Zydus Wellness (ZWL) reported healthy results with revenue growth of 24.2% due to ~Rs. 100 crore sales loss in base quarter due to lockdown imposed in March 2020. The company witnessed strong double digit growth in Sugar Free & Nycil. Further, discretionary brand Everyuth also saw strong growth with an increase in out of home activity. HORECA dominant brand like Nutralite saw a sharp recovery with sales reaching at pre-Covid levels in Q4. ZWL maintained its leadership position in five of its brands - Glucon-D, Sugar Free, Ever-Yuth Scrub, Peel off Face Mask & Nycil. Glucon-D & Complan command market share of 58.4% & 5.5% in glucose powder & MFD category, respectively. Gross margins witnessed a 70 bps improvement given the company was holding low cost SMP (Skimmed Milk Powder) inventory. With 204 bps savings in employee spends & 237 bps savings in overhead spends, the company was able to increase marketing spends by 255 bps. Operating profit increased 38.6% to Rs. 145.4 crore. Operating margins improved 250 bps to 24%. Interest cost declined 75.5% in Q4 with repayment of more than Rs. 900 crore debt after raising funds through QIP. This led to PAT growth of 91.8% to Rs. 133 crore. Valuation & Outlook The large opportunity in health, nutrition space gives enough room for existing brands to grow to a sizable level. Moreover, strong gross margins give the company leeway to spend more on advertisements for brand building. We believe the visibility for strong revenue, earnings growth has increased and the stock can command higher multiples similar to some of its peers in the FMCG space. We maintain our BUY recommendation with a revised target price of Rs. 2800/share (earlier Rs. 2500). For details, click on the link below: Link to the report Shares of ZYDUS WELLNESS LTD. was last trading in BSE at Rs.2111.65 as compared to the previous close of Rs. 2103.45. The total number of shares traded during the day was 5371 in over 812 trades. The stock hit an intraday high of Rs. 2155 and intraday low of 2103.45. The net turnover during the day was Rs. 11422111.

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