Zydus Wellness

Zydus Wellness reported a topline of Rs. 537.37 cr decline of 13.4% Y-o-Y basis against Rs. 620.25 cr reported in Q1 FY20 mainly on account of supply disruptions due to the pandemic. Gross margins declined by 357 bps to 55.7% due to unfavorable revenue mix in Q1 FY21 but restricted A&P (advertising and promotion) spends limited EBITDA margin drop to 120 bps to 22.8% for the quarter ended June, 2020. EBITDA declined 17.7%Y-o-Y basis to Rs. 122.35 cr in Q1 FY21. The company reported PAT of Rs. 89.20 cr with PAT margin 16.6% in Q1 FY21.

Zydus Wellness is focused on wellness FMCG products and is a market leader in most of them with overall segment showing a high single digit growth. With the acquisition of Heinz India business, the company has created a huge goodwill on the books of Rs. 3900 cr which has resulted in lower ROE. The company trades at a premium valuation of 62.8x TTM earnings with a dividend yield of 0.30% due to its recent acquisition. Even though the company fared well during the pandemic with only 13% de-growth in sales on Y-o-Y basis the recovery is already priced in. We opine investors to HOLD and re-evaluate on regular intervals basis on how newly launched products perform.