>ZYDUS WELLNESS LIMITED: Q3FY12 – Sales decline continues, lower expenses expands margins

• Zydus Wellness reported net sales at `510 mn, down 43.8% Y-o-Y resulting from decline in
Everyouth brand due to intense competition.
• EBIDTA declined by 29.9% Y-o-Y at `199 mn. EBITDA margins expanded 808bps Y-o-Y to 39%.
• Ad Spends were `2 mn as against `6 mn in Q3FY11 and `132 mn in Q2FY12.
• Other expenditure and Staff cost declined by 52.6% (down 319bps) Y-o-Y and 29.9% (up 90bps) Y-o-Y respectively in Q3FY12.
• PAT decreased by 4.7% Y-o-Y to `186 mn as against `196 mn in Q3FY11. PAT margins expanded by 15% points Y-o-Y to 36.5% in Q3FY12 as against 12.5% in Q3FY11 resulting from lower expenditure.


Result Highlights


■ Sales decline continues
Sales growth reported decline of 44% Y-o-Y on the back of de-growth in Everyouth (face-washes and scrubs) brand. Sugarfree and Nutralite have recorded single digit growth during the quarter. High competitive intensity in the category has resulted in de-growth in Everyouth brand. Management is confident about double digit growth as company resumes its brand campaign again in Q4FY12.


■ Margins expand as expenses declines
EBIDTA declined by 29.9% Y-o-Y at `199 mn. EBITDA margins expanded 808bps Y-o-Y to 39%. The company has withdrawn its brand campaign / communication during the quarter due to very high competition resulting very low return on ad spends. Ad Spends were `2 mn as against `6 mn in Q3FY11 and `132 mn in Q2FY12. Other expenditure and Staff cost declined by 52.6 % (down 319bps) Y-o-Y and 29.9% (up 90bps) Y-o-Y respectively in Q3FY12. This resulted in EBITDA margin expansion of 808bps to 39% in Q3FY12.


■ High other income boosted PAT growth
PAT decreased by 4.7% Y-o-Y to `186 mn as against `196 mn in Q3FY11. PAT margins expanded by 15% points Y-o-Y to 36.5% in Q3FY12 as against 12.5% in Q3FY11. Low tax rate (13.3% vs 33.2% in Q3FY11) has helped to push up the PAT margins to 36.5%.


■ Valuation & Viewpoint
Though Zydus wellness has strong brands like Everyouth, Sugarfree and Nutralite in niche segments on health and wellness platform. The recent decline in earnings is concern even though management is confident of double digit growth rate with reintroduction of brand campaign in Q4FY12.


■ Quarterly Result Snapshot

RISH TRADER