Lower US growth trajectory, margin pressures ahead for Zydus Lifesciences

In the US market, robust growth in the base portfolio, new launches and generic version of Myrbetriq (for overactive bladder) aided its revenue effort in that market

Zydus Lifesciences delivered a strong performance in the March quarter (Q4FY25), surpassing Street estimates on the back of robust revenue and margin growth. However, concerns over future US sales, heightened R&D expenses, and rich valuations have prompted brokerages to trim their estimates and adopt a cautious stance on the stock. 

The stock, currently trading at ₹933, is up 5 per cent over the past month. Despite near-term momentum, analysts believe the upside is limited given the challenges ahead. 

The consolidated revenues grew 18 per cent year-on-year (Y-o-Y) in Q4FY25, led by a 24 per cent Y-o-Y and 30 per cent sequential jump in US sales — the company’s largest market, contributing 48 per cent to the total revenues. 

The domestic formulations and consumer healthcare also performed well, growing 11 per cent and 17 per cent respectively. The consumer wellness business posted its best-ever quarterly turnover of ₹908 crore, driven by seasonal gains and effective execution. 

In the US, revenue growth was supported by the base business, new product launches, and key generics including Myrbetriq (overactive bladder). 

However, the company has guided for single-digit growth in FY26, given a high FY25 base which included contributions from generics of Revlimid (oncology), Myrbetriq, and Asacol (ulcerative colitis). 

Zydus reported a significant margin boost in Q4. Gross margins expanded 312 basis points (bps) Y-o-Y and 405 bps sequentially, supported by a favourable product mix and price hikes. 

Operating profit margins improved by 380 basis points year-on-year. Despite the strong showing, Deven Choksey Research has lowered its FY26–27 margin estimates, citing the loss of high-margin Revlimid sales and pressure in the US market. 

 

US market outlook: Growth concerns ahead

  While Zydus is building a robust pipeline of complex generics, injectables, biosimilars, and vaccines, brokerages remain cautious. 

Analysts from Prabhudas Lilladher note that Revlimid and Myrbetriq together contributed over 45 per cent of FY25 EPS and expect price erosion from FY27, forecasting a 7 per cent decline in EPS over FY25–27 due to waning sales from key US products. 

Motilal Oswal Research anticipates flat earnings over FY25–27 as rising competition in US generics offsets growth in domestic and wellness segments.  

Tushar Manudhane has cut FY26 earnings estimates by 7 per cent, factoring in higher R&D costs for innovation, increased competition in Revlimid generics, and marketing spend for GLP (glucagon-like peptide) therapies. 

In India, Zydus is focused on chronic therapies, with the chronic portfolio rising 200 bps Y-o-Y to 43 per cent of the domestic sales. Cardio-diabetology grew 16 per cent, while oncology, nephrology, and hepatology also contributed meaningfully.  

Despite the solid Q4, the outlook remains mixed. Most analysts have a neutral view on the stock, citing valuation concerns. At 19x FY26 projected earnings, Zydus offers limited re-rating potential in the near term, especially as US sales headwinds and elevated R&D investments weigh on profitability. 

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