Reduce Zydus Lifesciences Ltd For Target Rs.1,000 By Choice Broking Ltd
FY26 Transitional Phase; Recovery to Begin FY27
While revenue is expected to maintain double-digit growth in FY26E, EBITDA margins are projected to contract sharply to 26% in FY26E from 30.4% in FY25, reflecting continued investment in pipeline build-up and product mix shifts. We believe the India business will sustain healthy growth, supported by ongoing momentum in international markets. Additionally, new launches such as Sitagliptin and Usnoflast in the US are expected to drive margin recovery from FY27E, offsetting the impact of Revlimid.
We now value the company on an average of FY27E and FY28E EPS at 18x (up from 15x), reflecting the recovery phase and a robust, high-margin launch pipeline. This results in a revised target price of INR 1,000 (previously INR 795), prompting an upgrade to REDUCE from SELL.
Revenue Beat on Broad-Based Growth; Margins Under Pressure
* Revenue grew 5.9% YoY/ was flat QoQ at INR 65.7 Bn (vs. CIE estimate: INR 65.5 Bn).
* EBITDA was flat YoY/ declined 1.7% QoQ to INR 20.9 Bn; margins contracted 180 bps YoY/79 bps QoQ to 31.8% (vs. CIE estimate: 27.8%).
* Adj. PAT rose 4.7% YoY/11.4% QoQ to INR 14.9 Bn (vs. CIE estimate: INR 12.0 Bn).
India Outperformance to Offset US Growth Slowdown
Revlimid headwinds, along with the Mirabegron litigation issue, continue to drag US market revenue growth. Management expects single-digit growth in FY26E, mainly driven by base business launches and new launches. Meanwhile, the India business has delivered strong growth and is expected to continue outperforming IPM growth, supported by a focus on chronic therapies and the launch of innovative products. Near-term new launches across markets— including Sitagliptin, Usnoflast and Saroglitazar—are expected to contribute meaningfully to the overall revenue, which we expect to grow in double digits in FY26E.
Pipeline Build-Up to Impact FY26 Margins, Recovery in FY27
EBITDA margins have moderated due to a shift in product mix (lower contribution from higher-margin products such as Revlimid) and increased capex and R&D investments aimed at strengthening the portfolio. Management has reiterated its FY26E margin guidance at ~26%, implying a YoY contraction of ~410bps. However, these strategic investments position the company for sustainable growth, with margin recovery expected from FY27E.
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SEBI Registration no.: INZ 000160131
