Ladies and gentlemen, good day and welcome to the Q1 FY23 earnings conference call of Zydus Wellness, hosted by ICICI Securities. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference has been recorded. I now hand the conference over to Mr. Aniket from ICICI Securities. Thank you and over to you, sir.
Thanks, [Nitob]. Hi, good evening. A warm welcome to you all on this call. At ICICI it's our absolute pleasure to host the call for Zydus Wellness. From the management we have with us Dr. Sharvil Patel, Chairman, Mr. Tarun Arora, Chief Executive Officer, and Mr. Ganesh Nayak, Director, and Mr. Umesh Parikh, Chief Financial Officer. We'll start with opening comments from Tarun, sir. Post which, we'll open it for questions. Thank you and over to you, sir.
Thank you. I'll start on this. Good evening, and welcome to the post-results teleconference of Zydus Wellness Limited for quarter one, financial year 2022-23. We have with us Dr. Sharvil Patel, Chairman, and Mr. Umesh Parikh, CFO. Having been impacted by the pandemic for the two consecutive financial years during the peak of the summer season, the company this time around saw a normal quarter with timely arrival of summer. On the back of the strong distribution and marketing efforts, the company could also recruit the consumers for the summer-heavy brands like Glucon-D and Nycil. As a result, these brands witnessed resurgence in demand, clocking the strong double-digit growth.
Though the inflation had been a concern until last quarter, we saw green shoots on inflation easing out on palm oil and packing material prices towards the end of the first quarter. If the similar trend continues, it may give some respite in the coming quarters. On a consolidated basis, the company has registered a strong growth of 17.8% on net sales, which includes volume growth of 10.3% during the first quarter of financial year. E-commerce channel continued its growth momentum during the quarter and is now contributing 6.5% of sales, which was at 5.9% for similar comparable period last year. Our gross margin as percentage to net sales has sequentially improved by 352 basis points on the back of price increase, cost improvement measures and product mix.
However, on year-on-year basis, the gross margin slipped by 70 basis points due to inflationary pressure. As a part of our endeavor to mitigate the risk and ensure business continuity in unprecedented situation, the company revisited its manufacturing footprint that focused on redistributing the manufacturing of same product in different geographies. With the objective of having leaner operations which are closer to the consumers, which was one of the key objectives of Transformation 2.0, the company has ceased the operations of Sitarganj plant. The company has incurred one-off expenditure of INR 29 million on account of the same during the first quarter. The current and recurring savings in operational costs on account of cessation of Sitarganj plant will more than outweigh some more, one-off expenses in the coming quarters.
The quarter also saw some significant milestones with overall availability of Zydus Wellness products crossing 2.5 million stores with equal split between urban and rural distribution. Our largest brand, Glucon-D, crossed 60% market share milestone for the first time in several years at a MAT level, as reported by Nielsen. Let me take you through the highlights of the consolidated financial year or financial performance of the quarter one financial year 2022-2023. During the first quarter of financial year 2022-2023, our net sales grew by 17.8% to INR 6,930 million. Our total income from operations grew by 16.6% to INR 6,968 million. EBITDA grew by 5.5% year-on-year to INR 1,481 million.
PBT before exceptional items grew by 6.9% year-on-year to INR 1,399 million. Reported net profit was up by 4.7% year-on-year at INR 1,370 million. Adjusted net profit before exceptional items was up by 7.0% year-on-year at INR 1,399 million. With that, let me share some of the highlights of the operations for the quarter gone by. We continued our thrust on marketing initiatives to grow the categories and increase market share of our brands during the quarter. To narrate a few.
On the Glucon-D front, as the market demand led by on-the-go consumers opened up, which was absent during the last two consecutive summer seasons, the brand witnessed a resultant shift in the demand, which was supported with strong media coverage with Pankaj Tripathi as the endorser to drive daily relevance for energy drinks synergized with consumer activations. We also launched 20 g sachets as a pilot in select cities which were supported through digital campaign. We continue to drive the growth of ImmunoVolt through the launch of a popular consumer variant of kaccha mango towards the end of first quarter. Glucon-D has maintained its number one position with a market share of 60.4% in the glucose powder category, which is an increase of 203 basis points over the same period last year as per MAT June 2022 report of Nielsen.
On the Complan front, the health food drinks category saw continued slowdown, which was further compounded by down-trading to LUPs and lower-priced pouch packs. Complan, key packs are holding segment share. We have taken focused interventions on increasing plain sachet pouches along with activations to drive distribution, which should show over next couple of quarters. We continue to support the brand with its superiority campaign Pack Palto, Farak Dekho. The brand, through its campaign, continue to build superiority of protein over competitors and urges mothers to turn the pack for having a tangible reason to buy. The campaign has witnessed positive response in persuasion and consideration scores overall. The brand's market share stood at 4.8% in the health food drink category as per MAT June 2022 report of Nielsen. With a focus on category.
Moving on to sweeteners front. With a focus on category development, we continue to promote the stevia-based Sugar Free Green variant through thematic campaign communication of Fitness Ka Pehla Kadam with celebrity Katrina Kaif, along with various social media digital initiatives for Sugar Free brand. The brand did not see growth during the first quarter due to high base of COVID wave two, which was led by high diabetic consumption. However, the brand witnessed healthy growth in distribution, expanding to 497,000 rural outlets, which is an increase of 26,000 outlets over a similar period. The Sugar Free brand continues to maintain its leadership with a market share of 95.5% as per the MAT June 2022 report of IQVIA.
On the back of Sugar Badlo, Health Badlo campaign and consumer offer initiatives, Sugarlite brand continued to do well during the quarter and drive double-digit growth. Moving on to the personal care front. Everyuth brand witnessed yet another strong double-digit growth during the quarter. The brand was supported by TV and digital campaigns across its sub-segments like face wash, scrubs, and peel-offs. Everyuth Scrub has maintained its number one position with a market share of 41.8% in facial scrub category, which is an increase of 511 basis points over the same period last year. Everyuth Peel Off has maintained its number one position with a market share of 76% in the peel-off category.
Everyuth brand is at number five position in with a market share of 6.6% at the overall facial cleansing segment level. The availability of Everyuth increased to 6.8 lakh outlets from 6 lakhs for the same period in the previous year. With the good onset of summer season, Nycil brand has witnessed a strong comeback and registered a double-digit growth. The brand was supported with aggressive TV campaigns and on-ground activations to drive the demand. Nycil has maintained its number one position with a market share of 34.2% in the prickly heat powder category with a volume market share of 37.6%. The availability improved by 16.5% to 1.67 million outlets.
On the dairy and spreads category front, Nutralite brand has registered yet another strong double-digit growth during the quarter gone by on year-on-year basis. Nutralite DoodhShakti dairy portfolio is also gaining good traction as we are expanding presence of ghee in institutional channels through Nutralite DoodhShakti Professional Ghee. With a normal monsoon within most parts of the country, we are hopeful that demand situation may improve, and we would strive to support it on the back of efforts on the brand-led marketing initiatives, increased distribution reach, and product innovation. Thank you. We will now start the Q&A. Over to the coordinator for Q&A.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on your touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Kapil Jagasia from Edelweiss Financial Services. Please go ahead.
Hello. First of all, congratulations on a decent set of numbers after, you know, a quite some time being a normal quarter. My first question is, could you provide some color on Everyuth Facial Scrub? Here, you have been garnering higher market share for quite some quarters now. Is there any change in strategy here or any new launches which are growing higher than the category itself?
On the facial scrub, actually, we being the leader, we have focused on category development, and I think that's our initiative across. We've been able to push the category growth to a higher level over last couple of years, specifically despite the challenges of COVID, when category actually came down. Two or three things that are working specifically for us is, I think our latest communication, which focuses on the need of scrub over and above the face washes, supported by our strong distribution expansion drive, has really helped us improve our shares.
It is more of related to the new product development and launches, because of which the market share has been increasing. Also, the lotions would be coming under this or it could be under Nycil?
No. Lotions, body lotions are under Everyuth. They are reported separately. It's still early stage for us to you know talk about it, but also the season will be in the following quarters when it becomes sizable in terms of contribution.
Okay. Also, my next question is on the Sugar Free category. Over here there has been, you know, a kind of upturn, probably bigger than this quarter. Is it because of some change in behavior after COVID towards health and hygiene product categories or, you know, something else, you know, that might be happening in this category? Could you throw us some color on this?
Yes, I mean, COVID did see a disproportionate increase in consumption, especially during wave one and wave two, where the numbers shot up substantially and we built up a strong basis, especially for our pellets and Sugar Free Gold lead business, which has a high usage among diabetics and some heavy users. I think that base has become a part of it, which we do see a certain weaning of consumption. We've also triangulated with the usage of diabetic products being under pressure, you know, because of our pharma parent. Having said this, we are continuing to build our distribution. Like I mentioned, we have increased our distribution by almost 5%-6% to 26,000 outlets, and our journey continues.
We're also seeing Sugar Free Green, which is a natural variant, which is very important to our growth strategy, so that we overcome the fear of sugar, artificial sweeteners, if anyone had. That has been building up very well across channels. We believe we will be able to overcome the current threat that the brand is facing in last couple of quarters.
I think, maybe if I can add into what Tarun said, right. I think the brand is still on a very strong fundamental. While we had an high increase in consumption because of COVID, we see certain decrease there. But more importantly, with the natural substitute of Sugar Free Green, we believe that this will create a great opportunity for the brand to significantly grow because it will remove many of the unwanted issues that generally people feel with substitutes. I think our strategy is very much aligned towards building that and the Sugarlite brand as an adjacency, and we believe that would really expand our opportunity on the business.
How big the Sugarlite brand would be of the category?
It's high single digits of the overall brand portfolio. As a percentage of the overall brand portfolio.
Sir, for this quarter slowdown in Sugar Free, is it specific to domestic markets or even the international markets are seeing this high rate?
Slowdown in the international markets. Actually, we've launched a Sugar Free extension, Sugar Free D'lite cookies. International markets slowdown is more to do with some of their currency or, I mean, challenges that we face, if at all, it's nothing to link to any brand-led issue. It's reasonably good in terms of our demand for Sugar Free international.
Okay. Sir, thank you for all the answers. I'll come back in the question. Thank you.
Thank you. A reminder to all participants, you may enter star and one to ask a question. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead.
Thanks for the opportunity. First, our portfolio is relatively very discretionary in nature, which usually takes a beating in inflationary environment. From that perspective, what we have seen in last six months, the inflationary scenario has been unprecedented. How would you read the current quarter performance, and then how would you actually estimate or forecast coming quarters from consumer demand perspective?
For what we've seen, I think, the consumer demand has been under pressure, and we've seen it over last couple of quarters, and you're right. We continue to see these challenges. I think some of our investments on brand building and very importantly on the distribution expansion has really helped us overcome some of these challenges in the last quarter. We believe that's the best path to overcome these challenges, because these will be temporary in nature, and eventually the consumption will go up as the supply side of this country improves due to investments. From that perspective, we may see some challenges continuing, but I think we believe we should see some improvement.
I'll just share, since you've asked specifically, last quarter has seen, and because Glucon-D and Nycil have specifically a reasonable presence in rural. We've seen our rural growth being reasonably good as reported by Nielsen and our distribution also ramping up. I think there may be some improvement which can be expected, but very hard to guess. Maybe another quarter of pain from a overall demand perspective. How will each of our categories play out? We still have time to see. Overall, I think environment will stay a little bit sluggish, my guess, in my perspective. But category to category it will play out differently.
Fair point. On Complan, there seems to be some loss of market share and also position. If you can throw some light about other measures that we are doing to regain market share.
If I were to break down Complan, and I think it's very important for us when we ask ourselves to review this, to de-average the brand. From the spaces we operate, I think we're holding our segment share reasonably well in the large packs in the kids category, which is the bulk of the core of the category. The shift that we have been slow to respond to has been the low price pouches, which is almost like a price war and the sachets where we've been a reluctant participant because of the margin. Having said that, I think we are doing interventions to participate in it. With our focus on that, I think over the next two to three quarters we should see some recovery there. That's really the whole story.
Otherwise, from a consumer perspective, our communications have been received well. The consumer scores in terms of concentration set is only getting stronger. We just have to address the shift in the category around LUPs and price led packs, which we're doing some interventions through our pack price architecture review so that our business model still remains.
Even with LUP intervention, if I see market leaders grow also, it was not very heartening. Is it just that it is cannibalizing competition to lower price points or is it expanding category as well?
At an overall level, if I look at last six months, the category has been declining. Last three months actually category has declined by 4%. The growth is coming only in the sachets, and the large packs are declining. You're right in that sense. I mean, there are new people coming, but still the consumption levels are down. I think at an overall level, the category, the sachets have not been able to ignite category growth that one would have liked to see. Obviously, I think there are two routes to category expansion. It is my perspective. But I'm only a small 5% player. A better way is to build the right reasons and invest behind nutrition rather than pricing. That's the route which has been chosen.
The results are still to be seen of category.
I think, Tarun, if I can also add for Tejas' point.
Sure.
I think as a strategy for Zydus Wellness, one thing, that is very clear for us is that in Complan we are not the market leaders, neither are we in the top, three or four companies. I think what we as a strategy for Complan will be is to make sure we maintain or, you know, protect our market shares and then do the right things as the leaders are doing or changing. We need to make sure we remain competitive. I think the story for the organization has to be driven by the other brands where we are strong market leaders and where we see great opportunity in terms of also growth, which can lead to profitable growth.
I think the strategy will be that while we solve for Complan and Complan becomes an important product for us, the other businesses or brands will be the ones which will drive the value creation for the organization, and that's how we would focus our resources on.
Fair point. Yeah, well explained. Dr. Patel, just one question here, and then this is you answered, but it's not the focus area. If I just go back to our discussion two years back, there were many sub-segments, white spaces which were available in Complan and we with our group levels both R&D capabilities and also the front-end distribution capabilities, there were white spaces which we wanted to plug in the portfolio. Any thoughts on that? As of now, Complan itself is not a priority to meet those level of intentions.
Tejas your point is right, and that opportunity we are not gonna let go of. In fact, we did launch Complan NutriGro in the toddler segment, which was a gap that we had, and that has been medically detailed through our pharmaceutical side of the business. We do believe there is opportunity in the adult segment and we have segments where we are present and that we will slowly, definitely build on. The adjacencies to this category of HFD, we are definitely gonna pursue and build on. Obviously in the last two years because of COVID also, we didn't have so much traction because, I mean, new product introductions have been very difficult because of less contact with the medical practitioners and less detailing and other things.
We are again starting to see strong momentum there. I think those things will definitely continue to be built in terms of adjacencies for this brand, how it can be further used. As I said, overall, when we are looking at the business, we would still make our priorities the other brands to drive the value growth, and at the same time protect Complan and continue to build on it. That will be the two priorities.
Yeah. I think, yeah.
Yeah, yeah. Fine. Now looking at inflation, is the worst behind us in terms of peak inflation? Or are you still seeing that in coming quarters we'll see increased pressure on inflation? That's first. Second, are we planning any more pricing intervention in this quarter or coming quarters to tackle this risk?
As of now, other than milk, most other products are either holding or probably, you know, seeing a little bit of dip. We are quite hopeful that the peak inflation is behind us. That's coming from today's perspective. Things change. In the last one and a half years, we've seen things changing very dramatically in a very short time. Very hard to predict, but if I were to speak for today, I think I believe the worst is behind us, and even if the environment holds, we'll get better. At least sequentially we'll get better. We still have things to, you know, work on. At the current prices, we are not planning any specific price interventions.
Is there any secular spenders, any margin guidance you would like to work with for FY 2023?
If you're looking for operating margins, my limited view will be this, that while we did discuss about a 20% journey there. If you look at across all players, direct competitors or comparators in FMCG industry, everyone's lost 3 percentage point-4 percentage point in their EBITDA margin. I think I would want to at least say that Zydus Wellness has done reasonably well to hold on to or almost being able to hold on to the, you know, operating margin. We are keen to improve our margins, operating margins, but it will be a function of how the environment plays out. I had original 20%.
I'm not sure if we get there, but we are certainly hopeful of our improvement of our operating margins if the environment stabilizes.
Sure. Sir, last bookkeeping question. You used to give size of the categories also. If you can give only three categories sizes, trailing twelve-month basis, Glucon-D, HFD and sugar substitute?will be about INR 325 crores
For trailing twelve months, HFDs have done about INR 6,750 crores. The glucose powder category has been about INR 900 crores. The third you wanted was?
Sir, Sugar Free. Sugar Free
Will be about INR 325 crores.
Okay. That's all from my side. Thanks a lot.
Sugar, sugar substitute category, just to call it out, I think there has been some corrections they are doing because the database is handled between Nielsen and IQVIA. There may be some corrections they are working on, but that's what it is.
Fair enough, sir. Thanks and all the best, sir.
Thank you. Ladies and gentlemen, to ask a question, you may press star and one. The next question is from the line of Alok Shah from Ambit Capital. Please go ahead, sir.
Hi. Thank you for the opportunity and congrats on the good set of results. My first question is, when you look at the strategies to re-recruit, you know, consumers back in Glucon-D and Nycil after a gap of about two years. Is there a different lens that you're using now to re-recruit them versus what was the traditional route adopted previously? Also wanted to get a sense, you know, what will be the NPD pipeline that you plan to leverage, specifically in Glucon-D and Nycil to, you know, sort of, gain more consumers in the category? That's my first question.
Sure. Alok, thank you very much for the question. When we're looking at Glucon-D and Nycil, I think typically, and this is a good example to share. Typically, the way this category works, for example, Glucon-D, is that most of the consumption happens between February or March to about July, August. Therefore, our numbers, our primary numbers, reporting numbers are largely concentrated between January and June. In this period of consumption, we typically see a household buy one and a half packs average per household, whoever is buying and therefore they exit the category, and they have to be re-recruited. Therefore, two years of gap actually reduced substantially the penetration levels of Glucon-D and similar numbers would apply for Nycil. Our focus has been on two prongs.
One, I think we've used Pankaj Tripathi as a brand ambassador. One of the things that we focused is that traditionally we have focused only on the sun and summer related, you know, heat and, you know, deprivation of energy. We are saying that general tiredness and exhaustion also be included in this. Therefore, we used a mix of creative campaign in terms of telling consumers that there are multiple parts, multiple reasons why you get exhausted, and Glucon-D is your partner in recovery. We've also supported very strongly with lot of local activity in Hindi heartland of UP, Bihar. Third, of course, something we've talked about is our direct distribution expansion that has happened over the last couple of years.
Those are, if I were to say high level, three things that have really worked for us, or is something we have used. Similarly on Nycil, we had a campaign which is focused on doctors, clinically proven efficacy of Nycil and how it helps people to go outdoors. That is a big theme for the kids these days, especially after COVID, and they are able to go outdoors and gives them the confidence to you know, overcome the prickly heat situation that they have with our increased distribution. Those are the ways that we have really focused ourselves. Strong online, TV and digital campaigns supported by on-ground activation and an improved direct distribution. That's the mix that we use on both these brands.
Got it. Just a follow-up to that, you know, in terms of the market size reduction that we would have seen, versus pre-COVID. We would be back to around, anywhere around 85%, 90% of the pre-COVID, or still little lower than that? Or what would the number be?
My guess is the data will still come out over the next 2 months-3 months. My guess is we are between these two brands; we are almost in value terms similar level as the COVID. Of course, there is some value loss in the translation because of pricing, which I think will play out once we have the full data by end of this quarter in terms of the penetration and all levels. Value terms, we will recover all the 2019 numbers.
Got it. That is heartening to know. My second question is on Everyuth brand. We are seeing this brand equity improve year after year. What would be the adjacencies, you know, that you can look at? While of course in the previous year you have done, you know, bit on the body lotion and aloe vera part. Parallelly, we see a lot of these DTC companies trying to do bit more products on the face, you know, sheets and, you know, few other things. Now, of course, these categories were not prevalent, you know, couple of years back. The sizes could be small, but any adjacency that really interests you and can really help Everyuth as a brand move into those adjacencies?
Alok, I think Everyuth is a brand which shows a very good promise, both from an equity point of view and the way consumers are lapping it up, I think. Our belief is to go first within the spaces that we operate in, especially scrub, peel off. I think there is a huge opportunity of growing the category. We have a single-minded focus on category development. We have looked at couple of adjacencies, which is the benefit segment of tan removal, body lotions and aloe vera gel, which we are building on. I think there is enough room for them to grow. There are smaller segments like sheet mask and several other spaces, BB cream, CC cream, et cetera, which a lot of these companies are trying. We have them all.
I mean, grouping these products is not such a big task, but the size of the prize may be much smaller versus what we already have at hand and the momentum we're seeing on the brand. We are studying if we can just keep them, if we are feeling a need to do that only on online space, et cetera. Some of those, you know, evaluations we are doing, but otherwise we have a very single-minded focus to grow sizable within this. I think as a skincare play, this can be very profitable and sizable unit for us.
Got it. Perfect. Just a bookkeeping one. Now that, you know, this Sitarganj plant has been ceased, any changes on the potential tax rate that we can see, you know, going into FY 2024 or 2025? Anything to call out specifically?
No, no. Sitarganj was already in under the normal tax regime, and we don't see any change in the tax rate going forward.
Okay. Perfect.
Our guidance given to you earlier continues, that we'll be having a taxable income in the year 2024-2025.
Got it. Perfect. Thank you very much, and best of luck for the future quarter. Thank you.
Thank you.
Thank you. A reminder to all participants, you may enter star and one to ask a question. The next question is from the line of Anand Venugopal from BMSPL Capital. Please go ahead.
Yeah. Thanks for the opportunity. Just wanted to ask, so this non-seasonal revenue, which we see in quarter one, quarter three, for, say. Yeah.
Sorry, not able to hear you.
Mr. Venugopal, we are unable to hear you. Can you speak a bit louder? Come close to the
Yeah, yeah. Sure. It is better? Hello.
Yes, sir. Can you come a bit closer to the mic?
Sorry. Can you hear me?
Yes.
I was just wanting to know in regard to this non-seasonal revenue which you have in quarter two and quarter three. In FY 2021-2022, quarter two, quarter three revenues were around INR 724 crore and INR 772 crore in FY 2021-2022. Is there- [a udio distortion]
Is there any plan to INR 1,000 crore at the end?
Sorry. Is there any plan to?
Like, do you have any plan to achieve that? For example, if non-seasonal products, are you planning to launch any more non-seasonal products as such to lead growth assets?
All our brands, basically Complan, Sugar Free, Nutralite, Everyuth, play a much larger role because quarter four, quarter one is led by Nycil and Glucon-D. Within these there are clearly plans to build on this. We've already launched, for example, under Nutralite DoodhShakti, under Everyuth, body lotions. Complan and Sugar Free have their own agenda. Like Sugar Free Green has a specific agenda of growth. We have specific strategies to build on growth to drive for quarter two, quarter three.
Got it.
We can move on to the next question. Thank you. A reminder to all participants, you may enter star one to ask a question. The next question is from the line of Akash from UTI Mutual Fund. Please go ahead.
Hello. Am I audible?
Yes, sir.
Sir, thank you. Thank you very much for the opportunity. May I kindly ask you what is the volume CAGR over last three years? I mean Q1 FY 2022, Q1 FY 2023.
We have an overall growth about 4%,4.5% over 3 years. I think my estimate is about 3%-3.5% would be volume rate, because initially first one or two years, we do not have any substantial value increase.
Sure. Thank you very much, sir. In FY 2023 or maybe FY 2024, I mean, which categories are expected to see new product launches? Or let's say, which categories would be given higher allocation towards advertisement spends or new product launches? Yeah.
FY 2023, I think each of the brands have their own agendas in terms of investments. Glucon-D and Nycil typically get advertised mostly in the peak season, while brands like Everyuth Scrub, Sugar Free Green or Complan have all four quarters of more consistent advertising as we follow. Nutralite spends the lowest because it has a larger institutional exposure, and therefore, the more of the action happens on ground from that perspective.
Sir, in terms of new product launches, any categories that you wish to call out?
For the future, it is you know hard to give any guidance at this stage. Of course, we want to strengthen from the recent launches, we want to strengthen body lotions, Nutralite DoodhShakti, as you know, and Sugar Free Green to build up to a sizable level as we move forward. Even Sugarlite has an opportunity to continue build up.
Yeah. Thank you very much, sir, and all the best. Yeah, thank you.
Thank you.
Thank you. Ladies and gentlemen, to ask a question, you may press star and one. The next question is from the line of Tejas Shah from Spark Capital. Please go ahead.
Hi. A couple of follow-ups, sir. Sir, just wanted your insights on one of the building blocks that you have called out is leading route to market, so basically distribution expansion. This observation pertains not only to us, but also for industry that I'm not sure if demonetization has anything to do with it. But post demonetization, the distribution expansion is actually not resulting in the revenue or the pre-demonetization. The thumb rule used to be from industry veterans that 10% increase in distribution used to lead to at least 3% increase in sales. Now, since last four, five years, we are not seeing this equation holding true even for industry at large, even for us.
Any... Parallelly, there are many more disruptions happening with go-to-market strategy and then now B2B businesses, Udaan and Ajio. Just wanted to understand, is there still a merit left in expanding distribution, direct distribution? It is not resulting, and there are many more agencies or engines which are actually doing the same for us as a brand owner.
Tejas Shah, it's a fair question, not just conceptual, but business impact. I think yes, you're right, it does not have a very linear relation, and 10: 3 certainly is not existing. We have seen it in our business. I've seen it in several other businesses. The biggest benefit of direct distribution that we have seen is being able to drive the agenda of distribution that we believe. I think one of the biggest change events in last five to 10 years, and it's nothing to do with just demonetization alone, is the fact that clutter on the stocks on the shelves of the retail.
I think the number of SKUs have proliferated to 2x to 3x levels for a similar retailer like for like, at a base minimum level in terms of number of SKUs that are coming in store. Therefore, your ability to push through your new products, your critical products, which typically are small, but you want them to become bigger, is that much harder and you can't rely on wholesale to do that job. Wholesale is a democratic channel. It will sell what is anyway selling already faster. My Sugar Free Green, I need to build it through my direct distribution efforts. Just putting more money on a wholesale and doing wholesale activation will not play that role. That's one reason why I need direct distribution.
Also, the per dealer throughputs at a global level, if I were to say simplistically, because there is continued expansion of overall number of outlets. Per dealer throughput for each brand or each category is also reducing because organized trade, which used to be for me about three years back, about 12%-13% has become 17%-18%. My share of general trade has shrunk. I still have to reach more outlets to do justice to it. It's become more like a imperative to strategically build my business, and therefore I do not have an alternative if I want to have the right, future. That 10: 3 obviously doesn't exist. Therefore, it is something that we'll continue to build, but obviously it's not that linear in terms of, business outcomes. At least in short term.
More medium term, yes.
Thanks. So this is clarified. Yeah, no, this is clarified, sir. Definitely clarified. Second, you have also called out interestingly inorganic play gap fulfilling. Are we still on lookout or we would like to actually settle down with what we have done so far on acquisition before we make a move or we are ready in your opinion to absorb more brands?
Very simplistically put, we have our hands full. We are very, very clearly focused on growth. If you look at most of our brands have a huge growth opportunity, whether it's Glucon-D or a Nycil or a Sugar Free or a Everyuth or a Nutralite, even a Complan, we have a job to do. Really speaking, and international market. If you ask me, we're not in the need that I was say four years back, five years back, that we needed to scale up using a, an, you know, acquisition. The role of acquisitions has substantially changed from then and now. Here we're looking at bolt-on which will take me a longer time with a, you know, gap filling which fit in into my current five broad spaces that we define. They will help me move faster.
They need not be large play, but they can be sized not too small to, you know, take disproportionate time, but they are good, gap filling ones. Something in international markets, top five, six, eight markets which help me move at a faster pace. For example, Bangladesh we have strong plans. If I get something it'll help me move faster. These are more gap filling, more, sharper, specific, you know, M&A agenda that we run. It will not be just for scale which was a different need for me, at that point in time. That's how we are looking at it.
Most of the initiatives that you spoke about means that they are employee-driven, so team building will be required. Should we budget higher employee costs as a percentage of sales as we go along or you believe that we that the current run rate can actually make us achieve the objective?
You know, we have taken out a substantial portion of cost at a employee level. I think from now on it will be more like my guess the increase as the market and a small percentage increase for any expansion that we may need. That's how the fixed costs on employees will move in my view. Right now we've been taking out substantial costs but that will kind of cease from now is how I would look at it. It may still give me operating leverage if I can achieve my double-digit growth as we have and I think at some point in time that should continue to grow at faster than that, right? That's how we would plan to, but you can build your models as well.
Sure. Thanks a lot and thanks for the detailed answers. Thanks and all the best.
Thank you. A reminder to all participants, you may enter star and one to ask a question. The next question is from the line of Ruchita Maheshwari from BOB Caps. Please go ahead.
Hello. Congratulations on a good set of numbers. My question pertains to Complan. Just would like to know, we had the 5.6% kind of a market share and which has now come down to 4.8%, though last two quarters we saw the category also decline. Now if you go through the history of Zydus, we used to have a brand called ActiLife and which used to cater to the adult drinks, but we couldn't scale up and we had to, you know, call off that brand. How strong we are convinced that we will be able to scale up Complan brand going forward?
Yeah, Ruchita, I think there are two different situations. I do believe, I mean at that point in time it was a much smaller play. We were probably a bit ahead of time at that point in time to participate in the adult nutrition which was actually much smaller. Having said this, Complan is a far bigger, far more powerful brand with its own strong following. Therefore we are quite convinced that there is a big opportunity for this. We are not losing momentum on this brand on the big packs. There is a structural shift in this category led by larger players. I think we have taken our time to respond to that and we'll be able to do that.
Having said this, we're quite confident of having a larger nutrition play over next two to three years, where we will be able to hold share in more medium term and build on that as well by participating in other spaces where the brand has traditionally not played. We also must recognize the legacy that we bought, that we had almost five or six years of continuous market share drop in this brand from a mid doubles to a mid singles. I think we are reasonably confident we'll be able to hold and build on it.
Okay.
A strong, much more powerful brand than ActiLife that we had at that point in time.
Okay. In Q4 we did launch some smaller packs in Complan. How was the customer response on the same? Are we planning to, you know, make that smaller unit packs available across India? How is it like? It will be only available in the Hindi belt region?
We had launched the pouch packs, 450 g pouch pack, mainly in West Bengal, in quarter four. We've got a fairly decent response on that. We are hopeful to, in this quarter, launch the pouch pack in our main, you know, variant, which is chocolate, which should help us compete better as we move along. Therefore we'll be scaling up our pouch pack, 450 g pouch pack, to a national level as we speak. That should help us, you know, compete better.
Okay. Apart from NutriGro, are you also planning to address some white spaces which is available in the Complan brand going forward?
Yes, we are looking at it, but we will share once we are ready for that.
With NutriGro now, COVID has been passed off, so you are being, I'm sure, approaching to the MR for, you know, building your brands and recommending to the customers. What kind of a growth you feel that NutriGro will register maybe in a year or maybe in a two years' time frame?
I think we expect to start getting a fair share in the toddler space. Two to six years is estimated to be about 10%, 10%-11% of the overall HFD market. We do not have sufficient representation there, and we believe with this Complan NutriGro, at least we'll start getting a fair share of 6%-8%, at least in next couple of years, if we are able to get it right.
Okay. Just coming to, if we see across your brands, we are market leader in five out of six of your brands, but we are still not have that much liberty in taking a price hike. Earlier we were a bit, you know, slower in taking a price hike, and even the price hikes were not enough to cover all your cost of inflation. Can you specify what's the reason for us not taking a liberal price hike when our peers have been taking those kind of price hikes, despite we being a market leader in many of the brands?
I think it's a function of each of the brands and the categories they are. For Glucon-D and Nycil, the price hike has to be taken pre-season because we can take it in between, but we had to take, I mean, a substantial 85%-90% of these businesses, these brands get sold between quarter four and quarter one. We did take the price hike at the right time for these brands. For Sugar Free also, whatever we had to act, once the prices went up, we did it. On Nutralite, as and when palm oil has gone up for our institutional, we have been able to respond.
I think the only brand where we have been more reluctant in taking price increases has been Complan, which is more led by the fact that competition is actually taking prices down. Therefore, we have had to be holding back our actions. Amul has also taken price increases effectively, and there has been a good response without losing any you know momentum on the brand. It's only Complan we have been reluctant, and that's the competitive-
Tarun just said, Ruchita, we have to understand, as a company for all of, other than Complan, I think we have been very good at being able to take the right price increases. Obviously, the strategy for the organization is to grow by volume and not by price. That has to be the fundamental in terms of how we run our business. Because, you know, the Indian consumers are price-conscious, so there's a limit to what we can do. As in terms of margins, we have done fairly well in terms of taking price increase, and we are premium in our categories. With Complan, I think it's a very different strategy because you can't do it, because while there have been inflation and price increases, the leading category brands are actually reducing prices, contrary to all logical thinking.
We have to defend that as the way the market behaves. By and large, other than that, we have been very responsible in terms of price increases.
Sir, have you taken any price hike in Q1?
No. Those prices were effective already in Q4, and therefore we didn't have to take anything specific. Over last year Q1, there was a price increase, but we didn't have to do any specific actions in Q1.
Okay. I believe, sir, you have taken some 7.5% price increase, of which 5.3% has been implemented. Am I correct on this?
No, no.
By now all of it is implemented.
Everything is implemented. There will be shifts because of product mixes, but all of it is implemented. There's nothing in pipeline.
Okay. Just one last question from my side. The goodwill which we have in our books, so have you thought of amortizing it, and how it will be going forward, whether it will be in phases or it will be in one go? What's your thought process on this?
Goodwill is not amortizable in the books of account as per the Ind AS. When we do some you know combination, business combination, that time we'll think of restructuring it. Currently it is not amortizable as per Ind AS.
Okay. Thank you so much.
Thank you. That was the last question. I would now like to hand the conference over to the management for closing comments.
Thank you everyone, and we'll see you next quarter.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your line.