PL Stock Report: Zydus Lifesciences (ZYDUSLIF IN) - Q1FY24 Result Update - Higher gRevlimid sales aided the quarter - Accumulate

Zydus Lifesciences (ZYDUSLIF IN) - Param Desai - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: ACCUMULATE | CMP: Rs651 | TP: Rs650

Q1FY24 Result Update - Higher gRevlimid sales aided the quarter

Quick Pointers:

§ US sales up 9% QoQ aided by gRevlimid sales.

§ Guided for niche launches like Vascepa and 2 REMS products in H2FY24.

Zydus Lifesciences (ZYDUSLIF) Q1 EBITDA of Rs15bn (up 16% QoQ) was sharply ahead of our estimate aided by higher US sales led by gRevlimid sales. We believe that company’s steady domestic franchise, strong balance sheet and potential new launches in US will help negate pricing pressure and likely competition in some key products like gAsacol. Moreover, ZYDUSLIF is also working on robust pipeline of complex products including injectables, transdermals, NCE, biosimilars and vaccines which are expected to materialize over next 2–3 years. Our FY24/25E EPS stands increased by 26%/15%. We maintain our ‘Accumulate’ rating with revised TP of Rs650 (Rs520 earlier), valuing at 23x (unchanged) FY25E earnings plus Rs25/share for gRevlimid.

§ Strong revenue growth of 26%: ZYDUSLIF’s revenue grew substantially by 26% YoY to Rs51.4bn vs our estimate of Rs50bn aided by higher US formulations. Domestic formulation sales increased by 9.1% YoY; against our estimate of 10% growth. Consumer business delivered flattish growth YoY; below our est. US sales came in at USD 298mn (our est. of USD 275mn) vs USD 274mn in Q4FY23. We believe QoQ growth was aided by higher gRevlimid sales and new product launches. Emerging markets growth was by 30% YoY driven by most of its key markets. API sales experienced decline of 8% YoY.

§ EBITDA beat by higher US sales: An improved product mix in the US and soft input prices aided GMs to 66.9%; up 190 bps QoQ and 530 bps YoY. EBITDA including other operating income came in at Rs 15.3bn vs our estimate of Rs11.5bn. In Q1FY24, there was a forex loss of Rs271mn. R&D expenses totaled Rs 3.2bn (6.3% of revenue). The tax rate was 16.1%. Adjusted PAT for one offs was at Rs11bn; up 27% QoQ.

§ Key concall takeaways: (1) Branded business delivered 12% YoY growth excluding the NLEM impact. Lipaglyn, Bilypsa, & Ujvira, witnessed strong volume traction during the quarter. (2) Ramp up from gRevlimid boosted sales in US during Q1FY24. (3) Easing commodity prices on a sequential basis helped on gross margins. Guided for margin improvement by 150-200bps in FY24 against 50-100bps earlier. (4) Successfully launched 4 new products in US during the quarter. Company recently launched Indomethacin (CGT exclusivity) and Chantix and guided for gVascepa launch in Q3FY24 along with 2 REMS products in H2FY24. The injectable business is still in the scale-up phase. Focus remains on launching of complex injectable in the next 2 to 3 years (5) Consumer wellness business growth specifically for products like Glocon D which was impacted due to unseasonal rains. (6) Biosimilars – Company is expanding capacities and likely to spend Rs8-10bn over next 2 years.

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