With its eyes set on the global play, Zydus Wellness clinched iconic brands from the American food major Heinz India for a consideration of ₹4,595 crore. Speaking on the deal that catapults Zydus Wellness among the top consumer players in India, Chairman Sharvil Patel speaks to BusinessLine on the future strategy and potential with the new set of portfolio. Edited excerpts:
How did you clinch the deal of these iconic brands?
The segment that Zydus Wellness currently plays in is very much in alignment of the current four brands of Heinz India. With the combined entity, we would have about 80 per cent of the business coming from health food and nutrition segments. With strong financial background and positioning in terms of performance, we were able to provide a clean and fast executable structure to Heinz, which was important for them. Negotiations did take place, but more than the size the surety of the deal was important. The chemistry of both the teams was good so we could do it in short period of time.
At the given business of the four brands from Heinz, how does pumping such amount in this category make sense for Zydus?
The current transaction is at 4.5 times the sales and 20 times EBIDTA. If you look at the peer comparison in the last many years, the multiples of consumer businesses are high. This is at the substantially lower valuation than current valuation of any of the consumer led company. We have got a fair deal. This business has highly entrenched brands with strong cash flows. The combined business will have EBIDTA of ₹350 crore. So in terms of capital employed and return on equity are good in the combined entity.
Aren’t the brand that you have bought facing saturation in the respective categories with further growth becoming a tall task?
We don’t believe that. Largest brand is GluconD, which is market leader. In last three years, it is growing at 9-10 per cent faster than the market. These are progressive brands. The challenge has been for Complan, in the last couple of years. The category was floored down. But important point is that in the past six months, the brand has been in the right track and it is doing well. There were fundamental issues in terms of management of Complan brand and formulation changes. But the new management has changed it and improved it.
The Milk food is one of the best segments with highest protein and lowest sugar. Better marketing efforts is required. The market is growing better than it has grown than last two years. We are seeing new people investing in this segment and other brands being transacted, which brings new investments in the segment resulting into further growth for the segment.
Which is the biggest market for Complan? Will it remain India-specific?
Currently, it has large part of its business coming from India. But it has tremendous potential in neighbouring countries — Bangladesh, Sri Lanka and West Asia. We do have rights to many of these markets. So we will be expanding to many of these markets going forward.
Going forward, do we see some synergy happening between Nutralite and Complan or GluconD brands coming from Heinz?
There is a good synergy already. Each of us have 2.2 lakh coverage of distributors. And very little overlap. We believe our direct distribution will double and there is a significant increase in each of the brand. Each of the brand will benefit from the other. Because these brands are well established, which will help other brands also.
There is a good potential of penetration for Complan and GluconD in the urban and tier 2,3 and rural market.
Nutralite is a full cold chain capability, with end-to-end cold chain. And we now have a ghee brand, Sampriti, we will be able to improve the direct coverage and increase our reach from B2B to B2C segment.
What is Zydus Wellness’ strategy going forward for expanding to Gulf, Africa and South-East Asia?
We have already started entering into international partnerships in the African and GCC market and Asian markets. We will leverage that to bring some of these brands to global market as well.
From wellness’ point of view, this is a fairly large transaction, about three times of its current size. Combined entity will have turnover of ₹1,700 crore and ₹350 crore of EBIDTA will churn out a lot of cash.
Cash surplus will get created and will help partly pay out our debt later. It will on its own be able to create sufficient resources for future growth.
So, next 3-5 years we have to concentrate in building both the core businesses because both are in the growth stage.