Investor's Eye: Update - Zydus Wellness, Cement

 

Investor's Eye [December 03, 2014]  Sharekhan www.sharekhan.com

Summary of Contents   STOCK UPDATE     Zydus Wellness Recommendation: Hold Price target: Rs875 Current market price: Rs791   Play on revival in urban consumer demand; price target revised to Rs875   Key points  Q2FY2015 marked a turnaround in Zydus Wellness' performance with the company reporting a positive growth in volumes (and growth in revenues) after a phase of declining trend or flattish growth for the previous several quarters of tepid performance. The revival is driven by the change made in the distribution strategy along with improving sentiments towards its urban-centric products like Sugarfree and Nutralite. In some of its categories like Everyuth's face wash, the company is trying to mitigate the competitive pressure by launching new variants and introducing Rs1 pack in the domestic market. In addition to expectations of sustained recovery in volume sales driven by an improvement in the consumer sentiments, the company's margins would get supported by the softening of raw material prices (including palm oil) and a favourable revenue mix. Thus, we believe that Zydus Wellness will be one of the key beneficiaries of improving urban consumer sentiments, which could transform into better performance in the next two to three years. We have revised our earnings estimates upwards for FY2016 and FY2017 by ~2% and ~7% to factor in better than expected revenue growth (especially in Nutralite brand) and higher than expected operating margins. We maintain our Hold recommendation on the stock with the revised price target of Rs875 (valuing stock 24x its FY2017E earnings). SECTOR UPDATE     Cement    Temporary glitch in cement prices   Key points Our channel check with cement dealers across the country suggests an average decline of 5% month on month in cement prices. This time around we have seen correction across all regions with southern and northern regions getting affected the most with 11% and 7% price correction, respectively. While central and eastern regions corrected by 3-4%, western region was least affected with 2% price decline.  Across the regions during the period of July-September 2014, we had witnessed cement companies trying to increase prices (first in north, central and west, and then in east and south) to absorb cost pressures. However, the softening of input cost and lackluster demand has triggered correction in cement prices across all regions.  We believe this price correction is a near-term glitch which can get recouped with cyclical upturn in the economy and the expected policy push to drive investments in roads and other infrastructure segments. In case the demand environment does not improve in the next four to six months, it would put a risk to the consensus view of a fairly healthy improvement in utilisation rates and an improving trend in realisation over the next two years. Thereby, leading to cut in estimates and underperformance by cement stocks. Meanwhile, we continue to remain selective in the cement space. UltraTech Cement remains our preferred pick in the cement sector on account of its pan-India presence and strong balance sheet. We also like JK Lakshmi and Mangalam Cement in the mid-cap space. 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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