Nutrition and wellness products maker Zydus Wellness has done well in the December quarter. The company sells products such as Sugar Free, an artificial sweetener, Ever Yuth, a skin cream, Nutra Lite, a low-fat butter substitute and has recently introduced ActiLife, a malt-based food drink with additives. The company’s stated objective is to become a Rs 500 crore by 2013-14, while its current annualised sales is about Rs 350 crore.
The company’s sales rose by 21% to Rs 91 crore, but its raw material consumption rose sharply, up by 39% to Rs 34 crore while other expenditure rose by over 60%.
Its profitability would have taken a severe hit, but the company slashed its advertising costs by 57%, which allowed it still increase its operating profit margin to 31%, from 27.5% in the same period a year ago.
The company has very low interest and depreciation costs, and its profit after tax rose by 37% to Rs 20 crore. While Zydus was able to sustain profit growth, the rise in raw material costs is a concern, and advertising costs cannot be kept low continuously, as that will affect growth. The company is a relatively small player, and it needs to keep up visibility, to ensure product offtake.
It will become clearer, in the next few quarters, if the sharp rise in raw material costs was one-off event or more permanent in nature. If costs have risen and the company is unable to pass them on, through price hikes, then the possibility of margins coming under pressure will arise.
The company’s share price was up by 1% at Rs 607, on Monday.