 "Zydus Lifesciences, Zydus")
The Zydus Lifesciences stock has underperformed the BSE Healthcare Index over the last month. The company is seeking growth through limited competition products, acquisitions such as Amplitude, to expand its presence in the medtech segment.
The near-term trigger for the stock is its plan to acquire Amplitude Surgical. Amplitude had a 5 per cent year-on-year (Y-o-Y) growth in sales for the six months ending in December’24, with an operating profit margin of 25.4 per cent.
The acquisition is at four times enterprise value to sales and 15.7 times the enterprise value to operating profit ratio. This boosts Zydus’ presence in medtech segments like cardiology, nephrology and orthopaedics.
Amplitude is a leading French company for lower-limb orthopaedics. It is ranked second in France and sixth in Europe for hips and knee prostheses. It develops high-end products for orthopaedic surgery of hip, knee, foot and ankle. The revenue for last financial year was 106 million euros and operating profit was 27 million euros (FY ending Jun’24). Over the past six months, it saw 5 per cent Y-o-Y growth in revenue to 51 million euros with operating profit of 13.8 million euros. About 60 per cent of revenue is from knee-related products and 33 per cent from hip-related products.
The transaction is to be completed by June ’25. Zydus will acquire 100 per cent stake for a cash consideration of 300 million euros (₹2,850 crore) at 6.25 euros a share. First it will do a block deal for 85.6 per cent stake at 6.25 euros per share (256.8 million euros) and acquire the remaining 14.6 per cent at the same price (43.2 million euros) after the block deal. The funding will be via a mix of internal accruals and external financing.
The global orthopaedics market is valued at $45 billion, and has 3.7 per cent annual growth over FY16-24. It is expected to see a 4.1 per cent annual growth to $60 billion over FY24-30, driven by technological advances, demographic shift among others. The global medical technology or medtech market is $510 billion, growing at 4.9 per cent annually over FY16-24.
In India, medtech may grow at much higher 27 per cent annually to $50 billion by FY30, driven by policy support as more technology is inducted. India is import-dependent, with 80-85 per cent of medical devices imported. The government has announced a PLI scheme for promoting domestic manufacturing of medical devices with a total financial outlay of $400 million.
Zydus also has a presence in cardiology. It acquired a manufacturing facility of Nano Therapeutics in 2024, located at Surat, Gujarat. In nephrology, Zydus plans to focus on kidney diseases and establish a dialyzer plant to produce high-end membranes.
Zydus has a pipeline of 25 products, as well as 20+ vaccine products across platforms. It is working on “limited-competition products” such as the generic versions of cancer and hypertension drugs, Palbociclib and Riociguat. It has several other drugs at various stages of clinical trials, such as CUTX101, Saroglitazar with PBC indication, Unsoflast among others.
In the December quarter (Q3FY25), revenues grew 17 per cent Y-o-Y (1 per cent Q-o-Q) to ₹ 5,270 crore. India revenue was 6 per cent lower while US revenue was ahead of consensus. Gross margin came in at 69.9 per cent. Operating profit grew 26 per cent Y-o-Y but fell 5 per cent Q-o-Q to Rs 1,390 crore and margins rose 187 basis points Y-o-Y (contracted by 157 basis points Q-o-Q) to 26.3 per cent.
Adjusting for forex gain and non-recurrent income, adjusted operating profit stood at ₹ 1,300 crore and adjusted net profit grew 33 per cent Y-o-Y, (up 12 per cent Q-o-Q) to ₹1,020 crore. The research and development spend grew 60 per cent Y-o-Y to ₹500 crore (9.5 per cent of revenue). Zydus expects US revenue to grow in single digit in FY25 due to high competition.
While medtech would create new revenue streams over the medium to long term, competitive pressures and high R&D spends are expected to keep earnings stable over FY25-27. Uncertainty over Trump’s policies is a concern.
