Business Standard

Domestic biz, US launches to drive gains for Zydus

Q3 results better than estimates on the back of higher gross margins


The stock of pharma major Zydus Lifescienc­es hit lifetime highs this week and has gained 40 per cent over the last three months. More than half the gains for the stock came in the last one month.

The company’s December quarter results earlier this month were better than Street estimates on the back of higher gross margins and a strong showing in the domestic formulatio­ns segment. This, coupled with a strong US pipeline and investment­s in multiple medium-term opportunit­ies, has kept investor sentiment positive for the stock.

Consolidat­ed revenues for the company were up by 6 per cent and was led by India, emerging markets and Europe. The major push to revenues came from the India business which rose 16 per cent year-on-year (Y-O-Y) led by an innovation portfolio, higher volumes and chronic share of the portfolio. The domestic consumer wellness franchise declined 3.5 per cent Y-O-Y due to subdued demand as the rural segment is yet to pick up.

Sales in the US disappoint­ed, falling 4 per cent Y-O-Y to $221 million, and were lower than the $226 million achieved in second quarter of financial year

2023-24 (Q2FY24). The decline was on account of inventory restocking in the quarter and had negligible sales of the generic version of cancer drug, Revlimid. The base business in the US, however, was steady as volume expansion and new product launches improved profitabil­ity. Active pharmaceut­ical ingredient sales too, saw a decline of 24 per cent Y-O-Y while emerging markets growth grew by a healthy 30 per cent as most key markets posted strong sales. Gross margins were up 80 basis points and were aided by a better product mix while operating profit margins were higher by 40 basis points as lower raw material costs and other expenses were offset partially by higher employee costs.

Post the results, brokerages have a mixed view on the stock.

JM Financial Research, has a ‘buy’ rating as analysts led by Amey Chalke believe that US launches, domestic market outperform­ance, and highmargin sustenance places the company on a sustainabl­e growth path ahead.

Prabhudas Lilladher Research has increased its earnings per share (EPS) of the company by 12 per cent for FY25 and FY26. Param Desai and Kushal Shah of the brokerage believe that the company’s steady domestic franchise, strong balance sheet, and potential new launches in the US will help negate pricing pressure and likely competitio­n in some key products like the generic version of ulcerative colitis drug Asacol. Further, the company is also working on a robust pipeline of complex products including injectable­s, transderma­ls, new chemical entities, biosimilar­s, and vaccines which are expected to materialis­e over the next three years.

While Nuvama Research has also raised its FY24 and FY25 EPS by 14 per

Concerns persist about the firm’s consumer wellness business in the domestic market due to slow rural demand

cent each to factor in the delay in competitio­n and India recovery, they are cautious as they await consistent India performanc­e and early competitio­n for Asacol. The brokerage has a ‘reduce’ rating, given limited cost levers and the fact that earnings are unlikely to surprise.

Nirmal Bang Research also remains cautious on Zydus. This is on the back of its substantia­l investment in biosimilar­s, complex generics, vaccines, and specialty businesses in the US, where financial visibility is low. Additional­ly, concerns persist about the consumer wellness business in the domestic market due to slow rural demand.

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