Buy This Mid-Cap Wellness Firm Scrip With Significant Growth Potential

One of the leading stock-broking firms Anand Rathi sees a significant growth potential in the stocks of Zydus Wellness. This mid-cap wellness company's Q4FY23 revenue growth was in line with the brokerage firm's and street estimates.

Fourth-Quarter Performance

Zydus' Q4 FY23 revenue growth was 12% year-on-year, and the EBITDA margin belied the street's 21.2% estimate. The company posted steady or improving product/brand market shares, barring Complan (down 50bps in FY23). The three-year revenue CAGR was 13.6% for Q4 and 9% for FY23, Anand Rathi stated in its report.

Further, the stock-broking firm also mentioned that despite Q4 milk prices up 21% y/y the gross margin was 51%, flat due to a 6.5% further price hike (only two-thirds reflected in the quarter). The Q4 EBITDA margin was hit by one-time other expenses, wage hikes in NE, and higher prices of alternative fuels (husks & coal) relating to third-party Glucon-D manufacturing to address seasonal demand.

Management Guidance

As per the brokerage report, Zydus management talked of its intent to claw back the gross margin to 53-54% via price hikes and a better mix. Management aims to increase direct distribution from 0.6 million outlets to 0.7 million in FY24 and the share of international revenue to 8-10% in the next 4-5 years. Thus, these measures and price hikes should help record a 12.4% revenue CAGR over FY23-25.

Outlook & Rating

Anand Rathi projects margins for FY25 and reduces its view about FY24 EPS. "We build in an 18% EBITDA margin for FY25 (up 300bps from FY23). Nevertheless, adjusting for one-off overheads, the margin would have been roughly 22%. To factor in the Q4 miss, we reduce our FY24e EPS by 8% but raise FY25e by 17% to factor in no taxes (vs. the 25% tax modeled earlier), " it said.

"We retain our long-term view of a double-digit revenue CAGR and margins returning to 20%+ over 3-5 years. We retain our Buy rating with a 12-month target price of Rs 1,940 (25x FY25e EPS), earlier Rs 2,065 (30x Sep'24e EPS)," the firm report added.

Dividend Information

The Board of Directors of Zydus, in a meeting held on 17th May 2023, has recommended a final dividend of Rs 5 (50%) per equity share of Rs 10 each, subject to the approval of the members at the ensuing Annual General Meeting scheduled to be held on 3rd August 2023.

The record date has been fixed as Friday, July 21, 2023, to determine the list of members entitled to receive the dividend recommended, which is subject to the approval of the members at the ensuing AGM.

Once it gets approved the company shall make the payment of dividend, subject to deduction of tax at source, on or after August 8, 2023.

Share Price Movement

The latest closing price of the wellness firm's stock is Rs 1,477 per share. It was down marginally by 0.34% over the previous day's closing price. In the last one year, the share price fell by 6.8% but in the past three years, it has rallied by 24.24%.

Disclaimer

The stocks have been picked from the brokerage report of Anand Rathi. 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. Goodreturns.in advises users to consult with certified experts before making any investment decision.