Zydus Wellness Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Broad-based double-digit growth: Revenue grew 19.7% YoY, with Personal Care surging 26% and Food & Nutrition up 9.7%, driven by robust demand across categories and channels.
• Gross margin expands despite inflation: Gross margin improved 261 bps YoY as operating efficiencies and portfolio strength absorbed rising input costs, with management seeing further room to push margins in the near term.
• Bolt-on acquisition in healthy snacking: The Naturell (RiteBite/Max Protein) deal adds a high-growth protein-snacking platform, expected to be EPS accretive from the very next year and consummated within 60 days.
• Urban demand is challenging, but Zydus is navigating it: Management acknowledged urban markets are struggling across staples and discretionary, yet the company's execution and portfolio breadth helped it outperform.
• What to watch next quarter: Whether Personal Care sustains its 6-quarter double-digit streak, how the Naturell integration begins, and whether palm oil inflation pressures Nutralite margins or volumes.

Topline & Segment Performance

• Personal Care delivered 26% growth, led by Nycil (favourable summer, consistent media visibility) and Everyuth (outpacing category growth). Management confirmed this is a consistent trend over the last 6 quarters, not a one-off.
• Food & Nutrition grew 9.7%, with Complan, Sweetener and Nutralite all showing positive value and volume growth. Glucon-D was small and under pressure because of heavy rains.
• Complan added 9 lakh households, with the nutrition drink category showing revival signs and growing 2.8% at MAT level. Management is conscious of needing to demonstrate consistency over time.
• Sugar Free Green continued strong double-digit growth driven by increasing volume uptick.
• Channel mix was well-rounded: very good growth from rural, e-commerce and modern trade, with traditional trade also performing reasonably well versus the market.

Tarun Arora: "Yes. So I think the reality is it's quite challenging in urban. And if you look at multiple segments, not just beyond us, both staples and discretionary, you'll find that everyone is struggling."

Margin & Cost Dynamics

• Gross margin improved 261 bps YoY despite rising commodity prices, attributed to operating efficiencies and a strengthening product portfolio that absorbed input price inflation.
• Margin expansion exceeded expectations because of high investment in advertisement, reflecting a consistent approach of increasing gross margin and deploying advertising as required, balancing growth and profitability in parallel.
• Palm oil is a near-term worry: a substantial price increase makes it harder to pass on costs for Nutralite and food service, given the category's price sensitivity.
• Consultancy fees were not broken out: when asked what margins would have been excluding these fees, management declined, stating such programs are ongoing and it is difficult to call each one a one-off.
• Gross margin outlook: management believes there is room to keep pushing gross margin over the next 1-2 quarters, and over a longer period if conditions allow.

Tarun Arora: "And the other impact I'm a little worried about for future is the palm oil substantial increase because for Nutralite and food service becomes harder to pass on. It may give us growth, but it just becomes that much harder to deal with the market because it's quite price sensitive."

Naturell Acquisition & Portfolio Expansion

• Naturell India (RiteBite/Max Protein): a bolt-on acquisition in healthy snacking, with brands spanning protein bars, chips, protein cookies and granola bars. The business has seen high double-digit growth momentum in the recent past.
• Strategic fit: the acquisition aligns with Zydus's focus on protein and micronutrients, a category with high growth potential and good tailwinds.
• Financials: the transaction is proposed to be funded by cash, expected to be EPS accretive from the very next year post acquisition, and consummated within 60 days. Management did not disclose Naturell's EBITDA margin when asked.
• Growth ambition: management hopes to sustain more than 15-17% growth, noting the track record is even better than that, and intends to maintain that pace over the next couple of years.
• Portfolio runway: the existing SKU range has enough room to grow by making products available at the right places, with scope to launch 1-2 more products.

New Product Launches & Innovation

• Complan entered adult nutrition with a high-protein offering containing pre- and probiotics, alongside the separate VieMax launch targeting muscle atrophy via the gut-muscle axis, priced at INR 900 for a 400g jar and distributed through the HCP route in top states.
• Nutralite launched a 100% plant-based buttery spread in Olive, Garlic and Herbs variants, and entered the cheese category through its professional range with mayonnaise and fat spread variants.
• Sugar Free D'lite cookies launched in India following strong positive response from international markets, where acceptance is cutting across consumer segments including local European populations, with traction seen in the Middle East, Hong Kong and Singapore.
• I'm Lite is responding well in traditional trade markets like the East, with e-commerce picking up through chains like DMart. Management has upped the price and believes the long-term opportunity is much larger.

Demand Environment & Competitive Dynamics

• Urban demand is challenging across multiple segments, both staples and discretionary, with food inflation a concern going forward. Zydus has been able to overcome this better than the market.
• Rural momentum is not driven by specific projects or numeric expansion, but by better execution on existing products with product architecture catering to specific markets, getting better traction.
• Organized trade (e-commerce and modern trade) continues to outperform expectations with sustained upward momentum.
• On competitive pressure from Amul in Nutralite, management expressed confidence, stating they have demonstrated the ability to make large competitors respond to their actions and know reasonably well how to handle it.

Tarun Arora: "But I think we have demonstrated that we have made the so-called big elephants to dance for what actions we have taken in the past. So I think we know reasonably well how to do it."

Guidance & Commitments

Key Metrics