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Zydus revenues on expected lines, several product launches around the corner…

News: Zydus Wellness' Q2FY22 results were in line with revenue estimates, falling short of estimates on operating profit & earnings front. Revenue grew of 12.2% to Rs.383.7 crore (Idirect est. : Rs.386.1 crore) on the back of strong recovery from low base quarter. Ecommerce channel sales grew more than 100% & accounted for 7% of the total sales. International business had 5% share in total sales. Gross margins contracted by 546 bps on account of high input prices. Operating margins were maintained at 8% with huge savings in marketing spends (240 bps), overheads (151 bps) & employee spends (160 bps). Net profit was Rs.21.1 crore (Idirect est. : Rs.23.3 crore) mainly due to 78% decline in interest cost on the debt repaid. Product-wise, company maintained its leadership position in Glucon-D, Sugarfree & Nycil in respective categories. Sugarfree gained market share by 181 bps to 96.2% whereas Everyuth Scrub maintained leadership with 543 bps gain in market share to 39.2%. Everyuth peel-off also maintained its leadership position with 77.3% market share. Everyuth held market share of 6.5% in face-cleansing.

Views: Zydus Wellness has been steadily growing all its six brands with new launches, investing behind brands through communication & enhancing distribution network. The company has strong market share in some of the smaller sub-categories. Being a leader in these smaller categories, we believe the company would be able to grow these categories through its chemist channel network and doctors advisory. Moreover, its also filling the white spaces by launching variants in Complan, Nutrilite and Glucon-D. Its high gross margins (~55%) gives leeway to spend 10-13% of sales on advertisement, which supports new launches & in growing penetration. The company should also see strong earnings growth during the year with substantial reduction in interest cost.  We maintain our positive stance on the company