Investor's Eye: Update - Zydus Wellness, Bajaj Holdings & Investment

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Investor's Eye [May 19, 2014]  Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE     Zydus Wellness Recommendation: Reduce Price target: Rs464 Current market price: Rs497   Another disappointing quarter, maintain Reduce    Result highlights Q4FY2014 was a yet another disappointing quarter for Zydus Wellness whose revenues declined by 2% and OPM contracted by 931BPS YoY to 19.8% (due to a higher advertisement spending) leading to a 42% drop in the net profit during the three-month period. The Everyuth skin care brand continued to play a spoilsport with a likely double-digit decline in its revenues due to a drop in the sales of Everyuth peel-off and a high base of Q4FY2013 due to the launch of soaps and new variants. The Nutralite spread also registered a decline in revenues due to a price cut taken recently; its volume grew in low single digits. The Sugarfree brand continued to gain good acceptance and was the market leader with a 93% market share in the substitute for sugar category during the quarter. The company is focusing on reviving its sales by launching a new distribution system (a nationwide implementation is expected by Q2FY2015), introducing new variants and supporting brands with higher advertisement and promotional activities. We believe these efforts will take another three to four quarters to translate into any substantial improvement in the sales, as a large part of the company's portfolio consists of products from the premium and niche categories. In view of the uncertainty over the earnings growth in the near term we maintain our Reduce rating on the stock with an unchanged price target of Rs464. The stock is currently trading at 18.6x FY2015E EPS of Rs26.6 and 16.3x FY2016E EPS of Rs30.5.       Bajaj Holdings & Investment Recommendation: Buy Price target: Rs1,473 Current market price: Rs1,089   Expect revival in life insurance business; stable outlook for other businesses    Result highlights Bajaj Auto (in which Bajaj Holdings and Investments Ltd [BHIL] has a 31.49% stake) is expected to grow its earnings at a 12.5% CAGR over FY2014-16. A growth in exports and new launches in the domestic market are likely to drive the earnings growth in FY2015. BHIL's other important investment, ie Bajaj FinServ (BHIL holds a 39.16% stake in it), witnessed pressure in its life insurance business in recent past owing to some regulation changes. However, the worst seems to be over for the business and Bajaj FinServ is expected to report a better performance in FY2015. The general insurance and lending businesses (Bajaj Finance) are expected to report a robust performance in FY2015-16. With a positive outlook on both the key investments, ie Bajaj Auto and Bajaj FinServ, as well as a stable view on the company's other treasury operations (in a stable interest rate scenario) we maintain a Buy recommendation on BHIL with a price target of Rs1,473.  Click here to read report: Investor's Eye         Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Regards,  The Sharekhan Research Team

 

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