Zydus Wellness Ltd (ZYDUSWELL) Q2 FY23 Earnings Concall Transcript

Zydus Wellness Ltd (NSE:ZYDUSWELL)Q2 FY23 Earnings Concall dated Nov. 10, 2022

Corporate Participants:

Tarun Arora — Chief Executive Officer, Whole Time Director

Sharvil Pankajbhai Patel — Non-Executive Chairman

Analysts:

Manoj Manan — ICICI Securities — Analyst

Kapil Jagasia — Edelweiss Broking — Analyst

Shrenik Pacha — LIC Mutual Fund — Analyst

Aluk Shah — Ambit Capital — Analyst

Ajay Thakur — Anand Rathi Securities — Analyst

Shirish Pardeshi — Centrum Broking — Analyst

Tejash Shah — Spark Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q2 FY ’20 Earnings Conference Call of Zydus Wellness hosted by CII Securities. [Operator Instructions] I now hand the conference over to Mr. Manoj Manan from ICICI Securities. Thank you, and over to you, sir.

Manoj Manan — ICICI Securities — Analyst

Hi, everyone. Representing ISec,it’s our absolute pleasure to host the senior management of Zydus Wellness for the second quarter fiscal 2023 results conference call. At ISec, we have been covering that as well for a long period of time, and the research view stays constructive. For the results call, we — the company is represented today by Dr. Sharvil Patel, Chairman; Mr. Tarun Arora, CEO; Mr. Ganesh Nayak, Director; and Mr. Umesh Parikh, CFO. Now over to the management for the opening remarks, post which we’ll open the floor for Q&A. Over to you, sir.

Tarun Arora — Chief Executive Officer, Whole Time Director

Good afternoon. This is Tarun Arora, and welcome to the post-results teleconference of Zydus Wales Limited for quarter 2 financial year 2022, ’23. Like Manoj mentioned, we have with us Dr. Sabatine Chairman, Mr. Kania, Director; and Mr. Omar CFO. Consumer sentiments have gradually started to improve in urban areas. And however, higher input costs have continued to impact the industry. Moreover, pickup in rural demand has been slower than urban areas, which has resulted in down pretty. Consequently, we would say that our rural demand which contributes 25% of the total net sales has been a little subdued. During the quarter, the company continued the growth momentum and registered registering a net sales growth of 12.3% on a consolidated basis, which is aided by a robust volume growth of 5%, given the environment. And on a 3-year CAGR basis, the company’s sustained double-digit growth in net sales. Further, when we get into some other aspects of the business, softening of key commodity prices have provided some spike and would the business on an overall medium-term basis.

However, we’ve seen some level of volatility and the increase in milk prices remains unabated and has hurt the gross margin of dairy-related products, which is what is reflected in our numbers as well. Moreover, some inputs continue to remain high and have worsened the impact due to weakening INR and negatively impacted gross margins. The company is very conscious of this and is tactically implementing price hikes at a portfolio level to mitigate these pressures on gross margins and should be recovering over the coming quarters as we move forward. As we continue to scale up on our direct distribution, the company has witnessed higher growth in distribution compared to the FMCG industry growth for the second quarter as reported by Nielsen. We have also strengthened our competitive position across all the categories that we lead by gaining market share in each one of them over the 2019 despite the disruptions in the interim. So that’s one very important thing that I thought will be very relevant for all the investors because despite leadership, we are strengthening our market shares across the portfolio and wherever we are in the leading situation.

Let me take you through the highlights of the consolidated financial performance of quarter 2 financial year 2022, ’23. During the second quarter of financial year 2022, ’23, our net sales grew by 12.3% to INR4,268 million. Our total income from operations grew by 11.9% to INR4,295 million. Our other expenses grew by 15.1%, which was largely driven by increase in the cost of fuel hike like coal and Hust and also the statutory revision and wage rate in Northeastern well, where some of our manufacturing facilities are located. And this came as in a very short situation then get us much time to react, but we will — should be able to address this as we move forward. EBITDA degrew by 46.8% year-on-year to INR163 million. PBT before the exceptional items degrew by 6.9% year-on-year to INR82 million. Reported net profit was down by 60% year-on-year to INR85 million. With that, let me share some of the highlights of the operations for the quarter gone by. We continued our thrust on marketing initiatives to grow the categories and increase our market share of our brands during the quarter. Actually, before I get into it, I must also highlight because you would have the P&L by now, we continued our investments on advertising and marketing because we believe that’s the only way to build our business on a sustainable growth basis.

And that’s something we will see as we move forward. On the Glucon front, we continue to drive the growth of the brand post a good summer season through media activations TV campaign during the quarter to leverage the second summer’s opportunity across our key markets. As a result, the brand has registered a strong double-digit sales growth. Ducati has maintained its #1 position with a value market share of 60.0% in the glucose powder category at Mt September level, which is an increase of 157 basis points over the same period last year as per MAT September 2022 report of Neon. On the compliance front, the health food drinks category continued to witness slowdown and a similar trend was reflected for component as well. The category has been showing a degrowth for the last 3 quarters at an overall level as reported by Nielsen. However, with our interventions in terms of sachets and pouches launched in key markets and some in the pipeline, which will help us participate in a larger buyer of HFD market. We see green shoots are already visible in terms of increasing market share of complaint, specifically in some channels like one trade e-commerce as we work with them. Brand market share stood at 4.6% in HFD category as per September 2022 report of Neison.

On the sweeteners front, sugar free brand continued to face headwinds of higher base and registered a flattish growth during the second quarter. We continue to focus on building and driving growth of sugar-free green as a result of which its direct distribution has doubled during the quarter on a sequential basis. Our new initiatives over the last 3 years on sugar fee green and cigalike contribute to now 14% of the sweeteners business, thus, making us more future-ready. The Sugar fee brand continues to maintain its leadership with a market share of 95% as per MAT September 22 report of IQVIA. On the personal care front, AU brand registered yet another quarter with a strong double-digit growth. The brand was supported by TV and digital campaigns across subsegments like wastebaskand plots. — mute scrap continues to maintain its leadership position with market share of 41.8% in the patient scrub category, which is an increase of 69 basis points over the same period last year as per MT September 2022 report of Nelson. We Palo has maintained its #1 position with a market share of 5.7% in the peel-off category as per September 2022 report of Nielsen. — brand, we’ve had a #5 position with a market share of 6.5% at overall facial sensing segment as per my September 2022 reported net.

And this covers Phase I, spaceplane all the facial changing segments. During the — taking the benefit of prolonged monsoon in some parts of the country, Niel brand registered a strong double-digit sales growth supported by TV campaigns. National has maintained its #1 position with a market share of 35% in quickly heat powder category, which is an increase of 47 basis points over the same period last year as per MAT September 2022 report of Nielsen. On the dairy and spreads category front, Nutralite continued to bear momentum in overall business and delivered a strong double-digit growth in quarter gone by. Nutralite to check the dairy portfolio, which includes Pata spares and he has delivered a strong performance backed by increased distribution drive, festival-tactivations and online recipe videos endorsed by celebrity superset. We expect revival in consumer demand on completion of normal monsoon and increased government spending. We also expect good demand led by festive season in the coming quarters. The company expects to improve margin on a sequential basis, the impact of which will be partially seen in the coming quarter with full impact being captured in the quarter 4 of the financial year — thank you, and we will now start the Q&A session. Over to the coordinator for the Q&A. Session.

Questions and Answers:

Operator

Thank you very much. We may now begin in the question and answer session. [Operator Instructions] The first question is from the line of Manoj Manan from ICICI Securities.

Manoj Manan — ICICI Securities — Analyst

Sir, I’ve got a few questions. I’ll take 1 or 2 now and then I’ll come back in the queue. One, while we could hear very clearly about the comments about urban, rural and how some of your brands have performed in your opening remarks. The context of asking this question about demand is that some of the categories or many of the categories, which you have can be classified as discretionary within staples. And in general, we have seen discretionary top end consumption, even within consumer state puts or FMCG has relatively performed well. And these are statements I’m making based on what I hear from other companies, so feel free to correct me if those understandings are incorrect for us. So the question here is could you just give some more color in terms of, let’s say, the SKU mix, channel mix, which may be giving an indication of confirming that, let’s say, the top end of the consumer pyramid, whichever geography is performing well. The problem is largely with the mass market or consumers. It’s sort of, let’s say, impact on penetration slowing down. So any further color, whichever cut at an overall level portfolio then? Or maybe if you can, at a brand level would be super helpful.

Sharvil Pankajbhai Patel — Non-Executive Chairman

So I think what we’ve seen is top end of the market, both in direct distribution, even the organized state, which typically ends up selling larger packs have done better than our sub-stockist super stocks business, which caters to largely the lower POPS data and rural. And that I think really confirms with the fact that there has been a muted to offtakes across the board, which is what we are also seeing. So from a — at a larger perspective, we do see a better response from a more affluent part of the market. We’re just hopeful that things will change because the monsoon has been good. Overall government spending has been there, and we should see some revival coming back. Some of our categories where we have invested also because Glucan was coming back after 2 hard seasons, 2 hard years. We’ve also invested back in trying to get back growth post the peak summer of Jan June. So we’ve invested there. We’ve also seen good pickup from both our prime years and secondaries. We will see when the full offtake reports are there, but we are seeing good absorption from the market in some of these categories also, even and I still saw some good uptake.

Even the brands which Tamandare otherwise pressure, for example, sugar-free, you’ve seen Sudhof Green doing well, which is a little bit more premium to the base product responding better, and that does well in also organized rate. So clearly, we see a better offtake from the more affluent, more upper segments. So if I can also add, this is rare. So I think if you look at — if you look at the business as a whole. So first and foremost, I think it’s important to note that we have had very good volume as well as value growth in this quarter despite of the challenges that have been there in terms of overall growth. So the brands are very strong leaders and they continue to demonstrate that with investments, they are able to find better growth. Obviously, it could have been better had the rural and other areas being better. But it’s still good to see that they have reacted to it and shown better growth. The second also is that market share, and we have seen other than complaint where we are still to solve for some of the things that there have been good market share gains across the category. So I think the investment in terms of both distribution, direct distribution reach as well as some tactical investments on advertisement is all helping. Obviously, we have is judicial in terms of how we spend the money. But I think all of those to par looks like it’s a positive sign for the branch that once we see some buoyancy because of the season now, we will see some better uptick in the market.

Manoj Manan — ICICI Securities — Analyst

Understood. And now one statement I found in the presentation about which is very heartening to note was the sort of light performance that it’s doubling up post every time — every time series since launch. Does that apply for the current quarter also?

Sharvil Pankajbhai Patel — Non-Executive Chairman

Not really for the current quarter because that’s largely what has happened in the full year of every full year, but not the current quarter. But I can say that Sugar fee Green and Sukari now become together a sizable portion of our business, and that’s why we shared in my initial summary as well that they now contribute put together about 14% of our Sweden portfolio. And therefore, sea-based products, which help us get more future idea and open room for growth are contributing more meaningfully in the sweeteners. That on the momentum is for full year.

Manoj Manan — ICICI Securities — Analyst

Sure, sure, sure. And one follow-up on the marketing side of the business, and I have one question on sales and I’ll come back in the queue is, look, given that many of the categories or rather I would say most of the categories, you are the dominant player and you have the primary task of growing the market. The context is — which also would mean that you have to be the innovation leader here. So any qualitative color? I respect the fact that there is a competitive angle comes since there’s only so much we’ll be able to disclose in a public forum. But any qualitative color which you could give in terms of the innovation pipeline which you have. So…

Sharvil Pankajbhai Patel — Non-Executive Chairman

For us, the way of growth, you’re right, is through innovation and renovation. So as much as we are focusing on getting new products in, some of which are at a stage of the 3-year, 5-year window that we really evaluate each of these products. And one example is a body lotion, which got launched soft last year, we’ll see some right of the day. But each of the existing products also goes through its own improvement and enhancement. And some of the existing products are already — we worked and rolled out as we speak. Like last year, we also had Complan being relaunched as a better tasting, stronger claims product. So each of these products go through that. For the future pipeline, we have some interesting innovations which should come through and should help us consolidate but they will be largely around the brands we already have existing within the same category or adjacent categories.

Manoj Manan — ICICI Securities — Analyst

So is it — I don’t suggest to decode what I just said, is it fair to then — for me to understand that, the renovation or innovation, which you have done in the last, let’s say, 12 to 24 months, the ramp-up of that over the next, let’s say, 24, 36 months is a likely higher growth driver than, let’s say, completely new things.

Sharvil Pankajbhai Patel — Non-Executive Chairman

Yes. That is completely new things, yes. There is a bigger — more important to grow what we already have, and each one of them is large. So whether I take a Ducati butter, I take a sugar light, I take a body lotion. They have enough room for growth, and we will obviously be driving that. The new one stake, there is always a 2- to 3-year window, which any new product reads. So new products, I mean I can’t say there are 1 or 2 which have a good potential, but I will not carry my growth dependence on them. If they grow faster Sure. But largely, our growth thesis is based on what we already have in the market.

Manoj Manan — ICICI Securities — Analyst

Understood, sir. And again, going back to the presentation, it was very heartening to see the target of 1 million outlets that it reached from 600,000 which you have over the next 3 years, which is sort of a 60-odd percent increase, which you are attempting. Now 2 questions there. One, if you could talk a little bit about the execution plans which you have because this is a significant jump at least in my career, I’ve seen any company has even attempted of this sort of magnitude on a percentage terms. So just some color in terms of execution, anything different in terms of structures you are doing, et cetera. Point number two, how do I think about this, let’s say, from a modeling point of view for revenue growth, we say like-for-like, if I have 100 index to process how much of extra growth which you could likely get assuming that you hit these targets of 1 million outlets from 600,000 in 3 years?

Sharvil Pankajbhai Patel — Non-Executive Chairman

Yes. I’ll ask this question because it comes often and it’s a very interesting thing. If you look at — and I’ll use a bit of Nielsen and our own experience on this. Earlier, there was a very direct correlation between outlets and the sales. Over the last few years, that correlation has reduced. And factors if you look at FMCG industry, the rate of growth of any brand, any category has been much lower in general trade than the number of outlets growth. And that’s why we are conscious of the fact that it will not have a very, very direct linear correlation with that. And to my mind, first of all, let me just point out, we were talking about 5.4, 5.5 lakh outlets just about 6 months back. So we’ve already implemented about 0.5 lakh outlets as we speak over the last few months. We are working towards completing a 1 lakh outlet enhancement for this financial year itself, which we’ll do.

There is a steady plan of taking it up. There is also one new innovation or model which we want to test. It’s too early to talk about it in the next year, 1.5 years, which will help us expand our coverage without taking a relevant increase in cost to serve. The other issue is, and because the number of outlets in general trade, traditional trade is going up, — but the throughput per outlet is coming down, therefore, there is a need to get more and more efficient. The need for us will be. I don’t want to get prolonged this conversation. I just touch the high level because I don’t want to take away time to ask other business-related questions, but we will need to get more efficient about it. And the key role with new outlets will be, one will be the growth, the other will be also driving growth of equities, which otherwise do not go through the indirect channel. Those will be the key drivers for me to build our momentum around these…

Manoj Manan — ICICI Securities — Analyst

Loud and clear. Thank you so much. All the best shall come back in the queue.

Operator

Thank you. The next question is from the line of Kapil Jagasia from Edelweiss Broking. Please go ahead.

Kapil Jagasia — Edelweiss Broking — Analyst

Thank you Sir, my first question is on comp plan regarding the market share loss. So like we have been seeing that we have been introducing sachets and pouches and also entering into neuro. Just wanted to understand like how these initiatives have shaped up so far for us? And also like if you would have internally decided on the time lines or probably you would be entering into the other categories also or the diabetic population also. I guess, these segments are really large, which you would be planning to enter probably what given Period. So any time less regarding this? So 2 questions that actually do one.

Sharvil Pankajbhai Patel — Non-Executive Chairman

So first of all, I think our market shares otherwise have been stable. The category has gone through a large restructuring or reframing with a large focus on lower price packs. The fashions have — which used to be about 12% to 15% now occupy 27% of the whole category. And we’ve been, I would say, behind the category in driving the sachet growth up. And that’s one factor which has impacted our market share. So really speaking, in the part we play, which is basically the kid segment, the bulk of the category with the large packs, I think our market shares are reasonably intact. We did face some pressures because of the power pack which were competitively introduced. We have caught up with them. I don’t see a market share challenge on that. But the restructuring of the market refarming of the market, which has happened due to these sashes, that will take us a few more months or maybe a couple of quarters to start catching up. My belief is we should be able to catch up on those and get back to our normal market share journey that we had. So that’s one piece, if I were to say. As far as the other segments are concerned, they are long gestation projects. We already have a compliant utrowhich is in the toddler segment. We’ve seen some good progress on that, but it’s still small for us to start talking about a significant shift there. I think adult is some distance away. And we need to first consolidate, get our numbers be right, and then we look at more expansion beyond that.

Kapil Jagasia — Edelweiss Broking — Analyst

So like where these assets would be like — it would be more in rural areas or it’s more in urban…How do:Thank you.

Sharvil Pankajbhai Patel — Non-Executive Chairman

Largely a rural and more south and east phenomena about 3, 4 years back. Today, it has also gone to north. It is also there in mass markets in urban areas as well. So the proliferation of Seche becoming 26%, 27% of the category really makes it much wider reach. And given the pricing of this catering reasonably high and inflationary times, I think they’ve just been a space that we see it’s penetrating across the board.

Kapil Jagasia — Edelweiss Broking — Analyst

Right, sir. And my next question is on the Nutella portfolio. So over here, the — like what would be the proportion of daily portion of the overall as like the one which you mentioned, sugar free green as part of the antisugarportfolio. So that dairy would be how much of this tilt…

Sharvil Pankajbhai Patel — Non-Executive Chairman

So we don’t — I mean this will be a very detailed breakup. We will not be able to share that at this level, but we have seen good progress on the dairy side as well as the the traditional core of midlife also. So overall, the brand has done well across the portfolio.

Kapil Jagasia — Edelweiss Broking — Analyst

Okay. Sir, I understand that you are not able to give the breakup, but like going forward in the next 3 to 5 years, how much like the internal targets like — can it be a 500-year category in the next, say, 5 years? Like any targets decided internally?

Sharvil Pankajbhai Patel — Non-Executive Chairman

So Nutralite will be amongst the top 4, 5 brands and will be sizable enough if I could see.

Kapil Jagasia — Edelweiss Broking — Analyst

Okay. And sir, just one last question from my side. In your presentation, it was the currency impact. So like which of the raw materials are usually imported here?

Sharvil Pankajbhai Patel — Non-Executive Chairman

So directly, indirectly, a large portfolio has a currency impact. It could be the sweeteners. It has oils. It has got — I mean, quite a few things, flavors, fragrances, — so there’s a wide range of products which get impacted at overall level. sweetness in particular, is very.. very large.

Kapil Jagasia — Edelweiss Broking — Analyst

Okay. Okay. Great. Thank you very much.

Operator

Thank you. The next question is from the line of Shrenik Pacha from LIC Mutual Fund. Please go ahead.

Shrenik Pacha — LIC Mutual Fund — Analyst

Hi thanks for the opportunity. Sir, could you stand how much of your rural mix in our total sales mix because as we add that rural slowdown is impacting us. So I just want to understand how much is the? And sir, my second question is, could you throw some light on the gross margin contraction, sharp contraction. I believe milk inflation would be the main reason for the sharp contraction. So how will the milk inflation be impacting us in the third quarter? Have you taken the refined price hikes or it will continue to impact us…Those 2 questions.

Sharvil Pankajbhai Patel — Non-Executive Chairman

So first question is on the rural presence. So we have 25% of our annual sales comes from rural. And the second question that you have is…

Shrenik Pacha — LIC Mutual Fund — Analyst

The gross margin on…Gross margin and how will you cover that?

Sharvil Pankajbhai Patel — Non-Executive Chairman

So we have already initiated price increases. Like I mentioned in my summary, we’ve already initiated more than 2% price increase across the portfolio as we speak. And we do see, by various actions, we will work towards, we should see a progressive improvement on the margins as we move forward.

Shrenik Pacha — LIC Mutual Fund — Analyst

And it’s largely driven by milk which…

Sharvil Pankajbhai Patel — Non-Executive Chairman

Milk is the single largest impact that we’ve had. And to my mind, it is more of volatility and therefore, may not be a sustained issue from a medium-term perspective.

Shrenik Pacha — LIC Mutual Fund — Analyst

So Max is majorly used in the Complan and neutral led operate?

Sharvil Pankajbhai Patel — Non-Executive Chairman

That’s correct.

Shrenik Pacha — LIC Mutual Fund — Analyst

Okay. And we have taken the required price for offsetting inflation.

Sharvil Pankajbhai Patel — Non-Executive Chairman

Yes…At a portfolio level.

Shrenik Pacha — LIC Mutual Fund — Analyst

So our milk inflation is not fully covered yet?

Sharvil Pankajbhai Patel — Non-Executive Chairman

It takes — there’s a lag, right? Because I don’t get an overnight cover because of inventory as well as converting milk into SMP and then using it. So — but by whatever we have tried to address, we will — our effort is to get back to our current original margin.

Shrenik Pacha — LIC Mutual Fund — Analyst

But we, in the complex, are we able to take prices like as we don’t have a big market share?

Sharvil Pankajbhai Patel — Non-Executive Chairman

So we can do through a mix of actions. There is action on comp plan, and there is action on the portfolio level because at the end of it, we have to deliver as a portfolio. So there is actually within the milk portfolio and other products which could support it. That’s the power of our brand — of the company at a portfolio.

Shrenik Pacha — LIC Mutual Fund — Analyst

Okay. Thank you so much.

Operator

Thank you. The next question is from the line of Aluk Shah from Ambit Capital. Please go ahead.

Aluk Shah — Ambit Capital — Analyst

Yes. Hi, thank you for the opportunity. The first question is, again, on the gross margin. While the previous participant did asked a part of it, what I wanted to check was that, say, for example, SpMwas up in 1Q is up in 2Q. And in some of the portfolio, we have a very strong leadership position. So are we recognizing the macro headwinds? Are we sort of delaying the price hike? Or do you think that the required price hikes have already been taken? Because sequentially, if I look at the price mix, I don’t see a lot of price hike being there. So just wanted to get your views on the same.

Sharvil Pankajbhai Patel — Non-Executive Chairman

So Aluk, I think we are taking price hikes, but there is always a lag. So it’s not that we’re not able to or we’re delaying. We’re just acting as and when they come. We don’t want to be leading the price hikes which will impact the demand or because the consumer is also at this point in time, quite stressed. We don’t want to lose our volume business as well. So we are balancing and going step by step. But being leaders across the portfolio, our ability to take price hike is pretty good. It’s just that there are new things come up. It’s a volatile situation. We cannot speed everything. So some of those things therefore…

Aluk Shah — Ambit Capital — Analyst

I think Al, if you to look at it this way, we have a lot of elasticity in price, those not always finite, but in terms of other brands, compound is the only brand where we are obviously not the leader and we have to play the role by which we can do appropriately in terms of competitive space. So that’s where we’ll always have be more added in terms of what we do. And we don’t always will have enough scope when it comes to comp plan. But because we produce our own SMP, and others, I think we have a lot of arbitrage to improve the overall portfolio to utilize the — I mean to absorb the price increases that happen on milk. But all those do have a lag. And plus, I think this volatility of sharp increase was not ever expected. So that has obviously taken all of us by surprise that we would see milk going all the way to 53 plus 50. So I think that’s been the challenge. But by and large brands have the capability to absorb any increases because of input prices.

Sharvil Pankajbhai Patel — Non-Executive Chairman

And just to add a small thing, but the government channels also have a lead time in getting the price corrections done. So it’s a mix bag, but we’re at it…

Aluk Shah — Ambit Capital — Analyst

Got it. Got it. Second was on the sugar-free portfolio. So while we recognize the base impact, but going ahead, anything apart from the advertisement in sugar green and your placement of sugar light, structurally for the category development because somewhere the PPT also mentioned that it has a potential to become the third plan. So what are your steps to become the third brand? Because I think while the latent potential is very high, but the size somehow seems to be quite small. So what are those key things that we are taking to ensure that the growth in sugar free sort of comes back?

Sharvil Pankajbhai Patel — Non-Executive Chairman

Sugar Free, I think was to look at and this is in the last 6, 7 years that we’re looking at it, it has kind of a U that we deal with. We’ve had good growth here and there have been years where we’re not on a medium term, if I look at it any group of 4 to 5 years, I see a good single-digit growth that we are able to achieve. The unfortunate thing is we’re not able to push it up on a consistent basis to a double digit, but a good year is followed by a not so good year. And that’s why, to my mind, while we are able to do a good 8%, 9% on a 3- to 5-year basis, we need to push that further. So there are 2 or 3 elements that we are looking at. One is to recruit new consumers, and that’s where we believe SugutiGreen and Tubelite are some of the best basis ways to do that. The second is by addressing continuing to address the concerns. And there are a couple of other ideas on the table, which we have started exploring, which we’ll share over a period of time. But suffice to say that — I mean, high singles are clearly something we will have.Beyond that, we are still working copes as from a…

Aluk Shah — Ambit Capital — Analyst

Got it. And lastly, in terms of innovations, while again, that has been touched upon. But somewhere, I think a couple of quarters back, you had mentioned that we will be looking at about 2 to 3 innovations year. Just wanted to check, there are on that journey? Any changes to that plan that we have shared one?

Sharvil Pankajbhai Patel — Non-Executive Chairman

So we are on track with those. Our key thing is that right now, we have some very exciting in the marketplace, stuff like body lotion, stuff like Duchaibutter and sugar light. And they have enough room for growth, and we are putting investments. We also have to balance our investments and what we put on the table. So we are on track on that investing in R&D capability to have a strong pipeline

Aluk Shah — Ambit Capital — Analyst

Okay. Okay. Thank you very much. That’s it.

Operator

Thank you. The next question is from the line of Ajay Thakur from Anand Rathi Securities. Please go ahead.

Ajay Thakur — Anand Rathi Securities — Analyst

Thank you for taking my question. Sir, I have 2, 3 questions. First was on the gross margin side. You had mentioned about the adverse mix in — which is dated into the gross margin kind of a compression. Can you just elaborate more on the adverse mix part of it? What was driving that? Was it HoReCa chain channel, which actually is impacting us in that context?

Sharvil Pankajbhai Patel — Non-Executive Chairman

So some part of the dairy byproduct portfolio, which at a gross margin level is slightly lower, it may not impact at the total level, but those things become a little bit larger, things like FMP and some part of the nitride portfolio. That’s a mix impact.

Ajay Thakur — Anand Rathi Securities — Analyst

Okay.

Sharvil Pankajbhai Patel — Non-Executive Chairman

And this impacted the direct cost of milk, which has impacted us.

Ajay Thakur — Anand Rathi Securities — Analyst

Okay, understand it. Second, sir, can you just indicate what would be the milk as a percentage of raw material cost for us right now as a — on an annual basis, maybe if that can be shared? And also for oil, what percentage it would be as a percentage of the cost…

Sharvil Pankajbhai Patel — Non-Executive Chairman

I will not be able to share as a percentage of mix. But I can tell you, the milk is the largest, and Palmer will be about 1/3 of all…

Ajay Thakur — Anand Rathi Securities — Analyst

Okay. And lastly, we have seen consistent erosion in terms of the comp plan share market share. But we already have launched the low price point SKUs while at least, I guess, 5% base price point. So when do you see that kind of getting arrested in terms of the market share losses? And also can we expect some kind of market gains also to accrue because of the same?

Sharvil Pankajbhai Patel — Non-Executive Chairman

So there are 2 parts to it. First of all, I think we have started rolling out in the last 5, 6 months, not all markets, all assets are being rolled out. We do it as up to write quarter 3, where it will be — the whole rollout will be complete. In last 4 months, we’ve already seen recovery of market shares because we share rolling MET data, you may see it with a lag, but we’re already seeing improvement in shares. And I specifically mentioned, some of the channels also are responding better.

Ajay Thakur — Anand Rathi Securities — Analyst

Understand… Thank you. Thank you for taking my question.

Operator

Thank you. The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.

Shirish Pardeshi — Centrum Broking — Analyst

Yah hi Tarun. On have I have got 3 questions. Starting with Complan as a category. If you have the number, what is the exit September category decline in the — in terms of volume for HD?

Tarun Arora — Chief Executive Officer, Whole Time Director

I don’t remember the volume, but if I remember, it is minus 3% for January, September, minus 3% category. 9 months, you are saying. January, September.

Shirish Pardeshi — Centrum Broking — Analyst

And that minus 3% is value or volume?

Tarun Arora — Chief Executive Officer, Whole Time Director

Value…

Shirish Pardeshi — Centrum Broking — Analyst

Okay. So I’m sure because most of the market leader is also cutting down the prices and trying to give free lease. So obviously, value if it is decline, volume would have definitely taken a hit. But against that, what is the average industry would have taken a price increase in HFD,Maybe about 11%, if my number is right.

Tarun Arora — Chief Executive Officer, Whole Time Director

No,,no. Actually, the price has dropped because of 2 accounts. Some of the large players moved in a large pack 500-gram pack. They dropped in the first stage to almost 20% drop and they’ve improved some price of their effective price over last 2, 3 years would be per unit price would have dropped by 15%, 16% in my guess. And then the sashes have taken over, they’ve pushed caches very hard Saasthat market over the last 3, 4 years have grown from 14%, 15% to 26% or 27%. So average realized recent per gram on this market is actually declining.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. Got it. Second, on the ever youth. Again, if you could share or help me even personal care has taken a bit if we see the most of the companies who would present the personal care. So in terms of exit, again, the every category, which is largely into the skin, has also seen the decline?

Tarun Arora — Chief Executive Officer, Whole Time Director

I mean, we are at a stage where we are — we are in a good double-digit growth. I have seen one Phase 4, which has declined — which was very low growth, has revived a little bit, but the fact is that our dependence is very large on straps and peel-off and we have seen good positive double-digit growth around that. Paseo has also grown well for us. So overall, we are growing faster than the category at a good double digits.

Shirish Pardeshi — Centrum Broking — Analyst

Yes. That’s exactly which I was trying because if I remember the exit June number, which I have seen, the Facefoshcategory has declined almost 6%. But I just wanted to know on the sequential basis, has it declined further or it has improved?

Tarun Arora — Chief Executive Officer, Whole Time Director

No, it has improved. Last I remember, I just have a look at it. I think it has increased. I saw some improvement in base work. And personally, I was not very seen good numbers earlier, but I have seen an improvement there. So the first…

Shirish Pardeshi — Centrum Broking — Analyst

So what I gather, you are saying that Face Wash is — maybe may not have grown much faster, but Penon scrub has grown faster and that’s why our growth, what the entire person care is higher of double digit. Is that understanding…

Tarun Arora — Chief Executive Officer, Whole Time Director

Yes, we’ve got a high double-digit growth across the portfolio and we…

Shirish Pardeshi — Centrum Broking — Analyst

Okay. And the other question I was wanting to ask, you said you have taken some price increases, but what is the quantum of price increase happened in quarter…

Tarun Arora — Chief Executive Officer, Whole Time Director

So about — at the beginning of the year, we had talked about 7.5%, 8% price increase. We have taken a further price increase implemented now about 2% plus, which is also — which is going to get — I mean which is already implemented, and we’ll take no further calls as we go forward.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. Okay. And just last question on Slide 7 — Slide 5, you have given most of the raw material price index. Now in the price index, if you have the number, what is the sequential inflation we have seen as a basket? Has it gone up substantially about 6%, 7% or it’s just marginally has gone up?

Tarun Arora — Chief Executive Officer, Whole Time Director

So I basically is keeping the cost frame at the same volume level, it is a…

Shirish Pardeshi — Centrum Broking — Analyst

In sequence. That is Y-o-Y, sir. Omaha, can you give me a sequential?

Tarun Arora — Chief Executive Officer, Whole Time Director

On a sequential basis, it is about 3.5%.

Shirish Pardeshi — Centrum Broking — Analyst

Okay. So you mean to say that 3.5% is the inflation and half of that we have taken through price increase. So maybe it explains that about 200 basis points has happened because of COGS.

Tarun Arora — Chief Executive Officer, Whole Time Director

Yes. Yes. It also will depend on the future product mix.

Shirish Pardeshi — Centrum Broking — Analyst

The manager right product.

Tarun Arora — Chief Executive Officer, Whole Time Director

Sure. Thank you, Shirish..

Shirish Pardeshi — Centrum Broking — Analyst

All the best to you, Tarun..

Operator

Thank you. The next question is from the line of Tejash Shah from Spark Capital. Please go ahead.

Tejash Shah — Spark Capital — Analyst

Yes. Thanks. Just an extension of a question from the previous participant. So should we assume that the price comment that we have made in the recent quarter is good enough for us to revert back to earlier margin, let’s say, by fourth quarter? Or can it happen earlier as well Ceteris payables actually raw material as they stand today?

Tarun Arora — Chief Executive Officer, Whole Time Director

By fourth quarter, I think we should certainly be able to fully catch up. We are hopeful we are going — I mean we’re managing it month-on-month. But quarter 4, we should be quite phenomenal

Tejash Shah — Spark Capital — Analyst

Okay. And just wanted to ask…

Tarun Arora — Chief Executive Officer, Whole Time Director

Also we have to see in the context of how the idealness business is, right? The fourth and first quarter were close to 83%, 84% of our profits are. And the last 2 quarters are very small. So while we have had a very big headwind in terms of price increases. But in terms of the overall company, these 2 quarters are the smallest quarters when it comes to our profit, which obviously, over the period of time, we need to improve to see that we have stability there. But I think while we have had the key growth, I think the growth is not as easier because these are very, very small quarters and a small INR3 crores to INR4 crores, INR5 crores change and anything could make a big difference. But meaningfully, over the year, the — because of the strong brands, I think the Stein a good place as long as we’re able to make the right product mix and the price changes that we have made.

Tejash Shah — Spark Capital — Analyst

Second, just wanted to take apart from pricing intervention at consumer and have to on any customer promotion or trade promotion to protect margins?

Tarun Arora — Chief Executive Officer, Whole Time Director

No, not really. I think nothing — we’ve actually focused on investing for growth. There may be a little bit here and there, but largely, we’ve focused ourselves on growth and therefore, no aggressive cuts. We’ve had to do it in the cover years when the business has dropped substantially. So this year, we have a single mindset of driving for growth and managing the inflation. So that’s the growth we are following.

Tejash Shah — Spark Capital — Analyst

Great.

Tarun Arora — Chief Executive Officer, Whole Time Director

Thanks on myself thanks Tejah.

Operator

A reminder to the participants, Anyone who wishes to eat this time. As there are no further questions, I now hand the conference over to the management for their closing comments. Over to you, sir.

Tarun Arora — Chief Executive Officer, Whole Time Director

Thank you, everyone, for participating in the teleconference call. We’ll see you next year in quarter 3 call. Thank you very much.

Operator

[Operator Closing Remarks]