Target: ₹2,250

CMP: ₹1,575.55

Research-backed innovation focus with an intent to create problem-solution products/brands is our key takeaway from meeting the Zydus Wellness (Zydus) senior management in Ahmedabad. With double-digit growth potential across its most brands, distribution expansion benefits and developments in focused international geographies are key legs of growth in the medium-term.

Given current scale, we liked the focus on technology-led efficiency improvements.

We believe the focus on research-based products is what provides longevity to (FMCG) organisations. The results post the acquisition (of Heinz portfolio) have been encouraging notwithstanding the inflation concerns and missed summer sales for the last two years.

Besides a strong core, successful brand extensions are aiding overall growth.

We especially like the new product development strategy aimed to address some key challenges – SugarLite to address the taste penalty, Complan Nutrigro to regain lost medical connect of the brand. Expanded direct reach will allow it to participate in larger categories.

Headwinds in the last two years mask the improvement in underlying operating performance.

Our earnings estimates are unchanged. We model revenue/EBITDA/PAT CAGR of 12 per cent/ 21 per cent/27 per cent over FY22-24. At our target price (₹2,250), the stock will trade at 31x P/E multiple Sept-23.

Key downside risks are delays or failures in new product development or inability to expand distribution.