Zydus Wellness Limited (531335) Earnings Call Transcript & Summary

We expect the growth to be back for us. Sugar Free, Complan take us a reasonable part of our revenues in quarter 2 and quarter 3 as summer season brands come down. And both these brands, we are still hopeful of a positive trajectory going forward. So I think we are still positively disposed towards the growth for the next 3 quarters as well.

Right, sir. And sir, during this lockdown and supply disruption era. Did you see any major change in your working capital? Or still it is in a comfortable zone?

We'll see a major change in working capital. It is still in a comfortable zone. In fact, we have also witnessed better collections on the back of RTGS facility that we have used.

The next question is from the line of Raj Mehta from PPFAS Asset Management.

First question is relating to the interest cost. So in the last call, you said that you are looking at evaluating options to reduce interest cost given that the interest rates have fallen. So if you can give an update on that.

So we are still assessing the opportunities how we can bring it down. We have been in discussions with the holders of the bonds. And we are trying to lower down our interest by buying that by -- either by the company itself or by affiliate entities or maybe by promoter's family.

Okay. And second question is more on the business side. So in your press release, you said that June witnessed a double-digit growth in revenues. So is it mainly because of the pent-up demand? Or do you feel that in the current quarter as well that double-digit growth is sustainable?

So I think right now, the situation is very volatile. We still believe the growth is possible. We're hopeful of a double digit, but we'll play it as month-by-month because situation is changing every day. And these many lockdowns have surprised us. I mean the industry has learned to live with it. With many of these things, supply chains have improved, but we have to take it every day as it comes. I think growth is still possible. What level of growth, we'll have to wait and watch.

Okay. And my last question is relating to the category growth and the market share data that you share every quarter. So if you could just share that data?

So we don't have the access to the numbers yet because some of the numbers we have not bought into. So once we have that published, we'll share it on our website and to all the investors on the industry market share data.

[Operator Instructions] The next question is from the line of Shirish Pardeshi from Centrum.

I have a few questions. You have made some interesting launches in this quarter. So what I'm trying to see that if you can explain Complan Nutrigro what we have launched. What kind of audience or penetration or distribution we are looking from this product? Or is that extension is to widen our franchise?

Our launch on Complan Nutrigro is to cover a gap. I think Complan has been -- the franchise extends from 2 to 20 years focus segment. And 2 to 6 over the last 5 to 10 years has emerged as a separate segment where we thought we were underrepresented. And to address this segment, which has a differential nutrition needs, we launched this product, which is inspired by mother's milk, which has the right amount of protein, which is 50% casein and 50% whey. And since it's a superior nutrition product, we felt it cannot go just by advertising on TV, but we said that we have to leverage our group's strength, which is the -- using the pharmacy channel and the doctor recommendation. So we have largely focused on the -- right now, the brand will go through the doctor's recommendation route, doctor's prescription route and mainly focused on the pharmacy channel. And then as it progresses, we'll build it up further. We have about 300 whom are supporting this brand at this stage.

So Tarun, I got that point. What type of strengths -- just one minute, Sharvil.

Yes. Let me add things to what Tarun said. So everybody -- the history of Complan or any of the competing brands have been, they had a very strong medical connect and a doctor connect and which for Complan, since its transition into different organizations, it has been lost completely, while the other competitive brands have always continued to talk about medical nutrition and medical education there. So we believe that with this product, which is scientifically the right product for the toddler range that we have launched, we believe that we will again regain the commitment of the medical fraternity in terms of its application. And that will help not only obviously grow the current brand, the new launch, but also help overall rub off on Complan and other brands because scientifically and medically, this is one of the most superior products in the market. And we want to communicate it with the right medical education for it. So we believe with more than 300 sales reps detailing it to medical doctors, this will give a further boost to the Complan. And if we see a good traction and more movement, which we are very confident of, we could see further extensions made by this route.

Yes. What I wanted to understand, are we going to advertise the scientific claims to make this product more visible in terms of right audience?

The new brand? No.

So of course, we'll remain focused on the base Complan, core Complan on advertising.

Okay. Related question on Complan. If HFD penetration is 24%, to what will be the level of penetration for Complan in current context?

I don't recollect the exact numbers, but my guess is 12%, we'll have to come back and share those numbers, too.

Okay. Again, on new product. We have launched this Nutralite Choco Spread. What kind of opportunity is this? And maybe if you can give a highlight of what are the drivers for us to launch this product? And where we think we have a success in, say, maybe 2 years from now?

So Nutralite as a brand has built itself as a healthier alternative to butter. And we believe our strategy going forward is 2 vectors, and I'll explain the first vector and the other vector may be a quarter later when we have more products to share. But the first one important thing that we want to extend is being the healthy alternative, I think it's -- it can extend itself into all spreads, all kind of spreads that go on the family usage, which could be mayonnaise that we launched earlier or chocolate spreads, so which are right now, substitutes for butter or any of the kind of spreads, butter, jams, all those kind of things. So we are focused on providing healthier alternative to some of these spreads. And that's why when we launched mayonnaise, we had done the fortification of mayonnaise. In this, we have launched 2 variants. One is the calcium enriched, which is substantially better bioavailable calcium on 1 variant and the quinoa enhanced variant, which one knows that quinoa is known for protein. So it is protein-enriched product. So these are 2 products. In fact, quinoa makes it -- provides the crunch, which makes it even more interesting. So it's a taste and health combination, which we are focusing on, and we want to play a larger game in the spreads, mainly through the retail. This one, we believe we are starting with an e-commerce, then we'll take it to the high-end retail only in the next phase, then we'll take it lower down. The category is relatively small, sub INR 200 crores, but we can take a valuable share there and overall enhance the usage of Nutralite for the entire family and make it a more interesting brand. There are a few other elements, but that would need a far more detailed answer for this.

So I think also to talk on the larger broader strategy, I think we believe in 2 clear choices, right? One is, we strongly believe that we are well positioned to play an important role in the breakfast table. So whatever is the right proposition that we can provide for the breakfast table, I think we have sufficiently well in the share of [ wallet ] there. So we believe that is one area we will use with Nutralite to build on to that with the other brands that we have there. And I think some of this over a period of time will make more sense when we are able to be a meaningful part -- we have meaningful presence in terms of share of wallet on the breakfast side.

So I'm seeing that Nutralite, which predominantly remained for a longer time zone where we always had a volatile performance and now we have some new products coming in. Slowly, I'm thinking that now you guys are getting into food space. So is there further things which can come up, sub-categories or adjacencies on Nutralite?

Yes. We are working on that, and we'll share over the next few quarters. So we want to make it a stronger food brand, but we will share that as we go. But I think just to add to it, I would say, over the last 3, 4 years, the volatility has been pretty low. Nutralite has been a consistent double-digit growth, 1 or 2 quarters here and there. But largely, it's now become a consistent overall brand.

I got that, Tarun. What I was trying to hint at is that our dependence on HoReCa is so high and whenever this channel has issue or maybe milk-based butter is cheaper, we see that. So I think after a long time, and I really congratulate the team that we have seen a good traction in that. What I was trying to build in the confidence myself is that this continuation of aggression, which we have seen on Nutralite will have further legs to move faster.

Yes, Shirish. I think what you say is right. And one, we have to -- also, we are looking strategically at our capabilities. We are a very strong capable company in terms of milk procurement and milk sourcing. While we don't have any intention of getting into milk category -- milk directly, but we feel we can do a lot of the things with Nutralite in this space.

Okay. Last question on new product. We have seen that you have also launched Glucon-D ImmunoVolt. So what kind of audience we are looking in? Maybe 3 years down the line, what kind of contribution we can look at from this?

It's a promising area. I think we've seen there are several extensions of Glucon-D that we've been evaluating since we got into this acquisition. And we believe that there were at least 3 to 4 good, interesting opportunities. We had this product, the tablets, volts already in our kitty. And we were looking at relaunching it to play a more valuable game there. And due to our homework done, when we saw the situation where we could reposition it, we had the vitamin C and D already available. We said we could reposition it as our immunity booster, and that's how we positioned it. We believe there is a sizable play there in the whole candy space, where we are giving immunity as well as energy. And there is, therefore, scope for our functional product in the candy space. It's a sizable space. We believe it could be anything from a 10% to 15% of the brand over a period of time. We'll have to see. We'll -- this is a dynamic situation, but we're quite hopeful of growing it well.

Okay. Just last question on what kind of new product contribution we can expect maybe following year? I mean this will get stabilized absolutely in the second half?

So one of the benchmarks that I would look at is, my target was, that 5% of my revenue should come from products which we launched in 36 months. I was hoping to do that over the next 2 to 3 years. I think that number needs to be revisited and maybe we could do it by next year, I'm hopeful of. We'll see how some of these launches also perform. So this is something we'll be happy to share as things shape up.

The next question is from the line of [ Lakshminarayan ] from ICICI Mutual Fund.

A couple of questions. First is in terms of priority, you have acquired 3 brands, which is Glucon-D, Complan and Nycil, right? So which in your scheme of things has the highest potential of growth, if you can just stack rank it for the next 5 years?

Hard to distinguish because each brand has a good double-digit growth potentials. Nycil has both the years performed fairly well and consistently doing it. Glucon-D has its own growth opportunities. Despite a difficult season this time, we're still very, very positive on growth potential and with extensions that are possible. Complan, of course, has had a much larger play in the past, and just the recovery and regain of share will give us the opportunities for getting a double-digit growth. So I believe all the 3 brands have opportunities of double digit over the next 4 to 5 years.

I would add just to Tarun, just to add to 2 things. One is we believe that if you look at inherently, both Glucon-D and Nycil will definitely be the stronger for us because they're market share leaders and we believe that they have a very strong proposition to play. Complan, we are the fifth ranked brand. So we have a long way to go on that. But we also have a very strong view that with our capability on formulation research, R&D and medical education, we can slowly rebuild this brand to its earlier glory days, where it was at about 10% to 11% share. So Complan is a little longer process for us to get back to it because we are not the leader. The other 2 brands, we are very confident that we can continue to gain share.

That's interesting to know. And in case of Nycil, it's -- you're almost 35% of the market, right? Now -- and the market continues to grow at 8.3%. So is the market growing faster than for the regular talcum powders? Or is it purpose that -- who is the #2 and how far are we from #2 in terms of Nycil? We have around 35% market share, I believe.

So in the functional talc space, which is about INR 750 crores, we are the leader at 35% kind of share. The category, yes, you're right, over the last 2, 3 years, 4 years has been growing at single digits. Last 1 year, 1.5 years, we've seen growth ahead of the category, and that's been our opportunity where we believe we want to grow the whole category and be the lead in that. And that's where our innovations will play and our proposition will play. And I think the #2 players are some distance away. So that's not too much of an anxiety for us. For us, the focus is growing the category because gaining will be a short-term view, but to build a brand from a long-term view, like you asked for 5 years, will happen only when we grow the whole category.

Got it. And Glucon-D is also growing at almost 10% growth, right? And what is propelling the growth of Glucon-D? I mean the category I'm talking about because it's quite interesting to see a 10% growth in the category.

So it's again a INR 850-plus crore category, where we are the leaders, close to about 59% share. The category has grown due to the mix of value and volume. Volume has come largely on back office, especially in last 1.5 years, there has been some gains on penetration levels. And that is a good story. We believe if we stay on course, focus on getting new users in through better proposition, communicating the benefits of Glucon-D, we can grow the category there also, being the largest player and that will be to everyone's benefit. But right now, the mix is, last year has been a mix of volume and value.

Yes. But Glucon-D is growing because of -- because -- sorry, go ahead, sir.

No, no, I was just going to add 2 points to it. One is, still Glucon-D is a very highly skewed product towards the summer. And our endeavor for the next couple of years is to make sure that we plan for something which we call the second summer and also plan in the midterm, how do we have something more important for the second half of the year. And a lot of innovations are in play to do that. ImmunoVolt is first one where we believe that it can have more traction throughout the year. But we believe it's some more innovation that we will bring, we will have a more balanced scale where we will not be only skewed towards the summer.

Interesting. And just one last question. In terms of the geographical spread of Complan, how is it and what have you done to improve the fulfillment rate in stores and -- both in terms of availability as well as the SKU assortment?

Sorry, could you please repeat, what have we done?

The first part is the geographical mix of Complan availability, okay? And any color on the mix in terms of modern, et cetera, that's one part. The second is that from the store fulfillment efforts, right? Anecdotally, we hear that Complan is not available. And if it is available, it is -- the assortment is not available, et cetera. What have you -- what are the plans to improve the fulfillment rate of availability as well as the SKU availability?

So I think the geographic mix, historically has been -- the biggest markets for us have been West Bengal and TN over the years. Over the last few years, we've seen some north west markets also of UP, Bihar and Maharashtra also adding substantial value to the brand. So we believe there is potential for growth across the country, of course different -- by different states. As far as the channels, et cetera, is concerned, we have a substantial focus on driving the e-commerce channel, which was underleveraged historically, and we've seen disproportionate growth through the e-commerce. It's further aided by what we have seen in the last quarter lockdown period also where e-commerce has grown, but our efforts had started right when we had acquired and we started integrating the business. Modern trade also, the initial effort was a lot on B2B. We've scaled in our B2C reach on modern trade as well. As far as direct distribution is concerned, we've integrated the whole distribution teams. As we expand our direct distribution together, which has got delayed by a quarter due to these lockdowns, hopefully by end of December 2020 (sic) [ 2021 ], we'll do that, I think we should see a substantial improvement in the retail reach as well. The one focus that we are increasing on within the sub-channels are general trader's chemist availability, which should help. This actually will also add to the number of outlets that we are available in.

Next question is a follow-up question from the line of Tejash Shah from Spark Capital.

A couple of follow-ups from my side. Tarun, you spoke about Sugar Free actually registering very heartening growth after many quarters. So is it structural read-through or it was much more tactical buying from...

Tejash, sorry, if you could -- not very clear what you're saying.

Yes. So is this better? Am I audible?

Yes.

So Tarun, on the initial remarks, you spoke about Sugar Free actually surprising us positively. So any structural read-through over here? Or was it just a tactical buying from consumer side because of the lockdown and all?

So there are 2 parts. I think the initial recovery on Sugar Free did come because there were regular consumers and due to retail gap, it got covered in our stock in pipeline. But what we've seen one fundamental shift is that consumers are more -- consuming a lot more food products at home, and it has probably become a part of those people. And as the concern on the fitness, less people can go out and exercise, they're using -- they're cutting calories through the right food that they consume. And hopefully, some of the people are also more concerned given the comorbidities and therefore more diabetics are also consuming. So these are the reasons that we have picked up from the whatever consumer interactions we've been able to do at limited level.

Sure, sir. So at least some of these reasons are here to stay at least for near future?

Yes. In near future because that's one of our major concerns, but we believe yes, some of these will play out over the next few quarters as well.

Sure. Second, Dr. Sharvil actually spoke about interestingly about the advocacy route to the market of MFDs or other nutritional products. Now there is a new competition in the market which has taken charge of a very big brand. And they are just redefining the go-to-market strategy over here by using their aggressive [indiscernible] of LUPs or more voice share, brand share, distribution share. So where do we see our strategy amidst this because we -- unlike them, we have very established because of the parent, very good established MR network and advocacy route. So do we actually -- and then there is another angle that rural penetration will be led by perhaps that strategy whereas urban will be cracked by through advocacy route. So where do we want to spend our energy initially as we try to revive some of the market share there?

Yes. So the way we look at it is, I think there are 2 or 3 parts that will play out. I think from a go-to-market, like I explained, there are -- we are focusing on only 2 parts, and we'll expand beyond that. One is our core brand, which is clinically proven, and it plays out more in 7 to 15 years of age, where we are using our existing go-to-market plus a bit of advocacy. We are strengthening our -- filling up the gaps whether it was not playing in sachets earlier, strengthening our e-commerce, a better play in modern trade. So there are clearly opportunities within the channels that we service, a stronger play, a better play, more competitive play, so that we are covering those gaps. We are supporting the brand with the right kind of consumer engagement, whether it is participating with some of the best of our driving offers like, currently we are running Hot Wheels and Barbie. On the other side, we believe like Dr. Sharvil explained, the strength of the parent of doing the doctor advocacy, which will have 2 roles. One is establishing Complan Nutrigro as a stand-alone variant, especially for 2 to 6 years and will add to the share that we play and overall equity of Complan as a superior nutrition provider. So these are the ways that we believe in short to medium term which will help us compete and gain share. I have mentioned that in the next 12 months, I do expect a 50 to 100 basis point increase in share with all these actions in place. And then we will share more as we -- as the rest of the parts of the strategy play out.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Tarun Arora for closing comments. Thank you, and over to you, sir.

Thank you, everyone. Thanks for participating in this call. Please stay safe, and we'll meet again next quarter. Thank you very much.