Edited Transcript of TATAGLOBAL.NSE earnings conference call or presentation 14-May-20 1:30pm GMT

Calcutta May 31, 2020 (Thomson StreetEvents) — Edited Transcript of Tata Consumer Products Ltd earnings conference call or presentation Thursday, May 14, 2020 at 1:30:00pm GMT

* L. Krishna Kumar

* Sunil A. D’souza

Good evening. On behalf of Kotak Institutional Equities, I welcome you all to the 4Q FY ’20 Earnings Conference Call of Tata Consumer Products.

We have with us Mr. Sunil D’souza, the new CEO and Managing Director; Mr. L. Krishna Kumar, CFO; and Mr. Rakesh Sony, Global Head of Strategy and M&A.

I would like to take this opportunity to extend a warm welcome to Sunil, Sunil joined Tata Consumer Products last month after a very successful 5-year stint as the Managing Director of Whirlpool, India. He has over 25 years of experience in various leadership roles in India and Asia across Whirlpool, PepsiCo, Coca-Cola, Brooke Bond Lipton.

Sunil, we wish you the very best at Tata Consumers. And over to you, Rakesh.

Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [2]

Hi, everybody. Good evening, and welcome to the Investor conference of Tata Consumer Products Limited. Last year was a momentous year for all of us. And this is our first investor conference in our — under our new name. So thank you all for coming over for this conference at this time of the day.

I will now request my colleague, Sunil to take over. Thank you so much. Over to you, Sunil.

Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [3]

Thanks, Rakesh. Thank you, everyone, for joining this call. Without further ado, I will move into the presentation. But before I move further, I just hope all of you are aware of the disclaimers that are there as part of this call. And then, if I move on to the agenda, what I will talk about between me and LK, and then we will take questions. And we’ll talk about overall company overview, we’ll give you a quick update on the latest headline event, which is COVID-19, talk about business performance in India and international, some campaigns and recognitions with — that we have of late, how we are shaping up as a responsible business and then, walk you through some of the financial performance and other details.

So I move to the first slide after this. This is the new Tata Consumer Products. In a nutshell, we are now an integrated F&B company with a rich heritage of Tata, aspiring for the largest share of the FMCG world. We are now among the top 10 food and beverage companies in India. And we are currently the #2 branded key player globally, with a caveat that we have got broader FMCG ambitions.

We have about 2,250 employees worldwide, with a revenue of about INR 9,600 crores in fiscal year ’20 and current market cap of INR 33,000 crores. We serve about 330 million plus servings of our brands to our consumers every day. We’re the largest tea brand — salt brand in India, we’re the largest tea brand in India by volume, we were third largest tea brand in U.K. and largest tea brand in Canada. With Eight O’Clock Coffee, we’ve got the fourth largest Roast and Ground coffee brand in the U.S. Tata Sampann, which is our newest brand, is a leading national brand in pulses in India. And in Himalayan, we are the #1 natural mineral water brand in India.

If I move to the next slide. To give you a company overview of our performance. With the merger of the Consumer Products Business of Tata Chemicals with Tata Global Beverages Limited, which was completed in February, we are now Tata Consumer Products Limited. Our consolidated revenue for the year was up by 33% for the year, and 35% in quarter 4. On a like-to-like basis, our revenue grew by 4% for the year and 6% in this quarter.

Consolidated EBITDA was up by 56% for the year and 77% for the quarter. Like-to-like, it was up by 12% for the year and 29% for the quarter. Our India Beverage business grew by 7% for the year and 6% for the quarter and — discussions. While the India Foods business grew by 12% for the year and 9% for the quarter. The international business — international beverage businesses were flat for the year and grew by 7% in this quarter in constant currency. Our branded businesses, like all other businesses globally, have been impacted by COVID-19, but moderately. Our foodservice and Out of Home business continue to face significant headwinds. Our consolidated bottom line, which is profit before tax for the year is up by 41% and 54% for quarter 4, mainly due to inflation of the Foods business. We just concluded our Board of Directors meeting at which our Board of Directors have approved a dividend of INR 2.7 per share, and we also welcome the shareholders of Tata Chemicals to our family.

If I move to the next slide, this slide gives you in one snapshot of what we have achieved as a result of the merger. First, if I look at Tata Chemicals, Consumer Products Business was about 16% of their portfolio. And we combine that with Tata Global Beverages, which 43% was focused on India beverages, 45% was international and 12% was others, including associates and subsidiaries, which includes some unbranded products. As a result of that, we created Tata Consumer Products Limited and the profile that we have today in product terms is 35% — is India beverages, 21% is India Foods, 34% is international beverages and 10% is others.

In terms of geography, we are now 56% India, 11% U.K., 16% U.S. and 17% the rest of the markets. The reason for creation of Tata Consumer Products was to create a sizable consumer company to enhance scale and financial strength and tap into the large opportunity that food and beverages provides, and then make a foray into the extended FMCG space. The idea was to leverage the experience of operating both in India and international markets and unlock significant synergies across distribution, marketing, innovation and supply chain. We have now created a consumer company with a diversified portfolio of leading international and Indian brands. Tata Salt, Tata Tea, Tetley, Eight O’ Clock and high-growth potential brands like Tata Sampann and Tata Starbucks. Essentially, we have the right ingredients for rapid growth. As we put together this company, we need to start integrating this company. And a quick update on integration.

We consummated the merger in 9 months effectively, on February 7, 2020, and changed the name on February 10, 2020. We received approval from all the stock markets on March 18, 19 and 20, respectively. And after that, we’ve created a team to look after the merger. There’s a dedicated team working to manage this integration. And right now, they are focused on creating a unified way of working and realization of synergies. The focus is on — right now on 4 big pillars, which is: The organization structure in the integrated company; creating a sales and distribution structure which is right for the company today and withstand the set of time as we add on categories moving into the future. Focus is how to leverage synergies and make sure that close to the bottom line, where it is cost and make sure the structures that are created have synergies which can leverage the top line. And then make sure that we’re creating the right growth levers across different parts of the company, as we scale for growth.

If I move to the next slide. And the reason why we’re excited to create this company is to make sure that we take advantage of India’s consumption story. I’m sure, I don’t need to sell this story to most of the people on this call. It’s a INR 30 lakh crores market opportunity. The 3 big pieces that we see in the kitchen, on the table on the go. Right now, we are mostly in the kitchen, but all 3 categories are witnessing demand for healthy and better quality products, which is a right bull’s-eye for Tata Consumer Products.

We aim to become a formidable player across all the 3 categories over a period of time. But to do that, we’ve got to make sure that we have products, which address the rapidly evolving consumer behavior of the new Indian consumers. And when I say the new Indian consumer, it has to address the rising affluence of Indian households, which will lead to premiumization and more benefit led products, it will have to address the new consumer of India who’s tech-savvy, aspirational and wants to engage across multiple channels; and both the rural Indian consumer as well as the urban Indian customer. We feel good about having to take advantage of this opportunity because we are well positioned with a portfolio of market-leading brands, we’ve got a deep understanding of consumers, we have access to 200 million households, which we reach to, a wide distribution of 2.5 million outlets, we are an organization which wants to take innovation still further, with a focus on health and well being. And most importantly, and I would underline this, we’ve got the legacy of the biggest brand name in the country, the legacy of the Tata heritage.

Our key focus will be currently on health, well-being and convenience for consumers because even if we grow 5x, we would still be a market share of less than 5% in the total Indian food and beverage basket.

If I go to the next slide, as we — as new company, we’ve also crafted a new brand promise, which is, “For Better”. At Tata Consumer, we stand “for better”, a reflection of our commitment to improvement by pushing boundaries and aiming for better, but every day, for all our stakeholders. Our stakeholders, which includes our consumers, our employees, our partners and our investors.

Now having declared our results, to give you a rough snapshot of our revenues at a glance. Our consolidated revenues are INR 9,637 crores, with even split across all the different segments, almost even split between all the different segments, whether it is India Beverages, India Foods, Other International. And if I put the 2 coffee businesses together, we are between INR 2,000 crores to INR 3,000 crores in each of these segments. We’ve grown almost across all our segments, a 7% growth in India Beverages, 12% India Foods, US Coffee grew 2%. We were flattish in International and 19% growth in Tata Coffee.

For the quarter in question, we’ve grown as India Beverages by 6%, we’ve grown India Foods by 9%, US Coffee by 15%, Other International businesses grew 8%, and Tata Coffee grew 6%. On a reported basis, we’ve grown 33% for the year and 35% for the quarter. But on a — now, if I net off the Foods business, we’re about 4% on the full year and 6% for the quarter.

Now in terms of overall results, I talked about the INR 9,637 crores for the year, which translates into INR 1,310 crores on EBITDA, INR 1,084 crores on profit before tax and INR 1,321 crores of cash. In reported terms, I did mentioned INR 33 crores comparable was 4%; EBITDA growth reported was 56%, comparable was 12%; and PBT was 41%, comparable was 6.5%. We have now expanded our margins on a reported basis, 200 basis points on EBITDA and 65 basis points on PBT. On a comparable basis, also, we’ve expanded margins by 100 basis points and 20 basis points on EBITDA. And our dividend, as I mentioned, just approved by the Board is INR 2.7 per share.

Now to give you a context of the market in which we delivered these results, the FMCG market, as you’re all aware, has been a bit soft of late from the 13%, 15%, which it was trending about a year back, it is now starting to trend about 4% to 5%. So from mid-teens, to what I would say is a mid-single-digit. We’ve also seen a weakening of rural demand and a slight bit of highest consumer inflation. Household spending growth rate has declined a bit. And most importantly, starting March, I would say, mid-March start, we’ve seen the impact of COVID-19.

We expect higher demand in the short-term for staple products compared to other discretionary items, which will probably get intensified if this COVID-19 situation continues and more lockdown events happen. On the currency front and currency plays a big role in our results because we have about 40% of our business, which is international. And there are 2 currencies which affected, it’s the U.S. dollar and the Great Britain Pound. The rupee depreciated by about 1.6% against the dollar year-on-year and depreciated against the pound by about 1.5% during the same period. So our results were delivered in this context.

And if I go to the next page, in terms of commodity, we have seen a decline in commodity costs. Tea prices in the medium term in India have been trending downwards, largely due to oversupply from small tea growers. However, of late, given the lockdowns, especially the 3 weeks in which most estates did not function or did not function very productively, there have been a sharp increase in prices, which we have to wait and watch to see how it pans out over the medium term. There has been a fall in Kenyan tea prices, but of late, this has also been arrested and prices have stabilized. We might see a trend in the short-term, given the COVID-19 situation.

Coffee prices, however, continued to decline, especially for Robusta coffee. And globally, the Brazilian real also has a factor to play in coffee prices.

If I move to the next slide. The broad context for the categories that we play in. In the U.S., we’ve seen continuous decline of U.S. regular black tea, but growth in coffee, albeit, very small numbers in percentage terms, but on a very large base, especially the coffee piece.

In the U.K., while black tea is lagging, we’ve seen good growth on fruits and herbals. In Canada, both black as well as specialty is showing decent growth. And India, in branded tea, we’re seeing about a 6% growth in tea.

If we move to the next slides. And I’ll quickly give you an update on COVID-19, what we experienced and how we reacted as a company. The most important thing was keeping a focus on people. Employee health and safety is always on top of our mind. We have ensured both physical and mental well-being for our employees, keeping safety at the prime. Most of our offices are closed, and those which are working are working with various chemical stuff. And we provided flexible working options for employees across the globe.

Collaboration, we have taken to the next level, with almost daily calls and coordination between the leadership team as well as local operating teams. We’ve kept most plants operational, work closely with government bodies. We have the 12 companies which are participating in the Suraksha Stores. Within Indian government, we have worked with stakeholders in our system, to make sure we’re creating win-win situations, while trying to restart businesses. And we’ve evolved with new partnerships, with e-commerce and delivery companies across.

Our employees have shown very strong resilience, going the extra mile to meet challenges and ensure that our factories operate, despite whatever situation they are in, to make sure that we are in the essentials space. And we make sure that we serve our consumer needs.

Everyone put on their thinking hats and has come out with innovative ideas even in this lockdown phase. We’ve come out with new and innovative ways of connecting and serving consumers, including tweaking, even the traditional go-to-market models, combining routes, combining food and beverage, changing the route pattern, et cetera. And most importantly, we played our part of being a good citizen, by giving back to community. We supported essential workers and vulnerable sections, including having a voluntary contribution from all employees with the company, putting in an equal amount and working with the Tata Trust.

On a still granular scale in international operations, almost all our factories are being running flat out. In the retail side, we’ve seen a 20% to 25% bump in consumption during this period. But in the B2B businesses, which we have in the U.S.A. and Australia, we’ve seen a sharp decline. We are planning for a resumption of normal business across different aspects of our business. Given the fact that, a lot of the 20% to 25% bump ups that we’ve seen has gone into factory load. We do expect contraction in demand gradually as consumers brought on a factory stocks.

In India, specifically, almost all our packaging units, including tea, salt, spices and all third-party units are all operational. Almost all our warehouses are operational, and we’ve got a decent amount of finished good holding. We rolled out the new safety protocols across all our clients, operating units, and we’ve got ready as and when our offices open. We work with various e-commerce and food delivery platforms, like I mentioned.

Our JV and plantations, Tata Starbucks, all stores were closed effective, 22nd March. We’ve been able to open about 30 outlets, some for delivery and just — I think yesterday or day before some of the stores have started experimenting with curbside delivery.

On NourishCo, because most of their products are out-of-home, the impact has been quite severe. But we do expect to come back to normalcy once stores start opening.

Plantations were very significantly impacted with a shutdown. They started with about 50% labor, but in Assam now, we are at 100% labor and in Bengal, with 50% labor.

Next page. COVID-19, some of the aspects of our new ways of working. You would see the safe distancing — social distancing in the factory in U.K. Below you see the factory in Cochin and the Starbucks Stores. You see the partnerships that we’ve run with various e-commerce platforms, Swiggy, Jubilant, Zomato, Flipkart. And we’ve taken this opportunity even to sample our new products especially, in spices, turmeric with milk, for example.

Yes. If I move to the next slide, a snapshot of what we’ve done for communities, which is serving Tata Water Plus and Gluco Plus to various Police and municipal workers. In the U.S., we’ve donated to food bank and charities. In the U.K., we supplied to the NHS, and we’ve kept everyone’s priority above all retail products. Tata Cha which is our venture in Bangalore, has supported our Tata Tea JaagoRe initiative by distributing breakfast kits for the elderly, been part of the India government Suraksha Stores program, we’ve run special programs to recognize our grocery store workers who are making sure our consumers get the products that they want.

On the left-hand top, you’ll see, we’ve made a donation to GroceryAid U.K., which is the platform for reaching out to all grocery workers across the U.K. And on the right-hand bottom, you’ll see the campaign that we’ve just ignited on Tata Tea #JaagoRe, which is supporting the elderly during COVID-19.

Coming down to very specific business details. If I go down to India, we saw a 7% volume and 11% revenue growth for the year. Tea sales grew by 6% in this quarter and 7% for the year. Our new launch of spice mix continues to see strong growth. And our Tata Tea Premium has gained share driven by the restage campaign.

The onset of COVID-19 did impact some primary sales in the month of March, but we are slowly getting back to normal now. I have already mentioned the tie-ups with all the e-commerce platforms, and we are now exploring also whether we can export our Indian products to the ethnic flavor seeker and the Indian diaspora across the globe. We are expanding the Tata Premium restage, and focusing on the Jaago Re campaign.

If I move to the next slide. On the Foods business, volume grew 3%, revenue grew 12%. We saw good growth across all the categories. Salt, pulses and spices, especially, good growth in pulses, which is showing very strong momentum. We are in the process of rolling out or expanding our recyclable packaging across Tata Salt. It’s now up to 1/3 of the volume. We have a strong advocacy campaign behind Tata Sampann online. We are focused also on expanding our D2C content platform, Tata NutriKorner. And we are also ensuring operations and making sure we’re catering to demand in the month of March and April as we speak.

If we move to the next page, on Tata Coffee, we had a 14% growth in volume, 19% on revenue. Our new Vietnam plant, which is up to about 90% efficiency now, 85% to 90%, played a very strong role in those top line figures. They had the highest quarterly sales at crossing 1,000 tons. Profitability has improved with utilization. And if you exclude the onetime gains, I think, we are quite comfortable with the profitability that we’ve seen.

On top of that, Vietnam — the Tata Coffee has also forayed into e-commerce with coffeesonnets.com, which is making its finest estate coffees available to consumers across India.

I now move on to our JV, Starbucks. There are now in 11 cities with 185 stores, and we locked in at 21% annual revenue growth. This is despite a shutdown, like I mentioned in the middle of March. We’ve opened about 39 stores in the year, and we’ve seen double-digit growth in transactions year-to-year basis. We’re ramping up our focus on employees, having achieved 100% pay equity, approaching 30% gender diversity. And we saw almost 1/3 of our total workforce coming in from part-timers, providing people more options to work. We’ve seen 30% revenues generated through our loyalty program, My Starbucks Rewards, which is — speaks volumes of the brand equity. We’ve added a new city of Baroda in this quarter. There are other stores which are ready for opening, but we will wait till the lockdowns are open — lockdown lift, before opening those stores.

As I mentioned, our stores had to be closed. Right now, 34 stores are open and opening stores — opening of new stores has been put on hold right now. If I come to international. We delivered a 21.3% market share and a 1% annual growth in our business. Value outperformance from — in March from everyday black was critical in driving the results. We’ve seen a strong uplift in orders, even on e-commerce as people prefer home deliveries. We’ve ramped up our play in the super-premium offering of tea bags which is done very well on the back of the online boom. And we’ve also leveraged digital media to make sure our message goes out to consumers.

We saw an uptick on demand, and we ramped up our production in our factories, even during the knockdown period, I should mention that especially the U.K. factory worked even on Saturdays and Sundays at times. We prioritized customers. Number one, we prioritized the national health service in the DEFRA pack then the customers. And the only downside here is our great new products of gold infusions did see a performance slowdown because — both because of seasonality and also it is On-the-GO pack, as people are hunkered down in home. We saw lesser occasions, but we do expect that once the lockdown lifts, we will come back very strong.

If I move on to the U.S., we saw our market share in bag volume, coffee was 7.4%, and we saw a 5% annual volume growth in coffee. We saw growth across branded bags, K-cups and private label that we cater to, all around profitability because of cost management and higher efficiency and lower commodity prices. Eight O’ Clock Coffee and Tetley Tea, both of them did show strong growth in March, driven by COVID-19 as consumers stocked up. We also saw strong growth on online sales. Eight O’ Clock Coffee started ramping up its brand presence again. We celebrated 160 years of existence, with a limited-edition anniversary pack which was launched and we are now expanding innovation with Early Riser in Eight O’ Clock coffee and Good Earth Ayurveda, which was — which has been received very well by consumers and recognized by outside agencies.

If I now talk about Canada, which is one of our star markets. Our market share grew from where it was to 28.9% in value and we clocked-in a 6% annual revenue growth. We saw almost a 20% bump during COVID-19 in March. Canada has achieved some rave results in Speciality Tea. Launched recently, we’ve already close to a 4% share of Specialty Tea. We remain the category leader in volume and value shares, and we continue to see growth momentum continuing.

Tata Tea Tetley Cold Infusion range has been launched in Canada. Though we put our media burst on hold pending the lockdown, as soon as it opens, we will start communicating.

Some quick update on campaigns and recognitions. Tata Tea is the — was the official brand of IIFA 2019 and Girliyapa

TV series, which is part of the Dil Ki Suno

Campaign. We’ve ramped up the Tata Tea Gold and Tata Chakra hyperlocal campaigns. Starbucks launched #DiwaliGames, launched Barista Pride where every — of the 174 stores that time created 174 blends. And we also launched the #CountOnMeGirl to celebrate Women’s Day. Apart from the Tata Salt, has launched the #SawalKijiyeApneNamakSe campaign, which has received EFFIES awards. Tata Sampann has ramped up its gain digitally. And we are in a good space to leverage the consumer demand as it comes out of the lockdowns.

On the international front, we had launched — now we’re talking campaign after some time in the U.K. and we’ve been rated #3 on the ITV-backed effective ad list in 2019. We launched the strawberry and watermelon flavor in Cold Infusions, and we expanded Cold Infusions to Australia.

As I mentioned earlier, in Canada, the Supers did a great job. And Eight O’Clock Coffee launched their sweepstakes to celebrate it’s 160th anniversary.

In other awards and accolades, we won award for risk management at the India Risk Management Awards 2020. We were voted among the top 100 best companies for women in India by Avtar and Working Mother. In sustainability, we are one of the 6 companies in India to be recognized Climate Change Rising Stars. We won the Great Taste Awards at the Oscars of the fine Food and Beverage world for Tetley.

In CSR, Puneet Das, our VP Marketing for TCPL has been honored with the CMO Social Responsibility Award by exchange4media. And in marketing, as I mentioned, we won the EFFIE award for a Bronze for its “Sawaal Kihiye Apne Namek Se” campaign.

On the responsible business side, we continue to drive sustainability across the value chain in our communities. We support — we aim to support development programs for almost 1 million community members globally. There are a number of Trustea which spread sustainable agricultural practices. We provide affordable health care to about 100,000 persons in the ecosystem of the Munnar and Assam plantations.

In UNICEF — we participated in UNICEF, reaching 250,000 beneficiaries. We are part — we are consciously aware of the fact that we use plastics and be a part of the extended producer responsibility in India and the UK Plastics Pact. We are focused on water conservation and sanitation in Tata Coffee and Himalayan and the communities in which they operate. And in Salt, we are now supporting the Tata Chemical Society for rural development empowering 50,000 lives.

On the climate change front, again, we are ramping up our efforts on renewable energy. We are up now to 12% of our energy from solar power. For Himalayan, in the U.S.A., we are certified Carbon Neutral. We are decoupling emissions from growth. The carbon footprint has actually decreased by 30%, while we have grown from 2010 to 2019. And as I’ve mentioned earlier, we are one of the 6 companies in India of the CDP A-list.

With that, I hand over to LK for the financial performance.

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L. Krishna Kumar, Tata Consumer Products Limited – Group CFO & Executive Director [4]

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Yes. Thanks, Sunil, and good evening, everyone, on the call. We’ll start with financial highlights, and we have the stand-alone results and the consolidated side-by-side. As you’re aware, this is the first year in which we are accounting for the consumer products business of Tata Chemicals. So we have tried to segregate the impact as we talk through the financial slide.

In terms of stand-alone results, we’ve seen revenue growing from INR 784 crores to INR 1,335 crores, of which INR 524 crores is coming from the India Foods business. Overall, there’s a 3% growth in underlying terms. In terms of EBITDA, it’s a 38% growth for the quarter and it’s a INR 70 crore addition to EBITDA, arising out of the Foods business.

Moving on to consolidated performance. Group revenues increased by 35%. But excluding the impact of merger of India Foods, the revenues grew by 6%.

Just one minute. There was some problem with the connection. So — carry on. India Business grew by 7% in value — and 7% in volume terms. Tata Coffee achieved a growth of 19%, largely due to the Vietnam operation, which had a turnover of over INR 1.25 crores.

International business, excluding Czech, which we exited during the year, had a strong quarter. And in terms of the full year, it was almost flat over the previous year. But in terms of quarter performance, it grew by 7%. This was largely a function of consumers stocking-in because of the coronavirus outbreak. We are seeing some continuing favorable trends in certain markets, though it’s early days yet. In terms of the EBITDA on a consolidated basis, we’ve seen a growth of 77%, and 29% in underlying terms on a like-for-like basis.

Moving on to highlights for the full year. Sorry — I’m talking of the presentation, since I seem to have lost connectivity. I’ll call out the slide heading.

Highlights for the full year ended March 31, on a stand-alone basis, revenues have gone from INR 3,430 crores INR 5,690 crores, of which INR 2,000 crores is coming from the India Foods business. In terms of underlying growth is 6%. EBITDA growth has been 84% for the full year, INR 315 crores coming from the India Foods business and 6% underlying growth in EBITDA.

If you look at consolidated results for the full year, there’s been a 33% growth in revenues from INR 7,251 crores to INR 9,637 crores, INR 2,064 crores of that coming from the India Foods business. There’s a 4% growth in revenues on a like-for-like basis in the beverage business. Profitability growth is 56%. INR 315 crores coming from the Foods business and 12% growth in underlying terms on the beverage business.

Moving on to the stand-alone financials. We had the revenue EBITDA going up to the [380] both for the quarter and for the year ended. I’ll comment on the full year first, and then come back to quarter. For the full year, as we have seen, revenue from operations grew significantly by 66% because of the inclusion of Foods business. The point to note here is the improvement in EBITDA margin from 12.8% to 14.1%. Higher operating margins is because of improvement both in the base Foods business and also the beverage business and also the inclusion of Foods business in performance.

Exceptional items of INR 52 crores largely relate to seeing merger costs, including stamp duty. The tax rate during the year is lower. We have one-off items this year because of reversal of much credit and some adjustments to deferred tax. But going forward, you’ll find the tax rate to be slightly lower and trending towards the 25%, which would be the applicable rate.

Going on to consolidated financials. And again, I’ll talk about the full year. Revenue from operation is, INR 9,600 crores, an increase of 33% over the same period previous year. EBITDA increased is 56%, more than proportionate to the increase in turnover, driven by strong performance in the beverage business and also the addition of food business. The fourth quarter, in particular, has been a good quarter for us. And you can see there’s a significant EBITDA improvement in the fourth quarter, driven largely by the international business. And we’ll talk about the improved performance of international business, again, when we come to segmental performance.

We have exceptional items of INR 275 crores in the consolidated results. We saw INR 50 crores in the stand-alone result, arising out of big merger expenses and stamp duty. The incremental INR 220 crores that you’re seeing in the consolidated results relates primarily to 2 geographies: Australia and the Tea and out-of-home tea business in U.S., both of them have significant supply into B2B space, both to corporates and also to foods service.

In the current COVID environment, we have toned down our projection, and we have also adjusted discount rates to market movement. Consequently, there is an impairment charge — a noncash impairment charge that we have taken, which is one-off and not expected to recur. We’ve talked about the tax rate. Overall, effective tax rate during this year is slightly higher than what we would expect going forward, because of one-off reversal on deferred tax and [liability]. The group net profit at INR 460 crores is marginally higher than the same period, but it’s a strong performance, if you look at PBT before exceptionals, which is a 41% increase compared to the same period in the previous year.

Moving on to segment-wise performance. We have, for the first time, we are splitting out the India business into beverages and foods, and we will continue with this presentation going forward. Commenting on the India beverages, we have a revenue of INR 3,377 crores compared to INR 3,168 crores. It’s an increase of 7%. It’s a good volume growth in the initial quarters, a little slightly slowing of volume growth in recent months, reflecting the underlying trend in the FMCG space, which Sunil spoke of earlier.

In terms of segment results in India beverages, we’re seeing a 2% increase, but that also investment behind building sales and distribution capability. And in the previous year, we had one-off. So we expect the relative growth and profitability to be better going forward in future periods.

India Foods, it’s — for the first time, it’s INR 264 crores, and the segment profit of INR 266 crores. I should clarify that the segment profit includes an amortization cost of approximately INR 40 crores because we are amortizing some of the intangibles acquired consequent to the merger, and we will talk about that in a subsequent slide.

So overall, if you look at the India Foods segment, segment results, including onetime costs, the like-to-like comparison, it’s is a 6% increase, taking into account, what results were published at Tata Chemicals last year.

International beverages revenue of INR 3,226 crores is a flat increase. But as you saw, for the fourth quarter, we had significant growth both in terms of revenues as well as profits in the international business. We see this continuing in certain markets, but we have to wait and see whether the trend of increase in in-home consumption result in a further improvement and greater growth somewhat has been there historically in the developed markets.

In the non-branded business, you’re seeing turnover from — going up from INR 842 crores to INR 975 crores. Vietnam is a large contributor to the F&B.

Profitability of nonbranded business declined from INR 67 crores to INR 56 crores. This is largely due to commodity costs being soft. We’ve also had in the initial part of the financial year, some impact of crop on — because of unseasonal weather. We expect that this performance will improve, as we have more normalized crop in the future.

A comment about Vietnam. It was the first full year of operation. And in the first full year of operations, it had in excess of 80% capacity utilization. The plant is operating exceedingly well. And all of you are aware that COVID has probably started to skip Vietnam. We had no major issues, touchwood in the plant and the plant is operating efficiently. So we expect that, as market conditions improve and pricing improves, this will be an important contributor to the non-branded business that we have.

Coming to the consolidated balance sheet, the total equity going up from INR 8,359 crores to INR 14,900 crores. This is consequent to issue of fresh charge and accounting for the premium on share issues, arising out of the merger of the Consumer Products Business with us. On the asset side, there is an overall increase of about INR 6,000 crores because of the [tea] And that has been allocated based on a purchase price allocation, done by an independent agency. Consequent to that, there’s an increase in brands with indefinite life from INR 3,700 to INR 9,400 crores.

Finally the Tata Salt brand, and there is an increase in other intangible as well. Overall working capital is flat, despite the addition of the foods business. There has been a reduction overall in working capital, and you’re seeing that also coming through in the cash flow statement.

We have at the year-end slightly higher inventory in the context of COVID, but notwithstanding that, working capital is flat compared to the same period in the previous year.

Net cash is — significant increase of INR 1,321 crores compared to INR 720 crores. On a gross basis, we have cash in the region of INR 2,500 crores, which we are — and the business, more importantly, is servicing the consumers, largely with essentials. So from a cash position — perspective, we are reasonably, okay. And we had to monitor our COVID develops going forward.

In terms of the return ratios, return on equity and return on capital employed are not where we want it to be. And in fact, it is lower than FY ’19. That’s because of the incorporation of the acquisition of the Consumer Product Business, but we need to remember that, we are yet to realize the synergies from the acquisition. And also, as we reform the sales and distribution network, consequent integration, we expect improved top line and resultant improvement in the return ratios from where they are today.

Going on to the next slide, which is the consolidated cash flow. Net cash from operating activity is INR 1,082 crores, so a significant increase compared to INR 210 crores we had in the same period in the last year. Out of this, a little over INR 300 crores is coming from the Consumer Products Business. But even the base beverage business has managed to release significant cash during the financial year that just ended.

Overall, there is the investment. If you look at cash usage in investing activities, there’s a deployment of INR 600 crores, out of cash and cash equivalents into other heads in which the balance sheet is presented. So overall, strong cash flow and a good liquidity position is where we are today.

Moving to the next slide, which is on merger accounting. We have, as I said, about INR 6,000 crores coming in to our balance sheet, because of the merger. This has been allocated both to different amortizable and not amortizable asset. We had goodwill, which was INR 3,563 crores, which is a resultant goodwill after allocating the purchase price to tangible and indefinite life asset.

Tata Salt has a value of about INR 2,100 crores and other intangible assets, which has amortization period over 8 to 10 years, has a value of INR 366 crores. We have taken a net amortizing charge of over INR 40 crores, which will continue for the amortizable asset that would try to project the numbers in the future year.

The last slide on shareholding information. This slide reflects the shareholding pattern as of 30th April. The Promoter and promoter Group holding is about 35%, foreign institutional investors hold 18.56%, insurance companies and banks 7.4%, individual investors 21% and mutual funds about 15%.

The company’s share price has done well. Currently, we have a market cap of over INR 32,000 crores. And recently, we have been notified that TCPL will be part of the Morgan Stanley Index of domestic equity from May 29, 2020.

That’s it from my side and happy to hand over for any questions that you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question from the line of Percy Panthaki from IIFL.

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Percy Panthaki, IIFL Research – VP [2]

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My first question is to Sunil. Sunil, now you’ve been with the company for about 1.5 months. So just wanted to get an idea as to what your priorities and agenda is going to be for the next 2 to 3 quarters or 2 to 4 quarters in terms of which areas will you be focusing on?

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [3]

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Okay. Thanks very much for the question. And I’ve been exactly 40 days in this company. The beauty is because of the COVID lockdown, I have been 40 days at home in Gurgaon, not even moved to Mumbai. The good part was before the lockdown, I had spent some time with the folks down in Bangalore, Bombay and visited some markets, et cetera. So I am fairly familiar with people and various parts of the business. So right now, I would say, I’ve landed up not into the frying pan, but straight into the fire with COVID. And the critical focus right now is, a, to ensure health and safety and make sure our plants are running. And as we come out of the lockdown, make sure that we get into to full operational effectiveness. That’s the immediate priority. After that, as LK alluded to it, I alluded to it, I think we’ve got the foot and beverage businesses together. So we’ve got a task ahead of us to make sure that this integration proceeds smoothly. And as we put the integration — new integrated company together, we’ve got to be mindful about the future because as I mentioned, we are not only putting this together, but today, we’re creating a company for tomorrow to become a larger FMCG company. Work is on in 4 pillars, as I mentioned: organization structure, S&D, synergies and defining our growth categories. Once we put that together and put the integration together, then moving ahead to the next phase, I think that will be the critical phase. Apart from that, making sure that I work with the teams on the ground to understand the ground reality, work with the most senior to middle-level people to understand the people and the culture, make sure that I integrate all of this as we build our plants going forward. I think that is right now, the short-term and the medium term, if I can define it.

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Percy Panthaki, IIFL Research – VP [4]

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Very helpful, Sunil. Second question is with the lockdown and…

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Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [5]

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Percy, I’m sorry, this is Rakesh. But we have a long queue my friend. So we can again come back to you if that’s fine with you.

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Percy Panthaki, IIFL Research – VP [6]

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No problem, sir. Thank you.

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Operator [7]

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The next question is from the line of Manoj Menon from ICICI Securities.

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Manoj Menon, ICICI Securities Limited, Research Division – Research Analyst [8]

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First of all, I wanted to congratulate you for such a detailed presentation. It was actually a pleasant surprise honestly. Did not expect you to give such a detail presentation in just a little more than a month of you’ve been in the company. So that’s the first one. I have 2 questions, 1 long-term and probably 1 short term. The first — the only question is on the long-term is on, how do you look at the Tata Sampann brand? So look — as an analyst, when I look at it, probably there is no better time to ramp up the Sampann brand given the likely consumer behavior changes. So just wanted to hear your detailed thoughts on that. Second, I just wanted to understand from a shorter-term point of view, your exposure to the Hot Tea shop segment, if any? And if at all, there’s some impact, how do you kind of — would want to handle it in the next few months or so?

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [9]

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Okay. So to answer your Tata Sampann question, I think we already alluded to in presentation saying that, I think, right on the first page, where we talked about Tata Sampann being a brand with great promise. Now just to give you the DNA of this company, whether it’s a food part of the business or the beverage part of this business, both the pieces have been extremely successful in converting unbranded to branded. And right now, Tata Sampann is exactly playing in that space. So it’s the Tata brand name, it’s the DNA of the company, and it’s getting into categories which has great promise for the future. That said, right now, Tata Sampann is in pulses and spices. I think there is work to do to define the exact umbrella of what Tata Sampann is, what it stands for and which all are the categories that we play with. But you’re absolutely right that I would say watch this brand very closely because you will see great results from this brand. That’s number one. And sorry, Manoj, I missed your second question.

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Manoj Menon, ICICI Securities Limited, Research Division – Research Analyst [10]

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Sunil, sorry, I probably — I’ll skip the second question actually because I may ask a follow-up on the Sampann itself. I’ll give you the context I ask this question because given the propensity of the consumer to probably adopt e-commerce better or a modern trade better or — and/or the fact that consumer is being a little more health-conscious and willingness to pay or rather buy that brand even in the staple categories. The context I was asking was that I was actually thinking aloud that, look, is it probably the best time to ramp up Sampann? So this is not normal time, it’s probably a brand which would kind of grow in multiplier sort of situation in the next 2 years. Is it the right way to think?

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [11]

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I would say if your hypothesis is right, I would be very, very happy. Right now, we are seeing significant changes in consumer behavior, whether it’s moving to more trusted products, whether it is moving from unbranded to branded, whether it is shifting to digital and online, you’re absolutely bang on. The only thing is when we come out of the lockdown and life goes back to normal, whether it’s in 30, 60, 90 days, I don’t know, will the consumer shifts and the shift in consumer habits continue, that will determine the acceleration for the brand. But to your point, we are focused on growing Tata Sampann. We will stay close to the consumer habits and changes, which happened to make sure we’re leveraging everything to accelerate this piece.

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Manoj Menon, ICICI Securities Limited, Research Division – Research Analyst [12]

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Okay. Okay. Just if I may, the second question was only on the exposure to the out-of-home consumption through the Hot Tea shop segment. And do you really see any significant impact to the India tea business because of the…

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Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [13]

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Manoj, I’m again, very sorry, but we can take this offline. See there’s a long queue, and I would like everybody to — being the first interaction with Sunil, I think it’s fair that more and more people get a chance to speak to him.

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Operator [14]

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The next question is from the line of Gautam Trivedi from Nepean Capital.

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Gautam Trivedi;Nepean Capital, [15]

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Thank you for an excellent presentation. Sunil, welcome aboard. We’re very excited to have you on board. And Rakesh has been a great ambassador of the company, and we actually are happy shareholders. My question is more related to the supply chain right now. And given the fact that there has been huge disruption within the country for the last 40 or 45 days of a lockdown. In fact, in my neighborhood, there is no Tata Salt available, and it hasn’t been for the last several days. And one of my neighbors happens to be from ITC, and he’s — I didn’t even know ITC had a salt brand, and he’s recommending we try that. Point is, has that issue being resolved and where are we with that?

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [16]

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So Gautam, let me say, in the initial days of the lockdown, we struggled a bit because the rules were not very clear. Who could do what was not clear. The way you could get passes was not clear. Which factories you could start and what was not clear. But over a period of time, we’ve got clarity around that. The reason probably you’re seeing some issues on the Tata Salt piece is because the way our logistics is structured because we ship in bulk out of our Mithapur plant and then pack in local C&FA. So if the local C&FAs are in a lockdown area, we’ve struggled a bit. That said, over a period of time, as the lockdowns have lifted or the rules are eased to allow essential production, we have ramped up our production. In fact, right now, we’re close to normal, operations on our salt and most of our tea packaging units. So I love the fact that you’re looking for Tata Salt, and I’m sure you’ll be able to find it more regularly and you’ll probably not miss it going ahead.

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Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [17]

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We would like to take a couple of questions from the webcast. We’ll then go back to the individual callers. So there is a question from Jigar Shah from Maybank and he has a question on, please comment on margin trajectory going forward in light of COVID-19, ongoing synergies, distribution, expansion costs, and commodity cost.

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [18]

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So on the margin piece, I think I did allude to lower commodity costs and the fact that we had good volume leverage, and that was one of the reasons for the margin. Going ahead, I think we got to watch the trends on both costs and ability to translate that into consumer price as we go ahead. That’s — and sorry, Rakesh, what was the second piece?

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Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [19]

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Second piece was distribution, expansion costs, and commodity costs and synergies.

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [20]

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On synergies, I think we’ve already talked about INR 120-odd crores to INR 150 crores of synergies over the 18- to 24-month period. Right now, like I said, we’ve got a dedicated team working on the integration to put the synergies together. We remain confident that we can deliver these synergies, which are a summation of both cost synergies as well as top line synergies. So the cost synergies, when we put together our back-end efficiencies should come to play. And as we put our new S&D structures in the front end, I think you should see the top line come into play. Distribution will be a focus and will be a key factor to make sure that the top line synergies are realized.

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Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [21]

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Yes, thank you. We’ll take a couple of more questions from the webcast before we go back to the callers. There is a gentleman called Prasoon Agarwal. Sunil, thank you for the great presentation. Any plans to expand the offering on the food side going beyond Tata Sampann? Any plans to — on acquisition using INR 1,000 crores cash from balance sheet. Thanks, Prasoon Agarwal, Indus Capital.

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [22]

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So let me present this way. I think the ambition to grow is very clear, but there are different routes to achieve this ambition. A, I would say, we have — first of all, we have got our work cut out in putting the 2 teams together and getting the integration and delivering the synergies. The second thing, I would say, even in the categories that we play, and that’s talking India specific right now, is we’ve got enough headroom in both, whether it is tea, whether it is salt or recently, we talked about Sampann, enough room to play. As we put our strategy together, we will look at which are the additional categories that we could play in. Just 1 rider that we will play for categories to make sure that they add value to all our stakeholders. We will shift through the funnel and narrow down on a few specific areas, but that is out there. We will evaluate both organic as well as inorganic opportunities to grow. And still work to do, like I mentioned. I have been 40 days in and operating from home. So as and when I get on to the ground level, interact with the troops, put the integration teams together, we will come out with a more holistic strategy, and we will let everyone know.

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Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [23]

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Thanks, Sunil. I’ll go back to the calls now. So Rio, can you just move to the next callers, please?

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Operator [24]

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We take the next question from the line of Parag Thakkar from ICICI Prudential Asset Management.

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Parag Thakkar;ICICI Prudential Asset Management, [25]

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I welcome Sunil to the shareholder family of Tata Consumer. Of course, Rakesh is doing a great job. I would just say that — so one part of my question is answered in the sense that Tata Sampann, how do you plan to expand this brand into various other categories. So that part is answered. Now coming back to the thing that we have seen some disruptions in supply chain. But — so how is this post-March period going for Tata Consumer? Because most of our categories are essential categories, so there is no demand issue at all. The only thing which remains to be seen is, are the workers coming and factory running at 100% or logistic things. So how are we positioned in that is my question?

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [26]

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Yes. So as I mentioned earlier, in the initial phase of the lockdown, I think in the last week of March, I think everyone struggled a bit as things were not very clear. But over a period of time, I think all the authorities around also got their heads around how to get things moving, including the Government Suraksha Stores campaign to assure consumers that it is safe to shop, et cetera. As I mentioned in my slide also, I think, all the packaging units are up to speed. We’ve got a decent amount of inventory. Logistics and people are still a challenge depending market to market. Some places, there is tighter rules; some places, it is loose. But overall, the situation is much, much better in April. We are quite — let me put it this way, we are landing up better than what we thought we would land up in April. That’s for India. In the international markets, as LK mentioned, there are some markets which are still continuing on a high degree of pantry-loading. But there are some markets where the lockdown is severe. And the pantry-loading effects are still continuing. There are other markets where as things ease, we are seeing the demand patterns taper off. So different phases across. I think every unit is dealing with it differently. Coming back, again, reiterating in India, I think we’ve come a long way from where we thought it would be. Still some way to go, but yes, far better situation.

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Operator [27]

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The next question is from the line of Karan Sharma from Kredent Capital.

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Karan Sharma;Kredent Capital, [28]

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Hello, I am audible?

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Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [29]

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Yes, yes. Yes, please go ahead.

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Karan Sharma;Kredent Capital, [30]

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I would like to ask you a little longer-term question. So we are a FMCG company, but if you look at most of our performance metrics over the years, our EBITDA margins, if you compare with the domestic FMCG company or our growth rates or even if you look at the ROE that our company has, so we are very — at a very lower level compared to most of our FMCG counterparts in the domestic market, which also has a business globally. What — now that you have come into the business, what are a few key areas that you are targeting where we as investors could see changes in these parameters over the next 3 to 5 years, if you can outline some of those?

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [31]

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So let me put it this way. I mean, to drive up efficiency ratios, there are only 2 or 3 ways to make it happen. Number one is drive the top line. Number two is keep the cost tight. Number three is watch the cash and make sure that your capital pays off. So we have what it is on the balance sheet because of historical reasons. But beyond that, as we move forward, like I said, one is to — we brought 2 businesses together to drive top line aggressively, and we will continue to look for opportunities beyond what we have to drive the top line. The integration process is to make sure that we are creating a future-ready organization and a structure to drive growth. So as we launch more categories, et cetera, we get full leverage of the cost that we put in today, and we don’t have to keep adding costs as we move forward. And third thing, most importantly, is watching the cash and watching the capital close, right? That is the thing that you can do to continue to move the return ratios to the positive side as we move ahead.

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Karan Sharma;Kredent Capital, [32]

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Okay. Sir, so any particular area that you are targeting on the EBITDA margin level or on the ROE level where you would want it to be above a certain level in the next 3 years or somewhere, which we could look at? Any particular number on that?

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [33]

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I don’t think we have a number in mind, but we need to get on to the benchmark of the FMCG space. I give you that, and we will be trending towards that. Like I said, there are different ways to get there and different time frames. But the objective will be to continue to drive them up north.

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Operator [34]

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The next question is from the line of from Chanchal Khandelwal from Birla Mutual Fund.

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Chanchal Khandelwal, Aditya Birla Sun Life AMC Limited – Fund Manager [35]

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And congrats, Sunil, for coming aboard. And thanks, LK and Rakesh for the wonderful presentation. Sunil, just one thing with the question which was just finished, and which you just answered. Looking at your experience in the past, you have worked with Unilever, PepsiCo and then Whirlpool. We have seen how you’ve turned the organization. But most of these companies had some advantage in terms of either strong parentage and you were able to dominate the category, which you were present in. Just picking up the thought process — some disturbance somewhere. Just picking up the thought process from there, Sunil, how do you look to change the company because food normally is a lower gross margin category itself. Staple food is a lower gross margin category and consumers are not willing to pay much higher for packaged food. Those, I mean, Tata Sampann spices and pulses are what you are trying to do. But are the differentiation in processed food, you can play out? And what are the thoughts process you have to play the entire space?

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [36]

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So again, I would reiterate what I said earlier in the call was 40 days without having stepped in line or walk the market, right? So I can’t give my thoughts in that thing. When you’re asking me what are the —

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Chanchal Khandelwal, Aditya Birla Sun Life AMC Limited – Fund Manager [37]

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Sunil just to — I mean, where I was trying to pick your brains, your past experience and when you joined Tata Consumer, you must have some thought process as to what you can do from your experience and how you can turn around the business? I’m just trying to pick your brains from that.

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [38]

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No, no, it’s a fair point. So and I tell you why I joined Tata Consumer, right? It was the vision of the Board, which spurred me. When you have a brand like Tata, which has got a 99.9% recognition across the country. Probably, the most trusted brand in the country. And the group is willing to put resources and drive this company, Tata Consumer Products, which has brought together 2 great teams, great people, great brands, and willing to put resources to drive it to the next level. I don’t think you can find a better match with that. That’s one. Second thing, like you said, I think, yes, you’re right. Right now, the brands that you see are largely playing in the commoditized or moving from the unbranded to the branded segment. Work in process to make sure that we are adding value to the portfolio as we move ahead. We are premiumizing the portfolio. And for that, understanding consumer insights, crafting the right products, positioning them right and distributing them right is the critical piece. As a result of the work that the integration team is doing, as last leg of which I mentioned is the growth strategy, I think we will be laying that down. And then you would start to see slowly more and more value-added products moving out of our sale.

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Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [39]

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So we’ll go to the webcast now. We’ll take 2, 3 questions from there, and then we’ll come back to the call. So there’s a question from Aman Batra from Goldman. And his question is international business has seen margin improvement, yet there is impairment taken, does this pertain to different pieces of international business?

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [40]

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So LK, can you take that?

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L. Krishna Kumar, Tata Consumer Products Limited – Group CFO & Executive Director [41]

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Yes, I’ll take. Yes, Aman. Yes, it does. We look at impairment from a cash-generating unit perspective and the cash-generating units are at the lower level, right? And generally, specifically, relating the impairment to Australia and to U.S. market and these are — as far as Australia is concerned, it relates to the Map business, which is coffee and a large part of that business is out of home in terms of supplying to corporate and supplying to foodservice. Similarly, in the U.S., we have a food service business, which is part of the U.S. operation where Eight O’Clock is big. The tea business is much smaller. And within the tea business, we have both branded and food service. So the impairment largely reflects the weakening of the food struggle and the impact of food struggle. So we have taken a conservative view on the time it’ll take to recover. And also in terms of market dynamics, we use certain rates to discount. And in the context of market movements because of COVID, there is a need to take higher discounting rates than we have done in the past. So — but largely it relates to the out of home business and not to do with the core branded business. In fact, like in other markets, both Australia tea as well as tea in the U.S., that I’m talking about Tetley in the U.S. has seen good demand because of in home consumption.

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Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [42]

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Thanks, LK. There’s a question from Utkarsh Maheshwari from Reliance General Insurance. And his question is, sir, how do we read Starbucks’ path ahead as social distancing may give at a lower space to use upon? Also, are we doing any rework on rental agreements, which has possibly good 6 months ago before we see full swing resumption of CapEx?

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [43]

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So LK, do you take that?

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L. Krishna Kumar, Tata Consumer Products Limited – Group CFO & Executive Director [44]

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Repeat the question. Your voice was cracking. I’m happy to take it, but I lost parts of it.

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Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [45]

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So basically, it says that it’s a question on the Starbucks, and it basically asked about the impact that COVID is having on Starbucks. And are they sort of renegotiating the rental agreement?

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L. Krishna Kumar, Tata Consumer Products Limited – Group CFO & Executive Director [46]

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Yes. So I will take that. So I think, overall, yes, there is an impact on out of home. And the stores were closed in March. Today, we have over 30 stores operating and both doing a little bit of sales on a pickup basis as well as on delivery basis. Yes, we are looking to rationalize costs. And when you look at rationalizing costs, it also looks at renegotiating some of the rentals. But what we are trying to do is to go to a model in profit being fixed, link it to the revenue and restructure it so that when the revenues improve, as they will over time, (inaudible) future revenue. So it’s not that we’re asking people to forego. We are doing a bit of restructuring on the rentals. And by and large, a large proportion of the owners seem amenable to that.

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Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [47]

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Thanks, LK. Just for the benefit of everybody, I am ignoring questions, which has already been answered by Sunil or LK in some form of the other. So just bear that in mind. So I’m just choosing the questions that probably are new ones. So Ankit Jain from Mirae AMC and his question is extent of headwind to profitability in near term because of Starbucks plantations and PepsiCo JV because of lockdown. I think this question has been answered. I’ll go to Latika Chopra from JP Morgan, and she is saying that thanks for the detailed presentation. In your assessment so far about the various assets of the business, what is the view — will be the key challenge you foresee in achieving the vision that team has set? Though you mentioned about portfolio expansion, distribution enhancement, et cetera, which specific capabilities you believe Tata Consumer team needs to build on and would be medium-term focus for you. Sunil, could you take this? I think you spoke about it already. But…

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [48]

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Yes, just to reiterate this, I mean, we are — as we put the integrated — as we bring the 2 businesses together and create the integrated company, we are immensely focused on creating right structure where people have enough focus on the specific areas that they control. We are creating a front end, which is capable of addressing multiple categories if they’re going to the same kinds of outlets. We are ensuring that the back end runs efficiently and is cost focus as we move ahead. While making sure that we’re injecting the right capabilities in terms of digital, digitization, talent, et cetera, into the company. I do believe that once we put this together, as we move ahead, as we add categories either organically or inorganically, it would be a plug-and-play and, therefore, a high leverage on the structure that we have. So that is the focus today. Multiplying distribution, faster innovation, ensuring cash focus, driving efficiency with superior terms of trade with channel partners, looking at supply chain opportunities and scale efficiencies like in marketing, packaging, it’s all part of the mix here.

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Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [49]

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Yes. Thanks, Sunil. One last question, we’ll take from the web, and then we go back to the callers for maybe last 2.

Prashant from Sundaram Asset Management. Are there any more opportunities left to divest in international operations when it’s so rich? While Tata Sampann could be the brand to look out for in foods apart from Tata Tea, what are the opportunities being discovered in beverage space? Sunil, this is for you.

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [50]

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So let me put it this way. When you decide your portfolio, whether it is in product or in geography, it is contextual and at a point in time. So as a company, we constantly look at our portfolio from a geography perspective from time to time. So that’s why, for example, we’ve divested China, Russia and now recently, Czech. So whether it is addition or a subtraction, it is not a decision made longer-term right now. It is a time to time decision. As and when we see business not fitting into the portfolio, we will take a call on it. And Rakesh, what was the other piece? Tata Sampann, right?

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Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [51]

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Yes, Tata Sampann. Yes.

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [52]

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Yes. So Tata Sampann, as…

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Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [53]

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The question was Tata Sampann could be the brand to look out for in food apart from Tata Tea, what of the opportunities being discovered in beverages? So this he, basically, as you’re saying that tea and food, we are aware, what are the plans in the beverage space? Liquid beverages.

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [54]

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So that is work in process, both in packaged beverages as well as liquid beverages. On packaged beverages, I think it is making sure that we’re giving what the consumer wants in terms of health, taste and convenience. So whether it is packaging formats or products with a twist on certain ingredients and health benefits, the R&D team has put stuff together. We are looking for whether to commercialize and when to commercialize. On the liquid spaces, there is a detailed work being done on the profile of taste of the Indian consumer. And again, various developments in play. I guess, as and when we start putting the structure together, the lockdown lifts out and we get a bit of time, you will start seeing this playing out.

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Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [55]

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Thanks, Sunil. Another question from Atul Mehra from Motilal Oswal. Could you talk about the CapEx intensity of the business going forward? What is the direct reach of the consolidated distribution?

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [56]

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LK, will you take that?

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L. Krishna Kumar, Tata Consumer Products Limited – Group CFO & Executive Director [57]

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Rakesh, just repeat it because you’re voice is patchy, as I said.

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Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [58]

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Okay. So the question is, could you talk about the CapEx intensity of the business going forward? And what is the direct reach of the consolidated distribution?

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L. Krishna Kumar, Tata Consumer Products Limited – Group CFO & Executive Director [59]

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Okay. So there are 2 questions, right? So I think we are — on the CapEx, there is — our overall CapEx in the normal cost is in the region of INR 150 crores, right? So — and we talked about that in the past. With the — on the salt, we don’t see any CapEx because it’s a procurement led, and there is not going to be high CapEx intensity. The current model for pulses and spices is packaging with 2 co-packers, right? So at this stage, and that also helps us to keep capital-light. There’s some pressure on margins, but at this point in time, we are not looking at heavy capital intensity. As we scale up the business and we reach more critical mass then we’ll evaluate closely, whether we need to put up some dedicated specialty. So I’m not saying too much of incremental CapEx from where we are in the short-term for running the business as it is. On distribution, Sunil, would you want to answer that question in terms of direct reach and…

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [60]

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Yes. Distribution, we reach about 2.5 million outlets together — directly would be about, I would say, about 400,000 to 500,000 outlets as of now. But the objective is that we want to reach more outlets directly and then using the wholesale multiplier that we have. Expand our coverage beyond the 2 to 2.5 million outlets that we have.

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Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [61]

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Thanks, Sunil. We’ll go back to the caller. So last 2 questions before we end the session. Rio, can you request Harit and Neeraj. They are the 2 people left.

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Operator [62]

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

Neeraj Prakash from Nitin Capital.

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Unidentified Analyst, [63]

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Sunil, I just had a question. What I got from your commentary as well as the presentation is a focus on India FMCG. So just looking at the segments, the Tata Coffee and the unbranded sort of B2B segment doesn’t really fit in with that. So is there any sort of strategic thinking longer-term regarding maybe a potential divestment or demerging of that? And just another small question in terms of your operating cash of surplus of INR 1,000 crores, what is your general sort of thought process in terms of capital allocation priority for that?

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Sunil A. D’souza, Tata Consumer Products Limited – MD, CEO & Director [64]

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So the Tata Coffee question, let me put it this way. Right now, Tata Coffee is a subsidiary of TCPL, and it is absolutely integral in terms of trying to build forward play into coffee, if I may call it. And like LK said, when you look at the Vietnam extraction, for example, the margins are quite good. So it’s a question of what part do you ramp-up and what part do you play down. So I don’t think we’ve reached that conclusion as of yet. Like I said, work in process. And as and when we get to it, we’ll come back to you. And the second piece was…

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Unidentified Analyst, [65]

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The capital allocation — in terms of

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L. Krishna Kumar, Tata Consumer Products Limited – Group CFO & Executive Director [66]

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Can I — I think — this is LK, right, so on Tata Coffee, I think the point — basically, we are — with Sunil coming in, we are driven otherwise. We are evaluating all parts of our business. And coffee and Tata Coffee and extraction has strong relationship with customers. And in fact, our Starbucks relationship started with the Tata Coffee and was first to establish relationship with them. So we think there are certain parts of the business which are interesting, but we are taking a closer look at how we want to organize ourselves and take advantage and whether they will give us further impetus for growth. So we will come back to you later in the year on what that we outlined our strategy, on what also we will do with some parts of the B2B business. As far as capital allocation is concerned, we are looking at — we want to grow, and we are looking at opportunities for growth. So there’s no fixed view yet. We have some idea of category. But it’s exploratory and maybe later in the year, we’ll look at. But overall idea is, I think there is, in the short term, focus on improving returns from whatever capital we have invested, but we will look at opportunities to deploy cash later in the year.

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Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [67]

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So Rio, we’ll go to the last question. I think Devika, Devika is there, right?

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Operator [68]

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Yes. We’ll take the last question from the line of Devika from Ratnabali Investment.

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Devika Jain;Ratnabali Investment, [69]

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I just had one question. Regarding the international business, I wanted to know a few more details as to what resulted in such good numbers from the international business?

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Rakesh Sony, Tata Consumer Products Limited – Global Head of Strategy and M&A [70]

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So LK, will you take that?

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L. Krishna Kumar, Tata Consumer Products Limited – Group CFO & Executive Director [71]

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Yes. I’m assuming that you — okay, overall for the year and for the quarter, right? I think, overall…

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Devika Jain;Ratnabali Investment, [72]

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For the quarter, specifically?

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L. Krishna Kumar, Tata Consumer Products Limited – Group CFO & Executive Director [73]

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So — but I think that — I am just saying that the yearly trend is more important. But for the quarter, specifically, consumer is stocking up because of COVID. What is happening as a trend because of COVID that you are aware that consumption out of home is practically not there or declined significantly. So people still consume the same amount of tea or coffee, and they consume more in-home, right? So brands which supply in-home have been up. And in the initial phase of COVID, where there is lockdown, our consumers stock up. So they buy more. I’m sure you’re doing that in India today. So you — if your normal buying was 1 for a week, you’ll probably be stocking up for a couple of months I believe. So initially, your

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