Zydus Lifesciences growth aided by acquisitions, but execution risks loom

Zydus Lifesciences trades near 52-week highs on strong growth and acquisitions but analysts caution that rapid expansion and diversification may pose execution challenges

The stock of pharma major Zydus Lifesciences is trading close to its 52-week high and is up 10 per cent since its quarterly results were announced last month.

 

In addition to the performance in the June quarter, the gains are on expectations of a steady growth trajectory of the domestic business and upsides from the US portfolio.

 

Moreover, the slew of acquisitions by Zydus Lifesciences and its subsidiary, Zydus Wellness (ZWL) has expanded its presence across multiple categories and offers new growth opportunities.

 

The stock, which has gained about 16 per cent in FY26, is currently trading at 25 times its FY27 price-to-earnings estimates. 

 

Since March this year, the company has made multiple acquisitions as well as specialty assets.

 

It acquired France-based Amplitude Surgical, which is a leading player in the global market for surgical technologies of lower limb orthopaedics, in March for euro 257 million.

 

The acquisition of US-based Agenus’ biologic facilities for $141 million in June this year has enabled it to foray into the global biologics contract development and manufacturing organisation segment. 

 

Last month, the company’s subsidiary ZWL, which is primarily in the food and nutrition as well as personal care segments, acquired UK-based digital consumer healthcare platform, Comfort Click (CCL), for £239 million (₹2,800 crore).

 

The deal is valued at 1.8 times FY25 EV/sales, marks ZWL’s first overseas acquisition and its entry into the vitamins, minerals and supplements (VMS) segment.

 

Sharekhan Research believes that CCL’s acquisition will help strengthen ZWL’s global capabilities through its presence in the UK and Europe and deepening ZWL’s presence in digital health and personalised wellness through its digital-first approach.

 

ZWL is confident of delivering double-digit revenue growth and improvement in margins in FY26. The brokerage expects ZWL to clock a revenue and net profit growth of 12 per cent and 20 per cent, respectively, during FY25-FY27.

 

With ZWL expanding its presence in international markets, Sharekhan Research expects better valuations and has revised its price target to ₹2,688, while maintaining a buy rating on the stock. 

 

While the company has been aggressive in acquiring new assets and foraying into newer categories, Nomura Research believes that the strategy of rapid inorganic expansion and diversification may present execution challenges. Saion Mukherjee of the brokerage points out that investors in the past have expressed concerns around such a diversified presence.

 

"We think it would be critical to ensure that the company invests and expands management’s bandwidth," says the brokerage.

 

The target price of Zydus Lifesciences is ₹1,140 and is based on 30 times its FY27 earnings, excluding key product opportunities.

 

The valuation multiple, according to Nomura Research, is supported by growth of domestic businesses. This is expected to contribute 44 per cent to the operating profit in FY27.

 

Investments in specialty and vaccines may contribute materially beyond FY27 and a strong balance sheet presents scope for growth through value-accretive acquisitions.

 

Antique Stock Broking also believes that the company is evolving into a diversified healthcare platform with exposure to medtech, biologics CDMO, and innovation-led therapies.

 

This transformation, according to Gaurav Tinani and Vamsi Hota of the brokerage, could warrant a rerating over time, but execution and visibility remain key.

 

However, they believe FY27 poses a more challenging outlook, with potential revenue and margin headwinds arising from the loss of exclusivity in key high-margin products. These include generic versions of cancer drug Revlimid and overactive bladder medication, Myrbetriq.

 

It has a hold rating with a revised target price of ₹1,075.