Stock To Buy: This Small Cap Packaged Food Stock Likely To Surge 39%, Reported 7% YoY Growth

Edelweiss Wealth Research, a reputed and leading brokerage firm, in its report on Zyduss Wellness Ltd post Q1FY23 results of the company, suggests buying the stock of the company for a target price of Rs 2271 apiece. Considering this, if investors buy the stock of the company at the current market price, they could witness potential gains of Rs 39% in 12 months.

Zydus Wellness Ltd reported decent numbers in Q1FY23, led by a strong recovery in seasonal brands. Revenue increased by ~17% YoY to Rs 640cr (in line with our est. of Rs 663cr) owing to 10.3% YoY volume growth. Volume growth was supported by higher A&P spend, which grew by 39% YoY. PAT grew by 7% YoY to Rs 140 crore.

Zyduss is a small cap packaged Food industry company having a market capitalization of Rs 10,378.72 crore.

Stock Outlook & Returns

Today the stock of Zydus Wellness Ltd opened at Rs 1621 apiece, currently trading at Rs 1630.20 apiece, up 0.76% from the previous close of Rs 1617.90 apiece. The current market price of the stock is trading Rs 200.20 apiece above the 52 week low recorded on 15th February 2022 at Rs 1430.90 apiece. The 52 week high of the stock is Rs 2476.85 apiece.

Zydus Wellness Ltd. is a small cap packaged food industry company having a market capitalization of Rs 10,452.53 crore. The ROE of the Zydus Wellness stock is 6.37%. The PE ratio is 32.88, which is less than its sector PE ratio of 63.47. PB Ratio is 2.15% and TTM EPS is Rs 49.52. Its dividend yield is 0.31% having a face value of Rs 10.

The stocks of the company have given positive returns over the past 5 years. However, in the past 1 year shares have fallen 23.73%. Last week, shares gained roughly 0.5%% and 0.54% in the last 1 month. In the last 3 years, it has given a positive return of 17.08% and 83.44% in the past 5 years., respectively.

Strong revival of summer portfolio drives growth

Revenue from Zydus Wellness's seasonal brands, Glucon-D and Nycil (which contribute ~50% to total revenue), declined over the past two years due to COVID-19-led lockdowns coinciding with its main season (January-July). As a result, the company's revenue growth has been subpar (midsingle digit revenue growth over past two years). However, with normalcy resuming, these brands witnessed strong double-digit revenue growth this quarter, led by demand revival and market-share gains, which were absent during the past two consecutive summers. Also, Zydus Wellness's discretionary portfolio (Everyuth and Nutralite) continued its growth momentum and reported strong double-digit revenue growth, led by new launches supported by higher A&P spend.

Weak performance in Complan and Sugar

Free Sugar Free recorded strong double-digit revenue growth during the pandemic era, due to an increase in consumption of sugar substitutes by diabetic and fitness-conscious consumers in India. However, with the economy broadly re-opened, the product's revenue growth slowed down over the past three quarters due to lower spending on health and hygiene products. The company is making an effort to mitigate this slowdown through category development, as it renewed focus on stevia-based Sugar Free variants - Sugar Free Green and Sugar Free Lite - both in domestic and international markets.

Complan had a relatively soft quarter, due to category slowdown coupled with price cuts taken by the category leader. As a result, Zydus Wellness lost market share from 5.5% to 4.8% over the last one year. The company is focusing on filling the white spaces in the category, as it launched Complan NutriGro for the kids segment (receiving good traction till now) and is planning to launch Complan in the adult nutrition segment soon. Moreover, Zydus Wellness is increasing its play in sachet and pouches to grow its volume market share.

 

Edelweiss Wealth Research reiterating ‘BUY' for Target price of Rs 1,612

Zydus Wellness's direct distribution has reached ~6 lakh outletstill date (2.5x growth over past three years), and it aims to reach 1mn stores in next three years. Total distribution stood at 2.5mn outlets with equal split between urban and rural distribution. The e-commerce channel continues to gain traction, as its salience rose from 5.9% to 6.5% of sales on a QoQ basis. We expect Zydus Wellness's product portfolio to stage a strong comeback in FY23 due to strong focus on new launches, high A&P spend, increase in distribution reach and pricing action initiated to mitigate input cost pressure. Zydus Wellness trades at an attractive valuation of 27x on FY23E and 22x on FY24E earnings.

The brokerage said, "We reiterate our 'BUY' rating on the stock with a Target Price of Rs 2,271/share, providing an upside of 41%."

Disclaimer

The stock has been picked from the brokerage report of Edelweiss Wealth Research. 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 taking any investment decision.