Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Zydus Wellness Ltd (BOM:531335, Financial) reported a consolidated net sales growth of 20% year-on-year, with 17.1% attributed to volume growth.
- The personal care segment registered a significant double-digit growth of 41.8%, continuing its positive trajectory.
- The company launched several new products, including Complan Immuno-Gro, Everyuth pink clay & charcoal face wash, and Nycil soap in international markets.
- Gross margin improved by 114 basis points sequentially and 314 basis points year-on-year, driven by a favorable product mix and efficient hedging strategies.
- The company repaid its debt in full during the quarter, deleveraging its balance sheet while maintaining a strong cash position.
Negative Points
- Advertisement expenses grew by 19.1% year-on-year, driven by increased brand investment.
- Other expenses increased by 27.7% year-on-year, partly due to the cost of strategy consultants.
- Employee costs saw a substantial rise, partly due to a one-off transition from private to government-based PF.
- The company anticipates lower EBITDA margins in Q2 and Q3 due to seasonal revenue fluctuations.
- The impact of inflation and commodity prices remains a headwind, despite the company's hedging strategies.
Q & A Highlights
Q: Congratulations on good set of numbers. However, I would like to know our future prospects of the current plan that you are into. So what's the future outlook for us from here on? What type of growth rate we are looking at? And is there any margin exposure that we look at because right now (inaudible) margins over the years have gradually decreased for the company? So are we bottoming up of margins? Are we looking at an expansion of margin from here on?
A: Thanks for the question. I think our revenue growth expectations, like we've said in the past, we continue to focus on a double-digit growth trajectory and that is what we envisage going forward. From a margin, we do believe that we should be looking at expansion of our EBITDA margins and like we've also said in our last investor call, we are looking at over the next couple of years going back to a 17%, 18% kind of EBITDA margins through the journey, largely supported by gross margin improvement, which we've already seen and some operating leverage with growth.
Q: And this expansion of [OPA] margin by what time period are we looking at? Because right now, we are running at 13%, 14%. So the 17%, 18% will achieve in what, two, three years' time period? Or is there any time line for that?
A: Exactly. I think next couple of years is what we've talked about.
Q: And my next question is in terms of the CapEx, what CapEx are we planning for FY25?
A: Yes. Currently, the CapEx is the maintenance line CapEx. And what we had on the depreciation, except the few balance sheet demand that we might have to procure.
Q: Sir, I was not able to get the amount that you said. Any amount --
A: So in the range of INR30 crores, INR35 crores.
Q: Okay, INR30 crores to INR35 crores. And this will be purely -- where it will be deployed?
A: So it's largely a maintenance CapEx and some capacity expansion equipment that we may need, no large CapEx that we envisage.
Q: And just are we planning to deploy -- to source it from the current cash flows that we have? Or is it true we are planning for debt [increase?]
A: Yes. I mean, we plan to have the CapEx or the equipment deployed only through the current cash flow that we have.
Q: And we are also planning for the borrowing reduction eventually to go and achieve a debt-free company status?
A: Yes, of course, unless there is some acquisition opportunity in the future.
Q: Thanks for the opportunity and congrats on a good summer, and good overall numbers. Just if you can help to slice and dice the number in terms of summer portfolio and non-summer portfolio and the overall volume and value growth to start with.
A: Tejash, thanks for this. We don't break it down with summer, non-summer. As we've started over the last five quarters, we started with food and nutrition and personal care, which you've shared. So that's really what it is. Volume, we've had a 17.1% growth so out of 20 overall growth. So remaining will be valued. No specific price increases right now taken, but it's all price which has already been taken.
Q: Sure. Sir, the reason to why I asked on summer is we all know that there was a huge tailwind for demand in general for because of the heat wave. So just wanted to know, let's say, hypothetically, if next year, we don't get this tailwind, how should we think about -- is there a genuine demand uptick? Or you believe that irrespective of that or irrespective of the heat wave we would have done this well or slightly, let's say, in ballpark around this number only.
A: So Tejash, let me explain. I think clearly, this summer is a very important part of our portfolio, and this does contribute to the numbers. And the numbers won't be the same if the season is not as it was. But over any three- to four-year period of time, we do expect a consistent -- sorry, double-digit growth across the portfolio. Now if a bad season happens like last year, that can happen, but that doesn't put us out too substantially, but we believe our double-digit growth for the entire portfolio is on a consistent basis is how we continue to look at from our outlook.
Q: Perfect, sir. Very clear. Sir, we also kind of witnessed tailwinds on gross margin front. So was it largely led by commodity deflation or there was a premiumization also which played a role here?
A: So everything else, you're right. There is a bit of commodity support, but there is also, in recent months, some of the products -- some of the commodity has seen a substantial increase. But we are well equipped for that. So we have taken time the price increases and premiumization across our portfolio. Action across our portfolio where we have acted on some premiumization.
Q: Sure. And sir, you also highlighted in your opening remarks that we reinvested some of these benefits in A&P and other expenses, which also has a sort of a one-off item in terms of some consultancy charges. But employee cost also jumped substantially. So any one-off there or this was just a regular uptick, which happens every year?
A: So employee cost has gone up largely because of two reasons. One is that there is occupancy increase. So it's about 1.5% occupancy rise. And secondly, the reason is a one-off that we are transitioning from the private PF to government-based PF. And therefore, we had to make (inaudible) there. And therefore, you see a hike of 25%, which is not a normal hike.
Q: So Umesh bhai, should I annualize this number? Or this quarter run rate is abnormally high to kind of bridge for the deficit --
A: This is an abnormally high number and we should not evaluate bridges.
Q: Okay. Okay. And last one, sir. So just wanted to know what percentage of our revenue now comes from -- quick commerce and what kind of trajectory of growth or relevance we are seeing in that channel?
A: So typically, the organized trade
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
