Sundrop Brands Limited (SUNDROP) Q4 2026 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Sundrop Brands Ltd. Q4 and FY26 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-down phone. I now hand the conference over to Mr. Ajay Thakur from Anand Rathi Securities. Thank you, and over to you, sir.

Hi, everyone. Thanks for attending the call. From the management side, we have with us Mr. Nithish Bajaj, Group Managing Director, Mr. Ashish Kumar Sharma, CEO and Exeter Director, Mr. K.P. N. Srinivas, CFO. Without, you know, wasting much of our time, I would like to hand over the call to Mr. Nidish Pachash for his opening comment and for the Q&A session. Over to you, sir.

All right. Thank you so much, Ajay, and good morning to all the participants on this. Good afternoon to all the participants on this plan. I will start with the presentation. I hope you have the slide break with you. For sake of, because we are on audio call, I will keep talking about the page number on which I am, so that you can relate to the slide which I am referring to while making my commentary. So I'll move straight to slide number three. For investors who are joining for the first time in the organization for this call, it's just a brief recap of our vision. So as an organization, Sandra Bryant is coming. Recap, I'll probably listen to you. You can't really imagine that. I'll challenge you. I think that he is very good. Hey, you have JV. Thank you. Please, perfect. Thank you very much. We are a premium player on a 5-unit-price basis. We did launch some new grenades, lower grenades. This means we had no certain distribution. We are also building our other play in this business, so you would be aware. Thank you. We are seeing this business also shaping up strong. Some new launches in this category in Kuala Kuala Kuala Kuala Kuala Kuala Kuala Kuala Kuala Kuala Kuala Kuala Kuala. Moving on to Sandra's peanut buzzer. I'm on slide number 14. This business continues to be under pressure in modern trade and e-commerce. In our mainstay general trade channel, this business continues to be growing and is growing in, let's say, no single digits, but close to 7,000 percent it is growing even in a general trade channel. But we are losing share in modern trade and e-commerce. What we have started to make shifts around is we are doing increasing innovation focus in this category. This category has seed emergence of high protein variants. In quarter three and quarter four, we did launch, specifically in quarter three, we launched seven new variants in this. We have started to expand presence and investments in quarter four of this year, and our focus would be to really build our business by expanding both distribution and also throughput from the channel for these innovations, which help us gain share back in the high protein segments and also in some of those areas where consumers are looking at bulk packs, big packs, as a more efficient price point. So, those are the two segments we are specifically targeting for peanut butter, and this will continue to go into other, and we are very strongly confident on making shifts in this business in the peanut butter. I am now moving to slide 15, which is on the Del Monte catch-ups and lay-up portfolio. This business, of course, sits in both B2C retail side and also on the B2B side. Calimari is, of course, the biggest category of Delganty as a business. We had a very strong year. We grew up almost like 11% in this business, fundamentally driven by very strong volume growth of this category. So we are still in the face of, I would say, expanding, gaining share in this category, and we are focused on strong volume growth, and that benefit is reflecting in a very strong performance both in volume and value terms. And this business has grown across channels, so it's a holistic growth across food services, organized retail across e-commerce, and also exports. Food service also, we have, of course, some new customer acquisitions and some line extensions in the layer portfolio. We also have an export business in Middle East where we supply some of our culinary products to key accounts. And that business also has been going. After I look at this business panel, we will continue to drive volume growth through a combination of expanding this business in both B2C and B2B sites. Thank you. Thank you. I'll talk about it again and soon. What is there is, like, Latino, Black, Gems, uh, Thank you. We have a significantly high focus now on innovation. We did almost like 70-plus launches. In the last year, and we have given almost like a 4% of overall sales for that. We are seeing very strong traction on new products as a future source of... The pocket managers, the parts, they are not compared. Thank you. Thank you. I'll pull you out the way. Good morning, everyone. It would be kind of.

If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take the first question from the line of Shiriz Paddesi from Motilal Oswal. Please proceed with the question.

Hi, sir. Good afternoon, and thank you for the opportunity. Sir, I have three questions. Starting first question, over one year, we have done the integration of two businesses. So, this 10% growth, what we have got, what is the journey today? Have we completed the entire integration? Because we were saying that the two businesses are completely different, but they complement in terms of B2B and in terms of B2C. So, what benefits we have expected and what is the strategy?

Okay. Any other questions also, Siddish?

Yeah. My second question is on the popcorn. I think the growth in ready-to-eat is humongous. So, I just wanted to check upon two, three things. What is the distribution of RT ready-to-eat? And in the overall popcorn business, what is the contribution of ready-to-eat? Of course, level strategy has worked, but what else can happen in this category? And third, on the margin front, now we have stabilized. But I think there is also an angle that 5% GST rationalization has happened. The industry has caught a lot of delving. But similarly, we have palm oil, which is rising. And there is a packaging cost because in a small package, the packaging cost is much higher. I would assume that it would be about 10-11% for us as a percentage of sales. So these two, three cost items are going to go up. What is the strategy to maintain or improve the margin?

In the last full year of Germany as a consolidated carbonization, we have focused on getting efficiencies on We have not really done any integration of the business. Only marginal movements are happening. I can talk about some of those, but at a fundamental level, the two companies continue to operate independently. The area where we have started doing integration, one is in the back end of CFA Network, the two organizations ride on. And that's one area we have picked on. Second, we also did one experiment which started radying Kodafur, where we started leveraging Sundrop viral distribution bleach for using, for driving the distribution of Denmonte, ketchup and culinary neo-business in the jungle trade. So these are the early signs which I have seen, right now the two organizations continue to operate independently. Where we have been able to buy efficiency is purely on the area of standalone, the way the organization Thank you. There have been significant work done on those areas. And that is what is driving improvement in efficiency or margins of close to 4% for the business. Growth you asked me about. So as of now, these growths are dominantly standalone growths of two businesses because using each other's strength has not yet happened. I also talked about the fact that we made our entire sales. This is a very critical pillar for us to get into a journey of leveraging the distribution strength of two organizations without creating any kind of integration losses. So today we are in a place where we are starting to understand. The entire coverage of two organizations, and be able to compare them, because the entire field course today is on a mobile app, and we have an outlet by outlet understanding being developed for what is the potential of each outlet in each of the businesses. This is what will pay way for us. to decide on a very optimal coverage strategy for the organization. This will come, I would say, in the two years ahead, where we will leverage some complementarities and say how do we do coverage of our network more efficiently. And this will happen in next 24 months. Second question, I will let Ashish answer. I will move on to third question, which is on the GSE rationalization. So, GST rationalization, we are aware the entire benefits were passed on to the consumers. So, like any other organization, when GST benefits were announced, we had either to increase damages or reduce prices given the benefits to the consumers. In the period, of course, in the last two months, we have seen inflation in medical rights. We have seen inflation in battling costs. Again, those increases we have passed out to the consumers very similarly, either through price increases or damage reactions. So, at a fundamental level, our margin profile does remain stable as we stand today. We are in pain. Good morning, everyone. If this continues as a trajectory, how do we keep building it up? So clearly the organization's focus is on driving upselling also in our core tax. So in ready-to-cook business, for example, we talked about how we are looking at a 20 and a 30 rupees price point, which is what we are now focusing to expand, and today that has become close to about 6% of our business. So there is clearly a place to say how do we also upgrade upstream consumers. Similarly, IT business, we are driving big tech growth through e-commerce, quick commerce, which is what is also driving impulse consumption without necessarily being a price point over the weekend, which is more around a very small, which is more around a small outage strategy. So we are playing the hybrid strategy to make sure that we do build a profile of business where we have a play of bigger tax sizes at a much higher level. And that is what users' confidence that our market will be stable in due date of age.

Thank you for the active question. So as you rightly mentioned, active popcorn is now overall bigger than a 400 crore brand at the next sales level. And the brand has been doing at about 18%, as we had mentioned. The contribution between ready to eat and ready to cook is now about one third, two third. It's about 34%, 6 to 6% for a popcorn business. RTE for value-wise is about 34% of business and RTC is about 66%, close to that. Now, we continue to follow what we have always said. One, we will keep looking at appearing the consumers to bigger cars, both on RTC and RTE. In both these cases, for example, in RTE, which is out-of-home consumption, The convenience channel of quick commerce is what is driving our growth and bigger packs. So we are almost growing in bigger packs as compared to smaller packs by almost 10 percentage points faster. Right? Which is the fact which is doing our margin expansion. Now the saliency that we built for grant for our distribution reach is through the 10 rupee packs. Right? 20 and 30 rupee price points were now, which are now contributing sufficiently to our total contribution.

Thank you. Thank you.

Thank you, Shereesh. Thank you so much.

Before we take the next participant, a reminder to all the participants, please restrict your questions to two per participant. The next question is from the line of Sitesh Deshmukh from IIFL Capital. Please proceed.

Hi, sir. This is Percy Pantaki here. My first question is on the merger synergies. Of course, we have done well in terms of growing our full year EBITDA this year versus the last year, but now that you sort of had both these businesses under your belt for about 12 months, Can you give us a little more granular plan in terms of realizing the merger synergies? Both in terms of action points, the timelines for the action points, and the kind of quantification of cost benefits that can accrue on account of these actions.

Right. Firstly, right? Because moderator said to be honest. Do we have firstly here?

Yeah, yeah. Firstly, I just dialed in to my colleague Siddesh's line.

Okay, nice. Hi, Parsi. Good afternoon to you. So, yes. See, I'll talk you through how we are going about the journey now. So, one, we talked about the entire change enablement, which is a very critical data feed for our integration decision. Second is the entire back-end or operations, where two organizations are wired differently and we need to bring them on same platform. So the second area of work which is going on as we speak right now is in ERP integration. Two organizations are operating on different ERPs, but we are now embarking on, we have now embarked on a journey to get them on a common ERP. And this we expect to finish in a period of about 20 to 14 months from now. So, somewhere in the period of June to August, we should be through with integration and a common ERP platform for those organizations. I talked about entire intelligence we have built around sales network, that we should be able to rectify and, let's say, build a game plan in another six to nine months from now, where we would be able to decide what is the most optimal career strategy, which, in a sense, means that So, leveraging efficiencies in the area of a common organization footprint will dominantly follow in FY28. So, FY27 will continue to be the path of building the entire understanding and building the backbone for organization on which two organizations operate on a single backbone, and FY28 is where the harmonization and some kind of... Efficiency takeouts will start happening at the full organization level. Having said that, in FY27, we will continue our CFA integration journey. We will continue to leverage strength of complementarity of organization. So if I have to give you a broader viewpoint, one could expect a hundred bits takeout. from the journey in next one year, and another 150 to 200-bit stakeout in journey in FY28. We are primarily coming through efforts around leveraging organizations, strength and complementarity.

That's very helpful, sir.

So, while you're given a sort of idea on the merger synergy benefits on basis points of sales, my next question focuses more on the total EBITDA margin expansion delivery. Like this year, I think on a merged entity, you have delivered 250 basis points plus of EBITDA margin expansion. Should we assume a similar journey for the consolidated entity for the next couple of years in terms of about 200 to 250 basis points margin expansion for each year, Coming partially through the merger synergies, partially through portfolio rationalization or diversification, partially through leverage of top-line growth or any other kind of benefits that might accrue at a total level.

Yes, so firstly, yes, I would say the range would be between 150 to 225 on business points. In that range, one would be coming. As a management, we will be coming in that range. So somewhere close to 200, that could be a little plus minus, let's say, 25 to 50 bits here or there also possibly. But it never needs to break into that.

Understood. So, by this math, can we say that by FY29, you will definitely be in a double-digit margin territory, which is three years from now?

Yes, that is the intent, yes.

Understood. Secondly, on the two problem categories, which is the Italian and the spreads, if you can just help me very briefly, what is the problem due to which these categories are declining? What is the solution, if at all, you have to stem this decline? And by when you expect these measures to result in the categories coming back to growth?

Right. So, on Italian, I request Abhinav to answer this for you, and then Ashish can explain on the spread side. So, Abhinav requesting you to take on this question on Italian. Abhinav is CEO for Del Monte Pools.

Thanks, Tadish. Good afternoon. Okay, so as far as the Italian portfolio is concerned, This is one portfolio where Del Monte today is currently, if you look at the overall share, we are roughly the third in the country behind Figaro and Borges. Now, addressing the issues around the category which we have faced last year is primarily on account of the deflation on the overall commodity side, which has happened, this is completely imported as far as olive oil is concerned. Now, that entire price benefit is something that we have passed to the end consumer, and therefore, in the process, there is a value decline that one has seen, but as Nitesh had shared in the presentation earlier, there is roughly about a 17% volume growth that we have already seen last year. And now, I think these price corrections are behind and are based from quarter one onwards, and therefore, from quarter two onwards, like-to-like, we would start seeing healthy value growths. That's one part of it. On the demand generation side, what we're also doing is, there is a fair amount of equity, as I said, that the brand carries on the entire Italian portfolio. We're going to be launching a fairly massive Italian-owned Italian space campaign, starting from quarter two, which also should bring a lot of demand from this particular category perspective. So we are very optimistic that things should definitely turn around from quarter two onwards, for sure.

So, this price cut is not at certain margins or anything like that, right?

I'm sorry, can you just repeat the question, please?

Price cut has not resulted in any margin deterioration, right?

No, we have not seen any significant margin deterioration.

So, price is not a margin reduction, it's not a margin reduction, it's not.

Okay.

Can I ask you a question of... Announce it? Yeah. On trade, right, on the peanut butter category. So there are two parts here. One is that even while we say that there is a 7% decline happening on the overall trade and peanut butter business, if you split it into the big parts which is more commoditized versus the small consumer parts, we have had a very good growth of double digits in volume and unit terms in terms of the small parts. Where we struggled was the entry of low-priced competitive players in the commoditized section. There, our strategy over the last 3-4 months has been to look for more competitive sourcing. Having done that, now we are placed to competitively compete with these people who are eroding their market share on basis of price. Right, so that we have done. We are gradually now filling up the gap and fighting them straight head-on in terms of the price at the... Bigger pack level. So that one part we have fixed, it is happening, and that's where we are now starting to see benefit. But it takes a little while, because the area that they have occupied, it's taking a time to get them to vacate it. That's one. The second was on the chocolate side of the business, which was the fast-moving category or the fastest growing in e-commerce, which we said, we have now launched products, seven new products in the segment, which is helping us premiumize and start getting shares. The e-commerce investment, we believe we will start gaining share there and start growing the category. Overall, if you look at, we have had a margin expansion on peanut butter. So the price correction was through better sourcing, right, and not by crying over. We did a price cut. So, it has an impact on top line, but not in terms of margin. So, we had a margin expansion. By Q2, again, this year, we also expect that we will be to start, you know, negating the impact of the losses and start gaining volume growth, say, from quarter to onwards.

Got it. That's all for me. Thanks and all of you. Thank you.

Thank you. The next question is from the line of Helil Bagaria from EquiCorp. Please go ahead with your question.

Thank you for the opportunity, sir. Two quick questions, one on Papa and Teen and Papa. On the peanut butter side, we've launched a few products. I mean, in the earlier quarter, we launched one in the protein pack and the omega-3 and current in the chocolate and the jaggery one. So, these products are actually still there in the market by some of our peers like MyFitness, Mintel, or Alpino. So, how would you price a product? Because I think so, on the Q3 that we had launched, we had put a download, we had priced it a notch below the Alpino. So, what is the kind of sales fashion that we are seeing there and is there a similar strategy we are going to replicate on the new launches and going forward, do you see our products being a notch lower or do you see something very similar to a peer pricing?

Okay. So, thank you so much for this question. So, yes, you're right. We have seen impact on the side of high protein segments with new players coming in and building the category on the promise of high protein. We have built the gaps, bridged the gaps on that side and launched these products in quality, and they have been in that stage of listing. So generally, it's quite an initial traction and initial momentum. Even if you look at layers like MybitMap and Vintana, which you mentioned, they do give some kind of discounting. We have also given that to build some kind of initial momentum in trials. The entire focus is to get a trial. Our product is very competitive. Our product is actually a shade better, I would say, in terms of protein delivery versus competition. So we have also tried to improve the product profile in terms of protein delivery, et cetera. And what you see today, right now, is possibly more to get initial trials and entry of consumers into our grand promise of hypotene. We were never in the position or space of hypotene historically. We were always in the position of family table-spread consumption as a strength and immunity builder. So, getting into the protein segment, we are giving some kind of incentives for trials, but this will be primarily to get trials into the category. Our largest play would be to ensure that this category remains or retains the premiumness which consumers are today willing to play. So, it's more a transient strategy, not a longer-term play to play in that dimension. And, of course, there are media investments, both in digital media and also on performance marketing investments on the channel, which are going behind this portfolio to make sure that we also attract newer users and also, of course, the current protein users in the category.

Okay. So, the popcorn side, we have got a range from 10 to 60 bucks with average about 30-35 rupees and you said that that is actually bound to go up as the larger packs increase. So, since we have also learned the caramel bliss and the cheese flavor that is to compete with some of our peers in the market which obviously sells at a higher price, even there we have downward price, probably that is because it's an introductory range. So how do you see the number of the average price that will go up from 3035 to, I mean, what number when you are aiming at a double-digit margin? And also, if you could also mention some things about the snacko brand, because we could leverage a lot of things out there in the jade pudding side, especially, I mean, even as a peanut butter, which is a very saturated market, we can get into peanut snacks, which we do have, but more on the peanut energy bar or high protein bar or something of that sort. If you could also give a macro overview of this. And in this entire gamut, how do you see the QC-EC mix with the GTE going forward, and in the cooking spends, how do you see the marginal spends towards our new brand initiatives and new product initiatives?

Yes, so I'll just add a flavor to your comments on Popcorn. See, Popcorn, we actually enjoy much better margins and bigger tags. So today, while you may see on certain packs, we seem or appear lower than competition, but clearly our value addition in margin from the price points where we are today prevailing also is very, very strong. Our entire focus honestly is on building the category. We are today, as a popcorn player, we are doing a fair pricing. Of course, bigger pack, as I said, enjoy bigger margins also. But endeavor is to really drive on the consumption of popcorn categories. So we are really looking at RTE popcorn as a category building thought and not necessarily as a thought to say, can I take the price ladder up? We will take the price ladder up by launching newer variants and newer products. So, in our period ahead, you will see more innovative flavors and offerings coming in, some of which will also take the price table up for us as a business. We are not really competitively benchmarking because our leadership position is fairly dominant in this category. Our thinking is driven by expanding categories and really looking at competition, which is operating in pockets, really not a mass player or a mass competition or a widespread competition for us. Competition is dominantly pocket-like play. For us, category is an omni-channel play, and we would play an omni-channel play with this, where we keep, of course, building distribution, building trials, and also upgrading consumers through more attractive, newer flavors and comments. On your question on protein again, right, sorry, could you just quickly repeat that question for me?

So with the focus of protein in peanut butter segment, so there are some white spaces which we are trying to fill. We also have a brand called Snacko, it's not being featured in the presentation, but still there at the Dark Horse, where it's a guilt-free brand where we are focused on low GI, less big, bob, etc. So, out there, do we plan to get more into products like on the energy bar segment, because we've also seen a lot of MN in the market where the brands are focusing there, just trying to get the protein and the entire whole foods into the place?

So, our biggest strategy is to build three core brands, which is Actu, Suncorp, and Del Monte. Building another brand into, let's say, contiguous category is not the thought on which we will play. If we have to build contiguous categories, some of which you mentioned are attractive categories for us also, when we decide to build those categories, we would build them. More through the current set of brand play than really getting into a completely new brand. Unless, of course, some of those can be done through an extension. For example, when you look at Pops, where you see sitting in our breakfast cereal, it is Sundra Pops. And Sundrop is more an assurance or a mother brand play, versus Pops is more a, you will see that kind of play coming in where we have the equity of mother brand giving the trust to consumers to try it out, while a sub-brand or a variant may come in as a relevant proposition for that category. So, that's the play we will play. But some of the categories which you mentioned, they are attractive categories. Business, as we go into our journey of expanding businesses and getting into newer products, some of them will feature in our innovation game plan. Today, we are focused around the core and building innovations around the core. But you will see some of these also coming in due course of, let's say, 80 to 20 more months. I don't want to diverge any further.

So, lastly, on the marketing spends, how do you see shaping up on, especially the marginal marketing spends on the new brands and the new ship?

So, see, we are playing the entire, our entire strategy is to expand margin and deploy at least 50% of them back to drive growth. So, we are... Playing the strategy of profitable growth, we intrinsically understand and believe that marketing spend will be very critical for accelerating the growth. Our ambition will be to grow at least 4-5% higher than where we today are. And today, we are reaching to about 5% to 6% of spend. In a longer day, I would want to be sitting at around 8% to 9% of spend. Of course, when I look at the relevant category portfolio value spend, this will become a double-digit spend from the portfolio value spend perspective. And that to me is… It's a direction on which I would want to go. So we would create margin expansions going forward, deploy a reasonably large part, maybe 40 to 60% raise, of that margin expansion back to acquiring consumers and back to growing or accelerating our growth from this. So that's the play you would see from us as a business. So you would see marketing growing ahead of our top-line growth. And potentially over the next two years, get to around 8% of top line as an organization, while on the categories where we invest, it may be sitting in a double-digit number.

It's not for the country, sir. It's all better.

Sorry, Mr. Haneel. May we request you to join the question queue, sir? We have several people waiting for the tone.

Yes, thank you so much, sir. Thank you.

Thank you. Ladies and gentlemen, due to time constraints, we are taking the last question for the day from the line of Pradesh Sheda from Lucky Investments. Please proceed with your question, sir.

Yes, sir. My question is on the differential growth and gross margin between the core categories and the non-core categories. So, when you identify core categories at 65% of the business, and from your presentation of like-to-like 10% growth, right? There's one slide where you have given Del Monte's full year number and, you know, there's a 10% growth. So, is it possible to just give some indication on… The core category and the non-core category growth?

Yes, so broadly, I will say if you look at most of our core categories, sorry, all of our core categories are sitting in food as a platform, and one of our large categories which we haven't called out in the core, which is edible oil, which is sitting in a space which is commodity in nature. So, if I look at our margin profile of our food business, our gross margin profile will be close to around 25% as an organization, and foods will be about 4 to 5% higher, and medical knowledge will be about 5 to 7, 7 to 8% lower than that. That's the way to look at it. In foods, we also have some categories which are not core, but margin is not very differential. Margin is still in the range of 28 to 30 percent range in most of the categories there.

You said that from the gross margin perspective, company level is 25%, food is 30%, and edible oil is 20%, right? That's how I have to write.

Read it. Yes. And just as a clarification, our gross margin definition excludes, basically it excludes material costs, it excludes manufacturing costs, and it excludes freight and logistics also.

Okay. And on the growth side, aggregate core categories, which is 65% of your business, would have grown at what rate in value and volume?

So this year, our growth on core categories will be about 12 to 13%. Why it's not very different, let's say, is because oil has also done reasonably strongly this year. Though, of course, oil growth was dominantly a price growth, except, of course, in quarter four, where we have also seen strong volume growth in the edible oil business.

And this 12-13% value and volume will be how much in that?

So, I think each category has a different volume profile. We had given the number of volume versus value in each. So that you have in the data which we have already shared. Okay, sir. But what is dominant? It is 8 to 15 percent volume growth between various categories. Yeah, I know, sir. Hello. Yes, we're there with you.

Yeah. I'll tell you my questions. Thank you very much.

Thank you so much. Thank you. Thank you. Sorry, if there are any more questions, I would request a participant can reach out to Kavita, our company secretary, and we would be happy to get back to you with our answers. We understand on possibility of time, we may not be able to take all the questions today, but thank you all for being there, and any further questions, please do reach out to us through our company secretary. We would be happy to engage and answer your questions.

Thank you, sir. On behalf of Anand Rathi, Shares and Stock Brokers, that concludes this conference. Thank you for joining us, and you may now just connect your lines.

Thank you, Anand. Thank you so much.