Wednesday, February 4, 2009

Zydus Wellness - Is there value?

One of the renowned value investors, Seth Klarman, focuses on complex securities because most of the investors stay away from such opportunities either because they don't know that it is an opportunity or because they want to avoid complex opportunities since the outcomes may not be favourable. Zydus Wellness, erstwhile known as Carnation Nutra Analogue Foods, seems such a complex opportunity. Cadila Healthcare acquired the 14.96% stake in Carnation Nutra in March 2006 at INR 150. There was an open offer for 20% at INR 150 and Cadila's shareholding somehow increased to 60%. Today it stands at 62.66%.

The current equity capital of Carnation Nutra is INR 5.5751 Cr. Since the Zydus Cadila has transferred its Consumer Products Division to Carnation Nutra, it is going to issue 3,34,96,989 new shares to Cadila Healthcare Shareholders. Thus the total equity capital of the company after the new issuance would stand at INR 39.072 Crore made up of 3.9072 Crore equity shares of face value INR 10. The Presentation shows that the consumer products division had a revenue of INR 154 Crore including the complete INR 56.3 Crore of Carnation Nutra. The EBITDA was INR 30 Crore which may lead to a net profit of INR 18 Crore after removing depreciation and tax expenses considering that there were no significant interest burden in the latest results. This amounts to an EPS of 18/3.94=4.6 and at the current market price of INR 69, it is a P/E of 15. But the latest results show a different picture. The total revenue of Zydus Wellness was INR 117.33 Crore and net profit was INR 13.5 Crore. If this is annualized, the EPS turns out to be INR 13.8 and P/E goes down to 5. But I suspect that the Everyuth business might be seasonal as in the case of Emami and most of the revenue is incurred in this quarter itself. This I am deducing from the presentation since the whole consumer business excluding Carnation had a revenue of INR 100 Crore in 2008. Let's see how things turn.

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1 comment:

smallinvestorsindia said...

if what ever you have written turns out to be true ie everyouth stuff being seasonal then the carnation share holders have been fooled like dumb donkies....

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