Zydus Wellness Limited (531335) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Zydus Wellness Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Aniket Kamble. Thank you, and over to you, sir.

Hi. It's an absolute pleasure from ICICI Securities to co-host the Q1 FY '27 earnings call for Zydus Wellness. From the management, we have Mr. Ganesh Nayak, Non-Executive Director; Mr. Tarun Arora, CEO; and Mr. Umesh Parikh, I now hand over the call to management for further remarks. Thank you, and over to you, sir.

Thank you. Good evening, and welcome to the post results teleconference of Zydus Wellness Limited for quarter 1 financial year 2026-'27. I have with me Mr. Ganesh Nayak, Director; and Mr. Umesh Parikh, CFO, on the call from our side. During the quarter, consumer demand remained resilient with spending increasingly shifting towards higher value products. The premiumization trend continued to strengthen as consumers traded up in categories such as personal care, beauty and packaged foods, supporting value-led growth. Good commerce and e-commerce remained the primary growth engine, sustaining strong double-digit growth and continuing to gain share across categories. However, seasonal demand was impacted by frequent summer showers across Eastern region and parts of North India in otherwise highly salient geographies, which disrupted the usual summer consumption pattern and softened demand for weather-sensitive brands, particularly Nycil. On the cost front, input trends remained largely manageable despite divergent movements in commodity prices and currency. Company effectively navigated these pressures through disciplined pricing strategy and improved product mix and a continued focus on premium offerings. While ongoing geopolitical disruptions continue to create uncertainty, the impact on the company has remained limited to proactive mitigation measures. Innovation continues to be a key driver of our portfolio growth. During the quarter, we continued to leverage our strong R&D capabilities to expand into new demand spaces, address evolving consumer preferences and strengthen the relevance of our categories through a steady pipeline of differentiated offerings. We strengthened our portfolio with targeted innovations, namely Complan Powerplay milkshake, which extends the Complan franchise into ready-to-drink nutrition beverage segment for active kids, combining great taste with essential nutrition and is available in vanilla and chocolate flavors with no added sugar and no preservatives. VieMax Diabetes Care, a scientifically formulated nutrition solution designed to support diabetes management through a low glycemic index and a high-protein, high-fiber formulation that helps manage blood sugar, promote satiety, support strength and enhances gut wellness. In addition, Comfort Click business continued to expand its portfolio through multiple product launches and range extensions across key categories. Together, these initiatives reflect our continued focus on premium science-led innovation and our commitment to addressing evolving consumer health and wellness needs. On the financial front for quarter 1 financial year 2027, the company reported consolidated net sales of INR 14,299 crores, reflecting a growth of 66.7% year-on-year. Our international business, including the Comfort Click business, delivered a like-to-like growth of 24.8% while the domestic business grew by 4.6% within the domestic portfolio, Skin and Hair Care and Food & Nutrition continued their strong momentum, delivering growth of 34.5% and 16%, respectively. Seasonal brands, however, declined by 12%, primarily due to softer summer season. Excluding the summer portfolio, all our key brands continued the momentum and cumulatively delivered strong double-digit growth in line with our expectations. With the business becoming less dependent on the summer season, our diversified portfolio continues to support more balanced growth throughout the year. In Q1 FY '27, our organized channels saliency reached an industry-leading 38% with modern trade contributing 17% and digital commerce about 21% -- gross margin expansion in the core business remained strong during the quarter and was further supported by significantly higher margin of the Comfort Click business. On the EBITDA front, company reported a growth of 55.3% for the quarter, reaching to INR 2,417 million. Robust improvement in EBITDA percentage of core business as well as Comfort Click business leading to overall EBITDA percentage expansion by approximately 0.4% on a like-to-like basis. Net profit declined by 7% during the quarter. However, net profit, excluding amortization of acquired brands registered a growth of 26.5% for the quarter. Comfort Click business continued to be EPS accretive. Brand performance and market share developments are detailed in the investor presentation. Key highlights include: Complan surpassed the growth posted in the previous quarter despite category degrowth. MU delivered strong double-digit growth with the tan removal franchise continuing to outperform internal expectations. Digital-first consumer engagement expanded the brand's user base, while sustained momentum improved its ranking in the overall facial cleansing category from fifth to fourth rank. Glucon-D registered a double-digit growth in West and South and moderate growth in North, but offset by weakness in the East, a highly salient market due to frequent showers resulting in flattish quarter. Nycil's performance was significantly impacted due to unseasonal rainfall in the North and East, key saliency markets with double-digit growth in West and South, along with cautious channel stocking and slower uptake driven by higher retailer inventory over the last year. Nutralite delivered strong growth, supported by portfolio strength, innovation, AI-driven consumer engagement and a high double-digit 6-year CAGR. RiteBite Max Protein continued its strong growth trajectory, reinforcing leadership in protein snacking through innovation, expanded distribution and execution excellence, driving robust value, volume and margin growth. Quick commerce remained a key growth driver through continued distribution expansion. Cuticolor witnessed strong demand traction, internal expectations with positive consumer feedback across organized retail channels. Within the sweetener portfolio, Sugar Free maintained category leadership, delivering double-digit growth in the core portfolio and significantly outperforming category trends. Sugar Free D'Lite continued its strong momentum, delivering its high double-digit growth. I'm lite further strengthened its healthier living proposition, delivering higher double-digit growth on a year-on-year basis. With the Comfort Click business, we strengthened our internal presence by launching the WeightWorld D2C platform in the U.S., expanding into the Walmart marketplace and accelerating Middle East growth through launches of Wheat World and maxmedix on Noon UAE, alongside establishing a physical UAE base. Our long-term growth strategy remains anchored in building a future-ready premium portfolio through disciplined execution and technology-enabled decision-making. By leveraging technology and analytics across innovation, consumer engagement, brand investment and execution, we are anticipating evolving consumer needs, strengthening organizational agility, enhancing investment effectiveness and building a resilient platform for sustainable profitable growth. Thank you. We will now begin the Q&A session. Over to the coordinator.

Thank you very much. We will now begin the Q&A session [Operator Instructions]. The first question is from the line of Hardik Jatheliya from Ardeko Asset Management. Please go ahead.

Just firstly, on the internal business, sir, we have broadly reported approximately 25% Y-o-Y like-for-like growth. So just to understand was this quarter in any way constrained by stock availability or supply chain disruption?

No, there have been no specific constraints for us. 25% is a good growth. We've been talking about our double-digit growth.

And that should be the growth rate broadly that we should be working with for the upcoming quarter and this should be the new sustainable growth rate?

We normally don't give a forward-looking. We just said double digits, so that's what we will maintain.

The next question is from the line of Simran Kumari from Narnolia Financial Services Limited. Please go ahead.

Hello. Good afternoon, sir. Am I audible? Hello?

Yes, you are audible. Please ask.

Yeah. Hi, sir. I just wanted to get an outlook on the effective tax rate across FY '27 and FY '28.

As probably you would have noticed that the current effective tax for this quarter, Q1, is close to 27%, and that's largely because of the disallowance of some of the items because of thin cap rule in the U.K. Otherwise, it would have been in the range of 25%. However, having said that, out of 25%, 12%-15% would be a cash component this financial year. From next year, we probably would be in the 25% tax rate entirely in cash.

For FY 2027, we can get 25% tax rate, effective tax rate.

Yeah, that includes the [indiscernible] tax, but the cash component would be lower. Maybe half of 25 or little more than half.

Okay, sir. Thank you. I have another question. If we see that interest rate during the quarter has reduced versus quarter-on-quarter. May I know the reason behind reduction of interest rate, please?

We have actually transitioned from the GBP loan to EUR loan at a much reduced interest rate, and therefore, that gave us a saving in the interest cost. Going forward, I think it should hover around this, subject to the benchmark rate which is declared in EUR.

For the upcoming quarter, will the effective finance cost then it will be the same like the one that you [indiscernible]

Yeah. Unless there is too much of variability in the base rate in EUR currency. Otherwise, if it remains the same or around the same, the effective interest will be around the same amount.

Okay, sir. Can I squeeze in one last question?

Sure.

Can you just provide an outlook on [indiscernible] revenue for this quarter, as well as for the year FY '27?

Nycil has had a difficult last quarter. Largely because …

Sorry to interrupt, I'm asking about [indiscernible] …

Okay. Max Protein business. That's been growing at …

Yeah, yeah, yeah.

That's been growing at more than double the historical growth rate, as we have reported earlier as well. We continue to see a very strong momentum led by three actions. One is brand building, where we are expanding our investments on brand building. You would have probably seen it on FIFA World Cup and various other places. Second is distribution expansion. The third is enhancing our portfolio. We are expecting it to maintain its growth momentum.

Okay. Thank you, sir. All the best for the future quarters.

Thank you. The next question is from the line of Umang Shah from Banyan Tree Advisors. Please go ahead.

Hi, sir. Thank you for taking my question. Just had one question with respect to the summer portfolio. Our understanding was that the monsoons this time were quite delayed all across India, and our [salience] was higher in west and north. In that context, just wanted to understand if you could help us understand this 12% decline in terms of the geographical markets.

Let me break it down. I think, if you would have heard, we've had a flattish growth in Glucon-D and a bigger impact is coming on Nycil. As far as Glucon-D is concerned, it's largely the impact of east. North and east are the most significant part of our portfolio, the highest salient, where east has actually impacted us, and therefore while north and west and south have seen a positive momentum, but all that gain has been nullified by east, where there were continued rains, especially in April and May. If I look at Nycil, I think there are two or three, there again, north and east have been the biggest challenges because west and south have seen good growth. North and east are some of the most salient geographies for Nycil as well. That is also compounded by the fact that there has been a sufficient retail stocks within the consumer stocks. Therefore, the [indiscernible] have been challenging. Towards the end of the quarter, we have seen, actually it was more towards the first half of the quarter. The second half of the quarter, we have seen a good recovery in growth rates for both these brands, but not enough to recover the full growth for the quarter. As we speak, we are seeing growth momentum coming back, and we should end up on a more positive note for the remaining part of the financial year, hopefully.

Understood. How does the launch pipeline look like this year?

We've had a series of launches, if you look at in last three to four quarters, across the portfolio, whether it's Complan, Sugar Free, Max Protein, Glucon-D, and even Nutralite. We've had series of launches. We have couple of more launches in the coming quarters, I think our focus is the launches that we have done, the NPDs we've done, how to scale them up, and we are quite excited with the possibilities because some of them have shown very good response from consumers and trade. We hope to build them further. Our long-term pipeline is looking fairly robust for next two to three years.

Understood. Just last question. This expansion that you are doing in Comfort Click in the U.S. and Middle East, the services and support team continues to be in India, right? You'll not be expanding those in the new countries that you set up.

Yeah. Support team continues to be in India.

All right. Thank you so much.

[Operator Instructions] Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference, please limit your questions to two per participant. The next question is from the line of Mayur Parkeria from Wealth Managers India Private Limited. Please go ahead.

Good afternoon to the entire team. I think given the challenges which you faced for Nycil, I think it was still a decent quarter, which we go through. While there is clearly expectation, which was now for investors were higher, but there's an industry situation, so given that, a great execution. I had two questions on Comfort Click itself. First is, because of the fact of Comfort Click now getting consolidated, but we have seasonality not in our favor for September and December quarters as we go ahead. Now we have high fixed cost into our P&L in terms of interest and depreciation cost of close to INR 80 crores-INR 85 crores. I just want to understand that, is it possible that we will report positive EBITDA as we go ahead despite this high cost structures in the September and December quarters because of the seasonality products not being there? …

As we have mentioned earlier also, that Comfort Click has become EPS accretive from quarter 4 of the last financial year and continue to do so. If the same momentum continues, which we expect, I think we'll register increase in the margin -- net margin as well as the profit before tax -- EBITDA as well as profit before tax.

Okay. That's a great confidence. I think it will also be positive. Since the rain impacts are behind us, I think, and we are seeing some recovery in the domestic side, this will help us. Will that be a correct understanding overall?

Yes.

The second question is on the Comfort Click I had was, there is a lot of narrative now because of the GLP-1 adoption across the globe, the importance of our portfolio in terms of this diabetes management and the various vitamins and the package which is required from that perspective. I wanted two understanding of that. Is any of our products will require a doctor's prescription or a prescriptive situation or is it consumed on a completely on OTC basis by the consumers? How is it abroad, firstly? Secondly, how are you seeing the early signs in the U.S. entry and can that be a big needle driver for Comfort Click as we go ahead in the next two years? Yeah.

You've asked two or three parts to this question. First of all, Comfort Click portfolio digital only business largely and there is no doctor prescription involved. All the products are OTC by nature and therefore don't need any prescriptions and we do not envisage any change to this structurally. Therefore, any demand which arises out of GLP-1 or any other trends will remain from a servicing these requirements B2C perspective. That should take care of the whole thing. Did you have any other part to it?

The U.S. part, how you see early signs of your entry and over the next two year, do you think it will be a meaningful driver for Comfort Click as we go ahead?

Too early to predict, but right now very small, but growing well. We are positive and we are building on it. Time will tell where it shapes up, but it's a very small portion of our business right now, but growing well, in line with our expectations.

Okay. Thank you. I'll come back in the queue for more questions.