Stock To Buy: Edelweiss Wealth Research Bets On This FMCG Stock For Aggressive 48% Gains

Edelweiss Wealth Research, a brokerage firm, in its recently published report on June 06, 2022, recommends buying the stocks of Zydus Wellness Ltd for a target price of Rs 2,271. The brokerage has recently met Mr Tarun Arora, CEO of Zydus Wellness, to gain insights into the company's growth plans. Although Zydus Wellness Ltd's growth has been moderate owing to COVID-19-led lockdown restrictions coinciding with its important quarters (January to June) and heightened R.M. inflation.

Stock Overview: CMP, Parget Price, Performance, 52 Week Low & High

On Tuesday, 07 June 2022, Zydus Wellness Ltd's shares witnessed a decline of 1.42% from the previous close. Today it was opened at Rs 1672.95 and closed at the Current Market Price (CMP) of Rs 1550.65. As per the estimated target price and the CMP, the stock could see a jump of 48% in share price given a massive 48% return in 12 months. His data shows, that the stocks have fallen nearly 26% in the past 1 year, while in past 1 year, it managed to reduce the decline, however, fell near 4%. In the recent past, it has hit the 52-week low level at Rs 1,430 on 15 February 2021, on the other hand, it hit the 52 week high at 2,476.85 last year on 21 September 2021.

Every brand displaying double-digit growth potential 

The company's product portfolio (Sugar-Free, Glucon-D, Complan, Nycil, Everyuth and Nutralite) has a relatively low retail penetration (12-24%) within the respective categories, and therefore, tremendous scope for growth vis-à-vis its FMCG peers. As the respective category market sizes are small

Laying the groundwork for international business growth

The company is expanding its international presence and targeting the Middle East, South East Asia and Africa. In FY22, it entered Hong Kong, Lebanon, Zimbabwe, Muscat, Ethiopia and Australia. The management has guided for high double-digit growth in international business and would surpass INR100cr in revenue in FY23E. Zydus Wellness Ltd expects 8-10% of the revenue to come from international business in the next four to five years from ~4% in FY22 (most of its larger FMCG peers derive ~20% revenue from international business). The Sugar-Free and Complan brands constitute 93% of the international business. 

Strong focus on expanding distribution network

Although Zydus Wellness Ltd's total distribution network has remained 2-2.5mn outlets range over the last three years, its direct distribution reach significantly expanded over the last three to four years, from ~2 lakh outlets in FY19 to 5.5 lakh outlets currently. If COVID-19-led lockdown restrictions would not have disrupted its growth over the last two years, the positive impact of this distribution expansion would have been witnessed in Zydus Wellness Ltd's financial performance. Going forward, the company plans to increase its direct distribution by 1 lakh outlets in FY23E and by 5 lakh outlets in the next two to three years. "We believe this would not only aid Zydus Wellness Ltd brands in achieving higher penetration (thereby resulting in higher volumes) but also improve the company's margin profile," the brokerage has said. 

Company's Outlook and valuation, suggest 'buy' for a Target Price of Rs 2,271/share

Edelweiss Wealth Research Maintain BUY To accelerate the growth engine, the company adopted a differentiated approach to focus on portfolio diversification. The company would initiate new launches in some of its brands/brand extensions such as (a) Complan and Complan NutriGro, (b) Glucon-D and its flavours, (c) Sugar-Free and its variants (Sugar-Free Green, Sugar-Free Lite), (d) Dairy and spreads and (e) Personal care via Everyuth and Nycil. The brokerage said, "With this strategy, the company aims for its brands, including brand extensions, to reach a sizeable scale in due time. With these focused strategies, we reaffirm our 'BUY' rating on the stock with a target price of Rs 2,271 per share, providing an upside of 36%."

Zydus Wellness Ltd

Zydus Wellness operates as an integrated consumer Company with business encompassing the entire value chain in the development, production, marketing and distribution of health and wellness products. The product portfolio of the Company includes brands like Sugar-free, Everyuth and Nutralite. Zydus Wellness began its journey as India's leading consumer Wellness Company in 1988 with the launch of India's first zero-calorie replacement of sugar, called Sugar Free. Since then, the company has grown into a larger business, spanning the entire wellness spectrum with seven power brands - Sugarlite, Complan, Sugar-Free, Glucon-D, Everyuth, Nycil and Nutralite. Today, the company has established itself as a prominent leader in the FMCG industry.

Disclaimer

The stock has been picked from the brokerage report of Edelweiss Wealth Research. 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 check with certified experts before taking any investment decisions.