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Investment Rationale
Strong presence in niche segment: The Company has created niche
segment by introducing Sugar free sweetener for diabetes, Nutralite butter
for health conscious, EverYuth skin care and also created one more brand
named Actilife which is an adult’s drink. The company being a niche player
enjoys commendable market share and presence in the respective
category. We expect gross revenue register a growth of 17% and 20% in
FY13E and FY14E respectively.
Launch of value added products to widen consumer offering: Zydus
Wellness has launched extensions, variants, SKUs’ under the already
existing brands so as to fill the product gap, to enhance the wider offering;
thus, expanding the present loyal customer base to other product
categories. We believe that the company enjoys the premium position in
the niche segment and enjoys the first mover advantage in all the
categories. We also believe rising health awareness and the growing
number of people with diseases such as diabetes and blood pressure will
result in wider acceptance of such products thus; boosting revenues.
Expansion in distribution network to boost revenue: The success in the
consumer business is broadly dependent on the strong distribution
network. The company understands the necessity of strong distribution
network and on the same context is planning to increase its current 0.5mn
outlets to 1.5mn. The company is expected to use the distribution network
of its parent company (Cadila) to utilize the prescription route to promote
its products. We believe this will boost the revenues going forward.
Increase in Advertisement expenditure to improve volume growth: Zydus
has cut back its advertisement expenditure in FY12 as the rival companies
like HUL, J&J, etc had increased their advertisement expenses. This had led
Zydus to cut back their advertisement expenses which resulted into the
subdued performance in EverYuth. Management expects to revive the
falling volumes and register double digit growth as company resumes its
brand campaign n Q1FY13.
Debt free company: Zydus is a zero debt company and has cash reserve of
Rs. 132 crores on its books. The company is also open for inorganic growth
and is scouting for some viable options. We feel that with the zero debt and
sufficient cash on its books, the company can leverage the situation
without stretching its balance sheet.
Lower Effective Tax rate and Excise Duty: The company earlier used to go
for third party manufacturing. But recently the company has set-up a
facility in Sikkim in Q2FY12. As the company is expected to pay excise duty
in Sikkim, but collect the refund from the government in the next year, the
excise duty is likely to drop in the 2HFY13E.
Valuation & Recommendation
We initiate coverage on Zydus Wellness with a “BUY” rating with a price target
of Rs. 477 per share (25x FY13E), an upside of 28.6%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment Rationale
Strong presence in niche segment: The Company has created niche
segment by introducing Sugar free sweetener for diabetes, Nutralite butter
for health conscious, EverYuth skin care and also created one more brand
named Actilife which is an adult’s drink. The company being a niche player
enjoys commendable market share and presence in the respective
category. We expect gross revenue register a growth of 17% and 20% in
FY13E and FY14E respectively.
Launch of value added products to widen consumer offering: Zydus
Wellness has launched extensions, variants, SKUs’ under the already
existing brands so as to fill the product gap, to enhance the wider offering;
thus, expanding the present loyal customer base to other product
categories. We believe that the company enjoys the premium position in
the niche segment and enjoys the first mover advantage in all the
categories. We also believe rising health awareness and the growing
number of people with diseases such as diabetes and blood pressure will
result in wider acceptance of such products thus; boosting revenues.
Expansion in distribution network to boost revenue: The success in the
consumer business is broadly dependent on the strong distribution
network. The company understands the necessity of strong distribution
network and on the same context is planning to increase its current 0.5mn
outlets to 1.5mn. The company is expected to use the distribution network
of its parent company (Cadila) to utilize the prescription route to promote
its products. We believe this will boost the revenues going forward.
Increase in Advertisement expenditure to improve volume growth: Zydus
has cut back its advertisement expenditure in FY12 as the rival companies
like HUL, J&J, etc had increased their advertisement expenses. This had led
Zydus to cut back their advertisement expenses which resulted into the
subdued performance in EverYuth. Management expects to revive the
falling volumes and register double digit growth as company resumes its
brand campaign n Q1FY13.
Debt free company: Zydus is a zero debt company and has cash reserve of
Rs. 132 crores on its books. The company is also open for inorganic growth
and is scouting for some viable options. We feel that with the zero debt and
sufficient cash on its books, the company can leverage the situation
without stretching its balance sheet.
Lower Effective Tax rate and Excise Duty: The company earlier used to go
for third party manufacturing. But recently the company has set-up a
facility in Sikkim in Q2FY12. As the company is expected to pay excise duty
in Sikkim, but collect the refund from the government in the next year, the
excise duty is likely to drop in the 2HFY13E.
Valuation & Recommendation
We initiate coverage on Zydus Wellness with a “BUY” rating with a price target
of Rs. 477 per share (25x FY13E), an upside of 28.6%.
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