Zydus Wellness eyes acquisition in FY19
The personal care arm of Cadila Healthcare, ZydusWellness, the market leader in artificial sweeteners category (Sugar Free enjoys a 94 per cent market share), plans to grow inorganically and is eyeing an acquisition in the skincare or functional foods category in FY19.
The company has a cash reserve of ~4,897.8 million in its books as of H1FY18 and is looking at ways of deploying the capital in a way that would give better returns. In fact, the return on capital employed (ROCE) has come down from 63.3 per cent in FY11 to 21.5 per cent in FY17. As such, with a 94 per cent market share in its flagship product category, it is difficult for the firm to vie for more market share; it is looking at expanding the market size though.
Besides looking at brand extensions in its key brands Nutralite (table margarine) and Everyuth (facial cleansers), Zydus Wellness is now keen to acquire some brands to put it in a faster growth trajectory. Tarun Arora, chief operating officer and director, Zydus Wellness, said the company had been looking at potential buys for some time now and also done due-diligence of some targets, but nothing had worked out yet. “We are looking at brands within India preferably or markets outside India that we are targeting at the moment. From the product category, we are looking at health and beauty products segment (like skincare) and also in the functional food category,” he said adding that outside India the company was open to looking at brands in the sweetener category as well.
He felt that one decent acquisition could be a game changer for the company, which has already put itself on a faster growth track. From a 3-4 per cent compounded growth rate in revenues for the past few years, Zydus Wellness has already improved to a 9.9 per cent growth in Q2FY18, while its profit after tax (PAT) grew 12.8 per cent year-on-year during the past quarter.
A better revenue growth would mean more surplus in its balance sheet and as the company has already finished investing in its new plant in Sikkim (~350 million or so), it is looking at ways to deploy the capital for better returns.
Besides, eyeing the inorganic route, the company is also working on brand extensions. It launched the Sugar Free Stevia, the herbal variant of the low calorie sweetener brand Sugar Free, which has been developed from a South American herb Stevia. It is all set to enter the mayonnaise segment under its Nutralite brand and is open to enter lotions and facial creams segment under Everyuth in FY19.
Arora said that the firm would also continue to focus on innovation within the categories itself - like new flavours (classic vegetarian, achari and cheesy garlic) within Nutralite and focus on herbal within Everyuth (it launched TusliTurmeric face wash and NeemPapaya scrub in 2017 to take on Himalaya's offerings).