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Thursday, August 20, 2009

Zydus Wellness Ltd:Future growth prospects and outlook

Scripscan:Zydus Wellness Ltd

Story:ZWL’s 3 branded products – Nutralite, Sugar Free and EevrYuth are solely owned by them. Nutralite is the only product manufactured in-house and the technology for the same is developed in-house itself. This results in no royalty outflow. ZWL
spends huge sums on building brand image of its products and this has resulted in it being one of the market leaders across all its products.Post the restructuring,Cadila’s CPD has been included under ZWL’s umbrella and this increases the scale ofoperations for the latter. This could lead to robust growth in revenues and thereby aid in attracting large number of investors. It would also facilitate alignment of assets so as to accelerate the consumer business. ZWL has cash surplus of Rs.15.3 cr prior to restructuring. Post restructuring with the assets and liabilities of CPD of Cadila being added this would generate free cash flow for ZWL, which could help in future expansions.ZWL is a large FMCG stock, which has performed well over the last few years. Its recent results showed a markedimprovement at the topline and bottomline. But this is due to the restructuring and inclusion of the business of Sugar Free and EverYuth in ZWL. Going forward, the revenues and profits are set to improve thereby making the stock available at decent valuations.I believe the ZWL’s brands could continue to be market leaders and outperform its competitors in various product categories.ZWL is a market leader across all its products and being a large FMCG stock is available at expensive valuations.I believe, the OPMs of ZWL could improve from 11.4% in FY08 to 17.1% in FY10 and ZWL could witness PAT growing at a CAGR of 136% over FY08-10 to Rs.26 cr (largely due to restructuring). At the CMP of Rs.170, the stock is trading at 23 x FY10(E) EPS.One can look at investing in ZWL in the 120-130 zone.

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