Zydus Wellness Ltd. share price target

Zydus Wellness well poised to outperform

Zydus Wellness Ltd (ZWL) revenue increased by ~5% YoY, higher than our estimates

New launches, increase in direct distribution to propel growth The company has been specifically focusing on increasing direct distribution from 0.35 million (mn) outlets to 0.5 mn outlets by March 2021. Further, e-commerce channel sales have seen growth of 130% in Q2. It is contributing 4.5% to sales. ZWL is also leveraging its strong footing with doctor's advisory & pharmacy channel. We believe the company is focusing on new product launches, variants & SKUs to fill the white spaces in its product line. It launched Complan in 75 gram sachet at | 30. It has...

With a three-pillar strategy, ZWL is strongly placed to achieve earnings CAGR of 27% over FY2020-23. We stick to our Buy rating with unchanged PT of Rs. 2,300. Zydus Wellness Limited's (ZWL's) revenue grew by 5% y-o-y to Rs. 342 crore, almost in line with our expectation of Rs. 336.5 crore driven by leadership position and market share gains across key categories. High input prices (palm oil prices increased by ~30%) led to a 301 bps decline in gross margins to 53.7%. In spite of this, OPM fell by 141 bps to 7.9%, largely due to lower advertisement costs and other expenditure. Operating profit declined by 10.9% y-o-y to Rs. 27.1 crore due to lower operating leverage. Pre-tax...

Zydus Wellness Ltd (ZWL) is one of the leading Indian consumer wellness players with a strong presence in its niche markets.

With the reduction of debt, the company would see strong earnings growth in FY20-22E. We expect 51.7% CAGR adjusted earnings growth in FY20-22E (FY20 base was impacted by exceptional expense of | 40 crore related to acquisition & earnings were also negatively impacted by Covid related disruption). Though return ratios would remain in single digits for the next three to four years, we see potential growth opportunities in its brand through increasing penetration & new launches (smaller SKUs & variants). The stock is available at 24.5x FY22E earnings. We value the stock at 35x...

New product, variants launch to drive revenues During this disruptive phase, many FMCG companies are introducing new products & trying to leverage the health, hygiene & immunity boosting proposition. ZWL also launched various new products in Q1. The company has been trying to fill the gaps in its malt beverage portfolio by introducing toddler health drink Complan Nutrigro' and 75 gm Complan sachet. Further, it has launched Glucon-D Immuno volts, which would be marketed as an immunity boosting brand. The company is looking to grow sales in the...

Strong acquired brands; enhanced distribution to aid sales After the acquisition of Heinz, ZWL now has five brands (Sugarfree, Everyuth, Glucon D, Complan, Nycil) in different categories with strong recall value. It would look to double the direct distribution reach in general trade & further enhance its chemist channel. It has a presence in 75% of 5 lakh chemists in India. Further, ZWL has enhanced its e-commerce capabilities by investing in channel early. It is driving 3-3.5% of its sales from ecommerce channel from 1% earlier. We also believe it would be able to leverage its strong relations with medical practitioner to grow Complan...

View: Upgraded to Buy with a revised PT of Rs. 1,520: We have reduced our earnings estimates for FY2021 and FY2022 by 10% and 6%, respectively, to factor in the impact of supply disruption due to the lockdown. With the acquisition of Heinz product portfolio, ZWL has a strong portfolio of brands, which it can leverage upon to improve its market share through new launches supported by enhancing distribution reach. Further, strong cash flows along with relatively stable balance sheet provide support to overall growth prospects. The stock has corrected by 17% in the past five months and is currently trading at 38.5x its FY2022E earnings,...