Recent Broker Picks

In a dynamic market scenario, many stocks find themselves on the radar of brokerages, whose analysts do a detailed analysis on past performance as well as gauge the future potential. We track stocks that have been covered by brokerages over the last few weeks and what are the key highlights of each report and the reasons for choosing these stocks. This week we bring you highlights from two stocks covered by brokerage houses viz, Zydus Wellness and NOCIL.

Zydus Wellness

Zydus Wellness is an integrated consumer company, engaged in the development, production, marketing and distribution of health and wellness products. Over the last thirty years, they have added several brands to the portfolio, namely Complan, Sugar-Free, Glucon-D, Everyuth, Nycil, Sugarlite and Nutralite. 

Edelweiss view on Zydus Wellness

The Edelweiss team met with Mr. Tarun Arora, CEO of Zydus Wellness, to gain insights into the company’s growth plans. Zydus Wellness emphasised on a three-pronged strategy to drive growth going forward: 

1. accelerate growth of core brands with innovations
2. build scale in international business
3. expand customer base with increased penetration

Although Zydus wellness’ growth has been moderate owing to COVID-19-led lockdown restrictions coinciding with its important quarters (January to June) and heightened R.M. inflation, Edelweiss believes with normalisation setting in, strong focus on distribution expansion and new launches, ZWL would stage a strong comeback vis-à-vis volume growth and margin expansion in FY23.

Key points of the report

• The Company is expanding its international presence by entering new areas like Middle East, Africa and South Asia. It expects 8-10% of the revenue to come from international business in the next 5 years as It entered Hong Kong, Lebanon, Zimbabwe, Muscat, Ethiopia and Australia. Sugar-free and Complan brands constitute 93% of the international market.
• Direct distribution which plays a key role in the FMCG sector has tremendously extended from 2 lakh outlets in FY19 to 5.5 lakh outlets at the current time.

• The company’s e-commerce salience grows more than triple (from 1-1.15% of the sales in the pre-Covid era to 6% currently.) It’s above 10% for Everyouth, Sugar-Free and Glucon-D. 
• To tackle inflation and protect its margins, the company reduced media expense from ~14% earlier to ~12% of Sales in FY22. The company repeated A&P spending would regress to `14% levels going forward. 
• Everyouth’s Facial Scrub’s market share grew from 30% to 39% of the total Scrub’s market. The company also entered the body lotion segment under the Everyouth brand.

BOB Capital Market view on Zydus Wellness

BOB Capital Markets retain a BUY on Zydus Wellness, on the back of new launches, increasing distribution strength, a broader presence through existing brands, its ability to cater to white spaces, and a strong gross margin which gives it the leeway to spend more on brand building. We are also positive on ZYWL’s debt reduction measures, faster FCF generation and superior execution.

Key points of the report

• Multiple product launches in FY22 which include 

1. Complan – relaunched with an enhanced proposition, improved chocolate taste and new packaging, supported by fresh TV commercials and consumer offers, 
2. Everyuth Body Lotion range – a strategic extension into the skincare space
3. Nutralite Doodhshakti Professional Pure Ghee (1 ltr pouch) – launched in Mar’22 to expand reach in food services, institutional and catering industry (HoReCa) channels
4. New variants of Complan Sugar Free D’lite Cookies and Chocolate Spread in international markets.

• The company has entered new markets such as Hong Kong, Lebanon, Zimbabwe, Muscat, Ethiopia and Australia in FY22. Management has guided for high-double-digit growth in the international business, likely crossing Rs 1bn in revenue in FY23. The target is to have 8-10% of revenue come from the business in the next 4-5 years from ~4% in FY22.

NOCIL

NOCIL (National Organic Chemical Industries) is a largest manufacturer and supplier of rubber chemicals in India. The company is a part of Arvind Mafatlal Group of Industries a well-known Business House in India with multi-dimensional business interests. They are having their manufacturing facilities in the TTC industrial area Thane and ancillary manufacturing facilities in the GIDC industrial area Vapi. NOCIL’s Product Range includes Post Vulcanization Stabilizer Accelerators, Sulfur Donor, Antioxidants, Antidegradants, and Pre-Vulcanization Inhibitor. The company markets these products under the name PILFLex, PILnox, PILcure and PILGarD.

Nocil has an agreement with Reliance Industries to sells its Petrochemicals and Plastic Products division. ENsen Holdings, Urvija Investments and PIL Chemicals are some its subsidiaries. As a joint venture with Dowelanco US, DENOCIL (Joint Venture) manufactures and markets crop protection products in India.

HDFC securities views on NOCIL

A good volume growth owing to increasing demand in the tyre industry can be noticed in the market. Also, there has been an expansion of margins with centralized focus on rubber chemicals. EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) and PAT (Profit after Tax) were 135% and 132% above their estimates inline with 23% higher revenue.

Con call takeaways:

• NOCIL has registered 16% YoY volume growth and beat its earlier guidance of more than 10%. They are also focusing more on increasing the full capacity utilization utilization by Sep 23 from its current ~75% utlisation to 100%.

• In FY 22, Total revenue was slightly impacted by constraints in exports due to negative impact of supply chain issues.

Motilal Oswal’s stance on Nocil

It is believed that optimal utilization for its expanded capacity (of 110ktpa) will surely be achieved by first half of FY24. They forecast a revenue and EPS CAGR at 9% and 15% over FY22-24 respectively. Also, EBITDA margin was at 23.9% comparing to 12.8% in 3QFY22 and 15.6% in 4QFY21. 

• The Indian Tyre industry is expected to grow 7-9% in volume terms in FY23. Domestic Tyre companies have planned capex of INR200b to raise the production, over the next three years. Export business mainly including replacement tyre market was strong in Europe and US. 
• Sharp increase in crude and Benzene prices along with increase in spread
  between Benzene and its derivatives led to increase in raw material prices QoQ. Logistics issues declined exports. Price hikes were implemented in 4QFY22.

Axis Securities view on NOCIL

• Industry Growth-  Indian tyre industry has become favourable post COVID-19 impact with steady growth in demand which is expected to grow at 7%. There has been a increase in market share gain in the domestic market from 33-34% pre covid to 40-42% post Covid levels. Many global and domestic tyre majors are looking to reduce their dependence their on China and looking forward for alternatives partners. India being a small player in rubber industry including NOCIL having most of the Indian market share will pave the way for NOCIL’s Growth over longer term. 

• Superior Return Profile – We expect the company’s ROE to increase from 7% to 17% over FY21-24E, with the support of a strong 54% PAT CAGR over the same period as it continues maintain market share and captures on strong replacement demand.