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Please refer to important disclosures at the end of this report
Market Cap Rs99bn/US$1.3bn Year to March FY19 FY20 FY21E FY22E
Reuters/Bloomberg ZYDS.BO/ZYWL IN Net Revenue (Rs mn) 8,428 17,668 18,039 20,058
Shares Outstanding (mn) 57.7 Net Profit (Rs mn) 1,796 1,859 2,637 3,806
52-week Range (Rs) 1904/1188 Dil. EPS (Rs) 31.1 32.2 41.0 59.2
Free Float (%) 32.1 % Chg YoY (9.1) 3.5 27.1 44.3
FII (%) 16.9 P/E (x) 55.0 53.2 41.8 29.0
Daily Volume (US$'000) 1,182 CEPS (Rs) 31.5 29.2 45.2 63.4
Absolute Return 3m (%) 34.1 EV/EBITDA (x) 49.2 28.3 28.2 25.0
Absolute Return 12m (%) 0.8 Dividend Yield (%) 0.3 0.3 0.6 0.8
Sensex Return 3m (%) 6.9 RoCE (%) 6.2 6.0 6.8 7.7
Sensex Return 12m (%) (2.6) RoE (%) 8.8 5.4 6.4 7.8
Equity Research September 24, 2020
BSE Sensex: 37668
ICICI Securities Limited is the author and distributor of this report
Initiating coverage
Consumer
Target price: Rs2,500
Shareholding pattern
Dec ‘19
Mar ‘20
Jun ‘20
Promoters 67.6 67.8 67.9 Institutional investors 24.9 24.8 24.4 MFs and other 3.2 3.7 3.9 Banks/FIs 2.7 3.0 3.6 FIIs 19.0 18.1 16.9 Others 7.5 7.4 7.7
Source: BSE
Price chart
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Zydus Wellness BUY
Leadership in niche categories; initiate at BUY Rs1,714
Research Analysts:
Manoj Menon [email protected]
+91 22 6637 7209
Vismaya Agarwal, CFA [email protected]
+91 22 2277 7632
Karan Bhuwania [email protected]
+91 22 6637 7351
INDIA
We believe the acquisition of Heinz India business is transformational for Zydus
Wellness. The timing of the acquisition and the completion of integration could
not have been better, in our view, given the increased consumer focus on health
and wellness – likely accelerated consumer adoption of >70% of the portfolio
(Sugar Free, Glucon-D, Nutralite and Complan). We especially like the new
product development strategy aimed to address some key challenges – SugarLite
to address the taste penalty, Sugar Free Green is a natural product, Complan
Nutrigro to regain lost medical connect of the brand. Potential deleveraging is
likely to drive FCF generation faster. We initiate coverage with a BUY rating and
DCF-based target price of Rs2,500 (implied P/E of 42xFY22e).
Synergies from the integration of Heinz India business: We expect Zydus’
acquisition of Heinz India’s business to be value accretive driven by (1) Significant
scale advantages in both distribution network and media buying (Heinz business
revenue was Rs11bn and Zydus’ core business revenue was Rs5bn), (2) Cross
leveraging the distribution strength (using Chemist channel strength to accelerate
growth in Complan and Glucon-D) and (3) accelerate new product launches.
Consumer focus on health and wellness a tailwind for ~70% of the business:
The current pandemic, in our view, will result in faster adoption of health and
wellness products. We note >70% of Zydus’ portfolio stands to benefit from this
trend. We see benefits to (1) Sugar Free (for both health conscious consumers as
well as diabetics who are more aware of the risk from comorbidities), (2) Glucon-D
(innovation around immunity boosting), (3) Nutralite (providing a low-calorie
alternative to spreads) and (4) Complan (needs to gain market share).
New product development to be a key growth driver: We like Zydus’ focus on
new product development as a key growth driver across its portfolio. The company
has been on a spree of innovations over the past two years. SugarLite (healthier
sugar substitute, reduces the taste penalty), Sugar Free Green (relaunch in a
completely natural format), Complan Nutrigro (launched through pharmacy and
doctor recommendation – to regain the lost medical connect of the brand) and
Complan 75gm sachets (increase brand penetration) are some of the key launches.
Valuations and risks: We model revenue / EBITDA / PAT CAGR of 7% / 12% /
43% over FY20-22E – net profit to grow ahead of revenue and EBITDA driven by
deleveraging of balance sheet. Initiate at BUY with a DCF-based target price of
Rs2,500. At our target price, the stock will trade at 42x P/E multiple March-22E. Key
downside risks are delays or failures in new product development or an inability to
expand distribution network.
Zydus Wellness, September 24, 2020 ICICI Securities
2
TABLE OF CONTENT
Synergies from the integration of Heinz India business ............................................. 3
Health and wellness focus by consumers to accelerate growth for 70%+ portfolio 5
Leadership position in niche personal care categories ............................................ 10
New product development to improve penetration and recruit new customers ..... 12
Financial performance, assumptions, estimates........................................................ 14
Historical financial snapshot (10-year history) ........................................................... 18
Valuations and risks ...................................................................................................... 19
DCF assumptions .......................................................................................................... 19
Relative valuation .......................................................................................................... 21
Risks ................................................................................................................................ 22
Company description .................................................................................................... 23
Category and brand size ............................................................................................... 23
Management team ........................................................................................................ 24
Shareholding pattern ..................................................................................................... 25
Financials ........................................................................................................................ 26
Index of tables and charts ............................................................................................. 31
Zydus Wellness, September 24, 2020 ICICI Securities
3
Synergies from the integration of Heinz India business
Zydus Wellness acquired Heinz India’s consumer business in January 2019, giving it
ownership of popular brands like Glucon-D, Complan and Nycil. The acquisition also
resulted in the transfer of two large manufacturing facilities (one in Aligarh and one in
Sitarganj), teams (operations, research, sales, marketing and support) and a network
of more than 800 distributors and 20,000 wholesalers in 29 states.
The acquisition cost of Rs46.7bn was funded through a mix of debt and equity. The
company raised Rs25.8bn by issuing 186mn shares on a preferential basis to Cadila
Healthcare (Rs11.8bn), Zydus Family Trust (Rs3.0bn), True North (Rs10.0bn) and
Pioneer Investment Fund (Rs1.0bn). This fresh issue was done at a share price of
Rs1,382. At the same time, Zydus also raised debt of Rs15.0bn by issuing 9.14%
secured, redeemable NCDs. The remaining funding was through internal cash.
Table 1: Source of funds for acquisition of Heinz India’s consumer business
Investor Source of funds Investment (Rs bn) % of acquisition cost
Cadila Healthcare Ltd. Equity 11.75 25
Zydus Family Trust Equity 3.00 6
True North Equity 10.00 21
Pioneer Investment Fund Equity 1.00 2
9.14% secured, Redeemable NCDs Debt 15.00 32
NA Internal Cash 5.95 13
Source: Company Data, I-Sec research
Integration of both businesses
Zydus has been successful in completing the integration of the two businesses and
bringing out synergies to the fore. The entire integration process was set around three
key transformations – sales, supply chain and IT systems.
Sales & distribution: The company embarked on a project to integrate the two
separate sales organisations (Project Udaan). Zydus Wellness has also rationalised its
distribution network, while at the same time expanded the reach. Zydus has increased
its direct reach to 0.3mn outlets and aims to increase it to 0.5mn by FY2021-end.
Supply chain: The company is also focused on improving the supply chain efficiency
during business integration. Due to the acquisition, the company’s carry and forward
agent (CFA) network increased to 65 (26 existing CFA, 19 acquired CFA and 20 cold
chain). In order to reduce logistics cost and streamline supply chain, Zydus reduced
this count to 23 CFAs.
Zydus Wellness, September 24, 2020 ICICI Securities
4
Chart 1: Supply chain integration
26 Existing
Integrated Network
of 23 CFAs19 Acquired
20 Cold Chain
Networks as on Jun-Jul 2019 Networks as on Dec 2019
Am
bie
nt
Source: Company data, I-Sec research
Technology: Zydus has also completed the integration of digital infrastructure –
migrating all applications to Zydus Wellness systems. The company also implemented
SAP S4/HANA installation in 132 days, one of the fastest implementations in the
industry. Distributor management systems, vendor management and reverse auction
platforms have also been synced with the new systems – laying the groundwork to
become a much larger organisation, in our view.
Synergy benefits
We believe that the company has completed the groundwork for setting up the
combined entity towards accelerated growth trajectory. We believe that the acquisition
is value accretive for Zydus driven by:
Significant scale advantages in both distribution network and media buying: At
the time of acquisition, Zydus’ core business had revenue of Rs5bn while Heinz India
business (acquired) had revenue of Rs11bn. We believe that this acquisition of a
business double the size of the core, provides Zydus with significant economies of
scale. These benefits include better bargaining power with the distribution network as
well as more savings in media buying.
Cross leveraging the distribution strength: Zydus, given its healthcare/pharma
background (promoter company, Cadila Healthcare, is a Rs386bn market cap
healthcare company), has a strong chemist connect. We believe that this is likely to
help the company accelerate the growth for the acquired brands like Complan and
Glucon-D. The company has already started working towards leveraging this, by the
launch of Complan Nutrigro. This product is focused on the pharmacy and doctor
recommendation channel and is aimed to help Complan (the core brand) regain its lost
medical connect, in our opinion.
Accelerate new product launches: Greater scale, larger distribution network and an
enhanced budget for ad-spends, in our opinion, will allow Zydus to accelerate its new
product launches. We note that the company has already stepped up its new product
launches in 2020 so far (discussed in detail later).
Zydus Wellness, September 24, 2020 ICICI Securities
5
Health and wellness focus by consumers to accelerate growth for 70%+ portfolio
The current pandemic, in our view, will result in a significant acceleration in the
adoption of health and wellness products given the greater awareness and willingness
of consumers. We note >70% of Zydus’ portfolio stands to benefit from this trend.
Chart 2: Brand-wise revenue contribution (FY20)
Sugar Free19.9%
Everyuth10.8%
Nutralite2.5%
Glucon D27.2%
Complan21.8%
Nycil14.4%
Sampriti Ghee3.4%
Source: Company data, I-Sec research
Sugar Free growth to be supported by innovation and higher health
consciousness among consumers
India has the second largest population of diabetics in the world (77 mn); China has
116mn diabetics. This translates into almost 17% share of world diabetic population
from India. According to International Diabetes Foundation (IDF), this number is likely
to increase to 136mn of diabetics in India, contributing ~20% to global diabetic
population by 2045. We believe with rising incidences of health-related diseases,
along with greater consumer awareness (accelerated due to the ongoing pandemic
and the risk from comorbidities), artificial sweetener category growth should accelerate
beyond the ~10% CAGR being reported over the past few years.
Having said that, the biggest challenges for Zydus, in our opinion, in terms of growing
the category have been: (1) Taste penalty in artificial sweeteners and (2) need to
recruit the consumer at the time of diagnosis of diabetes.
Taste penalty is basically the slight after-taste that a consumer of artificial sweetener is
left with. This impedes the adoption of the product by health conscious consumers
who are not diabetic. We believe the company has (somewhat) found a solution to this
in the product ‘Sugar Lite’. This product addresses the taste concern and hence, could
be a growth driver for health conscious consumers. Zydus launched a campaign
‘Sugar Badlo Health Badlo’ (change your sugar, improve your health) to drive growth
in FY20.
Zydus Wellness, September 24, 2020 ICICI Securities
6
The other challenge, of recruiting the diabetic at the time of it being diagnosed,
remains a concern in our opinion. The company, even with its doctor and
pharmaceutical connect through Cadila (another promoter company), has so far been
unable to find an answer for this. Any potential solution to this could be a significant
growth driver for the Sugar Free brand.
Chart 3: Revenue and growth rates – Sugar Free
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Source: Company data, I-Sec research
Complan to benefit from market expansion and increasing penetration
The brand was unable to adjust to competition over the past five years with Heinz,
losing market share to 5% from 15% earlier. We believe the brand frequently changed
the proposition and lost the differentiation to other brands. This resulted in the
premium over Horlicks reducing to 20-25% now versus over 50% earlier.
Chart 4: Complan premium pricing
350
403
458
498
560
1,3
00
1,3
20
-
200
400
600
800
1,000
1,200
1,400
Am
ul P
ro
Bo
urn
vita
Horlic
ks
Bo
ost
Com
pla
n
Pe
dia
sure
Pro
tein
X
(Rs / k
g)
Source: Company data, I-Sec research
Complan is the only brand at Zydus where they are not in the leading position and
hence, requires gaining share and not just market development.
Zydus Wellness, September 24, 2020 ICICI Securities
7
Complan’s penetration at 12% is significantly lower than the 24% penetration for the
category. We believe the management has started addressing this issue through the
introduction of 75gm sachets (@Rs30). This is likely to drive new customer
recruitment.
The brand remains over-indexed in West Bengal and Tamil Nadu and therefore, Zydus
needs to expand the distribution in North and West.
The other key growth driver, in our view, will be from the market development activities
that will be done by HUL for Horlicks brand. We believe HUL will significantly drive
penetration through sachets and this opens up an opportunity for Complan as well.
Chart 5: Health Food Drinks industry size
6873
77
100-105
FY17 FY20P FY21E FY25E
(Rs b
n)
Source: Company data, I-Sec research
Chart 6: Revenue and growth rates – Complan
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1,000
2,000
3,000
4,000
5,000
6,000
FY19 FY20 FY21E FY22E FY23E
(%)
(Rs m
n)
Revenue Growth - RHS
Source: Company data, I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
8
Glucon-D growth to be driven by innovation
Glucose powder category has been one of the fastest growing categories for Zydus
where it has 59% market share. Glucon-D is positioned as an energy booster with
different variants covering the need for different vitamins.
We expect the brand to continue to grow in double digits, helped by introduction of
new variants (Immuno Volt), increased brand investment along with mass media
support and competitive trade offers (a key to win in the category).
Chart 7: Glucose powder industry size
7.2
9.8
7.1
16-17
FY17 FY20P FY21E FY25E
(Rs b
n)
Source: Company data, I-Sec research
We estimate a significant impact on Glucon-D brand’s performance in FY21 as
summer season forms a significant portion of revenues.
Chart 8: Revenue and growth rates – Glucon-D
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1,000
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7,000
FY19 FY20 FY21E FY22E FY23E
(%)
(Rs m
n)
Revenue Growth - RHS
Source: Company data, I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
9
Nutralite’s biggest challenge is to reduce dependence on B2B channel
Nutralite is a leading margarine brand in India – cholesterol free and a butter
substitute. The product also does not have trans fats and is fortified with Omega 3 and
Vitamin A, D & E.
Zydus has also introduced low calorie mayonnaise and choco spreads under the
brand, extending its health proposition and aiming to gain a larger share of the
breakfast table. Although currently a small contributor to Zydus (2% revenue
contribution), we expect the brand to benefit from these extensions.
A challenge, however, for Zydus, has been to reduce the dependence on the
institutional channel and thereby, lower the volatility in the business – we have seen
the brand getting impacted by disruptions in B2B segment.
Chart 9: Revenue and growth rates – Nutralite
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Revenue Growth - RHS
Source: Company data, I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
10
Leadership position in niche personal care categories
Although personal care categories have been under pressure in the current pandemic,
we expect the performance to improve in FY22.
Nycil to benefit from growing functional talc category
In talcs, functional talc segment has grown at a faster pace over the past few years,
while sensorial talc category has been under pressure (likely consumer upgrades to
deodorants).
Nycil is the market leader in the prickly heat powder category with 34% market share.
The brand is significantly ahead of competition and continues to grow backed by
investment in mass media. We, however, estimate significant impact on Nycil’s
performance in FY21 as summer season forms a significant portion of revenues.
FY21 also witnessed the first ever brand extension for Nycil, with the launch of
sanitisers in the pandemic.
Chart 10: Revenue and growth rates – Nycil
0
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500
1,000
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FY19 FY20 FY21E FY22E FY23E(%
)
(Rs m
n)
Revenue Growth - RHS
Source: Company data, I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
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Everyuth
Everyuth brand is positioned as a skin care range especially meant for face with
solutions for a healthy skin. The brand is positioned as a ‘Naturals’ play and hence,
has grown at 14% CAGR over the past two years – benefiting from the popularity of
natural brands.
The brand remains a market leader in scrubs (33% share) and peel-offs (78% share)
and is likely to continue its strong growth performance, backed by media campaigns,
consumer offers and on-ground promotions.
Chart 11: Revenue and growth rates – Everyuth
0
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Source: Company data, I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
12
New product development to improve penetration and recruit new customers
We especially like Zydus’ focus on new product development as a key growth driver
across its portfolio. The company has been on a spree of innovations over the past
two years. We list down the key launches, in our view, and the potential benefits from
them.
SugarLite – Significantly reduces the taste penalty in using a healthier sugar
substitute and hence, in our opinion, will increase adoption of the product.
Sugar Free Green – Relaunch of the product in a completely natural format (made
using stevia extract) is likely to mitigate any risk perception on the brand.
Complan Nutrigro – Launched through the pharmacy and doctor recommendation
channel, this product is aimed to help Complan regain its lost medical connect. We
believe the company’s 300 strong medical representative team will help increase the
adoption of this product.
Complan 75gm sachets – We believe this new SKU launch will help Complan
increase penetration of the brand, closer to the category penetration of 24% vs the
brand’s penetration at (only) 12%. Sachets are one sub-segment where Complan was
not participating and hence, losing share in new customer recruitments.
Nutralite Mayonnaise and Choco spread – These launches aim at increasing the
share of Nutralite brand at the breakfast table. These two products provide consumer
with healthier, less calorie replacements of spreads and hence, could see acceleration
in adoption given the currently health conscious consumer and greater in-home
consumption.
Glucon-D Immuno Volt – These energy bites are a way for Zydus to extend the
brand beyond just glucose powder category. The company is also trying to build on
consumers’ focus on immunity by introducing a product fortified with Vitamin C & D,
Zinc and Glucose.
Zydus Wellness, September 24, 2020 ICICI Securities
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Chart 12: New product development
January 2020 March 2020 June 2020 July 2020
Sugar Free Green
re- launch
New formulation
developed using a
new, better
tasting stevia
For consumerswho
seek weight
management
Nycil Hand
Sanitizers
Decision to execute
and launch the
product within a
fortnight
Complan Nutrigro
Complan enters the
toddler health food
drink segment
Marketed and
distributed leveraging
doctor's
recommendation and
prescription
Complan sachets
Targeted at
northern and
western regions
of India to
participate in
sachet market
Nutralite Choco
Spread
Initially launched
through e-
Commerce;
other channels
to follow
Glucon D
ImmunoVolt
Energy bites
that boost
immunity
October 2018
Launched
Sugarlite
100% naturalblended
sugar but with 50%
less calories than
normal sugar
March 2018
Everyuth tan removal
range
Launched Tan
Removal Scrub & Tan
Removal Face Pack
Enriched with
detoxifying chocolate
and vitamin-rich
cherries
January 2018
Nutralite Mayonnaise
Launched in three
flavors – Cheesy
garlic, Classic veg and
Achari
Rich in Vitamin A, D
and E to meet 30% of
the daily requirement
of these essential
nutrients
Source: Company data, I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
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Financial performance, assumptions, estimates
Estimate 8% & 14% revenue & EBITDA CAGR over FY20-23E
Zydus has had a strong performance over FY09-20 (22% revenue CAGR in 11 years,
including M&A). We model 8% revenue CAGR over FY20-23E. We believe this growth
will be supported by (1) health and wellness focus by consumers (benefits >70%
portfolio), (2) leadership position in niche personal care categories, (3) expansion of
distribution network and (4) continuing investments behind brands.
Chart 13: We estimate 8% revenue CAGR over FY20-23E
-
5,000
10,000
15,000
20,000
25,000 F
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FY
23E
(Rs m
n)
Source: Company, I-Sec research
EBITDA margin to expand 300bps over FY20-23E
Zydus’s EBITDA margin declined 380bps YoY in FY20 primarily due to the acquisition
of Heinz India consumer business which has a lower gross margin product portfolio.
We note that major raw materials prices (i.e. Refined Palm Oil, Palm Kernel Oil and
SMP) have been benign in FY21 so far – near-term margin improvement driver.
In the medium-term, margins are likely to benefit from cost efficiencies (back-end
efficiencies and synergies in manufacturing and supply chain) and premiumisation
within the existing brands. We estimate 300bps EBITDA margin expansion to 21.2%
by FY23E from 18.2% in FY20, resulting in 14% EBITDA CAGR over FY20-23E.
Zydus Wellness, September 24, 2020 ICICI Securities
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Chart 14: EBITDA margin to expand 300bps over FY20-23E
19.9
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Chart 15: Gross margin Chart 16: Staff costs (as a % of sales)
62.7
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Source: Company, I-Sec research
Source: Company, I-Sec research
Chart 17: A&SP (as a % of sales) Chart 18: Other opex (as a % of sales)
22.4
24.3
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10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20
FY
21E
FY
22E
FY
23E
(%)
Source: Company, I-Sec research
Source: Company, I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
16
Expect net profit to grow at 36% CAGR over FY20-23E
We expect net profit growth ahead of EBITDA CAGR of 14%. We estimate 36%
CAGR over FY20-23E driven by deleveraging of balance sheet. We estimate net profit
margin to improve 1050bps YoY to 21% in FY23 from 10.5% in FY20.
Chart 19: Net profit to grow at 36% CAGR over FY20-23E
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20
FY
21E
FY
22E
FY
23E
(Rs m
n)
Source: Company data, I-Sec research
Return on capital employed
Zydus had healthy RoCE at 19% in FY18 before the acquisition of Heinz India
portfolio. However, post the acquisition, its RoCE declined to 6% in FY20. We expect
RoCE to improve to 9% by FY23 driven by better margins and higher asset turnover.
Chart 20: Healthy return ratios before acquisition
-
10
20
30
40
50
60
70
80
90
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20
FY
21E
FY
22E
FY
23E
(%)
RoE RoCE
Source: Company data, I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
17
Chart 21: RoCE ex-Goodwill still remains healthy at ~30%
-
10
20
30
40
50
60
70
80
90
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20
FY
21E
FY
22E
FY
23E
(%)
RoCE (ex-Goodwill)
Source: Company data, I-Sec research
FCF generation to improve
We estimate Zydus’ working capital to remain stable (-17 days) as the company
continues to expand distribution. We estimate free cash flow generation to improve to
Rs4.6bn in FY23E from Rs2.3bn in FY20, driven by improving operating margin and
higher asset turns.
Chart 22: OCF and FCF generation Chart 23: OCF/ EBITDA and FCF/EBITDA
(1,000)
-
1,000
2,000
3,000
4,000
5,000
6,000
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20
FY
21E
FY
22E
FY
23E
(Rs m
n)
OCF FCF
(20)
-
20
40
60
80
100
120
140
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20
FY
21E
FY
22E
FY
23E
(%)
OCF / EBITDA FCF / EBITDA
Source: Company data, I-Sec research Source: Company data, I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
18
Historical financial snapshot (10-year history)
Table 2: 10-year historical financial snapshot
CAGR
(Rs mn) FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY10-20 FY15-20
Revenue 2,681 3,364 3,368 3,880 4,036 4,307 3,967 4,306 5,126 8,428 17,668 21% 15%
Growth (%) 38 25 0 15 4 7 (8) 9 19 64 110
Gross Profit 1,819 2,162 2,148 2,638 2,797 3,055 2,760 2,980 3,517 5,445 9,881 18% 12%
Gross margin (%) 67.8 64.3 63.8 68.0 69.3 70.9 69.6 69.2 68.6 64.6 55.9
EBITDA 674 842 771 965 894 998 913 991 1,253 1,848 3,211 17% 12%
EBITDA margin (%) 25.1 25.0 22.9 24.9 22.1 23.2 23.0 23.0 24.4 21.9 18.2
PBT (before ex.) 717 900 822 1,078 1,036 1,197 1,168 1,240 1,497 1,811 1,655 9% 3%
Growth (%) 87.8 25.4 (8.6) 31.1 (3.9) 15.5 (2.4) 6.2 20.8 20.9 (8.6)
Adj PAT 477 595 677 971 965 1,090 1,033 1,090 1,339 1,796 1,859 15% 5%
Growth (%) 86.8 24.8 13.8 43.5 (0.7) 13.0 (5.2) 5.5 22.9 34.1 3.5
RoE (%) 56.2 49.1 41.2 43.8 33.1 29.8 23.1 20.9 21.5 8.8 5.4
RoCE (%) 77.2 67.8 43.5 40.3 28.2 24.4 18.6 16.9 18.6 6.2 6.0
Reported FCFF 532 (98) 509 664 856 652 863 465 612 1,455 2,346 16% 14%
Source: Company data, I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
19
Valuations and risks
We value Zydus on DCF basis with 11% WACC and 6% terminal growth assumptions.
We initiate coverage on the stock with a BUY rating based on our DCF-based target
price of Rs2,500, which implies a 46% potential upside. At our target price, the stock
will trade at 42x P/E multiple Mar-22E. In reverse DCF, the current stock price implies
an 11% EBITDA CAGR over FY20-30E (WACC of 11%, terminal growth 6%).
DCF assumptions
We value Zydus Wellness on DCF based on the following three stages:
Stage 1 (FY21E-FY30E): During this period, we estimate 11% revenue CAGR and
15% EBITDA CAGR
Stage 2 (FY30E-FY42E): During this period, we estimate 10% FCF CAGR
Stage 3 (FY42 onwards): We assume 6% terminal growth rate
Based on these assumptions, we arrive at our target price of Rs2,500.
Table 3: DCF calculations
(Rs mn, year ending Mar 31)
PV of FCF for forecasting period (FY21 – FY42) 84,263
PV of terminal cash flow 73,750
Enterprise Value 158,013
Net debt/ (cash) (2,801)
Equity Value 160,814
Number of shares (mn) 64
Target Price (Rs/ share) 2,500
Source: I-Sec research
Chart 24: Mean P/E and standard deviations
0
10
20
30
40
50
60
Se
p-1
0
Se
p-1
1
Se
p-1
2
Se
p-1
3
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p-1
4
Se
p-1
5
Se
p-1
6
Se
p-1
7
Se
p-1
8
Se
p-1
9
Se
p-2
0
(x)
ZYDUS P/E -1 Std Dev. Mean +1 Std Dev.
Source: Bloomberg, Company data, I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
20
Table 4: Assumptions
(Year ending Mar 31)
FY21E FY22E FY23E
Revenue growth (%) Sugar Free 4 10 12
Everyuth - 10 12 Nutralite (2) 15 12 Glucon D - 12 12 Complan 4 12 12 Nycil 2 12 10 Sampriti Ghee 4 8 8 Net sales 2 11 12
Revenue contribution (%)
Sugar Free 20.2 20.0 20.1 Everyuth 10.6 10.5 10.5 Nutralite 2.4 2.4 2.4 Glucon D 26.7 26.8 26.9 Complan 22.2 22.4 22.4 Nycil 14.4 14.5 14.3 Sampriti Ghee 3.5 3.4 3.3 Net sales 100.0 100.0 100.0
Cost assumptions (% of sales)
COGS 43.6 43.1 42.6 Staff cost 10.5 10.4 10.3 A&SP 12.5 13.0 12.8 Other opex 13.5 13.3 13.1
EBITDA margin (%) 20.0 20.3 21.2
Balance Sheet assumptions
Inventory (days) 60 60 59 Receivable (days) 24 24 23 Payable (days) 100 100 100
Borrowings (Rs mn) 2,691 - -
RoE (%) 6.4 7.8 9.0
RoCE (%) 6.8 7.7 8.7 RoCE (ex-Goodwill) (%) 33.6 36.9 36.6
Cash flow assumptions
OCF (Rs mn) 3,570 4,099 4,814 FCF (Rs mn) 3,390 3,900 4,593
OCF/ EBITDA (%) 99 101 102
FCF/ EBITDA (%) 94 96 97
Source: I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
21
Relative valuation
Table 5: Valuation summary
Company CMP
(Rs) TP
(Rs) Upside
(%) Rating
PE (x) EV/EBITDA (x) ADTV Market Cap
FY21E FY22E FY21E FY22E (US$ mn) (Rs bn) (US$ bn)
Staples
Bajaj Consumer 183 200 10 ADD 12 12 10 10 3.3 27 0.4 Britannia 3,625 3,300 (9) REDUCE 44 42 34 34 39.6 896 12.0 Colgate 1,354 1,500 11 HOLD 42 38 27 25 15.0 385 5.2 Dabur 486 550 13 ADD 50 46 45 41 23.1 891 11.9 Emami 367 400 9 ADD 31 26 23 21 5.2 177 2.4 GCPL 679 750 10 ADD 41 37 30 28 13.3 706 9.4 HUL 2,053 2,500 22 ADD 55 47 41 35 76.1 4,990 66.7 ITC 173 220 28 ADD 14 13 11 10 80.8 2,258 30.2 Jyothy Labs 144 160 11 ADD 23 21 16 16 1.7 55 0.7 Marico 340 420 23 ADD 38 34 27 24 13.6 479 6.4 Nestle 15,366 16,500 7 HOLD 70 57 46 39 32.1 1,555 20.8 Tata Consumer 494 600 22 ADD 58 49 31 28 30.3 504 6.7 Varun Beverages 679 750 11 HOLD 70 36 19 15 2.9 215 2.9 Zydus Wellness 1,714 2,500 46 BUY 42 29 28 25 1.2 96 1.3 Discretionary Avenue Supermarts 2,055 1,850 (10) REDUCE 111 59 68 39 22.2 1,406 18.8 Bata 1,343 1,100 (18) REDUCE 164 46 36 20 19.4 172 2.3 Jubilant Foodworks 2,316 2,400 4 ADD 107 55 35 24 28.6 310 4.1 Page Industries 19,375 22,000 14 ADD 156 48 80 31 12.8 214 2.9 Sheela Foam 1,392 1,500 8 ADD 68 26 34 16 0.8 74 1.0 Titan 1,117 1,250 12 ADD 122 49 66 31 51.3 1,055 14.1 United Spirits 509 650 28 ADD 73 35 38 23 23.4 398 5.3 Westlife Development 370 340 (8) HOLD (121) 63 83 19 1.7 64 0.9 Paints Akzo Nobel 2,087 2,500 20 BUY 45 36 30 23 0.5 95 1.3 Asian Paints 1,947 2,200 13 ADD 70 55 44 35 62.1 1,951 26.1 Berger Paints 571 540 (5) HOLD 96 78 58 49 12.2 562 7.5 Kansai Nerolac 478 460 (4) HOLD 55 42 34 27 1.9 279 3.7
Source: Company data, I-Sec research
EV/ sales (x) P/B (x) P/CEPS (x) RoE (%) RoCE (%) CAGR (FY20-22E) (%)
Company FY21E FY22E FY21E FY22E FY21E FY22E FY21E FY22E FY21E FY22E Revenues EBITDA PAT
Staples Bajaj Consumer 2.9 2.8 3 3 12 12 27 23 29 24 4 6 7 Britannia 6.4 6.2 16 13 40 38 36 30 25 21 11 18 20 Colgate 7.8 7.2 20 19 34 31 54 57 64 67 6 11 12 Dabur 9.7 8.9 11 10 44 41 24 23 18 17 6 12 10 Emami 6.3 5.8 9 8 32 25 29 33 32 34 5 9 11 GCPL 6.9 6.4 8 7 36 33 21 21 17 17 7 10 9 HUL 10.7 9.5 11 10 49 42 34 23 28 19 15 19 22 ITC 4.2 3.7 4 3 13 12 24 26 25 29 8 7 4 Jyothy Labs 2.9 2.7 4 4 19 17 18 19 16 16 9 16 20 Marico 5.8 5.2 13 12 34 30 36 37 32 33 7 11 11 Nestle 11.0 9.5 59 45 59 49 95 90 39 40 11 16 15 Tata Consumer 4.2 3.8 2 2 44 38 5 5 6 6 10 11 17 Varun Beverages 3.6 2.9 5 5 24 18 8 14 9 14 5 2 1 Zydus Wellness 5.6 5.1 2 2 38 27 6 8 7 8 7 12 43 Discretionary
Avenue Supermarts 5.1 3.6 11 9 85 50 10 17 14 22 23 27 30 Bata 8.2 5.3 9 8 43 24 5 18 9 24 2 1 7 Jubilant Foodworks 8.0 6.2 23 17 47 32 23 36 17 27 11 19 36 Page Industries 8.9 6.2 24 20 104 41 16 46 14 36 9 14 15 Sheela Foam 3.3 2.2 7 5 39 20 10 23 9 22 17 15 13 Titan 5.6 3.5 14 12 83 40 12 26 13 29 14 13 16 United Spirits 5.1 4.0 9 7 48 28 12 22 13 23 1 5 16 Westlife Development 5.8 3.3 11 9 66 25 (9) 16 (9) 23 6 17 204 Paints
Akzo Nobel 4.0 3.3 7 6 33 27 16 18 16 18 1 1 5 Asian Paints 9.1 7.4 16 14 53 43 25 28 22 25 12 12 12 Berger Paints 9.8 8.2 19 16 72 60 20 22 17 19 4 4 4 Kansai Nerolac 5.5 4.4 6 6 41 33 12 14 11 14 5 10 9
Source: Bloomberg, I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
22
Risks
Delays in launch / failure of new products: Any delay in launch of new products
and/or failure of new products may impact Zydus’ financials.
Inability to expand distribution: If the company’s geographical/ distribution
expansion plans fail, or get delayed, earnings growth may be impacted.
Steep rise in competitive pressures and input prices: Steep rise in competitive
pressures, significant increase in raw materials in a short timeframe can hurt Zydus’
earnings.
Zydus Wellness, September 24, 2020 ICICI Securities
23
Company description
Chart 25: Company timeline
1988 1991 2005 2006 2009 2011 2017 2018 2019
Launched
Sugar Free with
Aspartame1
Launched
Everyuth
Skincare range1
Launched
Sugar Free
Natura with
Sucralose1
Acquisition of
Carnation Nutra
(CANFL)1
Sugar Free and
Everyuth carved
out from Cadila
Healthcare to
form Zydus
Wellness; listed
on NSE
New production
facility at Sikkim
– Unit I
Launched Sugar
Free Green with
Stevia & new
production
facility at Sikkim
Unit II
Launched Everyuth Tan
Removal range, Nutralite
Mayonnaise & Sugarlite
Acquisition of Heinz India
Private Limited (“Heinz”)
and integration & merger
with Zydus Wellness
Products
Source: Company data, I-Sec research
Category and brand size
Chart 26: Brand-wise revenue contribution (FY20)
Sugar Free19.9%
Everyuth10.8%
Nutralite2.5%
Glucon D27.2%
Complan21.8%
Nycil14.4%
Sampriti Ghee3.4%
Source: Company data, I-Sec research
Table 6: Category size, growth rates and market shares
Category size (Rs mn) FY17-20 CAGR (%) Market share (%)
Glucon-D 9,800 11 59
Sugar Free 3,850 9 94
Complan 73,000 6 5
Everyuth 29,530 10 6
Nycil 7,610 10 34
Source: Company data, I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
24
Management team
Table 7: Board of Directors
Name Designation Description
Dr. Sharvil P Patel Chairman & Non-Executive Director
Director since 2009; MD of Cadila Healthcare (parent company)
Bachelor’s degree in chemical and pharmaceutical science, doctorate in philosophy and PhD
Tarun Arora CEO & Whole-time director
Director since 2015
Bachelor’s degree in science and post graduate diploma in business management
Previously associated with Danone, Narang Beverages as General Manager
Ganesh Nayak Non-executive director
Director since 2006
Working with Cadila Healthcare since 1977; COO and Executive Director currently
Completed the ‘General Manager Program’ from Harvard Business School, USA
Ashish Bhargava Nominee Director
Represents True North (Partner)
Prior to joining True North, he was part of Marico Limited
Bachelors degree in Engineering and master’s degree in management
Savyasachi S. Sengupta
Independent Director Director since 2018
Previously associated with Alembic Pharmaceuticals, Cadila Healthcare and Sarabhai Piramal Limited
Kulin S Lalbhai Independent director
Director since 2016
Executive Director of Arvind Limited; has also worked with McKinsey & Co
Bachelor’s degree in Science and master’s degree in business administration
Dharmishta N. Raval
Independent Director
Director since 2019
Lawyer, graduate and master in Legislative Laws
Had worked as Executive Director in SEBI till 2003 and then started practice as an Advocate at Gujarat High Court
Srivishnu Raju Nandyala
Independent Director
Director since 2019
Director of Exciga Land Holdings, Excigia Properties, Amara Raja Batteries and Heritage Foods
Bachelor’s degree in engineering and MBA
Source: Company data, I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
25
Shareholding pattern
Chart 27: Shareholding pattern
Cadila Healthcare Ltd.
63.55%
Zydus Family Trust4.29%
Threpsi Care12.52%
LIC3.20%
Others16.44%
Source: Company data, I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
26
Financials
Table 8: Profit and loss statement
(Rs mn, year ending Mar 31)
FY18 FY19 FY20 FY21E FY22E FY23E
Net Revenue 5,126 8,428 17,668 18,039 20,058 22,356
Less:
Cost of goods sold 1,609 2,984 7,788 7,861 8,640 9,519 Employee cost 566 856 1,747 1,894 2,086 2,303 Other expenses 1,698 2,741 4,923 4,684 5,269 5,795
Total operating expenses 3,874 6,580 14,458 14,439 15,995 17,617
EBITDA 1,253 1,848 3,211 3,600 4,063 4,740
Less: D&A 89 125 264 269 270 271
EBIT 1,164 1,723 2,947 3,331 3,793 4,469
Less: Gross Interest 17 301 1,399 805 120 - Add: Other Income 351 389 107 110 132 232
Recurring PBT 1,497 1,811 1,655 2,637 3,806 4,700
Less: Taxes 132 (6) (205) - - - Less: Minority Interest (26) (21) - - - -
Net Income (Reported) 1,339 1,691 1,417 2,637 3,806 4,700
Extraordinary items - (105) (442) - - -
Recurring Net Income 1,339 1,796 1,859 2,637 3,806 4,700
Source: Company data, I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
27
Table 9: Balance sheet
(Rs mn, year ending Mar 31)
FY18 FY19 FY20 FY21E FY22E FY23E
ASSETS
Current Assets, Loans & Advances
Inventories 351 2,331 2,923 2,965 3,270 3,614 Sundry debtors 88 960 1,182 1,186 1,291 1,409 Cash and bank balances 4,137 1,643 824 1,376 1,697 5,363 Other current assets 437 2,316 1,946 1,983 2,188 2,420 Loans and advances 20 67 98 100 111 124 Total Current Assets 5,032 7,317 6,973 7,610 8,556 12,929
Current Liabilities & Provisions
Current Liabilities 787 3,923 4,911 4,942 5,468 6,094 Provisions and other liabilities 206 1,107 1,189 1,213 1,349 1,504 Total Current Liabilities & Provisions 993 5,030 6,100 6,155 6,817 7,598
Net Current Assets 4,039 2,287 874 1,455 1,739 5,331
Investments 1,476 461 1,104 1,104 1,104 1,104
Fixed assets Gross block 1,316 8,920 9,068 9,248 9,448 9,669
Less: Accumulated depreciation 505 1,443 1,692 1,960 2,230 2,501 Net Block 811 7,477 7,376 7,288 7,218 7,168 CWIP 2 103 35 35 35 35
Goodwill 228 38,197 39,200 39,200 39,200 39,200
Total Assets 6,556 48,525 48,589 49,082 49,296 52,839
LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' fund Equity share capital 391 577 577 643 643 643
Reserves and surplus 6,521 33,286 34,030 46,956 49,861 53,403 Total Shareholders Fund 6,912 33,863 34,607 47,599 50,504 54,047
Borrowings 250 15,693 15,191 2,691 - - Deferred Tax Liability (738) (1,030) (1,208) (1,208) (1,208) (1,208) Minority Interest 132 - - - - -
Total Liabilities and shareholders' equity 6,556 48,525 48,589 49,082 49,296 52,839
Source: Company data, I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
28
Table 10: Cashflow statement
(Rs mn, year ending Mar 31)
FY18 FY19 FY20 FY21E FY22E FY23E
Cash flow from operating activities
PBT 1,497 1,706 1,213 2,637 3,806 4,700
Add: Depreciation 89 125 264 269 270 271
Add: Other Operating activities (298) (202) 1,292 694 (12) (232)
CFO before change in NWC 1,288 1,630 2,769 3,600 4,063 4,740
(Inc)/dec in debtors (48) (70) (190) (4) (105) (117)
(Inc)/dec in inventories (32) 2 (593) (42) (304) (344)
(Inc)/dec in other current assets (462) (388) (349) (40) (215) (245)
Inc/(dec) in current liabilities/provisions 62 1,081 972 56 662 781
Change in NWC (481) 626 (160) (30) 36 75
Less: Taxes Paid 117 630 16 - - -
Net Cash flow from Operating Activities 691 1,625 2,593 3,570 4,099 4,814
Capital Commitments (79) (171) (246) (180) (200) (221)
Free Cashflow 612 1,455 2,346 3,390 3,900 4,593
Cashflow from Investing Activities Purchase of Investments (819) (41,650) (641) - - -
Other non-operating income 307 204 55 110 132 232
Net Cashflow from Investing Activities (591) (41,617) (832) (70) (68) 10
Cashflow from Financing Activities
Increase in reserves - 25,618 - 10,999 - -
Inc (Dec) in Borrowings - 15,142 (1,903) (13,305) (2,810) -
Dividend paid including tax and others (18) (376) (694) (643) (901) (1,158)
Net Cashflow from Financing Activities (e) (18) 40,384 (2,597) (2,949) (3,711) (1,158)
Total Increase / (Decrease) in Cash 81 393 (837) 551 321 3,667
Opening Cash and Bank balance 3,413 3,494 3,887 3,050 3,601 3,922
Closing Cash and Bank balance 3,494 3,887 3,050 3,601 3,922 7,589
Increase / (Decrease) in Cash and Bank balance
81 393 (837) 551 321 3,667
Source: Company data, I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
29
Table 11: Key ratios
(Rs mn, year ending Mar 31)
FY18 FY19 FY20 FY21E FY22E FY23E
Per Share Data (Rs)
EPS 34.3 31.1 32.2 41.0 59.2 73.1 Cash EPS 36.5 31.5 29.2 45.2 63.4 77.3 Dividend per share (DPS) 8.0 5.0 5.0 10.0 14.0 18.0 Book Value per share (BV) 176.9 587.3 600.2 740.0 785.1 840.2
Growth (%)
Net Sales 19.1 64.4 109.6 2.1 11.2 11.5 EBITDA 26.4 47.5 73.7 12.1 12.9 16.7 PAT 22.9 26.3 (16.2) 86.1 44.3 23.5 DPS 23.1 (37.5) - 100.0 40.0 28.6
Valuation Ratios (x)
P/E 50.0 55.0 53.2 41.8 29.0 23.5 P/CEPS 46.9 54.4 58.8 38.0 27.1 22.2 P/BV 9.7 2.9 2.9 2.3 2.2 2.0 EV / EBITDA 49.2 49.2 28.3 28.2 25.0 21.4 EV / Sales 12.0 10.8 5.1 5.6 5.1 4.5
Operating Ratios
Raw Material / Sales (%) 31.4 35.4 44.1 43.6 43.1 42.6 Employee cost / Sales (%) 11.0 10.2 9.9 10.5 10.4 10.3 Other exps / Sales (%) 33.1 32.5 27.9 26.0 26.3 25.9 Other Income / PBT (%) 23.4 21.5 6.5 4.2 3.5 4.9 Effective Tax Rate (%) 8.8 (0.3) (12.4) - - - Working Capital (days) (7.0) 27.9 (2.3) (1.6) (2.1) (3.1) Inventory Turnover (days) 25.0 100.9 60.4 60.0 59.5 59.0 Receivables (days) 6.2 41.6 24.4 24.0 23.5 23.0 Payables (days) 56.0 169.9 101.5 100.0 99.5 99.5 Net D/E (x) (0.8) 0.4 0.4 0.0 (0.1) (0.1)
Profitability Ratios (%)
Net Income Margins 26.1 20.1 8.0 14.6 19.0 21.0 RoACE 18.6 6.2 6.0 6.8 7.7 8.7 RoAE 21.5 8.8 5.4 6.4 7.8 9.0 Dividend Payout 28.1 20.6 24.5 24.4 23.7 24.6 Dividend Yield 0.5 0.3 0.3 0.6 0.8 1.1 EBITDA Margins 24.4 21.9 18.2 20.0 20.3 21.2
Source: Company data, I-Sec research
Zydus Wellness, September 24, 2020 ICICI Securities
30
Price charts
Akzo Nobel Asian Paints Avenue Supermarts Bajaj Consumer Bata India
1,300
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0
500
1,000
1,500
2,000
Se
p-1
7
Ma
r-18
Se
p-1
8
Ma
r-19
Se
p-1
9
Ma
r-20
Se
p-2
0
(Rs)
Berger Paints Britannia Colgate Dabur Emami
100
200
300
400
500
600
700
Se
p-1
7
Mar-
18
Se
p-1
8
Mar-
19
Se
p-1
9
Mar-
20
Se
p-2
0
(Rs)
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Se
p-1
7
Ma
r-18
Se
p-1
8
Ma
r-19
Se
p-1
9
Mar-
20
Se
p-2
0
(Rs)
600
800
1,000
1,200
1,400
1,600
1,800
Se
p-1
7
Mar-
18
Se
p-1
8
Mar-
19
Se
p-1
9
Mar-
20
Se
p-2
0
(Rs)
200
250
300
350
400
450
500
550
Se
p-1
7
Ma
r-18
Se
p-1
8
Ma
r-19
Se
p-1
9
Mar-
20
Se
p-2
0
(Rs)
0
200
400
600
800
Se
p-1
7
Mar-
18
Se
p-1
8
Mar-
19
Se
p-1
9
Mar-
20
Se
p-2
0
(Rs)
GCPL HUL ITC Jubilant Foodworks Jyothy Labs
320
420
520
620
720
820
920
1,020
Se
p-1
7
Mar-
18
Se
p-1
8
Mar-
19
Se
p-1
9
Mar-
20
Se
p-2
0
(Rs)
500
800
1100
1400
1700
2000
2300
2600
Sep-1
7
Ma
r-1
8
Sep-1
8
Ma
r-1
9
Sep-1
9
Ma
r-2
0
Sep-2
0
(Rs)
125
175
225
275
325
375
Se
p-1
7
Ma
r-18
Se
p-1
8
Ma
r-19
Se
p-1
9
Mar-
20
Se
p-2
0
(Rs)
200
700
1,200
1,700
2,200
2,700
Se
p-1
7
Ma
r-18
Se
p-1
8
Mar-
19
Se
p-1
9
Ma
r-20
Se
p-2
0
(Rs)
50
100
150
200
250
300
Se
p-1
7
Ma
r-18
Se
p-1
8
Ma
r-19
Se
p-1
9
Ma
r-20
Se
p-2
0
(Rs)
Kansai Nerolac Marico Nestle Page Industries Sheela Foam
250
300
350
400
450
500
550
600
Se
p-1
7
Mar-
18
Se
p-1
8
Ma
r-19
Se
p-1
9
Ma
r-20
Se
p-2
0
(Rs)
200
250
300
350
400
450
Se
p-1
7
Mar-
18
Se
p-1
8
Mar-
19
Se
p-1
9
Mar-
20
Se
p-2
0
(Rs)
4,0006,0008,000
10,00012,00014,00016,00018,00020,000
Se
p-1
7
Mar-
18
Se
p-1
8
Mar-
19
Se
p-1
9
Mar-
20
Se
p-2
0
(Rs)
2,000
12,000
22,000
32,000
42,000
Se
p-1
7
Mar-
18
Se
p-1
8
Mar-
19
Se
p-1
9
Mar-
20
Se
p-2
0
(Rs)
650
850
1,050
1,250
1,450
1,650
1,850
2,050
Se
p-1
7
Mar-
18
Se
p-1
8
Mar-
19
Se
p-1
9
Mar-
20
Se
p-2
0
(Rs)
Tata Consumer Titan United Spirits Varun Beverages Westlife Development
100
200
300
400
500
600
700
Se
p-1
7
Ma
r-18
Se
p-1
8
Ma
r-19
Se
p-1
9
Ma
r-20
Se
p-2
0
(Rs)
350
550
750
950
1,150
1,350
1,550
Se
p-1
7
Mar-
18
Se
p-1
8
Mar-
19
Se
p-1
9
Mar-
20
Se
p-2
0
(Rs)
200
400
600
800
1,000
Se
p-1
7
Ma
r-18
Se
p-1
8
Mar-
19
Se
p-1
9
Ma
r-20
Se
p-2
0
(Rs)
0
200
400
600
800
1,000
Se
p-1
7
Mar-
18
Se
p-1
8
Ma
r-19
Se
p-1
9
Ma
r-20
Se
p-2
0
(Rs)
100
200
300
400
500
600
Se
p-1
7
Ma
r-18
Se
p-1
8
Mar-
19
Se
p-1
9
Ma
r-20
Se
p-2
0
(Rs)
Source: Bloomberg
Zydus Wellness, September 24, 2020 ICICI Securities
31
Index of tables and charts
Tables
Table 1: Source of funds for acquisition of Heinz India’s consumer business ..................... 3 Table 2: 10-year historical financial snapshot ..................................................................... 18 Table 3: DCF calculations ................................................................................................... 19 Table 4: Assumptions ......................................................................................................... 20 Table 5: Valuation summary ............................................................................................... 21 Table 6: Category size, growth rates and market shares ................................................... 23 Table 7: Board of Directors ................................................................................................. 24 Table 8: Profit and loss statement ...................................................................................... 26 Table 9: Balance sheet ....................................................................................................... 27 Table 10: Cashflow statement ............................................................................................ 28 Table 11: Key ratios ............................................................................................................ 29
Charts
Chart 1: Supply chain integration .......................................................................................... 4 Chart 2: Brand-wise revenue contribution (FY20) ................................................................ 5 Chart 3: Revenue and growth rates – Sugar Free ................................................................ 6 Chart 4: Complan premium pricing ....................................................................................... 6 Chart 5: Health Food Drinks industry size ............................................................................ 7 Chart 6: Revenue and growth rates – Complan ................................................................... 7 Chart 7: Glucose powder industry size ................................................................................. 8 Chart 8: Revenue and growth rates – Glucon-D ................................................................... 8 Chart 9: Revenue and growth rates – Nutralite .................................................................... 9 Chart 10: Revenue and growth rates – Nycil ...................................................................... 10 Chart 11: Revenue and growth rates – Everyuth................................................................ 11 Chart 12: New product development .................................................................................. 13 Chart 13: We estimate 8% revenue CAGR over FY20-23E ............................................... 14 Chart 14: EBITDA margin to expand 300bps over FY20-23E ............................................ 15 Chart 15: Gross margin ....................................................................................................... 15 Chart 16: Staff costs (as a % of sales) ............................................................................... 15 Chart 17: A&SP (as a % of sales) ....................................................................................... 15 Chart 18: Other opex (as a % of sales) .............................................................................. 15 Chart 19: Net profit to grow at 36% CAGR over FY20-23E ................................................ 16 Chart 20: Healthy return ratios before acquisition .............................................................. 16 Chart 21: RoCE ex-Goodwill still remains healthy at ~30% ................................................ 17 Chart 22: OCF and FCF generation ................................................................................... 17 Chart 23: OCF/ EBITDA and FCF/EBITDA ........................................................................ 17 Chart 24: Mean P/E and standard deviations ..................................................................... 19 Chart 25: Company timeline ............................................................................................... 23 Chart 26: Brand-wise revenue contribution (FY20) ............................................................ 23 Chart 27: Shareholding pattern ........................................................................................... 25
Zydus Wellness, September 24, 2020 ICICI Securities
32
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