Buy This Mid Cap FMCG Stock, Target Price Rs 2,140: Anand Rathi

Anand Rathi has rated "buy" Zydus Wellness Ltd. in its recently published report on the company. The brokerage has estimated a target price of Rs 2,140 apiece for stock. The brokerage firm claims a potential upside of 35% considering the current market price and the target price.

Zyduss Wellness is a mid-cap FMCG sector company having a market cap of Rs 10,155.05 crore. It is a leading consumer wellness company with Indian heritage and a global footprint. It has seven leading brands in its portfolio, namely Sugar-Free, Complan, Glucon-D, Nycil, Everyuth, Sugarlite and Nutralite.

CMP, 52 Week Low & High

The current market price (CMP) of Zyduss Wellness is Rs 1,584.30 on NSE at the time of writing. The 52-week low is Rs 1,430 and the 52-week high is Rs 2,398.95, respectively. On intraday, its low is Rs 1,581 and its high is Rs 1,600, respectively.

Investment Returns

In the past 1 week, the shares have fallen 1.39%, and in the past 1 month around 1.28%, respectively. In the past 1 year, it gave 31.89% negative return. Over the past 3 years, it gave 7.67% negative return, whereas, in the past 5 years, it gave a massive 75.99% positive return.

An array of strong brands in Health & Wellness

Five of its six major brands are leaders in their categories. They are positioned on Health & Wellness, with vast room for penetration-powered growth. This places Zydus in the enviable position of strengthening its portfolio through distribution expansions, brand extensions and innovations.

Targeting Rs 50bn revenue in five years

Zydus Wellness targets Rs50bn (or 2.5x) revenue in five years, translating to a 20% revenue CAGR. To achieve this, it plans to broaden its direct reach to 1m outlets (from 0.6m now) and expand its innovation funnel, looking at small bolt-on acquisitions and driving ~8% revenue contribution internationally. "We expect a 13.2% revenue CAGR over the next five years to Rs37.4bn, not factoring in any bolt-on acquisitions," the brokerage said.

EBITDA margins to return to over 20% in the next 2-3 years

With input cost pressures abating, cost-efficiency measures and operating leverage should aid in EBITDA margin expansion. The Sitarganj plant closure would save Rs150m annually but entail one-time closure expenses in FY23. "We expect margins to return to 20%+, at 20.3% in FY25," the brokerage said..

Valuations & Key Risks

Uniquely placed in FMCG with all its major brands in Health & Wellness (unlike many of its FMCG peers), Zydus Wellness' leadership in five of its six major brands, Rs50bn revenue target in five years and aiming to return to 20%+ EBITDA margins offer comfort on its growth focus.

"We ascribe 30x to Zydus Wellness on Sep'24e (vs. a 10-year average PE of 32x) to arrive at our Rs2,140 target price. At the present price, the stock trades at 28x FY23e EPS of Rs56.7 and 22x FY24e EPS of Rs74," the brokerage has said.

Key risks: Failure of product launches, unwarranted or pricey bolt-on acquisitions, price-based competition.

Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.