Zydus Wellness Ltd (ZYDUSWELL) Q4 FY23 Earnings Concall Transcript

Zydus Wellness Ltd (NSE: ZYDUSWELL) Q4 FY23 earnings concall dated May. 17, 2023

Corporate Participants:

Tarun Arora — Chief Executive Officer and Whole Time Director

Sharvil P. Patel — Non-Executive Chairman

Analysts:

Manoj Menon — ICICI Securities — Analyst

Ajay Thakur — Anand Rathi — Analyst

Kaustubh Pawaskar — Sharekhan — Analyst

Mayur Parkeria — Wealth Managers India Private Limited — Analyst

Aalok Shah — Ambit Capital — Analyst

Karan Bhuwania — ICICI Securities Limited — Analyst

Disha Seth — Anvil Shares and Stock Broking — Analyst

Pritesh Chheda — Lucky Investments — Analyst

Kapil Jagasia — Nuvama Wealth Research — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Zydus Wellness Limited Q4 FY ’23 Conference Call hosted by ICICI Securities. [Operator Instructions] 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.

Manoj Menon — ICICI Securities — Analyst

Hi, everyone. It’s a wonderful good morning, good afternoon, good evening depending on the part of the world you’re joining this call from. Representing ICICI Securities, it’s our absolute pleasure to host the management of Zydus Wellness Limited for the results conference call. The company represented today by Dr. Sharvil Patel, Chairman; Mr. Tarun Arora, CEO, Mr. Ganesh Nayak, Director; and Mr. Umesh Parikh, the CFO.

Without much ado, 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

Thank you, Manoj. Good afternoon, and welcome to the post results teleconference of Zydus Wellness Limited for quarter four financial year 2022, ’23. We have with us like Manoj mentioned Dr. Sharvil Patel, Chairman; Mr. Ganesh Nayak, Director; and Mr. Umesh Parikh, our CFO. The quarter has seen gradual recovery in consumer sentiments. So urban demand is still better than rural. However, rural demand slowdown seems to have bottomed out and recovering is expected going forward.

In spite of the inclement weather throughout the country and March billing offtake, the company has registered a net sales growth of 11.8% during the quarter on year-on-year basis, of which 4% is volume led. For the financial year 2023, we have achieved a growth of 12.8% year-on-year on net sales. With the appropriate price increases taken across portfolio during the previous quarters and inflation getting stabilized for imports, except for milk, the company has caught up with last year gross margins for the quarter-four and reduced the gap over the last financial year that was great in first three quarters of the current financial year. The gross margin for quarter four stood at 50.6% on net sales for the quarter for.

Let me take you through the highlights of the consolidated financial performance of quarter four financial year 2022, ’23. During the fourth quarter of financial year ’22, ’23, our net sales grew by 11.8% to INR7,099 million. Our total income from operations grew by 11.4% to INR7,130 million. EBITDA grew by 2.2% year-on-year to INR1,440 million. The company continued to witness high inflation in alternative fuel and labor costs. As a result of which other expenses grew by 36%. Also, it was accentuated by temporary outsourcing of manufacturing of Glucon-D to third parties. Almost half of the increase in other expenses is one-time in nature. The change in manufacturing footprint coupled with cost optimization programs shall result in reduction of expenses in coming quarters. Reported net profit was up by 9.0% year-on-year at INR1,453 million. Adjusting for exceptional items, the net profit was up by 14.4% year-on-year to INR1,525 million.

Coming to the annual consolidated financial highlights. Our total income from operations increased by 12.8% year-on-year to INR22,426 million during the year. Our EBITDA was down by 2.2% year-on-year to INr3,372 million. EBITDA margin as a percentage to total income from operations stood at 15.0%. Reported net profit was up by 0.5% to INR3,104 million. When adjusting for exceptional items, the net profit was up by 3.7%. Consolidated cash position stood at INR1,081 million, including investments made in the liquid funds. Our consolidated capex for the year was INR489 million.

With that, let me share some of the highlights of operations for the year gone by. We continued our trust on marketing initiatives to grow the categories and increase our market share of our brands during the quarter. To narrate a few, on Glucon-D front, we’ve continued marketing efforts towards driving growth in recruiting new consumers. The brand continued its strong momentum for the financial year. We continued our focus on innovations and launched various essentials like satchets, Kaccha Mango under Immuno Volt and Mango under flavored glucose powder during the financial year. The glucose powder category has grown by 10.7% at a MAT. Glucon-D brand continues to maintain its number one position with a market share of 60.1% as per MAT March 2023 report of Nielsen, which is an increase of 159 basis points over the same period last year.

On the Complan plant, the health food drinks category has witnessed a slowdown during the financial year and the brand performance is a reflection in similar lines. As the category has seen shift in trend from refill packs to jars and jars to sachets and pouches, the brand has been able to timely intervene and enjoy a wider market play with category parity packs. The brand was supported by 360 degree campaigns throughout the year across the mediums of TV, print, digital and social media and influencer campaigns. The health food drink category has degrown by 1.1% at MAT level. Complan market share stood at 4.5% in the category as per the MAT March 2023 report of Nielsen.

On the fitness front, Sugar Free brand witnessed a revival in offtakes during the later half of the financial year as a result of sweetener portfolio has registered a mid-single-digit growth for the quarter four on a year-on-year basis. We continued to build Sugar Free Green franchise with aggressive media campaigns throughout the year. Sugar Free continues to maintain its leadership with a market share of 96% as per MAT March ’23 report of IQVIA.

On the personal care front, Everyuth brand continues to outpace category growth during the quarter four of the financial year. We continued to support our core portfolio of face wash, scrubs peel off and body lotions through TV and digital campaigns throughout the year. The face scrub category has registered a growth of 9.1% at MAT level. Everyuth scrub continues to maintain its leadership position with market share of 41.9% in the facial scrub category, which is an increase of 68 basis points over the same period last year as per MAT March 2023 report of Nielsen.

The peel off category has registered a growth of 4.5% at MAT level. Everyuth peel off has maintained its number one position with a market share of 78.4% in the peel off which is an increase of 7 basis points over the same period last year as per the MAT March 2023 report of Nielsen. Everyuth brand is at number five position with a market share of 6.2% at our overall facial cleansing segment level as per the MLP March 2023 report of Nielsen.

With good summer season, Nycil mentioned brand has witnessed a strong comeback for the financial year. The prickly heat powder category has grown by 13.4% at MAT level. Nycil has maintained its number one position with market share of 35.4% in the pricky heat powder category, which is an increase of 157 basis points over the same period last year as per the MAT March 2023 report of Nielsen.

On the dairy and spreads categories front, Nutralite brand has delivered a robust growth for financial year gone by backed by well planned digital and on ground activations. We continue to focus on recovering of margins and improving profitability in the new financial year.

Thank you. And we will now start the Q&A session. Over to the coordinator for Q&A.

Questions and Answers:

Operator

[Operator Instructions] Our first question is from the line of Ajay Thakur from Anand Rathi. Please go ahead.

Ajay Thakur — Anand Rathi — Analyst

Hi, sir. Thanks for taking my question. A few questions. I just wanted to understand firstly what would be the absolute quantum of one-off in the other expenses during the quarter? If you can share that number?

Tarun Arora — Chief Executive Officer & Whole Time Director

Absolute quantum of one-off is — sorry, yeah, absolute quantum of one-off, you are asking for this other expenses, right?

Ajay Thakur — Anand Rathi — Analyst

That’s right.

Tarun Arora — Chief Executive Officer & Whole Time Director

I think it is almost half of increase, half of the increase on net basis.

Ajay Thakur — Anand Rathi — Analyst

Okay. Got it. Secondly, I wanted to understand what could be the [Indecipherable] of this Bournvita issue that the industry has been facing? Can we expect the — it to actually have adverse effect on the segment — the adjusted segment and — or can we also expect some bit of market share gain because of Bournvita kind of getting in the fire from the consumers?

Tarun Arora — Chief Executive Officer & Whole Time Director

I don’t think there is a significant impact both in consumption and market dynamics level as of now. We’ll wait and watch. I think there have been discussions around these on sugar and other elements, but one has to look at these products in totality from a nutrition point o -view. So I think right now is too early to comment.

Ajay Thakur — Anand Rathi — Analyst

And can we expect some kind of a gain because of this thing, is it one that is kind of losing because of the similar issues, can we gain some bit of — some bit out of that?

Tarun Arora — Chief Executive Officer & Whole Time Director

Not sure. That doesn’t seem right now. So we cannot say anything to that.

Ajay Thakur — Anand Rathi — Analyst

Okay. Understood. Also just wanted to understand how has the traction been? You obviously mentioned about March having some inclement weather impact on the summer product portfolio. I identify that we have quite a bit of summer product portfolio and that also carries towards one off the current year. So I mean, how has the trend been in the April and May month so far? Maybe more of a qualitative kind of understanding of how the things are moving in terms of summer product portfolio?

Tarun Arora — Chief Executive Officer & Whole Time Director

So we’ve got a good pipeline fill, but March and April have seen some bit of inclement weather. We’ll have to see how the overall season pays out before commenting on this because people — there is a mixed view. One is there has been inclement weather. There is also view that it will be a longer summer. So we wait and watch before we can tell you. I’m hopeful things will get better.

Ajay Thakur — Anand Rathi — Analyst

Understood. Lastly on the international business, if you can just share some bit of color in terms of international business growth momentum and how it is panning out in terms of geographies?

Tarun Arora — Chief Executive Officer & Whole Time Director

So international business continues to be about 25 countries like we mentioned where we the top five countries contribute about more than three-fourth of our business and two brands, Sugar Free, Complan constitute about 75%, 80% of our business. During this financial year, we had a challenge between quarter two and three where there were supply issues in New Zealand and some local economic issues in Nigeria, which are two of our largest markets, which pulled down our growth level. On a longer-term basis, we continue to believe a high double-digit growth and growth which will contribute — which will be accretive to our domestic business. So we’re back at growth after those couple of quarters of difficult phase. Now we expect continued growth momentum.

Ajay Thakur — Anand Rathi — Analyst

So for FY ’23 the international business would have seen some bit of growth or it would have actually been more like a flattish number?

Tarun Arora — Chief Executive Officer & Whole Time Director

It would be more flattish because of what we face through in FY — between the two mid quarters.

Ajay Thakur — Anand Rathi — Analyst

Understood. Thanks for that.

Operator

[Operator Instructions] Our next question is from the line of Kaustubh Pawaskar from Sharekhan by BNP Paribas. Please go ahead.

Kaustubh Pawaskar — Sharekhan — Analyst

Yeah. Thanks for giving me the opportunity. So my first question is on Sugar Free. Recently WHO has come out with the notification stating that we cannot claim now non-sugar substitute as a low calorie products. So in that context, do you see any impact on the sales of some of our products under the Sugar Free brand? And a related question to it is if we had studied, what percentage of our sales come from actual diabetic patients who are using this product? And what percentage of our sales is coming from the customers who are actually looking — considering it as a lower calorie product?

Tarun Arora — Chief Executive Officer & Whole Time Director

So let me just first clarify. I don’t think it can be debated by anyone including regulators that sugar substitutes like stevia, sucralose or exportin actually offer lower calorie than sugar. So I don’t think that’s affordable. They have clarified circumstances which necessarily is not in line with their stances, but I think they will understand and they are also saying country by country, these issues will differ. So right now, I’m not seeing any significant impact. We will have to study and also work with the regulators and do what is right, best for the consumers. We do not see any significant impact as we speak now and we’ll work on this as we go forward.

Kaustubh Pawaskar — Sharekhan — Analyst

And will it have any change in our marketing strategy of this for product change in the branding side? Because Sugarlite I think this product specifically looks from that perspective when we sort it. Will there be any change in the strategy for the brand or a product?

Tarun Arora — Chief Executive Officer & Whole Time Director

As of now, we’ve not taken [Indecipherable]. We’ll study and we’ll see if we need to make any shift. But as of now, I think we hold what we are doing. We have scientific evidence to back what we do.

Kaustubh Pawaskar — Sharekhan — Analyst

Right. And in India, just wanted to understand from the consumption pattern, whether these diabetic patients are having issues or is it related to figure are having more traction to these products or it’s a mix of both people who are looking towards the low calorie product or largely from this healthy substitute point of view also using Sugar Fee as one of the substitute?

Tarun Arora — Chief Executive Officer & Whole Time Director

It’s a mix of both and there is good reasons from a health perspective for both of them. So we believe it remains consistent.

Kaustubh Pawaskar — Sharekhan — Analyst

Okay. And my next question is on the new product launches what you have done, so what is your current contribution from the new product? And in the coming years, what are your new product pipeline?

Tarun Arora — Chief Executive Officer & Whole Time Director

So new products constitute about 3.5% of our share of sales, products launched in our business.

Kaustubh Pawaskar — Sharekhan — Analyst

And just one more question to what Ajay asked earlier about getting strong traction to the summer products. So this quarter we have seen our volume growth at around 4%. We have seen demand environment slightly improving. So considering the strong summers and little bit of improvement in the segment, should we expect this volume growth momentum to improve over the quarters or we expect it to remain at 4% to 5% near-term?

Tarun Arora — Chief Executive Officer & Whole Time Director

Hard to guess how the whole thing will shape up because the weather is very, very volatile thing and it just changes every week, especially in summers. We are happy that there has been a slight improvement over the last quarter in volume growth. We just hope that things get better, inflation stabilizes and consumers are coming back and spending more, which should help us focus on volumes and new consumer traction, but that really remains our focus. Hard to put a number to what it can be like mix for the quarters.

Kaustubh Pawaskar — Sharekhan — Analyst

Okay. Thank you. I will get back in the queue.

Operator

[Operator Instructions] Our next question is from the line of Mayur Parkeria from Wealth Managers India Private Limited. Please go ahead.

Mayur Parkeria — Wealth Managers India Private Limited — Analyst

Good evening. Thank you for taking my questions. Am I audible?

Operator

Mr. Mayur, may we request you to use the handset for optimum audio quality?

Mayur Parkeria — Wealth Managers India Private Limited — Analyst

Am I audible now or is it disturbing?

Operator

Could you say something, please?

Mayur Parkeria — Wealth Managers India Private Limited — Analyst

Am I audible?

Operator

Yes, please go ahead.

Mayur Parkeria — Wealth Managers India Private Limited — Analyst

Yeah. So I had just one small question actually, just trying to understand Nutralite side, we did visited couple of restaurants and health related focused players in the regional markets. Obviously, they are unorganized, organized both put together and the feedback we got was that it actually — it scores very lower even compared to Amul in terms of the B2B acceptability for the brand. Would you like to highlight any specific reasons for that? Is it lack of understanding more clearly? Is it actually some tweaking more mix a bit on the product side or is it your availability and other issues? So just your feedback on that, your understanding on that, please.

Tarun Arora — Chief Executive Officer & Whole Time Director

So I’m not sure which of the markets you visited, but we can take it offline. But at a overall level, we are seeing a good traction on Nutralite and both volume and value level. So we’re quite positive about Nutralite’s acceptance in both trade as well as…

Mayur Parkeria — Wealth Managers India Private Limited — Analyst

B2B segment?

Tarun Arora — Chief Executive Officer & Whole Time Director

B2B, specifically yes.

Mayur Parkeria — Wealth Managers India Private Limited — Analyst

So is that — so the positives which you are seeing, are they specific to any specific geographies which you are seeing in terms of? And can you add some color on that, please?

Tarun Arora — Chief Executive Officer & Whole Time Director

I think our growth is coming across the country, while North and West are the largest of the market, but even South and East which are relatively smaller parts of the market are also showing good traction for us.

Mayur Parkeria — Wealth Managers India Private Limited — Analyst

Secondly, on the Everyuth side, the personal care, this category is very large and it’s growing in terms of as the income levels are increasing. I’m talking about little macro trend here and a lot of people focusing in the — right from young age of beans now focusing on products like this. Where do you see in the next three, four years what can be the size of Everyuth brand for us? And what are the product gaps which you see over there if any?

Tarun Arora — Chief Executive Officer & Whole Time Director

So for Everyuth, if I were to take this question in two to three parts, I think first, we’ve seen a consistent double-digit growth except for the disruption years like COVID or one or more, but largely, we’ve seen a very consistent trend of good double-digit momentum on Everyuth and largely led by us growing — focusing and growing the segment which we play strongly in, which is the scrubs as well as the peel off masks. And even the new spaces that we addressed, the wash off mask has led the tan removal. That’s also helped us grow. So that’s really been our strength and we have built around it. We’ve extended our product. We already have face wash, so broader facial skin thing. We’ve also gone into lotions and other skin benefits. So we continue to believe that Everyuth has a strong double-digit growth potential over the years and can be a sizable brand for us being a strong player in specially facial cleansing and some of the extension that we may choose to run.

Mayur Parkeria — Wealth Managers India Private Limited — Analyst

Sir, we see lot of application for apricot, coffee, X, Y, Z in these kind of — I’m sorry, but I meant to say being more specific. We don’t see that in Everyuth. So just a feedback that when we talk to some of the youngsters and what is missing in this brand, these are some of the variants, I don’t know they are available and not in specific markets or they are not available. But in general, I don’t see. So some of these variants if you can see and look at it.

Tarun Arora — Chief Executive Officer & Whole Time Director

No, sure. So we look at it and we take your feedback and we’ll look at it also what we can do to widen our portfolio.

Mayur Parkeria — Wealth Managers India Private Limited — Analyst

Thank you very much and wish you all the best.

Tarun Arora — Chief Executive Officer & Whole Time Director

If there’s some more suggestion, we can take it offline.

Mayur Parkeria — Wealth Managers India Private Limited — Analyst

Sure. Thank you.

Operator

[Operator Instructions] Our next question is from the line of Aalok Shah from Ambit Capital. Please go ahead.

Aalok Shah — Ambit Capital — Analyst

Yeah, hi. Thanks for the opportunity. My first question is on the distribution side. So while you highlighted on the distribution expansion guidance for F24, just wanted to check there was automation and digitization efforts also in roll-out about two quarters back. So where could the company be on that? And where all we can see the benefit, whether you see more happening on the fill rates or is it more on the sales force efficiency, costing? So where can we see that benefit opportunity? That’s my first question.

Tarun Arora — Chief Executive Officer & Whole Time Director

So Aalok, just to address, I think first of all, the field automation, we have 100% of our field force now digitized with digital support and that clearly gives us a better control and better efficiency of the field force. It also helps us drive specific SKUs and a broader range selling through these people. So that’s one benefit. The other is also in terms of our — the data being available and being able to sharply target our products for the right store types and the markets which we see. This is from the front line digitization. At the back end, our digital efforts are more towards our operations planning, which is more at stronger inventory planning, some of which we’ve been focused and we are trying to drive as we move forward on those.

Aalok Shah — Ambit Capital — Analyst

Got it. And would you be able to share with respect to this new distribution expansion that will happen this year, any specific markets or geographies that we’ll look to expand into?

Tarun Arora — Chief Executive Officer & Whole Time Director

Yeah. So there are certain states and certain geographies that we have actually targeted, but they are very specific in nature rather than a broad rush where we see that there is a potential from where we are to go deeper and wider. And those are the markets and city by city planning has been done looking at data and the brand tractions that we’ve decided. And there will be also a plan to go after those specific opportunities as we go ahead.

Aalok Shah — Ambit Capital — Analyst

And just a follow-up on that…

Tarun Arora — Chief Executive Officer & Whole Time Director

Now our focus, just to close that, will be more to drive overall reach over next two to three years to 3 million outlets. And that I think give was much better outcomes.

Aalok Shah — Ambit Capital — Analyst

Okay. And just a follow-up to the previous one. So the new cities and the target markets that you look to expand into this year together whether those markets will be serviced to a wholesaler as of now and now you’re looking to go through the distributor route or those markets are completely sort of untapped as of how?

Tarun Arora — Chief Executive Officer & Whole Time Director

I think with our brands and the market shares we have, most of these markets don’t tend to be untapped. Some of it actually ends up taking over from indirect servicing to our direct servicing, which allows for a better wider range availability. But quite often, some these outlets have some of our products already in there.

Aalok Shah — Ambit Capital — Analyst

Got it. Absolutely clear. My second question was in terms of — so while you given revenue-share from new launches at about 3.5%, so I just wanted to check conceptually that when you look to introduce a new product or a brand, so what are the typical markers that are defined and those products how do we fare on those markers if at all you can share something qualitatively on that?

Tarun Arora — Chief Executive Officer & Whole Time Director

So we look at — for us, a new product is which has not existed for us. We don’t count as variants and flavors as just new products, but we count as more of products, which are either new in technology or new benefits from a consumer’s perspective that we count on this. Typically, we make a good mix between substantive innovation versus platform innovation where substantive takes a much larger share of investment and therefore [Indecipherable]. So those are the guiding principles that we work with.

Aalok Shah — Ambit Capital — Analyst

Got it. And in terms of some of the markers, would it be more like geographic reach in first 12, 24 months or would it be more like a brand size that you look to achieve? So what are the broad markers that sort of define for brand manager as a new variant or a new launch?

Tarun Arora — Chief Executive Officer & Whole Time Director

So a new launch has typically go to market plan which covers the distribution target and repeat purchase targets where the brand acceptance is one of the things that we track and see what we have. There could be some course corrections which can be done after first year’s learning. And therefore, there is typically a simulated test market in a research which has been played out in the market mix, both from a market execution, on ground repeat purchases and investments that it takes and those are…

Aalok Shah — Ambit Capital — Analyst

Got it. And lastly, just from a book keeping perspective, just wanted to check that would it possible to share the volume growth that you gave for the quarter. I’m not sure if you gave for the full year and your broad revenue breakup across brands. Some ballpark number if you can share?

Tarun Arora — Chief Executive Officer & Whole Time Director

So by brand, we can’t give. But for the full year, you can take it a 4.8% as a volume.

Aalok Shah — Ambit Capital — Analyst

Okay. Got it. Thank you very much for that. Thank you.

Operator

Thank you. Our next question is from the line of Karan Bhuwania from ICICI Securities Limited. Please go ahead.

Karan Bhuwania — ICICI Securities Limited — Analyst

Good evening. Thank you for taking my question. So sir, first question was the guidance that you guys have given sort of close to 7.38%, so if you look at the gross margins, it was — in FY ’21, it was close to 54%, 55% and currently we have a gross margin of close to 51%. So do these price hikes take care of moving to gross margins back to those levels? If you can guide on that?

Tarun Arora — Chief Executive Officer & Whole Time Director

Yeah. So price hike have — in the last quarter, we did talk about the price hikes. And last quarter, we have taken our [Indecipherable] on price hike. So at year end, it’s — the motive is that the price hike has taken care of gross margin for the — as compared the last year. Now if we compare it with the 2021, the margin which you are talking about there has been a certain intention led schemes which actually like meaningfully have inflation, which we have not been able to pass it on. And that’s the only thing which probably is…

Sharvil P. Patel — Non-Executive Chairman

So over next few quarters, we’ll further take price increases to get back to those levels. So we’ve been able to cover the last year’s number in the last quarter gone by, but we will take further price increases as need be to go back to our earlier levels.

Karan Bhuwania — ICICI Securities Limited — Analyst

Got it. Thank you, sir. So secondly on — looking at the working capital, inventory and receivables have increased. So if you look at the receivables and definitely strong INR140 crores to INr210 crores and the NPA also increased from INR360 crores to INR457 crores. Is there a reason for this stock of inventory and increasing receivables?

Tarun Arora — Chief Executive Officer & Whole Time Director

Yeah. So receivable was mainly year end credit passed on to the customers, our distributors and customers and that’s temporary in nature. The inventory increase which we see is on account of the stock we see [Indecipherable] factory and it’s from the legal approval and we did not have access to. And the second reason is that we had accumulated some inventory as a strategic backup for our manufacturing.

Karan Bhuwania — ICICI Securities Limited — Analyst

Okay. Got it.

Tarun Arora — Chief Executive Officer & Whole Time Director

That will correct now as we — in the half year.

Sharvil P. Patel — Non-Executive Chairman

[Speech Overlap] Half year reporting you would see that correction.

Karan Bhuwania — ICICI Securities Limited — Analyst

Got it. [Indecipherable]. Earlier one more thing we saw a news article Sugarlite brand, we just read a news article that from daily marketing has been given the rights to Sugarlite brand. So if you could highlight what are the plans going ahead for that particular brand? That will be helpful.

Tarun Arora — Chief Executive Officer & Whole Time Director

So we’re going to the higher court and it’s — we believe it can get sorted as we move through.

Karan Bhuwania — ICICI Securities Limited — Analyst

Okay. Got it and terrific. Thank you.

Operator

Thank you. Our next question is from the line of this Disha Seth [Phonetic] from Anvil Shares and Stock Broking. Please go ahead.

Disha Seth — Anvil Shares and Stock Broking — Analyst

Yeah. Sir, just wondered if you can throw some light, what is the sales contribution from Glucon-D, Everyuth, Complan and all the activities and also gross margin-wise contribution?

Tarun Arora — Chief Executive Officer & Whole Time Director

We don’t share that.

Disha Seth — Anvil Shares and Stock Broking — Analyst

Or if you can just say highest to lowest, would the…

Tarun Arora — Chief Executive Officer & Whole Time Director

We don’t do product wise.

Disha Seth — Anvil Shares and Stock Broking — Analyst

No,no, if you can just tell us which is the highest contributor to your sales from…

Tarun Arora — Chief Executive Officer & Whole Time Director

Madam, Glucon-D is the highest.

Disha Seth — Anvil Shares and Stock Broking — Analyst

And second…

Tarun Arora — Chief Executive Officer & Whole Time Director

We don’t give…

Disha Seth — Anvil Shares and Stock Broking — Analyst

Okay. That’s it from my side. Thank you. And sir, this — in the coming year, the gross margin should continue as all the inflation is coming down or the raw material inflation except milk is coming down. So our gross margins should improve on year-on-year basis compared to last year.

Tarun Arora — Chief Executive Officer & Whole Time Director

Yes, absolutely, that’s the part we are working.

Disha Seth — Anvil Shares and Stock Broking — Analyst

Okay. Sir, that’s it from my side. Thank you.

Operator

Thank you. Our next question is from the line of Pritesh Chheda from Lucky Investments. Please go ahead.

Pritesh Chheda — Lucky Investments — Analyst

Sir, just I didn’t understand why you mentioned that you need to take further price hike to recoup the margins especially when we see the bridge on Slide 9 where the GM led impact is not there in the quarter and we have a slide on all the material prices drop except milk. So on one side, we said we need a further price hike. And on the other side, we said we will recoup the margin, just on the previous participant’s question. So which one we should refer to?

Tarun Arora — Chief Executive Officer & Whole Time Director

So there are specific opportunities of price hike, for example, Complan, which have got impacted. And we will take those price hikes as is required. So there will be a mix impact. There will be some in raw material or packaging material where the costs have come under control and there are some products where we will still have opportunities of price increase. We will consider that and we’ll still have a distance to cover to reach to our FY ’21 gross margin levels.

Pritesh Chheda — Lucky Investments — Analyst

And the FY ’22 gross margin which you lost about 200 basis point that you’ll recoup at least or even that you…

Tarun Arora — Chief Executive Officer & Whole Time Director

That we have recovered already.

Pritesh Chheda — Lucky Investments — Analyst

[Speech Overlap] Last quarter, we have already recovered, which means we will recover this 200 basis point at least and for you to recover FY ’21 GM, you have to take price hikes.

Tarun Arora — Chief Executive Officer & Whole Time Director

Mix of cost reductions or due to the pricing improvement as well as some price increases we’ll deliver.

Pritesh Chheda — Lucky Investments — Analyst

Okay. And the last year’s price increases that you’ve taken, how much of it will still flow to FY ’24 growth?

Sharvil P. Patel — Non-Executive Chairman

[Indecipherable] has already flown in, one-third has been flowed to [Indecipherable].

Pritesh Chheda — Lucky Investments — Analyst

Okay, sir. Thank you very much.

Operator

Thank you. Our next question is from the line of Kapil Jagasia from Nuvama Wealth Research. Please go ahead.

Kapil Jagasia — Nuvama Wealth Research — Analyst

Thank you for my question. Sir, my first question is on the increase in other expenditure which you have mentioned in the presentation. The first point being the third-party manufacturing of Glucon-D going up because of seasonal demand. So the scenario would have been the same before COVID times, sir, because these two years of COVID was impacted. So what was the scenario pre-COVID, like even during that time, there was increase in the third-party manufacturing?

Tarun Arora — Chief Executive Officer & Whole Time Director

We used to have before the acquisition, we used to have a third-party manufacturing. We had completely taken it in-house. Now that we have shutdown our [Indecipherable] brand and we were expecting a good summer, we tied up additional quantities just in case if the volumes go beyond the regular levels, then we should have a backup plan. And therefore that’s one of the reasons we covered it up.

Kapil Jagasia — Nuvama Wealth Research — Analyst

So would this other expenditure be going off in next quarter and Q1 also?

Tarun Arora — Chief Executive Officer & Whole Time Director

No.

Kapil Jagasia — Nuvama Wealth Research — Analyst

So all the expenditures have been accounted for.

Tarun Arora — Chief Executive Officer & Whole Time Director

Yes.

Kapil Jagasia — Nuvama Wealth Research — Analyst

Okay. And second thing again on the margin. Sorry, I joined in late. Like you had mentioned your journey of operating margins towards 20%, most of the raw materials being in control now and you have taken price hikes and you have further price hikes going. So can we expect the journey towards 20% operating margins in FY ’24 or it would still take some time or probably more than a year for that level to be reached?

Tarun Arora — Chief Executive Officer & Whole Time Director

It will take some time for us to get there because gap in gross margin itself is substantial. We want to get our gross margins back with the scale obviously and operating leverage we should get that. So it will take a longer period of time.

Kapil Jagasia — Nuvama Wealth Research — Analyst

Just on a broader level, if you could answer like in each of the product segments, which product segment would have reached the gross margin level as it was before this inflation scenario cropped up?

Sharvil P. Patel — Non-Executive Chairman

Complan would be the most challenged, but otherwise…

Tarun Arora — Chief Executive Officer & Whole Time Director

Most others are getting there, so are there or almost getting there.

Kapil Jagasia — Nuvama Wealth Research — Analyst

Okay. Thanks so much.

Operator

[Operator Instructions] Our next question is from the line of Ajay Thakur from Anand Rathi. Please go ahead.

Ajay Thakur — Anand Rathi — Analyst

Thanks for taking my follow-up question. Also wanted to understand on the ad and promotion spend which has actually come down for FY ’23. What would be the outlook for the same going forward into FY ’24 and FY ’25?

Tarun Arora — Chief Executive Officer & Whole Time Director

We continue to remain interested in taking it up to 12.5%, 13%. We’ve — but we balance given what our P&L can afford and that’s why we managed it. When the gross margins can afford, we’ll push it back to those levels.

Ajay Thakur — Anand Rathi — Analyst

So 13% is broadly what we are looking at in terms of range.

Tarun Arora — Chief Executive Officer & Whole Time Director

Range we tend to operate. It’s also a function of some of the initiatives which can sometimes get it up to 13%, 13.2%, sometimes [Indecipherable]. So that’s the range we’re looking.

Ajay Thakur — Anand Rathi — Analyst

Understand. And for…

Tarun Arora — Chief Executive Officer & Whole Time Director

We have covered our gross margin.

Ajay Thakur — Anand Rathi — Analyst

And you also mentioned about in one of the earlier calls about tax rate guidance. So what would be the tax rate guidance for FY ’24? I believe for ’25 you had mentioned about taxes coming back to the full tax rate. Will that be the case?

Tarun Arora — Chief Executive Officer & Whole Time Director

So FY ’24, ’25 will not have any cash moving of tax. Thereafter we will be in the normal region of cash.

Ajay Thakur — Anand Rathi — Analyst

So no taxes for even ’25 you are saying?

Tarun Arora — Chief Executive Officer & Whole Time Director

Yeah.

Ajay Thakur — Anand Rathi — Analyst

Okay. Thanks.

Operator

[Operator Instructions] [Ends Abruptly]