Skin care or functional food? Zydus Wellness eyes acquisitions in FY19

The personal care arm of Cadila Healthcare, Zydus Wellness, which is the market leader in the artificial sweeteners category (Sugar Free enjoys a 94 per cent market share), plans to grow inorganically and is eyeing an acquisition in FY19 in the skincare or functional foods category. 

The company has cash reserves of around Rs 4897.8 million in its books and is looking at ways of deploying it for better returns. The return on capital employed (ROCE) has come down from 63.3 per cent in FY11 to 21.5 per cent in FY17. 

Apart from exploring brand extensions in its key brands Nutralite (table margarine) and Everyuth (facial cleansers), Zydus Wellness is keen to acquire brands to put it on a faster growth trajectory. Tarun Arora, Chief Operating Officer, and Director, Zydus Wellness Limited said that the company has been looking at potential buys for some time now and has also done due-diligence of some targets. 

"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 believes one solid acquisition can be a gamechanger 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 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, it is looking at ways to deploy the capital for better returns.

The company is also working actively on brand extensions - it launched the Sugar Free Stevia, the herbal variant of the low-calorie sweetener brand Sugar-Free and it is all set to enter the mayonnaise segment under its Nutralite brand. It is also open to entering the lotions and facial creams segment under Everyuth in FY19. 

Arora said that it 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 Tusli-Turmeric face wash and Neem-Papaya scrub in 2017 to take on Himalaya's offerings). 

Everyuth, primarily a facial cleanser brand, enjoys 85 per cent market share in peel-offs and 30 per cent scrubs. However, in the face wash category, its share is quite low at 2 per cent. This is where brand acquisitions may play a crucial role to bolster its market share in the overall facial cleansing category of Rs 25 billion or so.

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