Ladies and gentlemen, good day and welcome to the Zydus Wellness Limited Post Results Q and A Session with analysts and investors. If a participant is connected on both the webcast and the audio bridge, I now hand the conference over to Mr. Tarun Narora, CEO, Zydus Wellness Limited. Thank you, and over to you, sir.
Good afternoon, and welcome to the post results teleconference of Zydus Wellness Limited for quarter 1 financial year 2020 onetwenty 2. We have with us Doctor. Shaul Patel, Chairman Mr. Ganesh Nayak, Director Mr. Nitin Parekh, Group CFO Mr.
Umesh Parekh, Zadiswena CFO Mr. Vishal Gaur, Senior Vice President, Corporate Finance at Kadla Healthcare Limited. On the onset of the Q1 of the financial year 2020 onetwenty 2, we witnessed a strong momentum getting built up with good traction for our summer season brands, Blue Card B and Nycelle during the first half of the month of April 'twenty one. But unfortunately, for the 2nd consecutive year, our business and specifically our summer brands got impacted due to COVID-nineteen second wave followed by cyclone, Yasen, Tokte and onset of early monsoon. Even though we were ready to deal with the crisis at operations and logistics level, the country saw lockdowns and restrictions across urban and rural geographies leading to weak consumer sentiments and demand disruptions.
However, with receding impact of 2nd wave and gradual opening up of markets, we see good traction on our brands followed by demand revival across channels. Despite COVID induced setbacks, we posted total income from operations growth of 11.2% on year on year basis. Continuing commodity inflation, in particular of refined palm oil, has put pressure on our gross margin, which were down by 87 basis points as percentage of net sales compared to previous sales comparable quarter. Going forward, we see some softening of refined palm oil prices in the second quarter. Let me take you through the highlights of the consolidated financial performance of quarter 1 financial year 2020 onetwenty 2.
During the Q1 of financial year 2020 onetwenty 2, our total income from operations grew by 11.2 percent to INR5976 million that includes one time GST budgetary support of INR52,200,000 EBITDA was up by 14.8 percent year on year to INR1404 million. PBT before exceptional items was up by 57.3% year on year to INR1308 million. Net profit was up by 46.6 percent year on year at INR1308 million. With that, let me share some of the highlights of 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, the quarter gone by started on a strong note for the brand. However, due to lockdowns starting from mid April and adverse weather conditions in key states, the brand sales got impacted, again, during its peak summertime. Glucon D ImmunoBoard continued to deliver steady business. On the compliant front, on the back of new communication of the brand promoting 2x faster growth proposition, which was aired on TV across all India, the brand delivered a good double digit growth sales during the quarter. We also continue to invest behind the brand through customized consumer offers on select SKUs in top markets.
On sweeteners front, the brand continued its good momentum for the quarter and delivered a decent growth over a huge base of last year comparable quarter. We continue with our investments on mainline media as well as on digital. To drive the brand adoption of Sugarfree, a massive influencer program, Iamsugofree was activated on Instagram and more than 100 influencers advocating the brand. On the NYSEED front, the brand witnessed a degrowth during the quarter gone by as we missed the season sales induced by 2nd wave lockdowns and curves. We hope to see some recovery in the Q2.
NICEAL Soothing Body Mist was launched in April 21 and was supported by TV and digital media campaigns. Where the launch got impacted due to 2nd wave of COVID-nineteen. On the heavy youth front, the brand continued to grow in strong double digits, though on a lower base of previous year comparable quarter, with ATL campaigns of flagship scrub portfolio and digital inputs on the entire range. On the neutralite front, the brand delivered strong growth both in institutional and retail business during the quarter despite lockdown in key markets. Nutrilite Mayo business also continued its strong performance.
Nutrilite Chocolate Spread, which is currently available in non trade and e commerce channel, faced slowdown because of the closure of some of the non trade outlets due to lockdown. As per the MAT June 'twenty one report of Nielsen, Glucon D has maintained its number one position with a market share of 58.2% in the glucose powder category. Complan has a market share of 5.5% in the MFP category. Nycil has maintained its number one position with a market share of 35.2% in the prickly heat powder category, which is an increase of 161 basis points over the same period last year. Heavy Yield Scrub has maintained its number one position with a market share of 36.9% in the facial scrub category, which is an increase of 2 89 basis points over the same period last year.
MEU peel off has maintained its number one position with a market share of 77.6 percent in the peel off category. MEU brand has achieved a market share of 6.3% at the overall face shield cleansing segment level. We have started on the next phase of transformation journey post integration, which could also be referred as transformation 2.0. We intend to become leaner and more efficient through business projects, including disintermediation and digitization of our processes across the value chain. We have initiated a number of projects from sales, supply chain to people function that could help us become more agile riding on the digital way of working.
As we progress towards the next quarter with COVID related curves and restrictions being lifted, we see positive consumer sentiments and return of normalcy for our business. We remain optimistic about the growth of our business and brands going forward. Thank you and we will now start the Q and A session. Over to the coordinator for the Q and A.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. We have the first question from the line of Alok Shah. Please go ahead.
Yes. Hi. Thank you for giving me an opportunity. Tarun, can you share some granular information with respect to this Transformation 2.0 journey? And any operational and financial targets that you would have set out for, say, FY 'twenty three, 'twenty four?
Something on those lines, if you can please disclose. Thank
you. Yes. We have operation and financial targets as well. We are expecting this to give us more than INR10 crores of saving in the next financial year because this year is the working part and it will happen over next couple of quarters when excess of that amount could come through in terms of cost savings or cash release, which can happen on 2 or 3 accounts. 1, like I talked about disintermediation, which itself is a which will lead to direct servicing of some of the Monterey chains, which was our intended project and we intend to take e commerce we service directly.
Monterey, we want to take it to a 80% level where all the large accounts are serviced directly. And therefore there will be an improved realization by servicing them directly. We also see business enhancement in terms of getting better coordination with these accounts. The other benefit that I see is cash release. Like I mentioned, we have the project, which is implementation of IBP from SAP, the integrated business planning, which is a supply planning planning and demand forecasting tool, which we are working into which we are implementing that will distaste the entire supply planning piece and move into continuous replenishment mode, which should reduce our stock levels as we envisage and therefore have a cash release.
There are other projects also which include projects related to freight management and in future some automation of manufacturing processes. Some of the processes we have already implemented which are related to sales IT.
Got it. Got it. So this would also mean some kind of a portfolio of better breadth to monitor e commerce. So anything that you are sensing from the top line perspective also? So
like I mentioned, the first part, which I talked about disintermediation, relatively small on our scale, but still a valuable one where it will lead to higher realization from on this on the portfolio which gets serviced directly because the margins go away, which are only a buffer in the system. And also when we work with closely with them, we could also improve our service levels and higher availability. Some of those numbers we are putting together, but we are not putting as a target for our business delivery.
Sure. Sure. My second question was on the digital guidance with respect to some of the launches extension. So would you be sharing something because as we see the brand always have a lot of potential in terms of extensions like how this Corfu did, Nycil, Body Mist. So are you gunning for, say, one new launch in a brand per quarter or something of that sort is on the end win?
You could say that practically that's really what is working. Last financial year has seen a large number of launches. From our perspective, it is very important to see some of these launches taken to the next level. So we have new launches in the pipeline and some of them you will see in the coming quarter as well. But my biggest priority will be to also ensure that the launches which are already in the marketplace, they are taken to the next level.
We've seen good success of when we persist with a launch and we keep building it, even if initially there are challenges. A good example is Sugarlight, which is in the 3rd year of launch. In every year, it has doubled. There is importance in persisting with what we have. So I would say a substantial portion of our effort will go in ensuring our existing launches go up, but we do have a couple of big launches in next two quarters as we move forward.
Got it. Got it. And I just have a very small third question, if I may squeeze in. I was just doing some calculation as to what could be the potential loss sales because gluconia and nytyl could not be sold throughout the quarter. Would that be anywhere?
I mean, I'm not asking for an nearby estimate, but if you can just say that according to my estimate, it's more like INR 120 ish crore. Would it be far less than that, more than that, any ballpark that it can share?
It's hard for me to comment, but it's not less than that.
We have the next question from the line of Tejas Shah from Spark Capital.
Just first one, did you start with your general observation on demand uptick or demand scenario post the second wave?
Year? So at our overall level, we've seen especially the non seasonal brands are showing good resilience in demand. So SugarPhy continues on its momentum and at a 2 year CAGR level, both SugarPhy and Complan are showing consistent growth at our decent levels. So therefore, that gives us a belief that the demand is for essential products is safe and building up. We've also seen in the wave 2, the quarter gone by much faster recovery on numbers on Ever Youth and Nutrilite because it took much longer recovery last year.
So the resilience and recovery of demand has been far better on these brands. And I mean on just 1 year basis, I believe you'd have seen some phenomenal growth, but the base was much lower. So for us, the concern has largely been related to the seasonal impact, if I were to say. Otherwise, we are fairly positive and the overall way demand is building up. And it is broad based.
E commerce is building up. Montrade is also coming back in reasonable terms. Horika has seen faster recovery this year versus last year.
Fair enough. And Karun, you spoke about Complan market share. Last year, 1Q, we started sharing market share in 2Q. So just wanted to understand the trajectory there of market share, A. And B, are we gaining market share disproportionately or higher in a particular channel versus competition or in a particular geography versus competition, if you can comment on that part as
well. Yeah, I'll just try and give you a broad outline of how market share for compliance is about. So, we've had this brand for about two and a half years. The first 6 to 8 months, we had seen a substantial drop. After that.
Our market share has stabilized at closer to 5a half. And, despite our expectation, the numbers are at similar level. My personal view is that the market shares are, I mean, our internal growths reflect a slightly better number, but 3rd party numbers hold us at a similar level as 5.5. Sooner or later, it will catch up because our distribution levels are also at 4 year high. So we've touched 5.72 lakhs as reported by Nielsen.
When we got the business, it was close to 4.2, 4.3 lakhs. So distribution has gone up. We are seeing resilience. Our internal growth numbers exceed what Nielsen reports. Therefore, we are, if you ask me, quite optimistic on the way Complan is building up and is responding to our initiatives.
But from just pure market share point of view, it is stable at 5 and a half at annualized MAT level.
But Tarun, he was asking about the scanners also in terms of distribution
of shares. Yes. So we've seen yeah, I can add. So we've seen Nielsen doesn't capture it. Even e commerce has been very, very responsive to Complan and some of the platforms we've seen a substantial pickup of our shares on Complan.
We've also seen that a couple of states, especially UP, Venkatar have responded to and seen increase of market share for ComPlan. We were under pressure in Tamil Nadu, but for last 6 to 8 months, we are seeing that recovery as well. So that whole thing all needs to catch up into overall share improvement. But we are seeing 2 geographies which are responding well. Some of the emerging channels responding well without losing momentum around the base channels of Quantrade and TD.
And I
think in e commerce, we
have
And
Doctor. Seville, if you could repeat because I think it got missed.
No. What I said is in modern trade, obviously, we had a higher share, a bit more than on comp plan versus our overall share. And I think we're seeing good trajectory on e commerce also.
Yeah.
And then just staying with Complan and Doctor. Sheryl is one of the earlier comments you made in one of the earlier calls. He said we were planning to actually leverage on the advocacy platform through our pharma connection and pharma relationships. So any update on that to expedite compliance journey there?
So the product did
get launched, Compline NutriGro, which is currently launched through our large pediatric division. So it's tracking well. It's obviously for the last 3 to 4 months, new product successes have been difficult because of non availability of meeting doctors and all. But if you look from June onwards, there is a good significant uptrend and on the prescriptions also. So I think in a way, I would say we are delayed by almost 9 months because the whole lockdown made it very difficult to get new product prescriptions.
But you can, at least from the last 2 months and trending forward, I think we are on a good track to now really start doing what we needed to do, which was last year. But now we'll get to see it in this year, the ramp up.
Great. And last one, if I missed, Google. Our gross margin tracked well despite all the margin pressure that we are seeing in the system level or macro level also. So any interventions you made in terms of price hikes or this was product mix beneficiary also margins this time?
So we have taken about a little higher than 2% price increase on our portfolio effectively for the last quarter that will reflect. We are also running several cost reduction programs across our products. So some of which may not have fully come in, but because we do acknowledge that this commodity cycle may have a longer inflationary trend, so these projects are extremely crucial for us to build on. So some action or intervention from a price perspective and some projects which we are working on to reduce costs on a long basis.
And I think if I can generally talk about the overall gross margin side, I think we will we have 2 products. 1 is Complan and the other is Neutrolyte where we have some challenges. Complan is manageable and I think we can continue to do better on that. But on Neutrolyte, once we have a portfolio which is more balanced and not completely based, oil based, but have more products which are in like in the ghee, butter and also some new segments that we're trying to build, I think that overall portfolio will have a lesser impact on the oil pricing that there today. So it's not something that will happen in the short term.
But in terms of 3 to 4 years, we can see that the whole neutralite portfolio becoming far more attractive in terms of its net margin profile, which currently is struggling because obviously it has high dependence on oil.
Great. That's all from my side and all the best for future quarters. Thanks.
Thank you.
Thank you. We have the next question from the line of Kaushbukh Pavaskar from Sherkhan. Please go ahead.
Yes. Good afternoon, sir. Thanks for giving me the opportunity. So my question is again on the raw material inflation. So for this quarter, how much was the raw material inflation for us?
So we have taken 3% price increase and we are also focusing on cost saving initiatives or efficiencies to mitigate the impact. But in terms of inflation, how much was the inflation?
Umesh, you want to take this?
Except for RPO, we have been able to neutralize the inflation for all other products. RPO, we have seen a bit of a good amount of inflation. And we have taken some pricing, but it is not fully adequate to absorb the full price increase of the raw material prices.
So RPO over the last 3 to 4 years has gone up more than 90%. So I think that is an unsustainable level. But once we have the product mix better, we can see and the cooling off on that, we can see some improvement. But as we measure the rest of the things we have been able to balance.
Yes. On Complan also, we have like accumulated SMP when the milk prices were low. So we have been able to manage the price increase of milk as well. RPO is the only commodity where there is a substantial price increase of 90% in the commodity.
Okay, okay. Got your point. And my second question is on our international business in the press release. You have mentioned that international business is performing well for you and it has grown in strong double digit. So what is the current contribution?
And if you could throw some more highlight on the international front?
So our international business on an annualized level is close to about 3%, 3.1%, and it is growing. If I were to look at trading 4 quarters, it is doubling itself every year. The major market stops 7, 8 markets contribute to more than 80% of our business, which includes markets like Nigeria, Nepal, GCC, Bangladesh. And the 2 key products that we sell in these markets is Complan and Sugarfree, including Sugarfree Extensions. Of course, we are building the other parts of the portfolio, but these 2 take the most of the share and are usually present in most markets that we operate with few exceptions.
And we are quite positive about building it forward.
And sir, one client thing. So you mentioned about some one off in the revenues. Can you just explain that?
Yes, sure. So one off in the revenue is one time GST budgeting support of INR 5.5 crores, which was received in the Q1. And that is reflected in the other operating income.
Okay. Thank you.
Thank you. We have the next question from the line of Pratesh Shera from Lucky Investments. Please go ahead.
So what would be our 2 year CAGR on Complan and Sugarfree? I missed if you would have mentioned the division.
So both are in good growth levels from a 2 year CAGR, closer to double digits. So actually
double digits. Okay. My second question is on comp plan. We were on the distribution expansion side, especially on the general trade. What is the progress there because that's also one of the legs for growth and the progress on variant launches because competition seems to have much more variants versus what we have?
Sorry, I didn't understand. First part, general trade what?
Distribution expansion in general trade for compliance.
Okay. So, at our overall direct distribution level, we have crossed 500,000 outlets, which was our plan. We've actually exceeded that by 10%, which in last which started in July when we had post integration reached about 3.3 lakh outlets. We have now crossed about 5.5 lakh outlets. So that's from our direct distribution.
And if we really look at, comp plan in specific, which will not just be a benchmark from our internal direct distribution, but availability as measured by Nielsen. There, when we got the business 2.5 years back, it was a little over 4 lakhs, about 4.2 or 4.3 lakh outlets. We have already exceeded that number of last 4 years, which is 5.7 lakh outlets. And hence, we are better equipped to take on competition from general trade perspective or point of view as well.
This 5.7 is total distribution for us because I think our total distribution is 2,000,000, right? Or this is 5.7 for compliance?
Compliant, Compliant. I thought you were asking only on Compliant. So overall, Direct is 500,000. Total will be 2,000,000 availability. And specifically, getting on to Compliant, 5.72 as reported by Nielsen availability.
And what are the variants launches?
So from we had launched last year variants on Complan, relaunched it Complan Nutrigo, which is focused on toddler segment, which is based on a superior nutrition and a better protein formula, which we are promoting through the, expert health care professionals.
And on the sachets?
So sachets, we launched last year. We launched 2 sachets. 1 is 18 gram at 5 rupees, focused in south and east part of the country and, 75 gram at 30 rupees focused in North and West part of the country as the markets are structured for the sachets. And we are seeing good traction of sachets. They're meeting all the milestones that we have set for them.
So we are quite satisfied with the expansion of Sache business.
So can we see some market share expansion in CompTlan in the current year?
Yeah. That's what we are hoping to see. It's also a disrupted year. So it's not just our problem, but also Nielsen also has been picking up data. And I will go with just what they report rather than my point of view, but I hope to really see some expansion of market share for us in this year itself.
And on our 5 year 3,000 crore revenue aspiration that we have and the margin expansion, can you give some color or some milestones or processes update there?
So the growth rate that we have envisaged, we've really missed some part of it in 2020 2021, I mean, 2 financial years if you were to look at our calendar years. So we missed some numbers, but we are hopeful that if we don't see the kind of extreme disruptions that we have seen in the last two summers, we could be back on growth trajectory and also see coming closer to the numbers that we have in massage for 5 years. On the margin side, we continue to drive despite the top line challenges, continue to drive very hard on the cost side. So as the volumes catch up, I think you will see the operating leverage delivering superior EBITDA margins in the years to come. 2023 is
Are you talking about the margin?
So we had said 2023 will cross the 20%. We feel lucky maybe earlier, but 2023 for sure we should cross 20% margin at EBITDA level.
Lastly, on the debt on the book and the interest cost, do we see a case where the interest cost will not be there as we progress towards the end of the year?
Yes,
sure. So last year, we repurchased our NCDs to the extent of INR 1500 crores and that has brought down our debt level to only INR 5.65 crores gross debt level. That was further reduced by again about INR 130 crores. So current debt level is just about INR435 crores and net debt level is about INR225 crore. So we'll be able to further reduce it and maybe in one and a half years' time, you will see that there will be hardly any interest cost.
So we reduced it by further INR150 crores and gross debt is INR440 crores?
Yes.
And net debt is INR250 crores?
INR250 crores, INR250 crores.
Okay. Okay. Okay. And this debt is at what cost, sir?
It is at 5.01%, 5%.
5%. So 4.50 into 0.05. About INR 1.50 billion to INR 1.05 billion to INR 1.6 billion. We are reporting about INR +8 billion in the 40.
Yes. That's primary sector lending. What I have talked about is the long term debt. That's primary sector lending for working capital that will just go up towards the end of the year.
Okay. Thank you very much, sir, and all the best. Thank you.
Thank you.
Thank you.
Is there one minute?
Yes, sir. Please
go ahead. Yes. So what should be our so keeping FY 'twenty two aside, but let's say NICEEN and Groupon, what do you think should be the growth rates in these two brands?
Growth rate for 2022, right, for the current balance
sheet? Just keeping 22 aside. 22 aside in a normal year, what is the yeah.
Yeah. We are quite focused on our double digit growth on both these brands, and we have enough initiatives. And there is room for growing the both these categories, we being the leaders. And I think we see good recovery on these numbers as soon as things get normal. So it's good to expect a double digit growth on both these brands.
And NICEELI, I'm particularly still very optimistic about to get these and so can you look on these.
And any other launches apart from the dark chocolate that you have done in the last what I heard about dark chocolate, but anything other than that that we have launched?
We've launched 11 products in past financial year and which includes on Eviote, we launched Alovera. On NutriLite, we launched chocolate spread and NutriLite Dood Chukti butter spread with probiotics, Nutrile Diet Gutrile Ghee. On Compline, we launched sachets. On Nuclon D, we launched tablets with immunity benefit immuno vaults. NICEL, we launched sanitizers and later on, we also tested wipes, sanitizing wipes and we have launched mist, body mist.
So we've launched several products in last few quarters and some of them are really building up well for us.
We have the next question from the line of Malini Gupta from Ashika Stock Broking. Please go ahead.
Yes. Good evening, sir. Sir, I had one question on the raw material. In the last conference call, you had said that basically all raw material increases, etcetera, are passed on immediately in your in the margarine brand. So but and you are having a problem in passing on milk prices, price increases.
And this year, I mean, in this quarter, you're seeing just the opposite. So, I mean, what has changed between last quarter and this quarter?
So let me explain. First of all, I think milk prices harder to pass on because comp plant prices are stable. And for almost 3 years, we maintained the same comp plant prices despite the fact that milk prices have strengthened over the years. We believe as the equity of comp plan is getting stronger, we will have better pricing power. But having said that, the swings are not substantial.
So even if and what we've seen over the last 2 to 3 years and swings are not so substantial. So when Doctor. Shaul mentioned that milk or Compline, we can still handle. On the other side, when we look at palm oil, normally in last 4 to 5 years, we have a clear strategy. We wait for some time.
If the prices go up and are not coming down, we pass on. And if required, if they come down, we are also able to take it back. And this has largely got to do with the institutional segment, the food service part of the NutriLite. Now this time, there has been a very disproportionate increase in RPO, which is beyond, I think, we have not seen those kind of increases at least in a decade, and I don't have beyond that data. And while we have taken substantial prices and price increases on that particular thing, we have not been able to pass it on completely.
And that's something which is bothering us and that's the reflection of our view. We were expecting it to cool down, but if you see a commodity cycle, the way it is shaping up, all oils are moving up. So at some point in time, either we will have to continue taking prices up or something has to give in. And that's the reflection of the concern what Doctor. Shival when he was explaining the concern on palm oil.
At a fundamental level, nothing has changed. Our pricing power in Neutrolyte remains strong. We are usually able to pass on. But this is something we have not seen in a decade at least if not longer.
And sorry, if you could just explain whether the milk prices, I mean whether they have come down or they are on a Y o Y level and Q o Q level whether they are the same. If you could just say, talk about the milk prices.
Sure. I'll give you just a quick high level and more details. We can pick it up on a separate meeting, but on a Y o Y level, post 2017 2017 sorry, 2018, we've seen milk prices getting stronger and therefore their prices have gone up on a YOY level. On the and therefore, I expect on YOY level this year to be almost in line with last year, but they are substantially higher if I look at 3 year, 4 year CAGRs. On the quarter on quarter level, there are swings, but they are not comparable because we try to, as a practice, increase our purchase of milk and convert it to SMP when the prices are lower.
Sometimes we may not get it right, but more often than not, we are able to handle it. And that's why it may not be so clearly comparable. But annual level this year and last year will be reasonably similar, a difference of about 1.5 rupees per liter of milk.
And sir, what did you mean when you said RPO? RPO is what?
Refined palm oil.
Sorry?
Refined palm oil that we use for Neutrolyte.
Okay. Okay. Okay. Yes, sir. Okay.
Thank you.
Thank you.
Thank you.
I think there are no more questions. We can just find it up.
Sure, sir. Would you like to make any closing comments?
I'll hand over to Mr. Tarun Narada to make closing comments.
Sure. Thank you everyone for all the questions and interest in our business. We are we remain quite positive on our demand for our business and stay focused on delivering better results in the following quarters. All the best and see you next quarter.
Thank you, gentlemen. Ladies and gentlemen, on behalf of Sidus Wellness Limited, that concludes this conference call. Thank you for joining us and you may now disconnect your lines. Thank you.