Ladies and gentlemen, good day, and welcome to Zydus Wellness FY 24 conference call, hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Manoj Menon from ICICI Securities. Thank you, and over to you, sir. Hi, everyone. It's wonderful. Good morning, good afternoon, good evening, depending on the part of the world you are joining this conference call from. As always, it's our absolute pleasure to host the management of Zydus Wellness Limited to discuss the recent quarter results. The company is represented today by Dr. Sharvil Patel, Chairman; Mr. Tarun Arora, Chief Executive Officer; Mr. Ganesh Nayak, Director; and Mr. Umesh Parikh, Chief Financial Officer. Just one intro before the management proceed to opening remarks, host here will open the floor for Q&A. Over to you, sir. Thank you, Manoj. Good afternoon, and welcome to the post results conference of Zydus Wellness Limited for Quarter Two, Financial Year 2023-24. Like Manoj mentioned, we have with us Dr. Sharvil Patel, Chairman; Mr. Ganesh Nayak, Director; and Mr. Umesh Parikh, Chief Financial Officer, with us. The FMCG segment witnessed a mixed quarter in terms of demand recovery. While urban segment continued to grow, the rural segment lacked recovery and demand due to rising food prices and uneven weather patterns across the country. The personal care segment registered a high double-digit growth, aided by growth in Nycil brand due to hot and humid weather in many parts of the country. The growth was further accentuated by strong traction of Everyuth brand. The company's Nutralite brand also saw a strong surge in volume demand. However, value-led growth was suppressed due to reduction in market-driven prices. In line with category, Complan brand has seen revival while continuing to increase penetration. In the sweetener segment, growth remained muted due to absence of sales of Sugarlite on account of continuing trademark litigation of the brand and sectoral headwinds. As a result, the company's food and nutrition segment witnessed a flat quarter in terms of growth. The company registered consolidated net sales growth of 2.6% on year-on-year basis. The company continues to recover the gross margin during the quarter, aided by moderating rates of key inputs and calibrated price increases taken earlier. As a result, the company has registered improvement in consolidated gross margins on net sales by 198 basis points on a year-on-year basis. Let me take you through the highlights of the consolidated financial performance of the quarter two Financial Year 2023 to 2024. During the second quarter of Financial Year 2023 to 2024, our net sales grew by 2.6% to INR 4,379 million. EBITDA grew by 3.7% year-on-year to INR 168 million. Reported profit before tax grew by 4.9% to INR 86 million. Reported net profit was down by 13.6% year-on-year at INR 59 million, mainly on account of deferred tax liability, which is a non-cash item. With that, let me share some of the highlights of the operations for the quarter. We will also cover the category growth and market share numbers as per MAT September 2023 report of Nielsen and IQVIA. 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, we continue to drive consumption of our new variants of sachet and mango flavor during the quarter through active digital engagement with consumers. The glucose powder category has grown by 1.2% at MAT level. Glucon-D brand continues to maintain its number one position with a market share of 60.0%. On the Complan front, the company has registered ahead of the category volume off take growth. With continuous efforts and necessary interventions, we have witnessed growth in penetration by double digits. The health food drink category has registered a growth of 4.3% at MAT level. Complan market share stood at 4.4%. On sweeteners front, Sugar Free brand continued to show good off take growth during the second quarter as well. We continue to air our new communication campaign with celebrity Katrina Kaif for driving Sugar Free Green. We also participated in several key PR initiatives like Dr. Mohan's International Diabetes Update 2023, and creating vernacular PR videos for digital platforms to strongly counter any negative perceptions and around non-nutritive sweeteners. The brand continues to maintain its market leadership with a market share of 96.1%. On the personal care front, Everyuth brand posted yet another quarter of strong growth. The face scrub category has registered a growth of 6.2% at MAT level. Everyuth scrub continues to maintain its leadership position with a market share of 43.4%, which is an increase of 162 basis points over the same period last year. The peel-off category has registered a degrowth of 0.5% at MAT level. Everyuth Peel-Off has maintained its number one position with a market share of 78.9%, which is an increase of 75 basis points over the same period last year. The prickly heat powder category has degrown by 2.1% at MAT level. However, Nycil has registered double-digit growth and maintained its number one position with a market share of 35.2%, which is an increase of 19 basis points over the same period last year. On the dairy and spreads category front, Nutralite brand has registered double-digit volume growth for the quarter, aided by institutional sales. The company hopes for a further recovery in demand due to upcoming festive seasons, and we are working towards maintaining a gross margin recovery. Thank you, and we will now start the Q&A. Over to the coordinator for Q&A. Thank you, sir. We will now begin the question and answer session. Anyone who wishes to ask a question, you press star and one on the touchtone phone. If you wish to remove yourself from questioning, you may press star and two. All participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mr. Abneesh Roy from Nuvama Institutional Equities. Please go ahead, sir. Yeah, just one question I had. So on Complan and, your dairy business, in terms of, price hike last one,two years, the entire industry and you must have given price hike. There is a correction in, the milk prices, so do you see your margins, bottoming out once the inventory level, et cetera, correct? And second related question on Complan is, the market leaders saw volume dip in Q2. So specifically, Q2, how is your volume performance in Complan? So, so with the milk prices stabilizing, I think we do hope that, across the value chain, dairy-led value chain, we should see margins only improving. In terms of our volume, like I mentioned, Complan has seen a volume improvement, in quarter two in specific. But, are you calling that out as a good structural improvement, even your base, et cetera, I understand, was a bit soft? Is also getting a lot of activation, promotion, sampling, etc. So how do you judge this from a two-year perspective? YoY, I understand. So I think, for me, the structural shift is because we are seeing our penetration going up, and that's a good sign, because we are recruiting new consumers. When I look at over the last four years, every year we've been improving our, widening our consumer base, and that, I think, is a good sign, which is really aiding the volume growth. Yes, you're right, there was a dip, but for a couple of years back, if I look at it, there was also a substantial volume increase during the COVID times. So over three to four years period, I think this is a very positive thing. We just have to focus on sustaining and building around it. Thanks, sir.[crosstalk] Thank you. Thank you. Participants who wish to ask a question may press star and one on their touchtone phone. The next question is from the line of Mr. Tejas Shah from Avendus Spark Institutional Equities. Please go ahead. Hi, team. Thanks for the opportunity. My first question is on if you can disintegrate growth for the quarter in terms of volume, value, and also if you can give some qualitative indication of which brands actually did better than the company average and which did relatively poorly. So, hi, Tejas. Thanks for this. I think we've started giving a little bit of, you know, separate numbers to help you understand. So first of all, I think at a volume level, we've had a flat volume growth, because some of the brands have had higher than some others. Just to look at it, I think food and nutrition, like we explained, is flat for the quarter, and personal care, both the brands have aided the double-digit growths. Within the food and nutrition, while we've seen Nutralite, because it's more reflective of the underlying oil and other ingredients impact, we've seen a high volume double-digit volume momentum, which at a price level, because we have to give corrections like any oil-based brands, therefore, it pulls down the price realizations. So those are the major drivers of these volumes. Got it. Second question pertains to Sugarlite. You called out, litigation disrupting the business for a while. So just wanting to understand, what% of total turnover comes from that would have got impacted this quarter? And any visibility... I understand it's under litigation, any, ballpark visibility that you can give in terms of when, by when do we expect to kind of see the back of this crisis? So it's about 3% to 4% of our business in the lower quarters, for us. We don't have any specific visibility. We are just hoping for a quicker resolve, and we are engaging with the Supreme Court to clear the exemption that we have. Sure. And you spoke about after many quarters, we are seeing some tailwinds on gross margin side. So, how are you reading coming second half and then beyond that in near term, how are you reading this tailwind panning out in terms of gross margin visibility? And where do you see this year ending up on December? So I think, we've clearly seen, the non-dairy portfolio leading the improvements in gross margins, which you talked about. Now, dairy also stabilizing with a minor drop. I think we're hoping even that stabilizes, we are looking good to continue this improvement in margins. I can't give you a specific answer, but only should remain same or get better than this, where we are, on improvement versus last year. Got it. Just last one, if I may. Last quarter we had some, we had some concerns pertaining to the guidelines on aspartame. Now, this quarter, you, I see the presentation, it seems that we are not as much worried as we were last quarter. And even if I see aspartame prices that you have shared as a raw material, that has also not shown any weakness. And, and then perhaps I'm overreading it, but I just wanted your, insights on the same. So, just to. We look at two levels, two or three levels. We are reading from the market through the social listening about the talk on aspartame and concerns around IARC. I think that huge amount of impact that was there in terms of conversations, that has actually died down. It's reduced. Even our track is picking up less. From an optics perspective, given the IQVIA, it's showing a positive movement. And that's really what we are hoping will build. In market, it still has to translate into a back to normal thing. It hasn't. So we are just hoping that it will slowly translate into positive regular numbers. Got it. That's all from my side, and happy Diwali to whole team there. Thanks a lot. Thank you. Thank you. The next question is from the line of Mr. Umang Shah from Banyan Tree Advisors. Please go ahead, sir. I can't hear you. Mr. Umang, we cannot hear you. You're not audible. Am I audible now? Yes, yes, please go ahead. I just wanted to confirm, what was the contribution of brand, for, the last quarter? So, it's about closer to 4% in the weaker quarters, annualized will be half of that. Okay. Okay. And, sir, this litigation is going on since 2020, right? The first filing. So, do we see this will result in this coming year, or will it be pushed next year? Any idea? We're hopeful of it getting sorted, but, you know, the litigation is not in our control. Right, right, right. Right. Thank you. I'll get back in the queue. Thank you. Before we take the next question, we would like to remind the participants that you may press star and one to ask a question. The next question is from the line of Mr. Dewang, an individual investor. Please go ahead, sir. Hello? Yes, sir, you're audible. Thank you for the opportunity. My question is on EBITDA margin. Why is EBITDA margin so low compared to the peer group and as an industry as a whole? Last quarter. So, thanks for this question. I think if you look at it, if you look at it, we have a seasonality, and therefore, the EBITDA margins need to be looked at in total, because we have a high seasonality, and therefore, quarter four and quarter one tend to be significantly higher, and quarter two and three tend to be much lower because seasonality is impacted. So better to look at either a trailing 12 months or an annual picture. But even in the previous quarter, it was only 13% to 15%. Can you guide what is our aspirational level for the EBITDA margins? So we had said that while we were at 17% to 18% due to huge inflation over last two to three years, we've seen those dropping to closer to about annualized level of 15%. We expect over the next couple of years, we will claw back to a 17% to 18% level and then plan further steps to improve it. Thank you, sir. The next question is, revenue growth is significantly below inflation levels. What would be the key triggers for the next few years and pathway to increase ROE over the next few years? So there is a mix impact. I think some of the brands have actually done significantly well. There is also the demand impact, which, like in my starting point, I mentioned, that there is a certain demand which is impacted in the overall FMCG space also. We hope and expect that we should be back at double-digit growth in the coming quarters. The demand should get better by at least quarter four. In fact, festive season also, most of us are hoping, should lead to a better demand, and by quarter four should be back to better demand and better growth numbers. Sir, any light for long-term business, like, two, two years, three years, not quarter-wise, Q4? From a medium-term perspective, we are committed, and we do believe we have a strong portfolio which can deliver continued double-digit growth on the back of growing our categories, expanding the consumer base, and also competitively, we are well placed to you know win in that marketplace. We do believe a good double-digit growth is what we should be looking at over three to four years. Sir, any light on ROEs? So, you know, ROE, as you know, that because of the acquisition, ROE tends to be, you know, generally lower because of the inclusion of goodwill. As we go forward, we have, earlier given a guidance that we'll be touching ROE of 10% in three years' time. Okay. And my last question is, as we are more of a wellness company than an FMCG company, is there any plan to expand into Ayurvedic space and build any brand around that or, acquire any company in that space? So we are, business development is a constant part of our effort, whether it's internal innovations as well as acquisitions. So we have reasonable capability around some of these things. But no specific plans to share at this moment. When we have something specific, we'll be able to share it. Okay, sir. Thank you. Thank you. Participants who wish to ask questions should press star and one to ask a question. The next question is from the line of Mr. Madhur Rathi from Counter Cyclical Investments Private Limited. Please go ahead, sir. Thank you for the opportunity here. My question was regarding the similar to what previous participant has asked. Sir, our revenues have not grown above the inflation rate. Sir, if you could just explain the growth path, when we'll go at double digit, and how we'll achieve this margin, Revenue growth as well as margin, that will be very helpful. If you look at it, last financial year, we did grow at 12%. This year, I think basically the first four, five months have been substantially impacted by one largest component has been our largest brands, which has a seasonality and due to very weather impact, has had a challenge, mainly Glucon-D. And that actually has pulled down the overall growth, if I were to say. We do expect that things should be back to normal starting quarter four. And even now, as things, as festive season appears, things should only start getting better from a growth point of view. Over the next two to three years, as an earlier caller had asked, I think we do expect that back to a normal double-digit growth. Okay, sir. And sir, we have guided on a buyback, so, how has that been? Can you repeat the question? Regarding the buyback that we had discussed over the last quarter, sir, is there any momentum on that? There is no discussion on buyback. Board will- That's why I'm asking that, is there any- No. Any momentum on that? Sir, I wanted to understand for the Complan in our portfolio right now, will there be a decline in seasonality going forward, or will the seasonality will continue for the next two to three years? Seasonality is part of our portfolio mix, where two of our, you know, brands, Glucon-D and Nycil, have a substantial share in the summer seasonality. That's part of the mix with Complan, Glucon-D, Nycil, all the brands being there in the portfolio. So I don't think structurally I see any change. While we are committed to build on non-seasonal brands, but I think the overall structural shift, I don't see in over the next two years. Okay, thank you very much. Thank you. Participants, you may press star and one to ask a question. The next question is from the line of Mr. Karan Bhuwania from ICICI Securities. Please go ahead, sir. Thank you for the opportunity. Sir, firstly, I would like to ask about the international business. How has it been? If I were to look at... Sorry, sorry, can you repeat? I'm sorry, sir. Just wanted to let Karan sir know that you're not audible enough, sir. Hi, can you hear me now? Yes, this is better. Yeah. Firstly, I wanted to get your views on how your international performance has performed, how the performance is this quarter. So, if you look at first half of the year, we continue—we had double-digit growth on international business. So it is slightly lower than our expectation, because one of our major markets, Nigeria, particularly had a severe currency devaluation, due to which some of our business had got stuck. I think with things getting now streamlined, it should only come back. All other markets continue to grow in good double digits. So overall, I think for first half, we are in double digits. So it's—we can do much better as these are external factors which we have to deal with as we keep building this business for the next year. Got it. Thank you. I think, I think, sir, if you look, if I look at ad spend, the ad spend has been flat and then actually comes here and there, right? And if you look at most of the other FMCG companies, they are increasing their ad spend significantly. Say somewhere, something between 20% to 25%. So will this underinvestment in ad spend could impact our growth in the future, or how do you look at it? We are equally concerned about any advertising costs. I think over a two-to-three-year period, if you look at it, I think we won't have been much lower in terms of spends direction. More importantly, I think we've also taken significant actions in terms of optimizing our investments, in terms of our cost efficiencies around some of these things. Going forward, I think as the gross margins expand, we will continue to invest back on advertising as the biggest priority for us. Thank you so much. I'll come back. Thank you. Participants who wish to ask questions may press star and one on their touchtone phone. The next question is from the line of Mr. Shirish Pardeshi from Centrum Broking Limited. Please go ahead, sir. Hi, Tarun and team. Thanks for the opportunity. Looking at the slide on raw materials, six and seven, I think barring apart milk, RPO has come down as palm and stevia prices were also looking sequentially down. So just wanted to check, if milk from here flies another 10% to 15%, is it fair to assume that second half of our gross margin will be significantly higher, say, from 5.9, as we have reported in this quarter? So, we do believe our... We have seen a 200 basis points improvement or 198 basis points improvement over last year in quarter two. That's the kind of trend over last year we will see in H2, too. More led by, of course, non-milk prices, but milk also being stabilized and slightly, I think we should be able to, that's our view as well. It should only get better. Yeah, that's helpful. So just wanted to check, I mean, just to continue, do you think second half our ad bill will be higher? Because right now, the consumption and the discretionary is taking toll. But if there is a significant improvement, do you think the ad spend will inch up in next quarter and the EBITDA will reach towards 14% to 15% range? So I think our ad spends will be in line with what we've been doing last year. I don't think there's a disproportionate increase, but we will be looking at significant opportunities, specifically in quarter four, as the business gets larger and we can with the better margins, we should be able to invest back more aggressively. Okay. My last question on the Everyuth. I think over the last five, six quarters, we have done a lot of work in terms of penetration, distribution. I think what is holding the growth? If you can... I mean, peel-off, we are undisputed leader, so there is no question. In the other two segments, we have done revamp of packaging and other thing. Distribution focus is also there, but what is it when we see the double-digit growth in that segment? We are seeing a double-digit growth. There's no reason. Actually, sometimes, Nielsen, because of being smaller segments, doesn't do justice to what the brand is doing, and that's why we've given a personal care, which captures both Nycil and Everyuth. And Everyuth is a significant portion of quarter two numbers. So you can take for us that, from us, that, not just one quarter, but over several quarters, we have seen consistent good double-digit growth. One follow-up. Do you think we need to expand the other segments of personal care and the Everyuth brand? Absolutely. Absolutely with you on that. So, I think scrub and peel-off have demonstrated what we can do with this brand and how the strength of this brand is. We have clearly evaluated two things to build on. One is body lotions, which will help us de-seasonalize. While face wash has also grown well for us, but more so in specific channels. We will be looking at more innovations, more work to you know expand the portfolio and see how Everyuth can be a much larger brand, given what we have seen in terms of traction in the lead segments. The reason why I'm asking, because, now on e-commerce, our sales has already reached 10%. So is Everyuth is under indexed in the alternate channels, for example, modern trade? Not really, just 10%. So overall, our business is about 20% between modern trade and e-commerce, 20% to 22%. Everyuth specifically leads this in these channels. So it's not underleveraged. Actually, it has been always ahead of the rest of the you know business. It's actually the lower side is brands like Glucon-D and Nycil, which have a larger rural presence and a wider, deeper presence because of more FMCG. But Everyuth does very well on e-commerce. So we are doing well across channels. So we have the sachets which reach out to door-to-door POS data and the larger packs which go for e-commerce and modern trade. I see. Okay, thank you. Wonderful. All the best. Thank you. Participants who wish to ask questions may press Star and One on their touchtone phone. We will wait for a moment while the question queue assembles. The next question is from the line of Mr. Manoj Menon from ICICI Securities. Please go ahead, sir. Hi, Tarun. Specifically one question, you know, on the sales vector of growth, you know, whether it's in terms of numeric distribution or whether in terms of line selling. If you will, just talk about, you know, like, how it has panned out in the last two to three years, and how do you see the medium term? So if I look at it over the last two to three years, we have done specific actions across our channels to expand GT in terms of direct distribution, which used to be about 3 to 3.5 lakhs about three years back. We've taken it to 6 lakh plus. On e-commerce, clearly when before COVID, which was 1%, which we started doing about 9-odd%, 8% to 9%. Modern trade, which went through its own challenge, we have really expanded our portfolio. Food service, which was rich like we've taken a focus action. So across the portfolio, we realized that if we have to grow our brands and we being leaders, sales would be a critical element of driving this activity. The outcomes of each of these is where we've seen e-commerce playing a very good role in terms of both expanding our portfolio as well as our market share within this, so it doesn't get reported in Nielsen, and therefore, some of those actions get missed. Also, we've come up with specific packs in modern trade and e-commerce to drive this agenda, which I think is a requirement of this organized trade, and which we are working on. From a food service also, we've seen our portfolio on Nutralite really helping us expand. GT has been, I would say, something which we think we have invested consistently. We've expanded our distribution, but the outcomes are less than satisfying, which is not just true for us, but I hear other FMCGs also talking of a similar thing, where the share of reference, of general trade has fallen. So we continue to drive our efforts because we feel access will play, continue to play a very critical role in category expansion, and therefore we stay focused on it. We are taking multiple actions now, where we are saying one is, of course, to continue increase our distribution, but also increase our pack efficiency, pack productivity, also more SKUs per outlets that we cover, so that we are able to, you know, get better value out of general trade. So that's a little bit more, external factors which are driving it. So overall, I think, satisfied with the effort, we can continue doing it. It used to be 1.8 million availability, as reported by Nielsen, at a combined business level when we acquired. Today, it's more than 2.5. Our wish list is we could cross 3 million outlets stocking Zydus Wellness products. That's really where we would want it to be in the next couple of years maybe. Thank you. Thank you. The next question is from the line of Mr. Ujjwal Saraogi, an individual investor. Please go ahead, sir. Thank you for the question. As the promoter is on the call, I want to ask him whether they are interested in buying more shares from the open market, if they can comment on this? I think currently, I don't think they have any official comment because the promoter family group decision is not made in this room. It's made separately, where we are not involved as part of the decision. Thanks. Okay. Thank you. Thank you. Thank you. As there are no further questions, I would now like to hand the conference over to management for closing comments. Thank you, everyone. Season's greetings and happy Diwali. We'll see you after the next quarter. Thank you, sir. On behalf of ICICI Securities, that concludes the conference. Thank you for joining us, and you may now disconnect your lines.