Zydus Wellness growth initiatives offset weak seasonal demand and support margins

Investment View and Target Price

Motilal Oswal Financial Services maintained its Buy rating on Zydus Wellness in its August 4, 2026 Q1 FY27 results update. The investment view is supported by growth in the non-seasonal domestic portfolio, improving profitability at RiteBite and Comfort Click, and continued international expansion, despite a weak quarter for seasonal products.

The broker retained a target price of Rs 665, compared with the CMP of Rs 550. The target is based on a sum-of-the-parts valuation, applying 30 times FY28E EV/EBITDA to the India business and 20 times to international operations, principally Comfort Click. This implies a consolidated FY28E valuation of 25 times EV/EBITDA and 30 times P/E.

Q1 FY27 Revenue Performance

Zydus Wellness reported consolidated revenue of Rs 1,437 crore in Q1 FY27, up 67 per cent year-on-year but 5.9 per cent below Motilal Oswal’s estimate of Rs 1,527 crore. Domestic revenue grew 5 per cent year-on-year, compared with the broker’s 7 per cent expectation.

A delayed summer and unseasonal rain in North and East India weakened demand for seasonal products. Revenue from Glucon-D and Nycil declined 12 per cent year-on-year, following a 10 per cent decline in Q4 FY26. Motilal Oswal described the seasonal portfolio as weak, while noting that the rest of the domestic business retained strong momentum.

Non-Seasonal and International Growth

Non-seasonal categories performed well during the quarter. Everyuth revenue rose 35 per cent year-on-year, while Food and Nutrition revenue increased 16 per cent. Within Food and Nutrition, Nutralite recorded strong growth, Complan delivered double-digit growth and Sugar Free posted high-double-digit revenue growth.

RiteBite Max Protein continued to deliver healthy volume and value growth. International revenue, including Comfort Click, grew 25 per cent year-on-year.

Profitability and Cost Trends

Q1 FY27 gross margin expanded to 65.7 per cent from 55.0 per cent a year earlier, broadly in line with Motilal Oswal’s 65.5 per cent estimate. The improvement was aided by the higher gross margin of acquired brands.

Reported EBITDA grew 55 per cent year-on-year to Rs 242 crore, although it was 6.4 per cent below the broker’s Rs 258 crore expectation. EBITDA margin declined 130 basis points year-on-year to 16.8 per cent, broadly matching the 16.9 per cent estimate.

Employee expense rose 42 per cent and other expenses increased 194 per cent year-on-year, largely due to acquisition-related costs. On a like-to-like basis, however, the core portfolio and Comfort Click improved EBITDA margins. RiteBite’s EBITDA margin reached double digits, compared with break-even at the time of acquisition.

Adjusted PAT, excluding the amortisation impact, rose 31 per cent year-on-year to Rs 168 crore and was in line with the broker’s estimate. Finance costs declined following the refinancing of a GBP-denominated loan into a lower-cost EUR loan.

Management Commentary and Growth Initiatives

Management stated that weak summer demand should not create an inventory overhang, as distribution-system inventory is broadly in line with or below last year’s level. Management expects an FY27 effective tax rate of around 25 per cent, with lower cash-tax outflow during the year.

Comfort Click has been EPS-accretive since Q4 FY26, and profitability improved further in Q1 FY27. International initiatives include the launch of the WeightWorld direct-to-consumer platform in the US, expansion through Walmart Marketplace and growth in the Middle East.

Management also indicated that Max Protein is growing at more than twice its historical rate, supported by higher brand investment, distribution expansion and portfolio innovation.

Estimates and Growth Outlook

Motilal Oswal retained its FY27 and FY28 EBITDA estimates. It forecasts domestic revenue CAGR of about 11 per cent and domestic EBITDA CAGR of about 20 per cent over FY26 to FY28. Consolidated revenue and EBITDA CAGR are forecast at about 26 per cent and 37 per cent, respectively.

Key Watch Items

• Recovery in seasonal demand.
• Adverse weather effects on Glucon-D and Nycil.
• Acquisition-related costs.
• Delivery of the planned margin improvement.