Zydus Wellness - Company Update - ICICI Securities

Zydus Wellness (ZWL) announced a Rs. 1100 crore fund raising with Rs. 350 crore infusion by promoter and Rs. 750 crore by QIB placement of equity/equivalent instruments. We believe the company would utilise funds to repay high cost debt of Rs. 1500 crore that was raised at the time of acquisition of the Heinz business. With equity infusion of Rs. 1100 crore, existing cash of Rs. 200 crore, FY21 earnings, ZWL would be able to repay almost entire debt by March 2021. This would result in saving of Rs. 140 crore interest cost. Assuming equity infusion at current price of Rs. 1650/share (given promoters have infused Rs. 350 crore at Rs. 1643/share), the equity dilution would be ~12%. The mere saving of interest cost would increase our FY22 EPS estimate by 21%.

Valuation & Outlook

With the reduction of debt, the company would see strong earnings growth in FY20-22E. We expect 51.7% CAGR adjusted earnings growth in FY20-22E (FY20 base was impacted by exceptional expense of Rs. 40 crore related to acquisition & earnings were also negatively impacted by Covid related disruption). Though return ratios would remain in single digits for the next three to four years, we see potential growth opportunities in its brand through increasing penetration & new launches (smaller SKUs & variants). The stock is available at 24.5x FY22E earnings. We value the stock at 35x FY22E EPS and maintain BUY rating with a revised target price of Rs. 2300.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_ZydusWellness_CoUpdate_Sep20.pdf

Shares of ZYDUS WELLNESS LTD. was last trading in BSE at Rs.1594.5 as compared to the previous close of Rs. 1621.1. The total number of shares traded during the day was 2308 in over 734 trades.

The stock hit an intraday high of Rs. 1620 and intraday low of 1581. The net turnover during the day was Rs. 3693959.

Source : Equity Bulls

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