Zydus Wellness : Target 650 :: Anand Rathi

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Zydus Wellness                                                      CMP  352                                                              Target  650

Investment Rationale

~ Concentrating on niche segments & attaining competitive position

~ Sub-segmentation strategy for major brands an advantage

~ Momentum in product launches

~ Expansion on distribution front going forward to boost revenue

~ Debt free company with good amount of cash and cash equivalents on books

~ Supportive industry scenario

The Business

Zydus Wellness is a 73% subsidiary of Cadilla Healthcare, which is one of the pharma majors in India. Zydus’ market leadership has risen from 84% a year ago to 89% now.

Their brands include

-           Nutralite, which is a table margarine;

-           Sugar Free, which is a low calorie sweetener,

-           EverYuth, which includes skincare products.

It is the market leader in the low-fat margarine and low-calorie sweetener segments in India. It has strong presence in skin care as well. They sell their products in India. They have a plant located in Gujarat.

~ Valuation

The company has shown top line growth of CAGR of 63% mainly due to acquisitions for last 5 years and bottom line growth of 89% for the same period. The company is also enjoying lower tax rate due to production in tax –exempt locations.

Looking at the company’s performance and continuous increasing of dividend payout and considering the good long term prospects of the company, it trades at 19.5x and 15.5x for FY12E and FY13E earnings respectively.

Also there has been change in the management of the company with new Managing Director, Mr. Elkana Ezekiel, who has 24 years of experience in the consumer goods industry has joined the company which may bring in some positive changes.

We suggest to BUY the stock for a target of 650 for 24 months time frame.