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High competitive pressure on the Everyuth brand, the cyclical
downturn in SugarFree’s revenues and higher raw material costs for
Nutralite have impacted Zydus Wellness’s performance over the past
two quarters. We, however, believe the strong long-term growth
potential is intact and view the correction in the stock price as an
attractive entry point. We maintain our Buy rating on the stock.
Higher competitive pressure on Everyuth. Everyuth continues to see
high competitive pressures from MNCs. HUL has raised media spend on
the face-wash and scrub categories, which account for larger part of
Everyuth’s revenues. Pressure also comes from other players, such as
Garnier and Nivea. This results in lower revenue growth for Everyuth.
SugarFree passing through a cyclical slow-growth patch.
Management indicated that the current slowdown in SugarFree’s revenues
is due to the four-quarter period of lower growth that SugarFree goes
through after every 3-4 years, and that structurally the brand has strong
long-term growth potential. Management also indicated that Zydus’
market leadership has risen from 84% a year ago to 89% now.
Nutralite margins to fall due to higher palm oil prices. As 75% of
the Nutralite business is institutional and has lower pricing power, the
company expects to continue to suffer on the margin front as palm oil
prices continue to rule higher due to rupee depreciation.
Excise duty to be lower from 2HFY13. As the company is required to
pay excise in Sikkim and then collect the refund from the Government in
the next year, the excise duty is likely to drop from the second year of
operations. We expect the lower excise duty to start from 2HFY13.
Valuation. We value the stock at a DCF-based price target of `690. (Implied
target PE of 30x FY13e earnings.) Risk. Higher competitive pressure.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
High competitive pressure on the Everyuth brand, the cyclical
downturn in SugarFree’s revenues and higher raw material costs for
Nutralite have impacted Zydus Wellness’s performance over the past
two quarters. We, however, believe the strong long-term growth
potential is intact and view the correction in the stock price as an
attractive entry point. We maintain our Buy rating on the stock.
Higher competitive pressure on Everyuth. Everyuth continues to see
high competitive pressures from MNCs. HUL has raised media spend on
the face-wash and scrub categories, which account for larger part of
Everyuth’s revenues. Pressure also comes from other players, such as
Garnier and Nivea. This results in lower revenue growth for Everyuth.
SugarFree passing through a cyclical slow-growth patch.
Management indicated that the current slowdown in SugarFree’s revenues
is due to the four-quarter period of lower growth that SugarFree goes
through after every 3-4 years, and that structurally the brand has strong
long-term growth potential. Management also indicated that Zydus’
market leadership has risen from 84% a year ago to 89% now.
Nutralite margins to fall due to higher palm oil prices. As 75% of
the Nutralite business is institutional and has lower pricing power, the
company expects to continue to suffer on the margin front as palm oil
prices continue to rule higher due to rupee depreciation.
Excise duty to be lower from 2HFY13. As the company is required to
pay excise in Sikkim and then collect the refund from the Government in
the next year, the excise duty is likely to drop from the second year of
operations. We expect the lower excise duty to start from 2HFY13.
Valuation. We value the stock at a DCF-based price target of `690. (Implied
target PE of 30x FY13e earnings.) Risk. Higher competitive pressure.
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