Zydus Wellness soared 6% after reporting June quarter results with double digit bottom-line growth inspite of Covid headwinds. Established in 1988, the firm is a leading consumer wellness company powered by brands like Complan, Sugar Free, Glucon-D, Everyuth, Nycil, Sugarlite and Nutralite. Headquartered in Ahmedabad and Mumbai, Zydus has 5 manufacturing facilities across Aligarh, Sitarganj, Ahmedabad and Sikkim.

With the vision to create products to nourish, nurture and energise, Zydus is ready to move to the next level with its differentiated product portfolio, successful integration of the Heinz portfolio and driving innovation in Covid times.

Quick Takes

• Zydus Wellness soared 6% after reporting June quarter results with double digit bottom-line growth inspite of Covid headwinds.
• Revival of growth was also aided by softening of key raw material prices, especially milk which was down 35-40% during the quarter.
• Zydus Wellness known for its niche portfolio also went through the churn, looing sales of about Rs. 100 crore in the last 10 days of March quarter FY20.
• The company acquired Nycil, Glucon D and Complan through its acquisition of Heinz India in January 2019.
• Zydus has launched new products including Nycil hand sanitizers, Complan Nutrigro, Nutralite Choco Spread and Glucon-D Immuno Volts during Covid times.

June Quarter FY21 saw profits rise on cost controls

Zydus Wellness reported revenue de-growth of 13% YoY in Q1 FY21 as COVID-19 pandemic impacted operations in early part of June quarter. Revenue from operations stood at Rs. 537 crore in June quarter FY21 compared to Rs. 620 crore same period previous year. Operational profit was on a flattish terrain with just 0.3% growth reported at Rs. 122.3 crore in Q1 FY21. Operating profit margin expanded 310 bps reported at 22.8% in June quarter FY21 against 19.7% corresponding quarter previous year. PAT jumped 11% YoY due to better cost control and was reported at Rs. 89.2 crore in June quarter FY21 compared to Rs. 80.4 crore same period previous despite lower sales.

Coping with Covid 

Healthcare and food and beverages account for 31% and 19% respectively of the Indian FMCG sector, which is the fourth largest in the Indian economy. After reporting strong and stable growth in 2019, the first two months of 2020 moved at high single digits before getting hampered by Covid and lockdowns in March. Zydus Wellness also went through the churn, losing sales of about Rs. 100 crore in the last 10 days of March quarter FY20.

But even within the Covid turmoil, revenue increased 17% YoY and net profit jumped 11% YoY in Q4 FY20. Entering the June quarter, supply disruptions continued and production facilities were closed till mid-April impacting April revenues, and Mr. Sharvil Patel, Chairman, Zydus Wellness, said, “While the sales for the month of April 20 was impacted due to the COVID situation, the month of May saw a revival of sales growth followed by double digit growth in June”. Revival of growth was also aided by softening of key raw material prices, especially milk which was down 35-40% during the quarter.

Zydus' Heinz Acquisition

Sugar Free launched in 1988 and Everyuth in 1991 was carved out from Cadila Healthcare to form Zydus Wellness in 2009. Innovation driven, Zydus, with its niche portfolio of Sugar Free, Everyuth and Nutralite, a butter substitute, had been growing in single digits before hitting the jackpot with the acquisition of Heinz products.

Along with augmenting its distribution network, enhancing market valuation and enlarging revenue base, Zydus' product portfolio was expanded with the acquisition of power brands, Glucon D with 59% market share and a 40 year old legacy, another market leader Nycil with 34% market share, a heritage brand of 65 years and Complan. Highly dependent on Sugar Free with high market share but low growth opportunities and EverYuth and Nutralite facing high competitive intensity, Zydus Wellness refuelled its growth engine through acquisition of Heinz India in a Rs. 4600 crore deal in January 2019.

Coming to June performance of its power brands, starting with Glucon D with 59% market share and 98% brand recall, highly dependent on summer season was adversely impacted by Covid lockdown followed by cyclone Amphan and early monsoon. Next in line, Complan after losing market share in the initial first 6 months of acquisition, has recovered and is on a stable platform presently. In fact, the management expects a 50-100 bps increase in market share in the next 12 months.

The management also aims to take Complan back to its earlier double-digit peak of 10-11% market share from the current 5.4% in June quarter FY21. For Sugar Free, India’s 1^st low calorie sugar substitute with its differentiated portfolio of Green, Natura and Gold variants, June quarterly performance has been strong despite Covid headwinds partly due to pantry loading and partly as a consequence of fundamental shift towards low calorie health conscious consumption habits. 

Moving to the market leader, Nycil, discretionary in nature, operating in personal care space witnessed substantial reduction in off take during the lockdown period. Demand was revived in June supported by digital marketing initiatives to sustain its concentration even during lockdown period. And Nutralite, mainly catering to institutional clients and relying on HoReCa (hotel, restaurant and catering) food service has been severely impacted by Covid disruption witnessing demand destruction. EverYuth too in discretionary personal space with 6% market share has also witnessed demand decline.

Refuelling its Growth Engine

Even though Zydus is the market leader in 4 out of its 7 product categories, products such as Glucon D and Nycil are dependent on summer intensity while EverYouth, Nutralite and Complan are discretionary in nature. To battle out demand decline, changing consumer preferences and high competitive intensity in the present volatile Covid times, Zydus needs to further diversify its product basket, refuel its innovation engine and re-draw strategies adapting to current disrupted landscape.

The company is already on the move with the launch of Sugar free green in a new formulation and improved taste, launching Nycil hand sanitizers, entered toddler’s health food green segment by launching Complan Nutrigro, launching 75 gram Complan sachets to participate in the lower income segment, expanding Nutralite product basket by launching Nutralite Choco Spread in two flavors and lastly  rolling out Glucon-D Immuno Volts, tasty energy bites fortified with Vitamin C, Vitamin D, Zinc and Glucose. The company is following an interesting strategy: innovate itself out of the impact of the pandemic.