The current market price of Zydus Wellness is Rs 1,314.10.
Time period given by the brokerage is one year when Zydus Wellness price can reach the defined target.
Investment rationale by the brokerage-
Revenue grew by nearly 10 per cent; margin improved YoY: In Q3FY2019, net revenue of Zydus Wellness grew by 9.8 per cent to Rs 145.4 crore, (in line with our expectation of Rs 149 crore), which was entirely driven by volume growth of 10 per cent.. Most brands including Sugar Free and Everyuth Peel Off Mask and Scrub maintained their leadership position in key categories. New products launched in the last one year contributed 5 per cent to Q3FY2019 turnover. Gross margin was flat YoY at 68 per cent. Operating margin (OPM) improved by 86 bps to 25.9 per cent mainly as other expenditure declined. However the rise in OPM lagged our expectation of 26.8 per cent largely on account of higher advertisement spends during the quarter. Operating profit increased by 13.6 per cent to Rs 37.7 crore. An 18 per cent YoY rise in other income and flat depreciation helped adjusted profit after tax (PAT) rise 10 per cent to Rs 40.4 crore, in line with our expectation.
Core brands continue to perform well; maintain leadership position in key categories: Sugar Free maintained its leading position with a market share of 93.9 per cent (sugar substitute category grew by 0.6 per cent YTD). In line with its strategy of expanding the product portfolio, Zydus launched Sugarlite during the quarter, a 100 per cent natural blended sugar variant, which has 50 per cent less calories than normal sugar. Everyuth portfolio grew in double digits during the quarter. Everyuth Peel Off Mask (YTD category growth stands at 19.7 per cent) and Everyuth Scrub (YTD category growth stands at 17.7 per cent) continue to lead their categories with market shares of 84.9 per cent and 32.5 per cent (up 30 bps YoY), respectively. Nutralite reported a strong rise in volumes, led by higher institutional sales. Zydus continues to expand its international presence by exporting Everyuth products in new markets such as United Arab Emirates (UAE), Bahrain, Qatar and Oman.
Heinz India acquisition will enhance portfolio; retain Buy: We have fine-tuned our earnings estimates for FY2019, FY2020 and FY2021 to factor in lower operating margins which will be offset by lower tax rate. Acquisition of Heinz India’s food business adds quality brands to the company’s portfolio and improves long-term growth prospects. The management is confident of driving synergies from Heinz India acquisition, which will give positive results in the form of better margins and higher cash flows over the medium term. However, the smooth integration of Heinz India will be keenly monitored in the near term. The stock is currently trading at 24.2x its FY2021E earnings. We maintain our Buy recommendation on the stock with an unchanged price target of Rs 1,472.