IGI Logo

India and US drives while Consumer Wellness and API drag earnings

Product innovation a work-in-progress

* ZYDUSLIF delivered a better-than-expected 2QFY23 performance, led by a superior product mix and controlled R&D spends. It continues to work on its innovation-led product pipeline as well as on complex generics to improve the growth in earnings going forward.

* We reduced our FY23 earnings estimate by 3% to factor a moderation in profitability of Zydus Wellness, but increase our FY24 earnings estimate by 3% to factor in product launches from the Moraiya facility as compliance is in place now. We value ZYDUSLIF at 17x 12M forward earnings to arrive at our TP of INR410 on a 12M forward earnings basis.

* Given the modest earnings CAGR of 4% over FY22-24 capping the improvement in return ratios (currently at low double-digits), we maintain our Neutral stance on the stock.

Product mix benefits offset by higher OPEX, margin stable on a YoY basis

* Sales grew 9% YoY to INR41b (inline) in 2QFY23.

* US sales grew 15.9% YoY (up 7.5% in CC terms) to INR17b (USD214m; 43% of sales). India sales (43% of total sales), which comprises the DF and Consumer businesses, grew 6% YoY to INR17b. Within India, Branded Formulations grew 4.2% YoY to INR12.6b. Consumer Wellness grew 12% YoY to INR4.2b. API sales fell 16% YoY to INR1b (3% of sales). LatAm/EM sales declined by 5% YoY to INR3.3b (8% of sales).

* Adjusted for COVID-related inventory provision, gross margin expanded by 90bp YoY to 64.3% due to a better product mix.

* EBITDA margin was stable YoY at 22.6% (est. 20.9%)

* Consequently, EBITDA grew 9% YoY to INR9.4b (est. INR8.6b).

* The tax rate was higher at 21.3% in 2QFY23 v/s 16.6% in 2QFY22.

* Adjusted PAT grew 4% to INR6.1b (est. INR5.4b)

* Sales grew 5.4% YoY to INR82b in 1HFY23, while EBITDA/PAT fell 3.5% each to INR17.6b/INR11.4b.

Highlights from the management commentary

* Sales of g-Revlimid will be spread across 2HFY23.

* The company intends to incur 7-8% of sales on R&D in FY23.

* ZYDUSLIF has filed five transdermals from the Moraiya site.

* It has witnessed a mid-single digit price erosion in the US base portfolio.

* The USFDA issued an EIR with a VAI status to its Moraiya facility, which was earlier under WL. It has about 30 ANDAs pending approval from Moraiya.

* ZYDUSLIF has experienced some reduction in logistics cost in recent times.

 It had to write-off certain COVID-related materials to the tune of INR1.2b in 2Q (v/s INR1.4b in 1QFY23).

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer