Zydus to use pharma background, doctor connect to boost Complan sales

Analysts expect acquisition to be earnings accretive in around 3 years

Zydus Wellness, the personal care arm of pharma major Cadila Healthcare, is planning to use its doctor connect to boost the sales of the acquired brands portfolio of Heinz India. 

Analysts expect the acquisition to be earnings accretive in around three years. 

Nutrition drink brand Complan, which Zydus feels has not seen significant segmentation, has the potential for turnaround after having a few slow growth quarters. Talking to Business Standard, Sharvil Patel, chairman of Zydus Wellness, had indicated that Complan has seen better growth in the last two to three quarters. “We are confident we would be able to extract much better growth out of the brand. Our pharma background and doctor connect is further going to help,” he said. 

Analysts point out that Complan was initially sold through the physician route, with doctors prescribing it as a nutrition supplement for kids. This was when the brand was with GlaxoSmithKline. Heinz had acquired the Complan brand from Glaxo around 1994.  

Glucose-based energy drink Glucon D is the largest brand in the acquired portfolio with an estimated sales of around Rs 5 billion. Both Glucon D and Nycil (talcum powder), too, can be pushed through the clinician route.

Complan roughly has sales of around Rs 4.5 billion, according to market sources. 

According to Euromonitor, Complan is the leading brand in the supplement nutrition drinks segment in India where players such as Abbott (with Ensure) are also present. The category size is around Rs 16.95 billion, but the growth rate has come down in recent years — from 21.3 per cent in 2013-14 to 11.5 per cent in 2016-17. The value growth forecast too is muted. According to Euromonitor, value growth rate would taper down to 5.3 per cent for the segment in 2021-22 from a 6.3 per cent in 2017-18. 

Zydus aims to change the growth trajectory of the brand. Patel said that promotions and other issues had contributed to the slowdown of the Complan brand. Analysts, thus, expect the promotional spend for Complan along with other acquired brand Glucon D, Nycil to grow once Zydus is in the steering wheel. 

Amey Chalke, analyst with HDFC Securities felt that the expanded portfolio (along with Zydus' own brand Sugar Free, Everyuth, Nutralite) is likely to enhance the promotional budget for the company. He expected that Zydus may spend more than Heinz on promotions, especially it brings out line extensions. 

Patel has said that there was no significant segmentation done in Complan, and they wished to bring in more 'innovation and science' to the category. “Significant segmentation is possible in Complan and we may look at launching extensions of the brand,” he said in a recent analyst call. 

He added that Heinz has a margin of 20 per cent  while Zydus Wellness has a margin of around 34 per cent.  The combined entity is likely to have an ebitda margin of 22-23 per cent, Chalke said. He expected the combined entity to be earnings accretive in around three years. 

Apart from competing with Abbott's Ensure, Complan also has a tough fight from GSK's Horlicks (which incidentally is also on the block). 

According to Euromonitor, Horlicks operates in the malt-based hot drinks category, which is estimated to be around Rs 78.72 billion. The category has other brands like Cadbury Bournvita (Mondelez), Boost (GSK) among others. 

Growth rate in this category too has slowed down — from 13.2 per cent in 2013-14 to 8.6 per cent in 2016-17, according to Euromonitor. 

Through the deal, that catapults Zydus Wellness revenues by almost three-fold to Rs 17 billion (for the combined entity), Zydus also gains access to Heinz’ marketing and distribution strength along with its manufacturing facilities. The combined entity will have five manufacturing facilities, 1,800 distributors and nearly 2 million customer touch points. 

Analysts feel that this is likely to boost Zydus’ own products, which have been in slow growth trajectory for the past few years, around 6-7 per cent.

In a nutshell

 

• Zydus Wellness bought the India business of Heinz for Rs 45.95 bn 
• The deal catapults Zydus revenues threefold to Rs 17 billion (for the combined entity)
• Analysts say Zydus has a margin of 34% while Heinz around 20 per cent; combined entity expected to have 22 per cent margin
• Combined entity likely to clock a CAGR of 7-8 per cent
• Zydus Wellness likely to take the doctor route to push brands like Complan
• Complan to launch line extensions of the products, especially Complan