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Guidance smashes the sceptics

Convincing beat in Q4

Zydus Lifesciences’ (ZYDUSLIF IN) Q4FY24 revenue and EBITDA beat our estimates by 3% each and PAT by 8%. EBITDA and PAT were 13% and 24% better than consensus estimates. Contribution from gRevlimid in the US helped the upside, though with strong support from all other businesses. We estimate ~USD 80mn of gRevlimid sales in the quarter.

Exceptionally strong guidance

More surprising than Q4 show was the exceptionally strong guidance of high-teen revenue growth for FY25. We were earlier building in only high single-digit growth. The recently-launched gMyrbetriq and incremental gRevlimid could be helping but cannot fully explain the high growth guidance. ZYDUSLIF also guided to at least sustaining the high-margin of FY24. In case of no competition in gAsacol HD in FY25, further upside to those numbers may ensue. We remain shy of the guidance and project only 14% revenue growth for FY25E at this stage.

US to remain key driver

The US business may be the key growth driver behind the strong guidance. ZYDUSLIF has guided for 30 launches in the US in FY25, with run-rate of 20-25 yearly launches likely continuing beyond that. ZYDUSLIF does not expect incremental competition in gMyrbetriq for some time, making it a long-term opportunity. It guided for multiple large product opportunities even beyond FY26 when gRevlimid falls off.

India and other businesses on tear as well

The management has guided for double-digit growth in every business, including the domestic business. Specialty products and biosimilars will be key growth drivers in the domestic market.

Valuations: Reiterate BUY; TP raised to INR 1,321

We raise FY25E-26E core EPS by 3-5%. We see potential for further earnings upgrades. ZYDUSLIF trades at 23.1x FY25E core EPS. We reiterate BUY and raise our TP from INR 977 to INR 1321, which is 28x FY26E core earnings estimate plus cash per share. Unexpected competition and approval delays in key US products are downside risks.

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