Buy This Midcap Wellness Stock For 42% Likely Return, Robust Distribution Growth: Top Brokerage Suggests

Brokerage firm Edelweiss is suggesting buying the stock of Zydus Wellness Ltd. (ZWL), for upto 42% likely return. The company's direct distribution reached around 6 lakh outlets as on Jun'22 (~2.5x growth over the last 3 years), and it aims to reach 1mn stores in the next three years.

Stock To Buy: Target Price

The Current Market Price (CMP) of Zydus Wellness is Rs. 1,597. Edelweiss has estimated a Target Price for the stock at Rs. 2,271. This stock has the potential to give 42% return, in the upcoming 1 year. It is a mid-cap stock with a market capitalization of around Rs. 10,089 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 1,597
Target Price	Rs. 2,271
Potential 1 year return	42.00%
52 week high share price	Rs. 2,398.95
52 week low share price	Rs. 1,430

Financials

The company's Income from operations in FY22 was recorded at Rs. 2,009 crore, which is expected to reach at Rs. 2,251 crore in FY23. Their EBITDA in FY22 stood at Rs. 345 crore, which is expected to be at Rs. 412 crore in FY23. The company's adj. Profit before tax in FY22 was recorded at Rs. 306 crore, which is expected to be at Rs. 382 crore in FY23.

Stock Advantages: Edelweiss

Reiterating buy rating, Edelweiss said, "The company's total distribution stood at 2.5mn outlets, with an equal split between urban and rural distribution. The E-commerce channel continues to gain traction. We continue to remain positive on this company owing to its diversified product profile, low-category penetration of its product portfolio and rapid increase in its direct distribution. At CMP, the stock is trading at an attractive valuation of 22x FY24 earnings estimates, which is more than 50% discount to the FMCG universe."

Brand based growth

Glucon-D and Nycil contribute ~50% of the sales and both are back on the growth track following the pandemic, driven by increase in distribution reach and new launches in their respective categories. The recall value for Glucon-D is significant and the category does not have meaningful competition. As the Sugar Free segment is witnessing healthy demand and has no competition, it maintains its market share. Additionally, the company increased Complan's distribution reach significantly over the last 1-1.5 years; however, the intense competition in the category allows for limited upside over the medium term, the firm informs.

Company Portfolio:

With the launch of India's first zero calorie replacement of sugar, called Sugar Free, in 1988, Zydus Wellness began its journey as is India's leading consumer Wellness Company. Since then, we have grown into a larger business, spanning the entire wellness spectrum with seven power brands - Sugarlite, Complan, Sugar Free, Glucon-D, Everyuth, Nycil and Nutralite. Over 2000 MSMEs are involved as business partners in their business.

Disclaimer

The above stock was picked from the brokerage report of Edelweiss. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.