Accumulate Zydus Lifesciences Ltd For Target Rs. 1,080 by Prabhudas Liladhar Capital Ltd
Strong FY27 guidance
Zydus Lifesciences (ZYDUSLIF) Q4 EBITDA was sharply above our estimates aided by higher revenues across key markets. We believe base business remains steady with mild erosion. Though, company is working on a robust pipeline of complex products, including injectables, 505(b)2, transdermals, NCE, biosimilars and vaccines, they are expected to materialize over the next 2–3 years. We expect US sales to remain largely flat over FY26-28E given sales erosion in some of key products and thereby expect flat EPS CAGR adjusted for forex over FY26-28E. Mgmt have guided for 2-3 high value launches over FY27E/28E, timely launch will be key to sustaining momentum in US sales. Our FY27/28E EPS broadly remain unchanged. We maintain our ‘Accumulate’ rating with TP of INR 1,080, valuing at 23x FY28E EPS.
Healthy YoY growth across geographies:
ZYDUSLIF showed revenue growth of 16% YoY to INR 76bn, 10% above our estimate. The YoY growth was aided by higher US sales, MedTech and Comfort click consolidation. Domestic formulation delivered growth of ~14% YoY. Consumer business grew by 61% YoY. There was full quarter of Comfort click consolidation performance. Mgmt cited adj for comfort click volume growth was at double digit. US sales came in at USD 323mn up 2.5% QoQ. We est USD 300mn. EM markets were up by 51% YoY to INR 7.3bn. API revenues remained flat YoY. Medtech business reported revenues of INR 3.3bn; up 10% QoQ.
Higher R&D impacted EBITDA YoY:
EBITDA, including other operating income, came in at higher INR 19.1bn; down 12% YoY, above our estimates. OPM stood at 25.7%, down 800bps YoY. GMs were flat YoY and 70bps QoQ to ~74%. R&D expenses came in higher at INR 6.9bn (9.2% of revenue), up 45.5% YoY. Other expenses ex R&D were up 45% YoY and 8% QoQ given new business consolidation. Other operating income came at INR 1.5bn. There was forex gain of INR 6.4bn. Tax rate stood lower at 15.5%. Reported PAT of INR 12.7bn. EPS adj for forex and one offs at INR 10/share.
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