 "Analysts wary of Zydus Life's US sales post FY25, valuations; stock down 5%")
Shares of Zydus lifesciences slipped 5.3 per cent to Rs 1232.40 per share on the BSE in Monday’s early morning trade. This came after investors resorted to profit booking on Zydus stock as it reached its 52-week high at Rs 1,323.90 on Friday post announcement of its April-June quarterly earnings for the financial year 2024-25 (Q1FY25).
Brokerages remained divided on the stock after its financial performance in the first quarter, with some backing the company for more upside, while others saying that the stock has run its course for the foreseeable growth.
Zydus Lifesciences delivered a positive surprise in earnings, said analysts at Nuvama Institutional Equities, beating their consensus estimates on all fronts including topline, bottomline and operating profit.
“Zydus Life has continued to report a positive surprise with its Q1FY25 revenue/Ebitda/PAT beating consensus by 6 per cent, 14 per cent and 10 per cent. Reported Ebitda margin reached a historical high of 33.6 per cent," analysts at Nuvama said.
The brokerage said that the company’s US sales benefited from Myrbetriq launch while Revlimid continued to dictate overall performance, adding that Myrbetriq would remain the key product for FY25. Myrbetriq is a medication used to treat overactive bladder, while Revlimid is indicated for multiple myeloma.
In addition, other drug opportunities such as Leuprolide, Briviact, Xeljanz, and gBridion are emerging beyond FY25, with Cabometyx presenting a potential opportunity after August 2026.
Overall, strong performance in India, along with a robust specialty assets and US product line-up, is expected to mitigate the impact of Revlimid's loss of exclusivity projected for FY27, analysts at Nuvama said.
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They retained ‘Buy’ on Zydus with a target price of Rs 1,496 valued at 29 times its September FY26 earning per share (EPS).
However, those at Motilal Oswal said that, while Zydus continues to build a niche product pipeline in US generics to sustain the growth momentum, the valuation factors in a 12 per cent earnings CAGR over FY24-26.The brokerage valued Zydus Life at 27 times its 12 months forward earnings and arrived at a target price of Rs 1,210.
Similarly, analysts at ICICI securities downgraded the stock to 'Reduce' from 'Hold' on expensive valuation- valued at 27 times its FY26 EPS, but raised its target price to Rs 1,120 valuing it 23 times its FY26 earnings.
Similarly, analysts at ICICI securities downgraded the stock to 'Reduce' from 'Hold' on expensive valuation- valued at 27 times its FY26 EPS, but raised its target price to Rs 1,120 valuing it 23 times its FY26 earnings.
Meanwhile, analysts at Motilal Oswal raised their earning estimates for FY25 and FY26 by 13 percent and 14 per cent, respectively, factoring in a robust pace of launches in US generics segment, an increased share of chronic segment in domestic formulation, and a recovery in nutrition segment within consumer healthcare.
On the other hand, global brokerages mostly remained neutral on the counter considering sustainability of US sales due to a high base and contribution concern from key drugs.
“The company reported 27.4 per cent Ebitda margin in FY24, and we have factored in 33.3 per cent Ebitda margin for FY25. We expect the EBITDA margin to decline to 27.7 per cent in FY26 as the contribution from Revlimid, Mirabegron and Asacol HD declines,” said Saion Mukherjee, Amlan Jyoti Das, and Adrit Chaturvedi of Nomura said in a recent report.
The brokerage gave a ‘Neutral’ rating on the stock with Mar-25 target price of Rs 1,020.
Further analysts at global investment banking firm HSBC said that they’re positive on the healthy near-term outlook for US sales of Revlimid and Myrbetriq, new launches, and the delayed entry of competition for Asacol, but remain wary of high concentration risk and the sustainability of US sales growth off a high base of over $1 billion. They retained ‘Hold’ rating with a revised target price of Rs 1,230 from Rs 1,165 earlier.
Q1 earnings print
On Friday, Zydus Lifesciences reported a 31 per cent year-on-year increase in consolidated net profit, reaching Rs 1,420 crore for Q1, driven by strong sales. This compares to Rs 1,087 crore in the same quarter last year. Revenue rose to Rs 6,207 crore from Rs 5,140 crore a year earlier. India sales grew 15 per cent to Rs 2,212 crore, while US formulation sales surged 26 per cent to Rs 3,093 crore.
At 10:19 AM; the stock of the company fell 3.15 per cent at Rs 1260.50 per share on the BSE. By comparison, the BSE Sensex fell 0.47 per cent at 79,331 levels.