Sundrop Brands Q1 FY27 earnings call

Sundrop Brands Limited reported a strong Q1 FY27 with 15% consolidated revenue growth year-on-year, building on an 11% sequential growth from the previous quarter. The company achieved a stable and healthy EBITDA margin of 7%, normalized for^📎 ESOP costs, and successfully improved gross margins by 110 basis points despite a challenging inflationary environment. This performance underscores the effectiveness of strategic investments initiated in Q4 FY25 for Sundrop and Q1 FY26 for Del Monte, which have shifted the overall growth trajectory from 4-5% to approximately 15%.

The core portfolio, which now constitutes 60% of the total business, grew by 15% in value and 9-10% in volume. The Popcorn business was a significant growth hero, achieving 18% value growth and 12% volume growth, with Ready-to-Eat Popcorn accelerating to 39% growth. The Culinary business (Ketchup, Mayo, dressings) also performed well, growing 15% in value and 8% in volume. The Italian business, comprising Olive Oil, Pasta, and Ready-to-Eat olives, saw 15% volume growth and 8% value growth, with Olive Oil volume growing sharply by 20%.

E-commerce emerged as a key growth channel, delivering an impressive 32% growth and gaining market share across most categories. The B2B business also contributed significantly with an 18% growth rate. Sundrop has increased its A&P spends, with a like-to-like growth of 12% versus Q4 FY26, and plans to maintain 5-6% of its top line on media and promotion, targeting 8% for core categories. The company's capital-efficient approach involves leveraging a mix of internal and third-party manufacturing platforms.

Operational efficiencies are being driven by initiatives such as salesforce automation, with 80% of outlets now being billed through the platform, up from 75% last quarter. This aims to optimize coverage costs and improve productivity. Innovation is central to the growth thesis, with approximately 100 new products launched in the last 24 months, contributing 6% to Q1 sales. The company aims for innovation to fund 40% of its mid-teen to higher-teen growth ambition.

The Peanut Butter segment remains a challenge, experiencing a 3% decline this quarter, though this is an improvement from the 8-10% decline last year. This underperformance is attributed to a market shift towards value-added, protein-fortified, and chocolate variants, where Sundrop was late to innovate. The company holds 33% share in standard Peanut Butter but only 3% in value-added variants. The recovery strategy involves introducing new innovations (tastes, fortifications) and investing in the digital ecosystem to regain share, targeting strong double-digit growth and eventually natural market share.

The integration of Sundrop and Del Monte businesses is proceeding cautiously, with a focus on achieving synergies. Key initiatives include consolidating 8 out of 10 Del Monte CFAs by the end of the year and migrating to a single ERP system within the next 12 months. These efforts are projected to yield approximately 200 basis points of margin improvement over the next 18 months. The company targets an overall EBITDA margin of 12% within three years, supported by ESOP cost reduction (100 bps), scale benefits (100 bps), premiumization (80-100 bps annually), and ongoing synergies.