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Outlook strong

Zydus Lifesciences’ (ZYDUSLIF IN) Q3FY25 revenue came in 2% ahead of our estimates, but lower margin led to EBITDA missing our estimates by 6%. Net profit came in 19% higher, mainly due to high forex gains. Revenue from the US was up 29% YoY in USD terms and remained flat QoQ, as expected. gMyrbetriq continued to contribute and the competition in gAsacol HD impacted the business. Management commentary suggests continued growth momentum in the US business. Growth for the India business at 5% was below expectations. We share the management’s confidence of continued growth in high-single-digit. We lower our FY25E-27E core EPS estimates by 2-3% as we adjust our margin estimates. We reiterate BUY with TP unchanged at INR 1,311.

US business – Strong outlook:

The US business remains the key growth driver for ZYDUSLIF. gMyrbetriq continued to contribute in Q3 and ZYDUSLIF expects it to grow further and continue for quite some time, while related patent litigation may go on. ZYDUSLIF also indicated that gRevlimid revenues may not fall YoY in FY26 despite the lack of product exclusivity for the full year. The management indicated single-digit growth in the US revenues in FY26 despite the exceptionally high base of FY25 that included gRevlimid and gMyrbetriq and gAsachol HD. Large future product launches include gAdempas and gIbrance in FY27/28. While we do build in some upsides from these products, given the limited visibility, we factor in only flat US revenues in FY26 and a slight drop in FY27 (as gRevlimid and gMyrbetriq revenues wane out) in our projections. There could be upside to these if ZYDUSLIF meets its target.

Weak quarter for India business; other businesses do well:

ZYDUSLIF’s prescription business for India grew only 5% YoY in Q3. The management attributed the lower growth to a high base and timing difference between primary and secondary sales. We believe that the business can consistently deliver high single-digit growth, in line with guidance. ZYDUSLIF’s consumer business delivered strong growth at 13% YoY. Growth for other EM/Europe businesses at 16% YoY surpassed expectations.

Price chart

Source: Bloomberg

Margin weak in Q3:

EBITDA margin in Q3 at 22.9% came in below our expectation. The management indicated some one-off expenses in Q3 that are not recurring in nature, including some legal / professional fees, GST losses and incentives related to large upsides in the US. We see no risk to the full-year guidance of 100-150bps improvement in EBITDA margin. We conservatively build in lower margin in FY26 and FY27, but upsides are likely.

Reiterate BUY with TP of INR 1,311:

We lower our FY25E-27E core EPS estimates by 2- 3% as we adjust our margin estimates. ZYDUSLIF trades at 22.6x FY26E and 25.2x FY27E core P/E. We reiterate BUY with TP at INR 1,311 (33x 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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