KR Choksey's research report on Zydus Lifesciences
Zydus Lifesciences Ltd. showed an in line market growth for the month of January 2024 for India Pharma Market (IPM) as per All Indian Origin Chemists and Distributors Ltd. (AIOCD) Jan 24 report. While the IPM growth was 9.5% Y-o-Y for the month of January 2024, Zydus Lifesciences clocked in 9.4% Y-o-Y growth for the same period on the back of IPM beating growth in its major therapies such as cardiac (13% of sales) and antiinfective (13% of sales); partially offset by slower than IPM growth in respiratory segment (14% of sales) in January 24. The Q4FY24E and Q1FY25E are the peak seasons for major brands of the company’s wellness segment such as Glucon-D and Nycil. India formulations contributes 33% of revenue while consumer wellness contributes 9% of revenue as of Q3FY24. Additionally, the recently launched 505(b)(2) – NDA – Zituvio in the US, in Q3FY24, promises to be a strong growth driver for the US market over FY25E – FY26E, as it is a novel drug (approved in Oct 23 by the USFDA). The company expects Zituvio to gradually ramp up its market share in Sitagliptin in the US over a period of time with rise in Zituvio’s adoption among physicians. Sitagliptin Tablets (RLD: Januvia) had estimated annual sales of USD 5.79 billion in the US (IQVIA MAT October 2023). At the same time, gRevlimid sales is expected to re-emerge in Q4FY24E and Q1FY25E as guided by the management. The company has announced a share buy back of up-to Rs. 6,000 Mn at Rs 1,005 per equity share, as well.
Outlook
We therefore raise the Target Price on Zydus Lifesciences to INR 1,006/share (prev: INR 913) as we raise the valuation multiple by 10% to 27.0x (vs. earlier multiple of 24.5x, It is at a 10% premium to its 5 year historical PE it has traded at) applying on FY26E EPS of Rs. 37.3 (unchanged). We upgrade our rating on Zydus Lifesciences from Accumulate to Buy as target price implies 17.3% upside from its CMP.
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