Zydus wellness was earlier advised at 770 (Click here for earlier study). I am regularly sharing the
updates on it via emails and it is one of my favorite and I am seeing it making
it big…may be in this year itself. I am done with my buying and invested more around
800-830 in last 2-3 months. Zydus wellness is doing most of the
things right now. Earlier people's perception about "Sugar free" was
some sort of Diabetic supplement...some sort of medicinal or pharma thing
attached to it. But then Zydus changed the packaging (Looks more like
an FMCG product now)...roped in celebrities for branding and presenting it as
life style product for health conscious. Now "Sugar free" is viewed
differently and people are using it as healthy sugar substitute.
Sugar free is also changing with time...earlier it was just a chemical
product (Aspartame based) but now it has one variant “Sugar free Natura” which
is based on Sucralose (Natural Sugar). It has recently launched herbal variant
(Stevia based) “Sugar free Green" which is 100% herbal and safe for
children also.
They are spending big on ads now. They have re-launched
"Everyuth" also which is a great skin care product but has been
forgotten. So Zydus may see the benefits of restructuring very soon.
In the March-17 quarter, turnover was at 130 cr vs 114 cr
last year, NP was at 30 cr vs 27 cr. Though looked average but it is
commendable keeping in the view the recent headwinds in the economy due to
demonetization. Economy was sluggish in March quarter due to demonetization but
still Zydus managed to
break the ice. I think their efforts on branding of Sugar Free as lifestyle
product and re-launch of Everyuth is bearing fruits. I am expecting even better
days in the future.
They are now aggressively promoting their stevia based “sugar
free Green”. I am sure this will bring even better results as it’ll settle all
the pre-conceived notions associated with sugar free products. Nutralite is
another brand in their kitty which is table margarine used as a substitute for
conventional butter. Margarine is a fat derived from animal and vegetable oil
sources. Nutralite is sourced from Veg oils. It is cholesterol free and many
health conscious people prefer it now a days as their low energy lifestyle
makes butter unaffordable (Not economically) for them. Nutralite does not
contain hydrogenated fats compared to butter. It also has PUFA (poly
unsaturated fatty acid ) and MUFA (monounsaturated fatty acids ) which are
known cholesterol fighters. But Nutralite still failed to gain an extensive
market share and I feel the main reason for it was the taste. I also tried it
but left it as it was greasy and devoid of any taste. I turned back to butter
although I still prefer homemade white butter in place of Yellow butter from
the likes of Amul, Hatsun etc. as I find it too salty and taste less.
Once I even thought of writing to the Zydus management to add
1/3rd original butter in their margarine spread in order to increase
the taste. But I think they realized this and recently they have launched two flavours
Garlic & Oregano and Pudina & Coriander under Nutralite brand. The
launch of new flavours will cater to the consumer demand for new tastes. Zydus has
also changed the packaging of these spreads to make them look more contemporary
and premium. Celebrity chef Sanjeev kapoor is the face of their brand campaign and
high end branding is underway.
So Zydus is focusing and investing big in refurbishing the brand
promotion, product variety and look. This aggressive focus was missing for last
5-6 years so I am sure that these efforts will surely bring the fruits. Zydus
wellness is one stock about which I am very optimistic and I am sure that this
year will be the growth catalyst. Its return ratios and balance sheet is very strong. On a turnover of Rs.495 cr net profit is 110 cr. Inventory is just 30 cr and debtors are meager 4 cr!!! ROE is good around 20%, cash in the books is 440 cr which is sufficient to meet any future expansion and marketing campaign. But still what we are seeing at present is nothing...turnover from Sugar free is just around 300 cr when there is huge diabetic population in India along with growing health conscious people. Zydus' Sugar free brand has 93% market share in sugar free market in India...so one can imagine the scope of future growth when demand for sugar free substitutes will leapfrog to more realistic levels...i can see a potential of more than 3000 cr. As i have shared many times future scope of scale is the biggest factor of growth and major determinant of the valuation. So keeping in view the high growth potential , Zydus wellness at a PE of 30 is cheap. Great buy at CMP of 850.
(Views
are personal and should not be taken as a recommendation for buying or
selling a stock. Stock markets are inherently risky so kindly do your
Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post)