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Target: ₹2,140
CMP: ₹1,586.45
Uniquely placed in FMCG with all its major brands in Health & Wellness (unlike many of its FMCG peers), Zydus Wellness’ leadership in five of its six major brands, ₹5,000 crore revenue target in five years and aiming to return to 20 per cent+ EBITDA margins offer comfort on its growth focus.
Five of its six major brands are leaders in their categories. They are positioned on Health & Wellness, with vast room for penetration-powered growth.
Zydus Wellness targets ₹5,000 crore (or 2.5x) revenue in five years, translating to a 20 per cent revenue CAGR. To achieve this, it plans to broaden its direct reach to 1m outlets (from 0.6m now) and expand its innovation funnel, looking at small bolt-on acquisitions and driving nearly 8 per cent revenue contribution internationally.
We ascribe 30x to Zydus Wellness on Sep’24 (vs. a 10-year average PE of 32x) to arrive at our ₹2,140 target price. At the present price, the stock trades at 28x FY23 EPS of ₹56.7 and 22x FY24 EPS of ₹74.
Key risks: Failure of product launches, unwarranted or pricey bolt-on acquisitions, price-based competition.
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