ZYDUS WELLNESS Q2FY23 RESULTS WERE BELOW ON OPERATING PROFIT & EARNINGS FRONT

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 Revenue witnessed a growth of 11.9% to Rs 429.5 crore (Idirect estimate : Rs 429.1 crore) largely led by pricing growth. The company took price hikes of 6-7% in last one year. Sugar free brand continued its leadership in its category with a market share of over 95%. The company doubled direct distribution of Sugar free Green in last three months. Glucon-D continued to lead the glucose powder category with a value market share of 60.0% which is higher by 157 bps in last one year The brand registered a strong double digit sales growth. Nycil has maintained its number one position with a market share of 35% in the Prickly heat powder category which was higher by 47 bps compared to last year. Nutralite brand has registered strong double-digit growth. Nutralite DoodhShakti dairy portfolio, which includes butter, spreads and ghee delivered strong performance backed by increased distribution drive. Everyuth brand command market share of 6.5% in the overall facial cleansing segment. Everyuth Scrub saw market share gain of 269 bps with to 41.8% in the facial scrub category & Everyuth Peel off has maintained its number one position with a market share of 75 .7% in the Peel off category. Though edible oil prices have come down in last six months, milk prices continue to remain elevated. Gross margin contracted by 491 bps during the quarter. Overhead spends were also higher by 47 bps compared to last year. The company was able to save 87 bps & 34 bps towards employee & advertisement spends during the quarter.  Operating profit declined by 46.8% to 16.3 crore (Idirect estimate : Rs 32.3 crore) with operating margin contraction of 417 bps to 3.8%. Net profit dipped by 60.9% to Rs 8.2 crore (Idirect estimate : Rs 25 crore) on account of de-growth in operating profit & other income

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 Zydus wellness has seen two years of subdued volume growth due to adverse impact of Covid-19 for summer products. Moreover, high inflation in milk, edible oil & crude based packaging costs led to sharp gross margin contraction in last one year. We believe softening of some of the commodities would bring back volume growth as well as margins. However, revenue stream for the company is skewed towards summer season. We believe the company would see strong volume growth as well as margin uptick in Q4FY23 & Q1FY24.

Impact:

Negative