Zydus Wellness Limited Study report

Zydus Wellness Limited, a subsidiary of the pharmaceutical company, Zydus Lifesciences formerly known as Cadila Healthcare is a leading consumer wellness company. The company enjoys a pan-India marketing presence through a distribution network which comprises of over 1,700 distributors and has five subsidiaries. Currently, the company has four manufacturing units: one each at Gujrat, Uttar Pradesh and two at Sikkim. Its distribution has been facilitated by investment in 24 integrated warehouses, which can serve both its cold chain and ambient range of brands. The product portfolio includes flagship brands like Sugar Free, Everyuth, Nutralite, Sugarlite and acquired brands like Glucon D, Complan, Nycil and Sampriti Ghee. In FY19, the company entered into a share purchase agreement jointly with Cadila Healthcare Limited to acquire 100% shareholding of Heinz India Private Limited (a subsidiary of Kraftz Heinz) for ₹4,667 cr. During the year, the company expanded its footprint in international markets such as Hongkong, Lebanon, Zimbabwe, Muscat, Ethiopia & Australia and launched new products under the sugar free category (Sugar free D’lite cookies and sugar free D’lite chocolate spread).

#SALES #GROWTH 5 Year CAGR: 22.5%

In FY24, sales increased by 3% YoY to ₹2,328 cr. Company observed a demand recovery across most of the product portfolios and was further fuelled by new launches. The food & nutrition segment continued to face demand pressures, while personal care segment observed a double-digit growth YoY Both Complan and sweeteners portfolio observed positive revival in demand. For Nutralite brand, value growth trails the volume growth due to market driven prices. Also, it witnessed uptick in the urban demand, supported by rural demand converging with that of urban. The international business reported double-digit growth during FY24, led by South Asia and GCC markets. In FY23, sales increased by 12% YoY to ₹2,255 cr, led by decent traction on the back of steady growth in Glucon-D, Everyuth and Nutralite, supported by new launches during the year. Volume growth for FY23 was ~5%. Glucon-D had the highest contribution in Q4 FY23 (seasonal brands).

#EBITDA #GROWTH 5 Year CAGR: 10.7%

In FY24, EBITDA declined by ~9% YoY to ₹308 cr. Company observed a YoY increase in the other expenses mainly on account of rising wages at Ahmedabad and Aligarh facility. Major expenses for the company during FY24 constituted cost of materials consumed 44%, other expenses 17% (majorly towards advertisement & marketing expense, power & fuel and labor charges) and A&P spends 13%. In FY23, EBITDA declined by ~2% YoY to ₹337 cr. Company observed decline in the same owing to an uptrend in key raw material prices.

#PAT #GROWTH 5 Year CAGR: 9.3% 

In FY24, PAT decreased by ~14% YoY to ₹267 cr, owing towards a decline in operating profit and rising financing costs due to increasing working capital loans. Also, it witnessed a significant rise in other income YoY which was largely towards interest income on financial assets. During the period, it incurred a one-time expenditure of ₹14 cr (in Q1 FY24) towards settlement and provision for inventory write off for its Sitarganj plant. Excluding the same, it de-grew by ~9% YoY. The company had tax benefits due to accumulated losses in tax book, section 80I benefit related to two of its manufacturing units in Sikkim and had MAT credits available to them. The benefit related to the same is expected to accrue until FY25. In FY23, PAT increased marginally by 0.5% YoY to ₹310 cr.

#EBITDA #MARGIN

In FY24, EBITDA margins contracted by 172 bps YoY to ~13%, mainly impacted due to unfavorable product mix. With calibrated price increases across portfolio and effective hedging strategy for key commodities, the company was able to improve gross margins YoY that was ploughed back into brand building as a result of which A&P expense rose by ~15% YoY. The major raw materials used by the company includes milk, DMH (dextrose monohydrate) and Aspartame (artificial sweetener used in variety of food applications). However, inflation moderated across raw materials both sequentially and YoY, including a cool off in the milk prices. Its distribution reach currently stands at ~6 lakh stores. In the near term, the company is expecting the EBITDA margins to improve on account of decreasing supply chain constraints, cost control measures and calibrated price hikes. In FY23, EBITDA margin contracted by 221 bps YoY to 15% mainly affected due to high inflation in key raw materials.

#PAT #MARGIN

In FY24, PAT margins contracted by 230 bps YoY to ~11%. There was an impact of exceptional item in the margins on a YoY basis. Excluding the same, PAT margin contracted by 169 bps YoY. In FY23, PAT margin contracted by 161 bps YoY to 14%.

Management outlook

Growth trajectory - ZWL intends to grow its revenue, which would be driven by new product developments, easing raw material prices, distribution expansion in India & abroad and via increasing its overall reach (direct and indirect) to 3 million outlets. It is also investing in capability building for the superior back end and customer engagement in the converging online and offline platforms of organized trade. • Raw materials - It witnessed softness across key ingredients during the year, including cool off in the milk prices. However, the company is vigilant on the prices and enters long-term contracts, wherever feasible to minimize the risk of fluctuations in the input prices, going forward. • International • Business - Sugar free and Complan constitutes ~80% of the overall international business. They launched new products expanding the Sugar free D’Lite and Complan portfolio. They further aim to achieve ~8%-10% of the total revenue in the next 4-5 years. It aims to build scale in international business by focusing on key regions like SAARC, MEA (Middle East Asia) and SEA (southeast Asia); entering new geographies and introducing suitable innovations and extensions to address the needs of international markets. E-commerce - It continued favorable growth, contributing ~8% of sales for FY24. Further, the company has a dedicated digital marketing team for the same which would help leverage changing shopper behavior by investing in building stronger presence and efficient spends on visibility and promotions. • The management guided that in FY25, the effective tax rate would be nil, post which they would be paying normal tax rates. • With positive indicators for the summer season and an anticipated normal monsoon, the company's seasonal portfolio is expected to perform well.

Zydus Wellness Limited 2000-2250
Expected level 2700
Support 1800

921🔥🔥

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AIRAN 30-42
Expected level 54
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