Riding on Heinz, Zydus Wellness eyes Rs 4,500-crore turnover in 5 years

Consumer business crucial for Cadila Healthcare, at a time when US and India have pricing pressure

With the consolidation of the acquired Heinz portfolio, the consumer products arm of pharma major Cadila Healthcare, Zydus Wellness, is now eyeing a Rs 4,500-crore turnover in the next five years. In fact, analysts feel that the consumer arm will play a crucial role, in terms of contribution to growth at a time when the US and Indian markets have pricing headwinds. 

In the March quarter, excluding the Heinz business, the total income of Cadila Healthcare grew 7 per cent, said Deepak Malik, analyst with Edelweiss. The consolidated revenues had grown by 15 per cent year-on-year (YoY) in the fourth quarter, which included results of operations of the acquired business of Heinz India for two months.

Zydus Wellness posted a turnover of Rs 842.8 crore for 2018-19, up 61.7 per cent. “Zydus Wellness is betting on the acquired business to fuel growth, as these are well entrenched brands which have a good distribution network and offer significant opportunities for value addition. In the next five years, the top line is estimated to touch Rs 4,500 crore,” said a senior official of the company. 

Analysts say that Zydus’ products have been growing in mid-single digits in the last few years, and the Heinz acquisition is expected to give the much-needed boost to its portfolio. 

Zydus got marquee brands like nutrition drink brand Complan, glucose-based energy drink brand Glucon-D, and talcum powder Nycil through the acquisition. Its existing brands like sugar substitute Sugar Free enjoy the market leader position, with a 93.8 per cent share and there is lower room for growth until the market expands. 

Glucon-D, too, is a market leader in the glucose powder category, with a 59.5 per cent market share and so is Nycil (market leader in the prickly heat powder category, with a share of 32.1 per cent). 

“With strong summers, we are expecting good traction for our brands Nycil and Glucon-D, which have a strong seasonality factor. We are working to put a detailed and long-term plan in place, so that we have a strong distribution and innovation agenda. We are also calibrating what investments are needed to take it to a billion-dollar portfolio eventually,” said Tarun Arora, chief executive officer, Zydus Wellness.

As for brand extensions, the company feels that while it is R&D ready, it needs to put in more effort on the consumer-end before rolling out extensions. “We have to think in terms of the brand stretch point of view and also in terms of resources,” said Arora. 

There is enough room to gain share in the current portfolio. The focus is on distribution ramp-up at the moment and in the next one to two years, significant ramp-up of the network is on the cards. 

Malik said in a recent note, “Base sales for this portfolio will be Rs 1,150 crore. The company expects to grow this by 8-10 per cent.” He added that Cadila Healthcare expects a 40-50 per cent increase in distribution coverage and Rs 30-40 crore cost savings over the next 12 months. Analysts feel that the company should see some rationalisation in trade spending. 

However, analysts also pointed out that there is likely to be higher spending on promotions. JM Financial analysts said that the cost savings are likely to be offset by an increase in promotional spending. 

In the March quarter, Zydus Wellness reported a 216 per cent jump in revenues to Rs 416 crore (riding on Heinz). The consolidated net profit for the quarter jumped 72 per cent YoY. 

Analysts say that while the consumer business now has a smaller share in the company’s overall Rs 13,000-crore business, in the coming years, it is likely to contribute significantly to the growth rate. 

Some of its blockbuster products in the US (like generic Lialda, a drug for ulcerative colitis) have seen some slowdown in growth as competition intensified. Lialda, for example, now contributes 6 per cent of US sales, compared to 15 per cent a year ago. 

In India, the company is undergoing a portfolio rationalisation exercise — it discontinued 100 products recently, even as it launched over 50 products.