Zydus Wellness Limited (531335) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Zydus Wellness 3Q FY '22 Post Results Analyst Conference Call hosted by AMBIT Capital Private Limited. [Operator Instructions] There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Alok Shah from AMBIT Capital. Thank you, and over to you, sir.

Thank you,[ Zed ]. Good evening, everyone. Good morning to the people joining in from the Western part of the world. And on behalf of AMBIT Capital, I would like to invite you all for the 3Q FY '22 earnings call of Zydus Wellness. From the management side, we have Dr. Sharvil Patel, Chairman; Mr. Ganesh Nayak, Director; Mr. Tarun Arora, CEO; Mr. Umesh Parikh, CFO; Mr. Nitin Parikh, CFO from Cadila Healthcare; and Mr. Vishal Gor, Senior VP, Corporate Finance, Cadila Healthcare. . Without further ado, I would like to hand over the call to Mr. Tarun Arora for his opening remarks, and then we can go ahead and open the Q&A session. Over to you, sir.

Hello. Good afternoon, and welcome to the post results teleconference of Zydus Wellness Limited for quarter 3 financial year 2021, 2022. As Alok has already introduced the participants, I'll move on to the details. During the quarter 3, our company posted a year-on-year growth of 2.3% on net sales. The lower sales growth is largely due to 2 reasons. First, due to lower growth on a high base during previous year comparable period, which was accentuated by a slowdown in rural growth. Secondly, as we are implementing a continuous replenishment process internally as a part of integrated business planning tool, we have reduced inventory both internally as well as in the trade channel. This would help us to operate with leaner inventory and better availability of fresh stocks for the consumers. As the country and the FMCG industry is reeling under the impact of inflation in the prices of key raw materials, in packing materials, the company continued to face the pressure on gross margins. To mitigate the impact, the company has taken 2 rounds of price increases during the last 2 quarters, which will help the company improve gross margins in the coming quarters. In the -- as the third wave of COVID has hit India during the last half of current quarter with a very sharp rise in cases with state-specific curfew and timing restrictions imposed, the company was quick on implementing the learnings from previous COVID waves and is in a better position to tackle the supply chain and other operational channels. Due to COVID, there was a disruption in the nonessential category. However, essential products like SugarFree, Complan and Nutralite helped the company to stay on course. We continue to support the online sales through the third wave as we have seen higher demand on these platforms. Going forward, post the third wave, as things return closer to normal, we would plan to enhance our direct distribution by another 1 lakh outlets. The company has been taking several measures to safeguard its workforce from the effect of pandemic. The company adopted hybrid model of giving freedom to employee to work from home in these times. Let me take you through the highlights of the consolidated financial performance of quarter 3 financial year 2021, '22. During the quarter -- third quarter of financial year 2021-'22, our total income from operations grew by 1.7% to INR 3,881 million. EBITDA was down by 34.8% year-on-year to INR 323 million. PBT before exceptional items was down by 36.7% year-on-year to INR 227 million. PBT after exceptional items was up by 1,205.7% year-on-year to INR 227 million. Net profit was up by 1,239.1% year-on-year at INR 233 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, during the quarter gone by Glucon-D ImmunoVolt continued to deliver steady business while [indiscernible] business delivered flat growth. On the Complan front, the Complan relaunch was supported with its new campaign, Umeedo Se Aage Badhne Ka Plan, which communicated the key benefits of the brand, 2x faster growth and improvement in memory and concentration. This was amplified by 360-degree media campaign on TV digital, impact properties influencers across the country. The relaunch was also supported by consumer promotion to establish maintain growth association with the brand and generate trial. On sweeteners front, SugarFree brand continues to air its new thematic communication, Fitness Ka Pehla Kadam, through TV and digital media across markets. Sugarlite grew at a high double digit during the quarter across all channels supported by consumer promos and TV. On the personal care front, Everyuth brand continued to grow at a good double-digit supported by ATL campaigns on scrub portfolio and new body lotions range. On the dairy and spreads category front, Nutralite brand delivered yet another quarter with double-digit -- good double-digit growth. The Nutralite Doodhshakti Probiotic Butter Spread and Nutralite Choco spread will continue to be supported with TV, digital and print media campaign. As for the MAT, December '21 report of Nielsen and IQVIA, Glucon-D has maintained its #1 position with a market share of 58.1% in the glucose powder category. Complan has a market share of 5.2% in Health, Food, Drink category. Sugar Free has maintained its #1 position with a market share of 96% in the sugar substitutes category, which is an increase of [ 100.4 ] basis points over the same period last year. Nycil has maintained its #1 position with a market share of 34.0% in the prickly heat powder category. Everyuth Scrub has maintained its #1 position with a market share of 39.2% in the facial scrub category, which is an increase of 448 basis points over the same period last year. Everyuth Peel-off has maintained its #1 position with a market share of 76.4% in the peel-off category. Everyuth brand is at #5 with a market share of 6.5% in the overall facial cleansing segment as well. As we speak, we have completed 3 years of acquisition of Heinz India Private Limited. Over the last 3 years, despite losing sales in critical months for 2 consecutive years due to COVID, we have consolidated and grown our market shares across categories, launched multiple innovations, doubled our direct distribution, made significant strides in growing our business ahead of the category in both online and offline organized trade, reduced cost to serve in simplifying the organization leading to exceeding our synergy targets. The biggest challenge which we faced is the recent inflationary pressures across commodities affecting our margins. With the actions in place, we should be able to overcome these challenges with the ongoing quarter 4 of financial year. The country is witnessing downward trend in the COVID cases and which will have a positive impact on the consumer demand sentiments going ahead. This will help the company to protect the sales of summer season quarters spanning across January 2022 to June 2022. Thank you, and we will now start the Q&A. Over to Alok for the Q&A.

Ladies and gentlemen, we will now begin the question session. [Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.

My first question is on Complan. So what would be your long-term target for distribution scale up? You have done 1 lakh more distribution since acquisition. But what would be your 3-year target? And second, in the last 3 years, how has the market share been in Complan? You mentioned current market share, but how has it been versus 3 years back?

Let me answer the distribution at 2 or 3 levels. So first of all, Complan, yes, when we acquired, it was about 4.3 million lakh outlets. We've crossed up 5.5 lakhs, 5.7 to be precise, as reported by Nielsen in our availability reach as the Nielsen. My view was 8 to 9 lakhs is what we would have had. That will follow as the brand grows. I think this was basically catching up to the fair size of our brands. Rest of the things will also have to follow. We're also focusing on driving direct distribution, which will help us our NPDs and quality of distribution making all our products available. We started with 2.5 lakh direct distribution in each of the businesses before acquisition. We've crossed the 5 lakh. Our vision for a direct distribution in the next 3 to 4 years is to cross 1 million, which is suitable for our size and portfolio, for which over next few quarters, we are looking at adding another 100,000 outlets. This will obviously have a ripple effect on Complan distribution also. So that's answering the Complan distribution piece. Second, your question on market share. At an aggregated level, Complan market share for last few years has been in the range of 5.5. It has slightly reduced this year. We are at 5.2. I think there's a drop of 15 to 20 basis points over the same period at MAT level. But this is also a function of multiple segments that Complan plays. So there has been a little bit of -- but largely [ indiscernible ].

Two follow-ups there. On double-digit sales growth in Complan, do you have confidence in the next 3 years if there is no very serious wave 3? You expect a double-digit CAGR in Complan next 3 years. And on the NPD launch, Complan NutriGro, how differentiated is it? Is it a big NPD? Or is it one of those smaller NPDs?

So our aspiration for Complan has to have a double-digit growth. We've seen the category operating at 5% to 7%. So that's a challenge in our wish list is to grow faster than the category, and that's why we believe it can do that. Our focus and priority will be on a volume led, getting new consumers and if led by some of the leaders in the category who have been reducing prices that we have to act, we will act. So at a volume level, our clear aspiration is to be a double-digit growth trajectory over the next 3 years, yes. And we believe our actions are in place or will follow it through. As far as extensions are concerned, NutriGro is clearly differentiated on a superior formulation, vis-a-vis, the competition. It is a higher level of protein than top players in the segment on toddlers, also has a better mix of proteins, which is more suitable for a toddler partner closer to the mother's milk inspired for the mother's milk with the right mix of [indiscernible]. So we have the right formulation. It's going to be a little bit of slow burn because the route we have taken is healthcare professionals, and COVID has certainly impacted the healthcare professionals reach out for a lot of consumers. So it may have a slow burn, but we have a differentiated offering, and we believe we have a good journey ahead with Complan NutriGro.

And one more -- I have one more point to add. This is Mr. Sharvil Patel here. So 2 more points to what Tarun alluded to. One is as we said, that Complan is definitely differentiated the NutriGro product, which will go to the medical fraternity first. And we believe it will definitely be this year with the normalcy coming back, we can see a big jump in terms of our revenue for all that. And it will definitely become one of the large brands in that category that we're trying to highlight. The second part with respect to, can we see a Complan double-digit growth? One thing that we have definitely seen as the better proposition that this -- the formulation offers versus the competition already in a modern format and other formats, which are more of the regularized formats and which are growing, we have seen a double-digit market share there versus a single 5% market share in the overall market. So, I think, if everything goes well and if we do right things in terms of science and also making sure that we give the right proposition, which is higher protein and higher, better content of protein we can definitely see a double-digit growth being driven by this product.

One last follow-up on Complan. So in FMCG, there's a threshold market share in any category before which your profitability really is there. In your case, mid-single-digit kind of market share plus 3 years, the market share has not really moved much. So is it profitable? And at what level market share aspiration would be there given single digit market share -- mid-single-digit market share is quite low in FMCGs. There are fixed costs, advertising spends.

So it is profitable. And I think there are 2 ways to look at it. We don't talk about it. But really speaking, this category is sizable. In fact, Nielsen still under reports it. But Nielsen number is INR 6,500 crores. And if we look at broad -- if I give you a high level 3 segment, so there is a toddler 2 to 6, and there is 7 to 15 kids, which is a large play, where the TV for most Complan and key competitors is. And there is the adult space, which is, again, fragmented women's and adult, and there are new players coming in. Now the mid-level of the market, which is 75%, where we have the main play, I think, standalone will be an 8% player, and this is a sizable category. I don't think we can generalize all these parts from there. And this is a profitable brand. And we are growing in certain -- we are building state-by-state strategy, and we are seeing some traction on that. So I think it is above that threshold to confirm to you, and the profitability is quite okay.

Next question is from the line of Shirish Pardeshi from Centrum Capital.

Two questions. Taking from the previous participant's question. This high science or what you say that adult nutrition, and you did mention that the category size is 6,500. How big is this category in terms of adult nutrition? And maybe if you can pay back what is the growth rates which are there in this category as an industry?

You mean the overall INR 6,500 crore category is growing last, the Nielsen number, they are revising their estimates. But the last number I had in November -- of November was about 1.5%, 2% of 3 years CAGR or 2 years CAGR. Last year is growing at 5% to 7%, 6,500. The different segments are growing at a differential rate, but last year has grown by about 5%, 6%.

I got that Tarun. What I was simply saying that the adult nutrition, especially the NutriGro...

Adult Nutrition is growing at a much faster -- adult Nutrition is growing at a much faster pace. But I think -- and on a CAGR basis, it will be about 7 to 8 versus 1.5 that I talked about on the overall category. So it is growing much faster. And toddler space in the last 5 to 8 years has grown much faster. Last 1 or 2 years, the numbers have dropped. That also because this whole toddlers has a healthcare professional angle to it and access to the healthcare professionals has really got reduced, especially even for the kids because of the fear, so that category has been under pressure. The category has also been in a negative stage in that for the last couple of years.

Okay. My second question is that if we have grown only just 2% on a Y-o-Y basis, which category or subsegments has declined on a Y-o-Y basis? I mean you did mention that some products has a higher base. But if you can just give little more color where we are seeing the decline.

So we've seen -- we've actually 2 reasons, as I explained to you. We have -- on a primary sales basis, we have numbers reduction across 2 or 3 brands, including -- I mean, we've had growth largely led by Everyuth and Nutralite because we've also reduced the inventory, as I explained to you.

Having majority also, but is it Complan, which I think will recorrect from coming quarters onwards. But Complan definitely had a challenge in the earlier quarters. And also some of the inventory related to the seasonal products, which we need to get clear for fresh billing also led to that challenge.

I got that, Sharvil. My follow-up on that, you did mention in the beginning that there was inventory correction, which has happened. But at what level we are comfortable in terms of inventory correction? Is largely it is done, it is behind or there is furthermore correction, which will happen because the last 2 quarters, we've been saying that there is automation, which is going to be taking place.

So we've done inventory correction, both in internal numbers, where we've reduced almost by 7 days, and as well as with the distributors. Now we may not need to do anything substantial or anything specific going on. I think this can be handled. This also got necessitated given that we have to build up for the season. So we had to act now, and better to act now than later. And that's one of the things. So we're largely done is my belief will be as it so. So there's no major other things to add.

So I think what has happened for us is the inventory correction has been more than the other years because this year, we expected a normal season. But April, the second wave took us all by surprise, and it was even worse than the last 2020. So I think that is the reason we had a little bit higher correction. But I think that is a one-off, and we don't believe that from FY '23, we would see those kind of correction.

Okay. My last question is on the international. Especially, you said in the presentation that you want to grow INR 200 crores next year. Just a little more deeper, which countries, what products and what is the opportunity which you would try to get, I mean, INR 100 crore in so many countries, what you have shown, it's still looking less number. But I want to get a little more different side, which all products which are -- we are exporting and how the growth or maybe which are countries, which are talking because you didn't mention that top 5 markets contributing 80% of the business.

Our aspirations are much larger. Our aspirations are that it can be 8% to 10% of our business in the next 2 to 4 years. INR 100 crores is something we should be able to cross in the next 1 year. And therefore, I would say that would be our execution plan for me and the management team to ensure we cross that milestone. So it is managing the portfolio, and we have a portfolio of brands and we have a portfolio of countries. Fortunately, there are some countries which are clearly emerging as more promising and have showing a stronger debt. So those 5 countries constitute a larger portion of business, Sugar Free, Complan are also showing a better promise in these markets. So they constitute a major portion of our portfolio and therefore, will allow for should I say, extensions and going deeper and wider in these markets. That's a broad thought on this. First of all, there are countries we've been -- we've just established our subsidiary in Bangladesh. Bangladesh is clearly a country of interest to us. And we believe we have an exponential growth opportunity in that, and we will be investing behind that, starting with maybe setting up a third-party manufacturing line as well to support that initiative. We've also seen Middle East responding very well, and Nigeria responding very well for us. There is Nutralite, which is a little far away, but has been doing okay for us. So these are some of the countries which constitute this. But Bangladesh, Nigeria, Middle East, more so of the Eastern part of Middle East, if I were to say, the UAE side. I think that -- those are the geographies which are looking stronger response, wider portfolio and getting deeper. And we have extensions planned. We have a new launch and extension planned by end of this quarter itself coming through.

I think what Tarun also said, our midterm plan is to get that 8% to 10% of our revenues driven out of export, which was insignificant for a period of time. I think our -- at least our 5-year-plus vision is to definitely create a INR 1,000 crore export in international business. And I think we're sort of -- making sure we start off here with our first milestone. And as we have prepared for that larger opportunity, we will definitely discuss that as we've prepared the strategy for that. But currently, we hope that about first half, we will -- in the first few years, we believe we should target 8% to 10% kind of market of our overall Zydus Wellness business in the exports over the next 3 to 4 years.

That's really very helpful. Just one last follow-up on the -- you have mentioned just now that there is a third-party manufacturing, which we are looking at established with GCC and New Zealand. What is the thought process behind this? And which are the products which we are seeing will have the better set of having this manufacturing outside?

So these are largely Complan production places that we are using in GCC as well as New Zealand. And we are setting one in Bangladesh partnering with somebody to set it up in Bangladesh. We will add more products as we go along.

So we already have these manufacturing other than Bangladesh already done. We just want to add Bangladesh as an additional country now.

Next question is from the line of Kapil from Edelweiss.

Sir, this -- our Nutralite sales have been growing well over the last few quarters. So I believe these new launches such as mayonnaise, Choco spread, and even now you must be shaping up this growth. So what are aspirations here and how big this portfolio can become Nutralite?

So Nutralite is now coming together with the convergence of what was actually a by-product business of Heinz, plus our own fat spread. So we are clearly creating a brand which will have a larger play in both dairy as well as spread. But dairy is leveraging our existing capability of the Aligarh plant, where we source milk from 25,000 farmers and we use it for Complan. Also Nutralite name is very well to building to a value added. So in dairy, our wish list is to play only in the value-added products. So the way we see it is, we'll rather be in ghee or butter or maybe some other new dairy-based spreads we could evaluate, which we are working on. Mayonnaise and chocolate, early days, but we are seeing good traction on mayonnaise. More so also in the food service segment. So all these will go across both in retail and as well as food service. And the way we are carving out is that a new Route to Market retail will merge with our rest of our business and the Nutralite sales team will focus largely on food service and we'll widen our portfolio. Standalone, it has -- due to convergence the brand looks almost twice the size of what it was, but largely, it has come from the convergence of 2 coming together under one umbrella of Nutralite. We are also seeing good traction on the fat spread in last few quarters as well as in the food service space. Ghee is also building up and butter is also building up steadily. I think this brand can be a sizable portion of our portfolio be in the top 3, 4 brands for us.

So I think maybe if I can add to what Tarun says, in terms of our strategy and plans definitely, with the -- with Nutralite being expanded into adding value-added products in the -- from dairy side also, I think you see tremendous potential for this brand. This brand definitely has the potential to be the largest in terms of sales for the organization over the next few years with the traction that it is going through. I think with the right segmentation that we have done on the professional range, the HoReCa food services and separating it from the retail side, which is very different. I think all of that will also help in terms of the strategy in terms of how to move the brand forward in this segment. And also, very importantly, what we have realized is during -- is that many of these products will form part of the daily requirement or daily household needs from the brand Nutralite point of view in terms of consumption. So if we -- I think once we execute all of this, right, this can be an important lever in terms of revenue growth for the organization. And once it achieves a certain size, then definitely it can be one of the largest brands for the company. I think the profitability will improve over that period.

That was really insightful. My next question is in your investor presentation where you have mentioned a breakup of the channel mix. This others contribution is quite significant at almost 1/4 of the overall pie. So which products would be in getting supply through this channel? And how are the margins tapped up here as compared to other channels?

So if I want to give you a sense, about 1/3 of that is in food service, HoReCa, therefore, it's largely Nutralite, little bit of Sugar Free, but that's 1/3 Nutralite. And 1/3 would be closer to will be government channels, which is basically CSD, CPC, et cetera, where the margins again are in line with our retail channel. And there is a little bit of other things that will add, but mainly these are 2 key drivers of the others, about 16% to 18% out of, I think, 22, 23 we would have...

So apart from Nutralite, it would be other products like Complan, Glucon-D also? Or how it would be? Next summer, I think, it would be there, but then...

No, no, no. In the food service HoReCa, it is -- what it constitutes is largely Nutralite brand, Sugar Free. Nutralite will have some bit of ghee, butter as well. Government channel has Nutralite -- sorry, it has all the brands, which is Complan and Ghee and Sugar Free all the brands. So it's a CSD, CPC channel. Most of the margins in government channels are in sync with the margins we earn in the retail, little bit here and there. Some brands are a little higher, some are little lower, but largely in sync with the other brands.

[Operator Instructions] The next question is from the line of Nilesh Shah from Envision Capital.

I have a couple of questions. One is in Nycil, what is the market share? Because in the presentation, somewhere we've mentioned as 37%, somewhere its mentioned as 34%, in press release it's mentioned as 34%. So is it 34% or 37%?

So volume share is 37.4%, value share is 34%. So we were -- are -- so there is a gap in value and volume. And in the presentation, we have explained, we have moved from 29.1% to 37.4%. Our focus has been recruiting new consumers through volume-led initiatives. One of the things we have realized is that maybe the opportunity to price up is exist. And therefore, there is a gap between value and volume share and we'll try to work towards closing this gap in the mix coming quarters.

Second is on the export side, which are the products or which are our brands, which are relatively better? I mean we probably export all our products or all our brands. So is there any specific product or brand which is doing better for us in the exports market?

So 90% of our business is between Complan and Sugar Free. And both are doing -- meeting or exceeding their targets. Sugar Free comprises the Sugar Free base brand as in the sweeteners, as well as the chocolates which we sell in Middle East and now some markets, other markets as well, the Sugar Free franchise and Complan. And both have been meeting and exceeding the numbers. We are hoping that we will be able to take -- add on some of the brands in the portfolio. We do some -- see some opportunities where Everyuth is doing better and has opportunity in Bangladesh. We're taking some of the other products as well Nutralite in some markets. So -- but the flagship for us remains between these 2.

Okay. And lastly on margins, given that we are approaching a couple of quarters, which essentially, of course, are important quarters. And last year, in the same quarters we had operating margins at EBITDA margins of about 24%, given that the business environment is a bit sluggish for us and we are facing headwinds in terms of inflationary cost pressures. Do you think we should be able to get to that 24% operating margins for the upcoming quarters or that looks a bit of a challenge for now?

I'll give my point of view, Umesh if you want to add. But in my opinion, I think we have a little bit of higher operating leverage in quarter 4, quarter 1 because 60% of our planned sales typically come from this quarter and much higher portion of our margins come because the cost structure is remaining same, it delivers a higher profitability. So I personally believe we have taken actions that we have -- we had to because our pain area has been gross margins due to inflation. -- you've taken action in terms of price increases. So unless there is a mix issue or product mix or some other external factors, I largely believe we have a good shot at meeting or exceeding our EBITDA margins in the coming 2 quarters, which are very, very crucial for us to deliver our each financial year's numbers.

So let me, I think, just to clarify further on that. So I think other brands -- Complan definitely has faced challenges. Other brands have been very steady. And I think this year, what we will see in the quarter 4 and quarter 1 is last 2 years, we were disrupted because of COVID and brands like Nycil and Glucon-D obviously could not do their regular business. I think that is there is kind of a big upside this year because we had a very big loss of base in the last 2 years. And we have, at least on the margin side, a good margin structure on those 2 brands, and we have covered for some of that either through price increase or buying of raw materials. So I think if everything goes well in terms of our plan, I think this 2 quarter -- I mean quarter 4, quarter 1 will be very important, driven by, obviously, these 2 brands, which have obviously struggled last year because of COVID -- last 2 years because of COVID.

[Operator Instructions] Next question is from the line of Praveen Sahay from Edelweiss Financial.

Thank you for a detailed presentation you had shared. So my question is, as you have mentioned in the presentation for double-digit growth in profitability led by innovation. So my question is, in the past, company has launched new products across segments. Is it possible to say or any direction -- directionally when it will work? How much of the sales generated from, especially specific from the innovative new products you had launched in the past?

So products launched in the last 3 years have contributed to close to 2.5%, 3% of our sales. Our wish list is to be 5%. So we are building towards 5. We started at a lower level once we've integrated the business. So we still have a path to go. Some of the innovations that we've launched, we launched a flurry of innovations in last financial year. 2 or 3 of them have not -- will not see forward. We've dropped them. Some of them have good potential to grow. And therefore, our priority right now is to build on innovation that we already have in the marketplace to take them to the logical conclusion and grow them faster, and we believe some of them are really good to go and have enough founded. And going forward, we will be looking at probably 3 to 4 launches in year 1 to 2, not more than 1 or 2 max launches in a year -- sorry, in a quarter and build around those in a sizable manner. So my wish is that we should cross 5% to 6% of our business coming from products launched in the last 3 to 4 years, and that would give us -- that we're not just launching products, but we are seeing enough momentum in the following years as well. Maybe if we get there, we can be more ambitious as well, but I think it's also raising the bar constantly. I think there is some journey ahead to improve our innovation potential.

Yes. And these innovative new products have a higher margin as compared of existing ones?

They are largely in the same zone. It varies from product to product. Sometimes they could be even higher. If I were to look at some of the examples, like we launched body lotions the last one, they're largely in sync with Everyuth overall category, maybe a few percentage points lower to start with. But we also, as we build our learning curve in procurement and manufacturing. We've seen that some of these products also will get better.

But I think, Tarun, and for that question from whatever we see, majority of them will have same or better margin.

Yes. Yes.

Okay. Great. And especially on 2 of your products, you had mentioned in the presentation, one is ImmunoVolt, which is around 28% of market share. So can you give some color on the -- how big the market size is and competition is still there?

So it's very small. We are looking at widening our use cases. So somebody -- so there are some players already in that space, but the category has not grown or was growing at a small pace earlier. And that's why we are -- while we can be happy about 28% in a space, which is about less than INR 100 crores, INR 60 to INR 80 crores -- INR 80 crores to INR 100 crores. But the point is we grow this space and grow it sizably will be most important for us, and that's really what we will be looking at building on.

And in the Nycil, as you had mentioned about the 37% of our volume market share. Is that also include your new product, which you launched in the Nycil category like the Body mist and all?

No. No. It is not included in that.

But mist is hardly anything because we launched in March. And April, May, due to wave 2, it got -- we could not get much value for it. So I mean, even if I added it, it won't change anything essentially.

The next question is from the line of Akash Shah from [ UTI ] Asset Management.

Am I audible?

Yes.

I would just like to ask what is the contribution of Sugarlite to overall sales maybe for FY '21 and this quarter?

So at last trailing 3 quarters YTD level, I would say it is operating at about 7%, 8% of Sugar Free, 8%, and it's going much faster.

And similar number for international business. I mean what is the contribution to overall sales, right, maybe 9 months FY '22?

Last 3 quarters, it will be about 3.5%.

Yes. And what would be the gross debt, let's say, as of December 2021?

So gross debt is INR 315 crores.

The next question is from the line of Alok Shah from AMBIT Capital.

Sir, I wanted to check your thought process on how do you plan your investments in building brands, and this especially is because Zydus is the market leader in most of the categories except HFD. So do you -- so does some brand takes precedence over others and which will be those brands, which were sort of like a power brand for you at this point in time?

So fortunate -- I mean, for our size, and I believe we are at a size we've not had to take a call one brand versus other on priority one brand versus other. If you look at the presentation that we have shared on the past 3 years and our journey forward, each of the brand has a good double-digit growth potential. And therefore, it is not a situation where I have some cash cow sitting that I'll milk it and not build on it. Some brands may be delivering. I mean, may to -- some investors or some stakeholders may feel that they have more potential. But largely, if you look at the potential of each of the brands, each one has sufficient room for growth and penetration. There is a use case which appeals to a large set of consumers. And therefore, there is a growth opportunity. It's just that the salt for each of the brand is different, and their margin profile and the approach is very different. So far, we've been able to optimize our needs for each of the brands without having to take some hard calls. The hard calls of prioritizing one over the other brands is only at the time of innovation, which typically, again, I look at 3 levels. One is the incremental innovation with the brand P&L will pay for. There are platform innovations, which need a little bit more money, but only for 1 or 2 years. And there are breakthrough on a large innovations, which we believe have a longer play and we need some habit changing and will probably need investments a little harder and longer breakeven. A good example will be Sugarlite. So I -- we will, in a given part time, try to not take more than 1 odd big innovations, but most of the other innovations, we'll have to balance within the brand budget. So we are kind of so far been able to balance it, but we do, for example, have some thoughts in the pipeline, so we will balance it out. But largely, I think most of the brands, we -- I feel we are substantially resourced to drive our growth. Being the leader, it also becomes that much harder if there are many people. So it cuts both ways. One, if you are alone, yes, you have a disproportionate share, you have a pricing path, but it also limits your opportunity of how you can grow the brand at a faster pace which multiple players together by investors maker it. So this is a kind of challenge we face. But I think we are well resourced, and we are doing whatever it takes for each of the brands.

So I think if I can add to what Tarun also said, I think it's 2 things, right? We had -- one is because we are market leaders in majority of the segment, there are 2 options for us to increase the -- I mean, opportunity size. One is to have more use cases to brands like Sugar Free and Everyuth and some others and to be create -- you need to create more use cases. And then somewhere, if we are not participating in certain segments of the brand. So there in terms of Complan, we're only present in toddlers and certain segments, we're not in the adult segment. So I think we have to look at segments and see where we are missing in terms of the brand. And largely, when we look at our spends, it is a mother brand concept that we follow. So when we are doing -- I think there is a rubber effect on the overall brand when you are doing some kind of promotional activity. So looking at both of those things is how we are trying to take a call when we're talking about new introduction. Going forward, one is because of COVID also, I think, the number of new tractions will need to be limited and a few more impactful launches will make more sense to do as we move forward in this coming year.

Got it. Got it. My second question was on the distribution. So post the acquisition, we, of course, seen the benefit of distribution expansion. Any quantification that whether all your portfolio is now able to seamlessly move in the new distribution. So may be an issue of depth versus breadth, right ? So where will be on that front now?

So distribution, I think, a lot has been said in terms of our outlet reach, which has more than doubled our number of towns. We have gone up by almost 1.5x. We are focusing -- adding more stores as we go forward, both in urban as well as rural. So we believe we have some distance to go, but we'll have to be balanced because growth and distribution have to go in and distribution has to be expansion, it has to be ahead of what the current situation is to be in the part for the future growth. I think we have been able to access all the sub channels because our brand portfolio had all the sub channels pay out, whether it is grocers, the pharma, the cosmetics, the food stores and standalone. The pan kiosk is the one place which has not been very important for us, fortunately, and therefore, that can be much harder to work for some companies at once. But we've been able to grow each of these parts very well. One of our key focus right now is to drive our range productivity across this portfolio, and that's really the initiative post expansion has been. So how do we increase our range and therefore, we are using a series of measures in terms of measuring those as well as our sales force automation is also helping us track this and use -- better use of data to address where the gaps are and keep working at it. We have a sorting plan by subchannels, states, et cetera, that helps us making our product better available at the right place.

Got it. So basically, what I was essentially alluding to is that now with Glucon-D, you are able to reach new distribution areas. Have you been able to push your other brands also in that new real outlet that you have got through the Glucon-D? If yes, to what extent? I mean from our 6 brands to what extent we would be able to reach?

A good example is Everyuth. Everyuth has seen in the last 3 quarters. I think in the Wave 2, like all brands and being nonessential, it got very badly impacted in April and May. But post that, it has come back so strongly, and we've seen high double-digit growth across months. And even when we have, like last month -- last quarter, we have reduced, for example, we were talking about reduction when [indiscernible] impacted all brands. It has continued its momentum. So we've seen a good -- one of the brands that has gained out of this portfolio. Actually it impacts all brands. Even within Glucon-D, it is not just about Glucon-D being large, and therefore, it is driving. Our ability to place some of the -- like this holds was existing earlier also. When we relaunched ImmunoVolt with a larger distribution, we've been able to get our way through. So it is not just the big brand, but there are SKUs within brands, which are important and strategic in nature, we are able to push through those as well. So that's the benefit of having a better direct distribution wish list is to cross 1 million in the next couple of years.

Got it. Got it. And lastly, one bookkeeping question. What would be the blended price hike that you would have taken at the portfolio level? And now in line with the current inflationary scenario, do we think that most of the price hikes required are taken and will take a pause at this point in time?

We will take a pause at this time. We have taken the price hike even during the December. And earlier, prior to that quarter, we also taken one more price. So I think this is now pause for the price hike. If required by -- if required and if inflationary pressure continues, then we'll take that call at that time.

So what Umesh was explaining is the price hike taken in December to take care of the costs for this quarter, which is in operations. We've covered ourselves for our focus on the costs.

The next question is from the line of [indiscernible], a private investor.

Sharvil, Tarun, this is [indiscernible] here. It's a real pleasure to talk to you guys after a long time. My question is regarding future strategies. So we've got a good portfolio of brands and got a good team. Of course, you've got our hands full with all the different initiatives in each of the brands. And then hopefully, over time, with Sugarlite and Nutralite adding more -- contributing more to the business, the business is already going to be throwing off about INR 300 crores of free cash flow, which will hopefully continue to increase. So while we are executing on all these fronts, strategically, are we also looking at deploying that money in terms of our bank expansion? So do you have any thoughts there?

So on the inorganic, right now, our focus is to look at more bolt-on and fitting into our portfolio kind of approach, where we're looking at products which fit into our wish list both from personal care, but more importantly, if something fits in food and nutrition will be important. We're also looking at some of the key market international acquisitions and we will look at looking at those. So we are conscious of that.

To that point and to what Tarun said is right. So one is definitely among the nutrition side, we believe that protein is a protein -- area of protein-related products are very critical and especially with the movement that you see on the e-commerce on certain new types of products. I think we are seeing that as an opportunity area to acquire something and build an e-commerce as well as how many e-commerce to direct distribution play, and we look at brands that we could acquire or businesses or looking at making sure that they are better gross margins so that we don't want to buy something that is lower on gross margin side. Also building an international business is an important area which we can, I think, think of doing over the next 2 to 3 years. So any areas on that, we would be looking to see if we could acquire. So I think those are the 2 immediate ones. Beyond that, I think currently, as Tarun said internally, we still believe we have a lot of opportunity to grow these mother brand. So I think the focus will be to make sure that we do so. But we'll keep our eyes open for any opportunity to acquire.

[Operator Instructions] Our next question is from the line of Akash Shah from [ UTI ] Asset Management.

I just would like to ask, are we planning to enter any or does the management team have any thoughts on entering, let's say, different categories over, let's say, next 2, 3 years or maybe 5 years down the line? Just any thoughts there. This is just coming from, I mean, we are planning to expand our international business. But certainly, there is a lot of scope in domestic business. So any thoughts there?

So let me say this, that we believe domestic has enough scope and our existing brands have enough scope. We will be looking at core businesses of each of these brands to grow because we believe there is enough potential. There are some adjacencies within these brands, which are possible, which have potential and which will fit in very well with our portfolio, and we will look at growing them through innovation or I mean from an expansion point of view. So that's really our primary focus. Even in International, we have seen it as an extension of the same thing. We learn from each other and pull this together. There is enough opportunity to grow on that. The bolt-on acquisition is only to fit in and give us -- if there was a quick progression in the spaces that we would like to be. That's largely how we are looking at.

If there are no more questions, we could wrap up.

All right. I've got no further questions. I now hand the conference over to Alok Shah for closing remarks. Over to you, sir.

Thank you. On behalf of AMBIT Capital, we would like to thank the management of Zydus Wellness for giving us this opportunity to host the call and to all the participants for taking time out for the call. Thank you.

Thank you very much, members of management. Ladies and gentlemen, on behalf of AMBIT Capital that concludes today's conference call. Thank you all for joining us, and you may now disconnect your lines.