Zydus Life posts decline in Q4 net profit on one-time loss, yet brokerages remain upbeat

Shares of Zydus Lifesciences opened higher on May 19, a day after the company reported its quarterly numbers for the January-March period.

At 09.24 am, shares of Zydus Lifesciences were trading at Rs 512.50 on the National Stock Exchange, up around 1 percent from the previous close.

The drugmaker’s net profit for the quarter declined 25.4 percent on year to Rs 296.6 crore, bogged down by a one-time loss of Rs 601.30 crore. Excluding the one-time loss, the company would have clocked a net profit of Rs 897.9 crore, which is well ahead of CNBC-TV18’s estimate of Rs 714.3 crore.

The topline also jumped 29.7 percent to Rs 5,011 crore aided by strong US sales growth, mainly aided by contribution from the generic of Revlimid. Operating performance also improved significantly as the EBITDA margin expanded 640 basis points on year to 25 percent.

The topline as well as EBITDA margin topped the Street’s estimates of Rs 4,734.3 crore and 22.5 percent, respectively.

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The robust quarterly also evokes positive growth outlooks from brokerages. Here’s what they believe:

Morgan Stanley retained its ‘overweight’ call on the stock but raised its target price to Rs 646. The firm also increased its FY24/25 earnings-per-stock estimates by 15.6 percent/22.4 percent to factor in upside from niche launches, Revlimid contribution, stable core business and forex changes.

The company’s earnings were also above Nomura’s estimates, which prompted the firm to retain its ‘buy’ rating for the stock, with a target price of Rs 540 per share. The firm remains positive of the strong momentum across all business segments of Zydus Lifesciences.

Nuvama Institutional Equities also believes that an improving India trajectory, strong EM branded, gVascepa launch and consistent gRevlimid should keep earnings risks at bay for the drugmaker. The firm also raised its target price for the stock by over 10 percent to Rs 485, but chose to retain its ‘hold’ rating amid skepticism over the company’s execution risks
given past delays in complex products.

Motilal Oswal Financial Services also raised its earnings estimates for FY24/FY25 by 3 percent/4 percent to factor in a robust launch pipeline in US generics, including limited competition products, increased competition in gTrokendi and higher research and development spending. “While the US pipeline looks interesting over the next 12- 15 months, the overall improvement in return ratios is expected to remain in check,” the brokerage stated in its report. Consequently, MOFSL retained its ‘neutral’ rating for Zydus, with a price target of Rs 550.

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