Zydus Wellness, Q3FY12 – Sales decline continues, lower expenses expands margins • GEPL

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Q3FY12 – Sales decline continues, lower expenses expands margins
• Zydus Wellness reported net sales at `510 mn, down 43.8% Y-o-Y resulting from decline in
Everyouth brand due to intense competition.
• EBIDTA declined by 29.9% Y-o-Y at `199 mn. EBITDA margins expanded 808bps Y-o-Y to 39%.
• Ad Spends were `2 mn as against `6 mn in Q3FY11 and `132 mn in Q2FY12.
• Other expenditure and Staff cost declined by 52.6% (down 319bps) Y-o-Y and 29.9% (up 90bps)
Y-o-Y respectively in Q3FY12.
• PAT decreased by 4.7% Y-o-Y to `186 mn as against `196 mn in Q3FY11. PAT margins expanded
by 15% points Y-o-Y to 36.5% in Q3FY12 as against 12.5% in Q3FY11 resulting from lower
expenditure
Result Highlights
Sales decline continues
Sales growth reported decline of 44% Y-o-Y on the back of de-growth in Everyouth (face-washes and
scrubs) brand. Sugarfree and Nutralite have recorded single digit growth during the quarter. High
competitive intensity in the category has resulted in de-growth in Everyouth brand. Management is
confident about double digit growth as company resumes its brand campaign again in Q4FY12.
Margins expand as expenses declines
EBIDTA declined by 29.9% Y-o-Y at `199 mn. EBITDA margins expanded 808bps Y-o-Y to 39%. The
company has withdrawn its brand campaign / communication during the quarter due to very high
competition resulting very low return on ad spends. Ad Spends were `2 mn as against `6 mn in
Q3FY11 and `132 mn in Q2FY12. Other expenditure and Staff cost declined by 52.6 % (down
319bps) Y-o-Y and 29.9% (up 90bps) Y-o-Y respectively in Q3FY12. This resulted in EBITDA margin
expansion of 808bps to 39% in Q3FY12.
High other income boosted PAT growth
PAT decreased by 4.7% Y-o-Y to `186 mn as against `196 mn in Q3FY11. PAT margins expanded by
15% points Y-o-Y to 36.5% in Q3FY12 as against 12.5% in Q3FY11. Low tax rate (13.3% vs 33.2% in
Q3FY11) has helped to push up the PAT margins to 36.5%.
Valuation & Viewpoint
Though Zydus wellness has strong brands like Everyouth, Sugarfree and Nutralite in niche segments
on health and wellness platform. The recent decline in earnings is concern even though
management is confident of double digit growth rate with reintroduction of brand campaign in
Q4FY12.