New launches, India business growth key triggers for Zydus Lifesciences

Strong domestic growth, an expanding specialty portfolio, acquisitions and a robust product pipeline are expected to support Zydus Lifesciences' performance in FY27

The Zydus Lifesciences stock has gained 20 per cent over the past month and has been the best-performing pharmaceutical stock during this period as well as over the past three months. The gains for the pharmaceutical major have been driven by an expanding specialty portfolio, strong India business growth, a robust product pipeline and value-accretive acquisitions.

 

While the stock has rallied sharply and was trading at ₹1,076, outperforming peers, some brokerages remain positive on its outlook and have raised their estimates for FY27.

 

The near-term triggers are the recent acquisitions and the March quarter results. Powered by growth across key business segments, the company delivered revenue growth of 18 per cent year-on-year (Y-o-Y) and 9.6 per cent quarter-on-quarter (Q-o-Q). Revenue performance exceeded estimates, aided by growth in North America on a sequential basis, supported by market share gains in Mirabegron, strong traction in new launches, especially the generic version of Promacta, and seasonal factors.

 

Among the growth drivers was the Indian formulations business, which reported sales growth of 14 per cent Y-o-Y, while the consumer business recorded growth of 52.8 per cent. Growth momentum in Indian formulations was led by chronic therapies, coupled with contributions from recent biosimilar launches including Tishtha (nivolumab), Anyra (aflibercept) and Semaglutide brands.

 

The consumer segment's growth was supported by the acquisition of UK-based digital health platform Comfort Click. The India business accounts for 43 per cent of consolidated revenues.

 

Margin performance, however, was mixed. Gross margins stood at 73.4 per cent, showing a marginal increase, while operating profit margins declined 800 basis points Y-o-Y. On a sequential basis, operating margins improved by 110 basis points.

 

The Y-o-Y decline was attributed to a lower contribution from the generic version of Revlimid. Research and development (R&D) expenses rose 45.5 per cent Y-o-Y and accounted for 9.2 per cent of revenue. Other expenses, excluding R&D, increased 45 per cent Y-o-Y and 8 per cent Q-o-Q due to consolidation of new businesses.

 

The sequential expansion in gross and operating margins was driven by a better product mix, favourable currency movements and operating leverage, according to Saion Mukherjee and Kushal Chovatia of Nomura Research.

 

The brokerage has a ‘buy’ rating on the stock with a target price of ₹1,140, based on 30 times its FY27 earnings.

 

Motilal Oswal Research has raised its earnings estimates by 4-5 per cent for FY27 and FY28, factoring in increased traction in limited-competition products in the US, industry-beating performance in domestic formulations and other emerging markets, higher R&D spending, and enhanced marketing and promotional efforts.

 

The brokerage has a target price of ₹1,080 and a ‘neutral’ rating on the stock.

 

Going ahead, the company expects its India formulations business to outperform the pharmaceutical market by 200-400 basis points. It also expects Zydus Wellness to report double-digit growth, excluding the impact of acquisitions.

 

The North American business could deliver single-digit revenue growth on a large base, supported by product-specific opportunities in the second half of FY27. Overall revenue growth is expected to remain in the high teens, while the operating profit margin target is above 24 per cent.

 

According to analysts led by Vishal Manchanda of Systematix Research, key catalysts for the stock include approval of saroglitazar by the US Food and Drug Administration (USFDA) in Q4FY27 and the launch of the generic version of palbociclib under 180-day exclusivity in Q4FY27.

 

Growth in the India branded business and traction from recent acquisitions will remain key monitorables, they said. The brokerage has a target price of ₹1,162.