Sector Outlook: Positive
Achieves Record Growth and Expands Market Presence
Zydus Wellness posted Rs. 8,391 million net sales growth in Q1FY25. This high growth is due to increasing demand for some key products. In the brand segment, Nycil maintained its leadership with a 34.9% share, while the Everyuth brand performed strongly in its moisturising face and creams, taking 6.6% of the market share. Glucon-D grew by 21.3% and Sugar-free dominated the sugar substitute segment.
EBITDA grew by 33.3% for Q1FY25, resulting in an EBITDA margin of 18.5%. Net profit increased by 33.8% and reached 100 million tons. Adjusted PAT increased by 39.6%. Zydus Wellness paid off its debt in full. The company launched new products this quarter, including Sugar Free Gold+, I’Mlite and products in the Everyuth and Nycil face wash. In addition, Complan entered the energy drink market. Nutralite introduced new types of mayonnaise. These strategic initiatives and new products indicate the company’s market potential and continued growth.
Key Concall Highlights
- Growth in different segments surpasses urban demand, and the consumption gap narrows.
- Rural income growth is expected to drive rural demand that will benefit the overall consumption sector.
- The company expects a normal monsoon and therefore stable demand, with the company well prepared to manage pricing effectively in a less inflationary environment.
- The firm projects CAGR of double digit revenue growth over next 3-4 years, having taken into account potential short-term drop-offs.
- Zydus Wellness continues to refine its pack-price architecture to address diverse consumer needs across various channels.
- A longer summer has increased usage of seasonal products like Glucon-D and Nycil hence a rise of 17% in volume.
- Market Leadership: The firm leads in five at least brands which significantly shape their respective categories. Everyuth holds a 46.2% market share in scrubs and 78.2% in peel-off masks. Nycil commands a 34.9% share in prickly heat powder, Glucon-D has a 59.7% share in glucose powders, and Sugar-Free dominates with a 95.9% share in sugar substitutes. The business also outperforms its general market share on e-commerce platforms.
- Nutralite stands to benefit from increased rural demand due to favourable monsoon conditions as well as government initiatives.
- Recent Launches: The new items’ list includes; Nutralite’s new mayonnaise variants, pink tea, Complan Immuno-Pro and charcoal-infused antipollution face wash. In addition to the aforementioned, there were five other versions of the products including Clearasil 3 in 1 soap.
- Further, four more major innovations are being planned by the company as it develops off-season products.
- Strong product performance and efficient hedging strategies led to a 110 bps QoQ improvement in gross margin for Q1FY25 compared to last year’s 300 bps YoY increase in gross margins while EBITDA margins were lower due to bloated fixed costs though management expects marginal improvements.
- There will be no requirement for additional capital since planned capital expenditure of Rs 300-350 million will be financed through current cash flow.
- The coming two quarters will have higher fixed costs but improved demand supported by tailored product packs for various markets and channels.
Valuation and Outlook
Zydus Wellness is a leading player in the FMCG sector, making it an exception among others because all products are based on health and wellness. This attention makes it promising hence five of six main brands put its competitive position up. Top management expects marginally increasing turnover influenced by expansion of the sales team and automation as indispensable parts of this process along with focus on profit margins drop. The firm expects that it will be able to reduce the cost by about 18-20% in the next 2-4 years through may pricing power, lower raw material costs, cost-saving measures, and operational leverage. In light of these factors, we see Zydus Wellness as having significant grounds for future growth.
