Zydus Wellness - Q2FY21 Result Update - ICICI Securities

Zydus Wellness (ZWL) reported mixed results with 9.3% growth in gross sales led by strong growth in Sugarfree, Nycli & revival in Everyuth. Net sales grew at slower 4.8%, mainly as GST related benefits for one of the plants expired in January 2020. Gross margins fell 300 bps, mainly due to expiry of GST benefits, utilisation of high priced milk inventory & 10% increase in palm oil prices. The company held high cost inventory of skimmed milk powder (SMP) in February-March. However, advertisement spends to sales & other overhead spends to sales were down 182 bps & 58 bps, respectively, which partially offset the contraction in gross margins. Operating margins contracted 142 bps to 7.9%. The company raised Rs. 650 crore through QIP for early re-payment of debt. ZWL redeemed non-convertible debentures (NCDs), which led to extraordinary spend of Rs. 98 crore as premium for early redemption. This led to net loss of Rs. 105 crore. Adjusting for extraordinary spend, loss was at Rs. 7.9 crore vs. Rs. 4.5 crore in corresponding quarter.

Valuation & Outlook

With the reduction of debt & margin improvement, the company would see strong earnings growth in FY20-23E. We expect 33% CAGR adjusted earnings growth in FY20-22E (FY20 base impacted by exceptional expense of Rs. 44 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 strong growth potential in categories through increasing penetration, new product launches & brand building. The stock is available at 24.9x FY23E earnings. We value the stock at 32x FY23E EPS and maintain BUY with a revised target price of Rs. 2300.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_ZydusWellness_Q2FY21.pdf

Shares of ZYDUS WELLNESS LTD. was last trading in BSE at Rs.1785.2 as compared to the previous close of Rs. 1870.75. The total number of shares traded during the day was 4219 in over 1258 trades.

The stock hit an intraday high of Rs. 1891.95 and intraday low of 1760. The net turnover during the day was Rs. 7642696.

Source : Equity Bulls

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