Zydus Wellness: Competition hurts profitability

MUMBAI: Zydus Wellness, leader in the sugar free and low fat butter, continued to report disappointing numbers with only 4% growth in sales and 8% decline in operating profit. This growth was mainly driven by price hikes taken by the company in the previous quarters, while the volume growth was muted across the three categories in which the company operates– Sugar free (low calorie sugar substitute), Nutralite (low category butter substitute) and Everyuth (skin products)

In the Everyuth category, sales declined steeply by 25% due to severe competition in face washes, scrubs and peel offs. Even Sugar free category in which the company has almost 80% market share is struggling to grow due to reduced marketing activities. Nutralite category also faced stiff price competition despite high raw material prices from unorganized players in institutional business which contributes around 75% of Nutralite’s sales.

Because of this higher competition and rise in raw material price, the company’s operating profit fell by 8% to Rs 27.6 crore, despite 4% growth in sales. However, lower tax (less by 75%) helped company to report 27% growth in profit after tax. Its PAT in the March quarter 2012 was Rs 24 crore.

In the coming quarters, the company plans to revise its strategy for Nutralite by increasing ad spends. Post this double digit growth can be expected, in this category. Also it is working on revising strategies of other categories to bring back growth on track. The company’s stock is at 52 week low and trading at a price to earning multiple of 20.