupees, the pound has depreciated. So that is the other piece.

All in all, there are multiple moving factors but what we feel good about is whether one looks at all the big KPIs market shares or whether it is financials. I think we are in a good place. Incidentally, while we will say pressure in international markets, in the UK we have moved beyond Twinnings and are the number three player. So structurally, we have been in a good place. We just have to put our head down and tackle this demand and inflation.

How do you intend to do that given that rural has lagged the urban markets? What is the breakup in growth numbers?
For us, overall rural is growing faster than urban but that is an anomaly because we always had a lower share in rural than urban. So we are doing two-three things to make sure that we are tackling the numbers.

One, we are dramatically increasing the number of wholesalers and therefore our reach into rural areas, focussing on the specific packs which go into rural areas. We aim to take that number up significantly. Two, in specific parts of the country, where we are seeing softness, we have taken pricing actions and that is why we have gained 10 bps on volume but are down 50 bps in value share because we have made pack price corrections just to get that assimilated.

We think that the economy will come back given the good monsoons and all the actions that the government has taken.

A large part of your business is centred around what happens to tea, what is happening to tea price trends? Tea as a commodity has seen a decline and the decline started two quarters ago. That should have got captured in how things would have moved for that vertical but I do not see that happening.
It is right. If you look at the long term trends, in India supply is greater than demand for tea and therefore pricing needs to come down. It had gone up during Covid and after that, it was a secular trend downwards. The curve has flattened right now. First of all, there is the whole Sri Lanka story and therefore orthodox tea is going out of the market. A lot of Indian suppliers had shifted to orthodox and therefore there is an impact on CTC and therefore it is flattish.

Secondly, the floods in June-July impacted the crop in Assam in July and August. Right now, we are seeing them trending just about Rs 10 higher than last year but going forward, I expect tea prices to come down. It will come into our financials as we go forward. So medium term, not even long term, that is the trend which will come.

If the economy comes back, tea prices remain stable, the food minus beverage business does very well for you, then how will the second half be different from first half? The first half was all about managing cost, struggling with inflation, trying to get the house in order. If all reverse, then are we looking at an incremental jump in the second half?
I would break the second half into two parts. I would say this quarter, for India, it is still a wait-and-watch policy and though we are seeing early signs, but I would still reserve judgement. As for international, like I mentioned, we got to take pricing actions and currency actions. We have to take structural cost actions which will take about a quarter.

So for us, this quarter is still in the same ballpark but going forward, once we get this on track and assuming the macros turn around, we are very well positioned. I keep telling my teams that there are two basic factors which are the indicators for a strong business — market share which gives us strength in the market where we are good on tea. We are continuing to strengthen in salt and all our growth businesses on a very strong trajectory.

The second one is margins. Our margins have come back more or less where they should be. So if the volumes come back, broadly we are in a very good place.

You did speak about tea prices and how the tea business is shaping but given that coffee prices have been quite soft, what is your outlook on how the coffee business is likely to shape up?
We have three different businesses. We have Eight O’Clock in the US. We have Coffee in India consumer business and we have

which is the subsidiary. Now Tata Coffee will obviously have the benefit of increased coffee prices as we go forward and therefore we are feeling very good about it. Eight O’Clock Coffee in the US.

Coffee prices are going up in rapid succession. We were hedged for some time and now we are putting up new hedges so there’s a little bit of pressure but we are taking pricing steps. It should be back on steam. The US business actually has very strong growth, very good margins and therefore it will come back in the next 45-60 days. In India, coffee business coffee grew by 39% albeit on a small base but we are continuing to power ahead and gain share. Overall, coffee is a big growth driver for us and we feel good about it.

You did speak of inflationary trends cooling off and how you are dealing with it globally. But the margin picture has been flat on a year on year basis. Is the worst over when it comes to your margins then?
Again I am breaking it into two pieces. I think in the India part, broadly the margin pressure is over. Maybe they will be a little bit range-bound going forward. Internationally, I do not think we are out of the woods yet simply because we have to take pricing actions and cost measures that are in play. It will probably take a quarter for us to get that.

Could we see a sequential decline in international business? Let us keep the currency part aside because that becomes an assumption whether it is a dollar or whether it is pound or whether it is some other currency.
No, I do not think so. I feel very good about demand. Overall revenue for the international business will continue to grow. Last quarter, we had grown 9%. This quarter there was a bit of pressure. We grew 7%. I do not think growth is an issue. It is just about getting the margin structures right.

What happens to the non beverage business? There is pricing power is salt because there is hardly any raw material involved in it, but pulses is where the inflationary impact would be felt?
If I take tea and salt out for a minute because we are growing into a total food beverage company, we feel good about all the businesses. Like I said, ready to drink is up by 64%, despite the pressures on cost. Sampann, which is pulses, spices etc is growing 37%; Soulful is growing 100% plus; Starbucks is growing very well.

Now specifically to your question of Sampann and pulses, the good news is a) we have got to ramp up our procurement engine; b) we have got to get logistic right; and c) we got to ramp up our branding. All three are in play. We have started to put money behind Sampann branding and we have got our procurement engine in place.

Pulses had a very good growth. On top of that, GST on packaged goods including pulses helps us because that spurs the drive from the unorganised to the organised. So all in all, we feel good about where we are and on top of that, Sampann is one of the big thrusts for us. South is 40% of the market, we have just about launched and when the sales guys comments say boss, we need more and we need to go to more geographies because this is a product which works, then you feel good about it.

You are looking at picking up stake in Bisleri and I will not allow you to say no comments?
Here is the thing. Media speculates on 10 different things and so I would not comment on speculation going around.

I am asking you this question. Let us end the speculation. You can tell me a yes, no and then the speculation ends right now?
Let me leave it with if there is something happening you will be the first person to know.

Would you be looking at or interested in the distilled water category?
We are going to be a total food and beverage company. We are in the beverage business, the food business, we are in packaged tea. So we are looking at the entire playing field: organic and inorganic growth is on the table. I would just leave it at that.

You have had experience of water in the past because of the acquisition of Himalayan. But you are in the niche water category. Now looking at your growth and ambition, where is the opportunity?
I would just like to correct one of the points. Himalayan is growing very well. We are growing close to 50%. We are in Tata Copper Water which is in the same drinking water and it is growing 2x versus last year. I would say overall our RTD business is projected to be north of Rs 500 crores by the end of this year. So we are in a good place overall in the beverage space.