Zydus Lifesciences said that CRISIL Ratings has reaffirmed its 'CRISIL AA+/Positive/CRISIL A1+' ratings on the bank facilities and debt programme of the company.
CRISIL Ratings said that the company's consolidated revenue grew 5% on-year in fiscal 2022 (adjusted for the sales of the animal healthcare business), supported by growth in the domestic formulations and emerging markets even as revenue from the US degrew due to continued intense pricing pressure.
With improved performance in the US formulations market (13% on-year growth) on the back of new product launches as well as growth in the consumer wellness segment after the pandemic, revenue grew by 4% in the first-half of fiscal 2023, constrained to some extent by the high one-off sales of Covid-related products in the domestic market in the previous fiscal.
The recent resolution of the United States Food and Drug Administration (US FDA) warning letter to the group's plant at Moraiya (Gujarat) will pave way for higher number of product launches in the US market in the next fiscal. Revenue is expected to grow 9-11% annually over the medium term on the back of new product launches and ramp up in sales of biosimilars and new chemical entities.
CRISIL Ratings notes the sales of the Zydus group's Covid-19 vaccine - ZyCoV-D - has been modest since its launch, as demand waned, resulting in lower than anticipated revenue growth in fiscal 2023 and 2024.
Consolidated operating margin remained healthy at 22.1% in fiscal 2022, supported by cost-control measures undertaken by the group. However, with sustained high input prices and provision of approximately Rs 160 crore towards ZyCoV-D and other covid-related drugs, margin declined to 20.1% in the first-half of fiscal 2023.
Going forward, the operating margin is expected to remain healthy at 20-22% supported by ability to pass on majority of input cost increase to customers, softening pricing pressure in the US market and price hikes in the domestic market.
The ratings continue to be supported by sustained improvement in financial risk profile with gross debt significantly reducing to Rs 2,419 crore as on September 30, 2022, from Rs 4,653 crore as on September 30, 2021, with strong cash accrual.
Also, with high liquid surplus from the sale of the domestic animal healthcare business in the second quarter of fiscal 2022, net debt reduced below Rs 1,434 crore as on 30 September 2022, and net debt/Ebitda (earnings before interest, taxes, depreciation, and amortisation) was 0.4 times in the first-half of fiscal 2023.
The ratings continue to reflect the established position of the Zydus group in the branded generics market in India and the expected benefits from growth in the wellness segment; the ratings also factor in the growing presence in international markets, particularly the US, and strong financial risk profile.
These strengths are partially offset by exposure to risks related to unfavourable regulatory changes, increasing competition and price erosions in the regulated generics US market.
Zydus Life is one of the top five pharmaceutical companies in India. It also has growing presence in the regulated markets, particularly the US, and is one of the top 5 players in the US generic market. Other segments include emerging markets formulations, consumer wellness, animal healthcare and bulk drugs.
For the first six months of fiscal 2023, the company reported profit after tax (PAT) of Rs 1,041 crore on net sales of Rs 8,207 crore compared with PAT of Rs 3,590 crore on net sales of Rs 7,762 crore, respectively, during the corresponding period of the previous fiscal.
The scrip shed 0.84% to currently trade at Rs 453.70 on the BSE.
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