Zydus Life shares drop as profit booking seeps in after stellar Q1 show, record high margins

Zydus Life clocked in an EBITDA margin of 34% in Q1, the highest ever for the drugmaker.

Investors rushed to book partial profits in the shares of Zydus Lifesciences on August 12 after the drugmaker reported a set of stellar earnings for the April-June quarter along with an equally impressive operational performance. The stock has surged over 6 percent in the past three sessions, giving investors plenty headroom to take home partial profits.

At 09.24 am, shares of the drugmaker were trading at Rs 1,258.40 on the NSE, off its opening lows of Rs 1,220.10.

The company posted a 61 percent on year surge in its consolidated net profit for the June quarter to Rs 919 crore, driven by strong sales across key markets. It had clocked in a net profit of Rs 571 crore in the year ago period.

Revenue also grew 10.5 percent year-on-year to Rs 7,567 crore in Q1 of FY25, up from Rs 6,851 crore in the same quarter last fiscal. Revenue was aided by double-digit growth in the India formulations as well as US business.

Domestic formulation sales grew was 12 percent on year, and was ahead of Indian
pharmaceutical market. Moreover, the company also expects to sustain double-digit
growth in India ahead of the broader market.

As for the US market, sales growth was fueled by higher contribution from cancer drug Revlimid as well as from the recently-launched overactive bladder drug Mirabegron. The company launched seven products in the US in the quarter gone by, and expects around 25 launches for FY25. Zydus expects its US business to grow in healthy double-digit in FY25 with launches and growth in Mirabegron.

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Moving on, the company's solid topline and bottomline growth also drove its strong operational performance in the quarter, with EBITDA margin coming at an all-time high of 34 percent. FY25 EBITDA margins would see 100–150 basis points expansion, the company guided.

Impressed by the robust quarterly show, brokerage firm Jefferies raised its FY25-27 EPS by 2-5 percent on higher sales and margins. The brokerage also sees a possibility of a positive surprise from Zydus Life if key products ramp up further.

On that account, Jefferies also raised its price target for the stock to Rs 1,210, but retained its 'hold' rating as it awaits better entry points.

Going ahead, Nuvama Institutional Equities believes strong India, specialty assets and US product line-up would help Zydus Life fend off the impact of Revlimid's loss of exclusivity in FY27.  Likewise, Nuvama also raised its FY25-26 EPS for Zydus by 5-13 percent. The brokerage also retained its 'buy' call on Zydus but raised its price target for the stock by over 23 percent to Rs 1,496.

MOFSL also raised its earnings estimates for FY25 and FY26 by 13 percent and 14 percent, respectively, driven by a strong pace of launches in the US generics segment, an increased share of the chronic segment in domestic formulations, and a recovery in the food and nutrition segment within consumer healthcare. However, the firm retained its 'neutral' call on the stock, citing valuation risks, assigning it a price target of Rs 1,210.

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