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Zydus reported earnings that exceeded our estimates across all metrics. Revenue increased by 20.8% YoY and 2.2% QoQ to INR 62,075 mn, driven by consistent growth across the business. EBITDA rose by 38.4% YoY and 27.8% QoQ to INR 20,840 mn, with margins expanding by 428bps YoY and slightly by 14bps QoQ to 33.6%. PAT showed strong growth of 29.2% YoY and 20.4% QoQ to INR 14,199 mn, with a margin of 23%. Management expects to achieve high-teen top-line growth in FY25.

* India Formulations: The formulations segment generated revenue of INR 13,758 mn, reflecting a 12% YoY growth, primarily driven by strong volume growth in pillar brands and innovative products, contributing 22.8% to total sales. The company launched 10 new products, including 3 first-in-India launches, and outpaced the IPM in key therapies such as Cardiology, Gynecology, Dermatology, Respiratory, Anti-infectives, and super-specialty areas like Oncology and Nephrology. The company maintained its leadership in the Nephrology segment and remained the fastest-growing Indian company in Oncology. The food and nutrition segment also saw a recovery, posting double-digit growth. Efforts in the India formulations segment are focused on expanding presence across key therapies.

* US Formulation Business: The company reported a 26% YoY and 22.6% QoQ increase in US business revenue, reaching INR 30,929 mn, which accounted for 51% of total sales. The company launched 7 new products, filed 5 ANDAs, and received approval for 6 ANDAs, including 2 tentative approvals. Notable new launches include Zituvimet™ (a 505(b)(2) product for metabolic disorder management) and Mirabegron ER tablets. The company plans to launch over 25 new products and anticipates healthy double-digit growth in FY25.

* Margin Performance: The company reported a gross margin of 74.4%, marking a notable increase of 703bps YoY and a slight rise in QoQ. Similarly, EBITDA expanded by 428bps YoY and 14bps QoQ to 33.6%, driven by an improved product and market mix. The company anticipates that SG&A costs will remain stable, but expects the EBITDA margin to improve by 100-150bps in FY25 compared to FY24. Additionally, R&D expenses are projected to be 8% of sales for FY25.

* Outlook and Valuation: The growth trajectory is supported by double-digit expansion in all key markets and a projected high-teens top-line growth for the upcoming year. This includes the launch of new products, leveraging the innovation portfolio in India, and scaling up the specialty business in the US. There is also potential for further margin improvement at the current level, especially with no competition for Asacol. The stock is valued based on a FY26E EPS of INR 55, applying a PE multiple of 24x, which results in a target price of INR 1,319. We maintain our BUY rating on the stock

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