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Zydus Lifesciences (ZYDUSLIF) Q3 EBITDA of Rs10.8bn (up 27% YoY) was 5% above our estimate aided by higher GMs and domestic formulation. We believe that company’s steady domestic franchise, strong balance sheet and potential new launches in US will help negate pricing pressure and likely competition in some key products like gAsacol. Moreover, ZYDUSLIF is also working on robust pipeline of complex products including injectables, transdermals, NCE, biosimilars and vaccines which are expected to materialize over next 2–3 years. Our FY25/26E EPS stands increased by ~12%. We maintain our ‘Accumulate’ rating with revised TP of Rs855 (Rs670 earlier), valuing at 25x (23x earlier) FY26E earnings plus Rs25/share for gRevlimid.

§     In-line revenues aided India and RoW mkts; ZYDUSLIF showed revenue growth of 6% YoY to Rs45bn in line with our estimate. Domestic formulation showed robust growth of 16% YoY; against our estimate of 10% growth. Consumer business declined by 3% YoY; below our est. US sales came in at $221mn (our est. of $230mn) vs USD 226mn in Q2FY24.The quarter had negligible gRevlimid sales as expected. Emerging markets growth grew healthy by 30% YoY driven by most of its key markets. API markets witnessed decline of 24% YoY.

§     Higher GMs aided EBITDA: EBITDA including other operating income came in at Rs 10.8bn vs our estimate of Rs10.2bn. GMs were healthy at 66.2% (up 80 bps QoQ) aided by better product mix. Further other expenses also continued to remain lower at Rs11.3bn; down 6% YoY. There was a forex gain to the tune of Rs206mn. R&D expenses stood at Rs 3.2bn (7% of revenue), down 8% YoY. Reported PAT at Rs 7.7bn vs our est of Rs7bn.

§     Key concall takeaways: Domestic formulation: Enhanced market share observed in anti-diabetic and anti-infective therapies. Chronic share has increased by 150 bps in CY23, reaching 41%. Will be adding 700 MRs in FY25. Muted growth in consumer wellness due to subdued demand in rural markets. US: Launched 11 products, including Zituvio, the first 505(b)(2) product, and 2 transdermal products. Filed 12 ANDAs and received 6 ANDA approvals. No significant price erosion observed in base business. Company Has also filed for NDA for Sitagliptin+Metformin ER which will help them to complete offerings of Sitagliptin franchise. gAsacol- continues to enjoy limited competition. Company has strong pipeline in US with day one launches and exclusivity till FY27/28. EM & Europe – Strong demand persisted in Europe, while Mexico contributed to growth with double-digit expansion. Focus on scaling up niche generics and specialty products in the UK. Integration of LiqMeds on track post-transaction completion; US & UK remains key markets for oral liquids portfolio. R&D: Spent Rs 3.1bn (7% of sales). Capex stood at Rs 2.13bn in Q3FY24. In event of no incremental competition in gAsacol, margins to sustain at 27% in FY25. Guided for double digit growth in US in FY24 and given strong pipeline will help them to negate any revenue loss due to competition in key products. Other operating income came in higher aided by export incentives and license fee. 

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