Orkla India's Q2 FY26: Volume Growth Powers Through Deflationary Headwinds

Orkla India Limited, a prominent player in the Indian food sector, has released its consolidated financial results for Q2 FY26, marking its first earnings call since listing. The company reported a robust volume growth of 7.7% year-on-year for the quarter, contributing to a 4.9% increase in revenue from operations, which reached INR 650.3 crore. For the first half of FY26, volume growth stood at an impressive 8%, the highest in the last three financial years, with revenue from operations growing by 5.4% to INR 1247.3 crore. Despite these strong top-line indicators, profitability saw some moderation due to specific market dynamics and one-time expenses, reflecting a nuanced performance in a dynamic economic landscape.

The company's performance was characterized by divergent trends across its key product categories: spices and convenience foods. The spices segment, which accounts for approximately 61% of the revenue, experienced a subdued value growth of 0.1% in Q2 FY26, despite a healthy volume growth of 5.9%. This disparity was primarily driven by continued deflationary pressures on key raw material prices, particularly chilli, which saw a significant 22-25% price reduction over the past two years. To maintain competitiveness, Orkla India partially passed on these cost declines to consumers in pure spices, while strategically managing discounts in blended spices to preserve brand premium. In contrast, the convenience foods segment, representing about 39% of revenue, was a standout performer, achieving a robust 19.2% year-on-year revenue growth. This growth was significantly propelled by the sweets category, which expanded by 26%, benefiting from the festive season and successful new product introductions like the Mysore Pak range. New product development now contributes nearly 8% to the convenience food sales, underscoring the success of their innovation strategy.

Here is a financial summary of Orkla India's performance:

Profitability metrics, including EBITDA and PAT margins, saw a slight contraction in Q2 FY26. EBITDA margin stood at 16.9% (down from 18.3% in Q2 FY25), and PAT margin was 11.8% (down from 13.3%). This was primarily due to increased advertising expenses during an early festive season, one-time costs associated with GST 2.0 migration, and a reduction in Production Linked Incentives. Excluding these one-off impacts, adjusted EBITDA growth would have been 7.6% with an adjusted margin of 17.8%. The decline in PAT was also influenced by lower other income, as the company had utilized cash surplus for a significant dividend payout of INR 600 crore in FY25. Despite these factors, the management emphasized that the underlying business fundamentals remain strong, with operational efficiencies helping to mitigate some of the pressures.

Orkla India's strategic focus remains on driving penetration and usage, particularly in its core South Indian markets, which contribute 70% of its business. The company is deepening its local connect by customizing products to regional culinary preferences, exemplified by the launch of specific chilli varieties tailored for Telangana, Karnataka, and Kerala. In the international arena, the dedicated business unit for global markets, particularly GCC countries, achieved a 14.7% year-on-year growth, driven by value-added convenience foods and localized Arabic spices. Digital commerce emerged as a significant growth driver, recording a 48.7% year-on-year increase and now contributing approximately 10% to domestic sales, with quick commerce dominating this channel. The company is actively restructuring Eastern's sales and distribution in Kerala to enhance efficiency, splitting channels for spices and convenience foods, and further digitizing its retail framework.

Here is a segment comparison of Orkla India's revenue:

Orkla India's Q2 FY26 performance highlights a strategic clarity focused on volume-led growth and market penetration, particularly in its strong South Indian base and expanding international footprint. While short-term profitability was impacted by external factors and one-time costs, the underlying demand, robust performance of convenience foods, and proactive digital and localization strategies position the company for sustained long-term growth. Management's emphasis on driving consumption and adapting to evolving consumer needs, coupled with improving macro-economic conditions, suggests a positive outlook for the coming quarters.