Zydus is acquiring entrenched brands with growth potential: Sharvil Patel

This is the first time a private equity player will be on Zydus' board of directors

Zydus Wellness, personal care arm of Cadila Healthcare and owner of marquee brands Sugar Free, Everyuth and Nutralite, announced acquisition of the India business of Kraft Heinz. SHARVIL PATEL, chairman of Zydus Wellness, tells Sohini Das. Edited excerpts:  

With growth slowing in the health drinks segment, how do you plan to grow the brands you acquired from Kraft Heinz?

Of those acquired, Glucon D is the largest brand for us. It has a larger percentage share of profits than Complan or Nycil. While its segment (glucose-based beverages) is clocking 9-10 per cent (annual) growth, Glucon D is doing better than the market. 

As for Complan, it has 98 per cent brand recall. Yes, it has lost some market share of late. However, in terms of quality of product, it's great. It has one of the highest protein contents among malt-based health drinks. The last two-three quarters saw better growth. 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. Partly promotions, partly other issues had contributed to slowdown of the Complan brand but the past six months has seen better growth. 

Sharvil Patel, chairman of Zydus Wellness

What synergies do you see with the other brands in the Zydus Wellness portfolio?

A lot. For example, we have an established cold chain and already market a butter substitute product (Nutralite). So, there is synergy with the Sampriti Ghee brand that now comes into our portfolio. It has been largely business-to-business for the ghee product. We now plan to focus on the business-to-consumer segment. 

Complan, too, is targeted mainly at kids, the 6-12 years category. But, there are many more categories apart from this -- the adult segment, the one in between. There is a lot of scope to bring in new products (maybe a 'lighter' variant). We are working on these opportunities, and we will surely bring in more products (brand extensions) in Complan. Nycil, too, has almost 100 per cent brand recall. So, these are very well entrenched brands, with huge growth potential. 

This is the first time a private equity (PE) player will be on Zydus' board of directors.

We have a fundamental belief that Cadila Healthcare will have its own growth plans in the pharma space, be it capex or merger and acquisitions. We would want to maintain its cash reserves. So, it was prudent on our part to bring in a PE investor, as we do not want higher exposure for Cadila. Plus, we feel a PE on board will add value to the process of business transformation. 

The deal is likely to be closed (subject to regulatory approvals) by the end of 2018-19. By then, Zydus Wellness would be well positioned to pull through the deal on its own. But, we need to give a payment commitment to the sellers and, hence, we brought in Cadila. The equity infusion by Cadila is not significant, around Rs10 billion or so. Zydus has enough cash reserve and a healthy debt to equity ratio. We can leverage easily. 

What revenue and Ebit (earnings before interest and taxes) contribution do you expect from the acquired business in 2019-20?

Annual revenue of the combined business is around Rs 17 bn, making it one of the largest in the consumer health segment. Ebitda (earnings before interest, taxes, deprecaion and amortisation) is around Rs 3.5 bn. Strong cash flows are driven through this business. However, the penetration (of these brands) is still low and there is a lot of opportunity to improve the rural reach. Even in urban areas, we can look at having a wider geographical presence. Currently, they will be run independently. We will eventually sit down and draw up a business plan. We foresee strong double-digit (annual) growth for the business. The acquisition is doubling our distribution reach and we will be also absorbing the employees.