Motilal Oswal has started coverage on Zydus Wellness with a 'Buy' rating and a target price of Rs 665. While the company recorded a 67% surge in first-quarter sales, reported profits dipped due to financing and amortization costs from its recent acquisition. Investors are weighing this strong inorganic growth against seasonal headwinds impacting its domestic business.
Motilal Oswal has initiated coverage on Zydus Wellness with a 'Buy' rating and a target price of Rs 665 per share. The brokerage firm’s valuation is based on a Sum-of-the-Parts method, valuing the India business at 30 times and the international business, Comfort Click, at 20 times the estimated EV/EBITDA for fiscal year 2028.
The company’s latest financial performance for the first quarter of fiscal year 2027 shows a contrast between its top-line and bottom-line figures. Consolidated net sales jumped 66.7% year-on-year to Rs 14.3 billion. However, the reported net profit declined by 7% to Rs 1.19 billion. This drop in net profit is primarily attributed to higher brand amortization costs and financing expenses related to the acquisition of the Comfort Click business. When adjusted for these one-time or acquisition-related charges, the underlying business showed strong growth, with adjusted net profit rising 26.5% year-on-year to Rs 1.68 billion.
The domestic segment, which includes well-known brands, grew by 5% during the quarter. This performance fell slightly below some analyst estimates, largely because of delayed summer onset and unseasonal rainfall in parts of North and East India. These weather conditions impacted consumer demand for seasonal products like Glucon-D and Nycil. Despite the weather-related slowdown, the company maintains dominant positions in key categories, with Sugar Free holding a 96.1% market share and Glucon-D commanding a 59.1% market share.
For investors, the integration of the Comfort Click acquisition remains a key area to watch. While the acquisition has significantly increased the company's sales footprint, the resulting amortization and finance costs are currently weighing on reported earnings. Future profitability will depend on the company's ability to manage these integration expenses while driving synergies across its expanded product portfolio. Additionally, the recovery of its seasonal brands from recent weather-induced demand pressure will be an important factor for domestic growth.
The company’s ability to sustain its market share in the Sugar Free and energy drink segments despite broader sector headwinds—such as shifts in consumer preference and nutritional drink category trends—will also be a primary monitorable. Investors will likely look for management commentary on how the business plans to balance these high integration costs with operational improvements in the coming quarters.