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Zydus Wellness Ltd.
QQ44FFYY1144RReessuullttUUppddaattee––2233MMaayy22001144
4
Recommendation HOLD Disappointment Continues…
Zydus posted a subdued quarter in terms of Net Sales/EBITDA/APAT declined
by 1.8%/33.4%/41.8% YoY respectively. Despite Gross profit reported low
single digit growth of 0.5% YoY, Gross margin improved by 130bps YoY to
68.6%, though it was flat QoQ.
Decline in revenue growth YoY: Net Sales for Q4FY14 registered a decline by
1.8% YoY to Rs. 101.1cr and up by 4% QoQ mainly led by subdued performance
by EverYuth and Nutralite.
Sugarfree registered growth, however continued poor performance by
EverYuth and Nutralite dragged the overall quarter: Sugarfree reported a
revenue growth plus segment has maintained market share of 93% in Q4FY14.
But continued slowdown in EverYuth and Nutralite resulted into the weak
quarter for the company. The EverYuth category continues to face heat from the
increase in activities from MNCs plus extended winter season also impacted the
category as it is meant for summer season. Further, EverYuth face wash has lost
market share. In addition, Nutralite continue to face increase in competition
from the Amul Lite segment. As per management, the company has started
taking some corrective actions (launch of new products in the face pack, face
wash and face peel under EverYuth and Nutralite yummy, low calorie variant)
which will result into improvement into the overall category from FY15E. Actilife
is still on a developing stage and yet to contribute meaningfully to the top-line.
EBITDA margin declined led by higher advertisement cost: EBITDA margin was
down by 950bps YoY to 19.8% in Q4FY14 and by 780bps QoQ. The decline in
margin is mainly attributed to decline in revenue growth and substantial jump in
advertisement and employee expenses as a % of sales. The advertisement
expenditure was 19% as a % of sales in Q4FY14 as against 9.6% in Q4FY13 and
13.8% in Q3FY14. Excluding advertisement expenditure, EBITDA margin was
marginally down by 10bps to 38.8% in Q4FY14 and by 260bps QoQ.
APAT down by 41.8% YoY: Despite decline in depreciation cost and jump in
Other income, the APAT was down by 41.8% YoY to Rs 21.8cr in Q4FY14 and by
18.7% QoQ. The jump in tax rate which stood at 8.5% in Q4FY14 as against tax
write-back of Rs 5.1cr in Q4FY13 plus decline in net revenue attributed to the fall
in the profitability of the company. PAT margin was down by 1480bps YoY to
21.5% in Q4FY14 and by 610 bps QoQ.
Valuation & Recommendation
Despite growth in Sugarfree, the company has resulted into the decline in revenue
YoY due to the continued tough competition from MNCs, lowered the growth in
EverYuth, and low sales of Nutralite dragged the overall performance during
Q4FY14. The company has launched couple of new variants in the existing
product category in Q4 and has also hinted that it is on the verge of launching
new product category which will be in the same line of existing wellness
category in the coming quarters. We have introduced FY16E numbers. At CMP,
stock is trading at a PE of 19.9x in FY15E and 17.9x in FY16E. We roll-over our
target multiple to 20x FY16E with a TP of Rs 572 per share and maintain HOLD.
CMP Rs. 522
Target Price Rs.572
Sector Packaged Foods
Stock Details
BSE Code 531335
NSE Code ZYDUSWELL
Bloomberg Code ZYWL IN
Market Cap (Rs cr) 2047
Free Float (%) 27.5%
52- wk HI/Lo (Rs) 749/435
Avg. volume BSE (Quarterly) 16815
Face Value (Rs) 10.0
Dividend (FY 14) 60%
Shares o/s (Crs) 3.9
Relative Performance 1Mth 3Mth 1Yr
Zydus 0.3% 9.7% -4.0%
Sensex 6.3% 17.4% 18.3%
Shareholding Pattern 31
st
Mar 14
Indian Promoters Holding 72.5%
Institutional (Incl. FII) 16.4%
Corporate Bodies 2.5%
Public & others 8.6%
Ruchita Maheshwari
Research Analyst
+91 22 3926 8023
ruchita.maheshwari@nirmalbang.com
Year
Net Sales
(Rs. in cr) Growth % EBIDTA EBIDTAM (%) PAT PATM (%) EPS (Rs.)
P/E
(x)
EV/Sale
(x) ROCE
FY13 388.0 17.5% 96.7 24.9% 97.1 25.0% 24.9 20.6 4.5 48.7%
FY14 403.6 4.0% 89.5 22.2% 96.5 23.9% 24.7 20.8 4.1 35.7%
FY15E 434.8 7.7% 99.5 22.9% 100.4 23.1% 25.7 19.9 3.7 31.7%
FY16E 478.3 10.0% 111.0 23.2% 111.8 23.4% 28.6 17.9 3.2 28.9%

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Zydus Wellness Ltd.
QQ44FFYY1144RReessuullttUUppddaattee––2233MMaayy22001144
Q4FY14 Consolidated Result Analysis
Rs. in crore
Particulars Q4FY14 Q4FY13 YoY% Q3FY14 QoQ%
Net Sales 101.1 103.0 -1.8% 97.2 4.0%
Other Operating Income 0.0 0.4 0.2
Total Income 101.1 103.4 -2.2% 97.3 3.9%
Increase / Decrease in Stock 0.2 -7.9 3.9
Consumption of raw material 30.3 33.3 -9.0% 26.0 16.5%
Purchase of traded goods 1.4 8.7 -84.3% 0.9 60.0%
Employees Cost 7.6 7.1 7.0% 7.5 2.0%
Advertisement Expenditure 19.2 9.9 94.1% 13.4 43.0%
Other Expenditure 22.4 22.2 1.1% 19.0 18.1%
Total Expenditure 81.0 73.3 10.6% 70.6 14.9%
EBIDTA 20.1 30.1 -33.4% 26.8 -25.1%
Interest 0.0 0.0 100.0% 0.0 33.3%
Other Income 5.6 4.3 30.1% 4.7 18.8%
EBDT 25.6 34.4 -25.6% 31.4 -18.6%
Depreciation 1.3 1.3 -4.5% 1.1 12.4%
PBT 24.3 33.1 -26.5% 30.3 -19.8%
Tax 2.1 -5.1 3.0
Reported Profit After Tax 22.3 38.2 -41.7% 27.3 -18.5%
Minority Interest 0.5 0.8 -35.5% 0.5 -9.3%
Adjusted Profit After Extra-ordinary item 21.8 37.4 -41.8% 26.8 -18.7%
AEPS (Unit Curr.) 5.6 9.6 6.9
Equity 39.1 39.1 39.1
Face Value 10.0 10.0 10.0
BPS BPS
EBIDTAM(%) 19.8% 29.3% -950 27.6% -780
EBDTM(%) 25.3% 33.4% -810 32.4% -710
PATM(%) 21.5% 36.3% -1480 27.6% -610
Source: Company & Nirmal Bang Research

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Zydus Wellness Ltd.
QQ44FFYY1144RReessuullttUUppddaattee––2233MMaayy22001144
Consolidated Financials
Profitability (Rs. In Cr) FY13 FY14 FY15E FY16E Balance Sheet (Rs. In Cr) FY13 FY14 FY15E FY16E
Y/E - March Share Capital 39.1 39.1 39.1 39.1
Revenues - Net 388.0 403.6 434.8 478.3 Reserves & Surplus 217.5 286.5 359.6 444.0
% change 17.5% 4.0% 7.7% 10.0% Net Worth 256.5 325.6 398.6 483.0
EBITDA 96.7 89.5 99.5 111.0 Total Loans 0.0 0.0 0.0 0.0
% change 27.2% -7.4% 11.2% 11.5% Minority Interest 2.9 4.7 6.7 8.8
Interest 0.1 0.1 0.2 0.2 Net Deferred Tax Assets 3.9 4.9 4.9 4.9
Other Income 15.8 18.9 19.9 21.4 Total Liabilities 263.3 335.2 410.2 496.8
EBDT 112.4 108.3 119.2 132.2 Net Fixed Assets 94.3 95.4 95.7 95.7
Depreciation 4.5 4.7 4.8 5.0 Investments 0.0 5.0 5.0 5.0
Extraordinary/Exceptional 0.0 0.0 0.0 0.0 CWIP 0.0 0.0 0.0 0.0
PBT 107.9 103.6 114.4 127.2 Inventories 40.9 27.9 37.9 44.4
Tax 8.8 5.3 12.0 13.4 Sundry Debtors 1.5 2.6 3.2 3.5
PAT 99.0 98.3 102.4 113.9 Cash & Bank 190.8 262.8 329.1 410.1
Minority Interest 1.9 1.9 2.0 2.1 Loans & Advances 21.8 31.0 40.4 48.6
PAT after minority interest 97.1 96.5 100.4 111.8 C A L&A 254.9 324.4 410.5 506.6
Shares o/s ( No. in Cr.)* 3.9 3.9 3.9 3.9 CL & P 85.9 89.7 100.9 110.6
EPS 24.9 24.7 25.7 28.6 Working Capital 169.0 234.7 309.6 396.0
Cash EPS 26.5 26.4 27.4 30.4 Total Assets 263.3 335.2 410.2 496.8
DPS (Rs.) 6.0 6.5 7.0 6.5 Cash Flow (Rs. In Cr) FY13 FY14E FY15E FY16E
Quarterly (Rs. In Cr) June.13 Sept.13 Dec.13 Mar.14 Operating
Revenue including OI 107.5 97.7 97.3 101.1 Profit Before Tax 107.9 103.6 114.4 127.2
EBITDA 17.2 25.5 26.8 20.1 Direct Taxes paid -8.8 -5.3 -12.0 -13.4
Interest 0.0 0.0 0.0 0.0 Depreciation 4.5 4.7 4.8 5.0
Other Inc. 3.8 4.8 4.7 5.6 Change in WC -18.1 0.3 -8.6 -5.4
EBDT 20.9 30.3 31.4 25.6 Interest Expenses 0.1 0.1 0.2 0.2
Dep 1.1 1.1 1.1 1.3 Other Operating Activities 0.0 0.0 0.0 0.0
Extraordinary 0.0 0.0 0.0 0.0 CF from Operation 85.5 103.4 98.8 113.6
PBT 19.8 29.2 30.3 24.3 Investment
Tax -3.3 3.6 3.0 2.1 Capex -2.7 -5.8 -5.0 -5.0
PAT from ordinary activities 23.1 25.7 27.3 22.3 Other Investment 0.0 0.0 0.0 0.0
Minority Interest 0.4 0.5 0.5 0.5 Total Investment -2.7 -5.8 -5.0 -5.0
PAT 22.7 25.2 26.8 21.8 Free Cash Flow 82.8 97.6 93.8 108.6
EPS (Rs.) 5.9 6.6 7.0 5.7 Financing
Adjusted EPS (Rs.) 5.8 6.4 6.9 5.6 Equity raised/(repaid) 0.0 0.0 0.0 0.0
Operational Ratio FY13 FY14 FY15E FY16E Debt raised/(repaid) 0.0 0.0 0.0 0.0
EBITDA margin (%) 24.9% 22.2% 22.9% 23.2% Dividend (incl. tax) paid -23.4 -25.4 -27.3 -27.3
Adj.PAT margin (%) 25.0% 23.9% 23.1% 23.4% Deferred Revenue Exp. 0.0 0.0 0.0 0.0
Adj.PAT Growth (%) 43.5% -0.7% 4.1% 11.3% Interest Expenses -0.1 -0.1 -0.2 -0.2
Price Earnings (x) 20.6 20.8 19.9 17.9 Cash Flow from Financing Activities -23.5 -25.5 -27.5 -27.5
Book Value (Rs.) 65.7 83.3 102.0 123.6 Net Cash Flow 59.3 72.0 66.3 81.0
ROCE (%) 48.7% 35.7% 31.7% 28.9% Beginning Cash Flow 131.5 190.8 262.8 329.1
RONW (%) 44.7% 33.8% 28.3% 25.8% Cash as reported in Balance Sheet 190.8 262.8 329.1 410.1
Debt Equity Ratio 0.0 0.0 0.0 0.0
Price / Book Value (x) 8.0 6.3 5.1 4.2
EV / Sales 4.5 4.1 3.7 3.2
EV / EBIDTA 16.4 16.4 14.3 12.3
Source: Company & Nirmal Bang Research

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Zydus Wellness Ltd.
QQ44FFYY1144RReessuullttUUppddaattee––2233MMaayy22001144
Disclaimer:
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