Zydus Lifesciences' Q1 dose lifts vitals, but outlook stays fragile

April-June Qtr beat offsets some caution, yet US headwinds cap upside

Zydus Lifesciences delivered a better-than-expected 2025-26 (FY26) April–June quarter (Q1), particularly on the top line. This, coupled with launches and the prospect of margin improvement, led some analysts to upgrade their outlook. While sentiment remains positive and the stock gained over 3 per cent in Wednesday’s trade, brokerages are cautious due to margin pressures and premium valuations. The stock is up about 12 per cent from its May lows. 

Driven by its India and international businesses, the company recorded 6 per cent revenue growth in Q1FY26. While India sales rose 6 per cent, it was the international formulations arm that delivered the bigger lift, climbing 37 per cent on the back of consistent execution and growth across regions. 

The US market, which accounts for 48 per cent of sales, grew 2.9 per cent year-on-year (Y-o-Y) and was flat in constant currency terms. Sequential growth was 1.6 per cent. Motilal Oswal Research, which has raised its earnings estimates, notes that despite competition in products like generic versions of the cancer drug Revlimid and the anti-inflammatory drug Asacol, Zydus reported sequential gains in sales and a steady Y-o-Y performance at $372 million. This was largely supported by solid demand in its base portfolio, new launches, and stable business from the generic version of Myrbetriq, a treatment for overactive bladder. 

Alongside Myrbetriq, upcoming launches are expected to help the company sustain single-digit growth in the US, given the anticipated drop in Revlimid orders. While some new products are set to launch in FY26, most of the scale-up is expected in 2026-27 (FY27). The company said it has filed 15 of the 25 products in its pipeline, while Sitagliptin (Type 2 diabetes), which is already on the market, has seen early traction. 

In the domestic market, the formulation business posted 8 per cent Y-o-Y growth, while the consumer wellness segment rose 2 per cent. Branded formulations outpaced the broader market, growing 9 per cent, led by key brands and new products. The company has stepped up its focus on chronic therapies, with cardiology standing out in the quarter with 22.5 per cent growth. Chronic therapies now make up 43.7 per cent of the portfolio, up more than 420 basis points in three years, with the company retaining its lead in oncology.

 

Most brokerages, however, remain cautious. Antique Stock Broking notes that the company is evolving into a diversified healthcare platform with exposure to MedTech, biologics contract development and manufacturing, and innovation-led therapies. While this shift could justify a rerating over time, analysts Gaurav Tinani and Vamsi Hota believe execution and visibility remain critical. “FY27 poses a more challenging outlook, with potential revenue and margin headwinds arising from the loss of exclusivity in key high-margin products such as generic versions of Revlimid and Myrbetriq.” Higher research and development spending, increased depreciation, and interest costs after acquisitions could also weigh on earnings, prompting the brokerage to maintain a ‘hold’ rating.

 

Given the risks to the US portfolio from mounting competition and ongoing litigation, analysts Tushar Manudhane and Eshita Jain of Motilal Oswal Research project an overall 5 per cent decline in operating and net profit from 2024-25 through FY27. They have a ‘neutral’ rating on the stock, with current valuations offering limited upside.

 

While Zydus has invested in multiple long-term opportunities, earnings growth is expected to slow after FY26 due to the loss of exclusivity for generic versions of Revlimid and Myrbetriq, says JM Financial Research. At current valuations of 25x FY27 earnings per share, the stock trades at a 10 per cent premium to the largecap peer average, say analysts at the brokerage led by Amey Chalke. It has a ‘hold’ rating on the stock.