Buy Zydus Lifescience Ltd for Target Rs. 1,311 by Elara Capitals
Strong show continues
Zydus Lifesciences (ZYDUSLIF IN) reported strong Q4FY25,with revenue,EBITDA and PAT beating our estimates by 4%, 19% and 21%, respectively. The highlight in Q4 was US revenue, up 19% YoY and 27% QoQ despite little contribution from gRevlimid. All the key businesses performed well – India formulation, Wellness and RoW businesses grew 11.5%, 17% and 12% YoY, respectively. As per guidance, growth will continue for the US business even on a high FY25 base. We believe that the guidance of +26% EBITDA margin for FY26 is very conservative and will be surpassed. We maintain our FY26E and FY27E core EPS estimates. We reiterate BUY with TP unchanged at INR 1,311.
US business – Growth driver: We believe that the stellar growth in the US business came from gMyrbetriq, ramp-up in sitagliptin products and strong growth in the base business. The management indicated single-digit growth in US revenues in FY26 despite the exceptionally high base of FY25 that included gRevlimid, gMyrbetriq and gAsachol HD. Per ZYDUSLIF, it would continue to sell gMyrbetriq in the US despite the recent set-back in patent litigation. Large future product launches include gAdempas and gIbrance in FY27/FY28. The management indicated continued momentum in FY27 as well, but we remain conservative and project a 10% decline in revenue from the US business.
Strong pick up in India business; other businesses do well: ZYDUSLIF’s prescription business in India grew 11.5% YoY in Q4 and 10.5% in FY25. Innovative products and biosimilars are key growth drivers. We share the management’s confidence of the business continuing to grow faster than the market. The consumer business grew a strong 17% YoY each in Q4 and FY25. Other EM/Europe businesses grew 12-13% YoY each in Q4 and FY25, surpassing expectations.
Margin guidance too conservative: We believe that FY26 EBITDA margin guidance of +26% is too conservative. Given that the contribution from gRevlimid and gMyrbetriq will continue, we expect the margins to be significantly higher. It may be worth noting that the original margin guidance for FY25 also turned out to be very conservative – As against a guidance of 100-150bps improvement, the actual EBITDA margin improved 260bps.
Other growth drivers: ZYDUSLIF’s vaccine business will likely pick up in FY26, with some large tender wins expected from global procurement agencies. The Wellness business continues to grow in mid-teen percentage. Contributions from M&As such as Sterling Bio facility and the French medical device company will also add to growth.
Reiterate BUY; TP unchanged at INR 1,311: We maintain our FY26E and FY27E core EPS estimates. ZYDUSLIF trades at 19.5x FY26E and 21.7x FY27E core P/E. We reiterate BUY with TP retained at INR 1,311 (34x FY27E core earnings plus cash per share). Unexpected competition or regulatory setbacks in key products and approval delays in future products in the US are downside risks.
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SEBI Registration number is INH000000933
