Q4FY23 Review: Zydus Lifesciences: Encouraging US outlook on an ex-Revlimid basis

19 May 2023 , 12:16 PM

Zydus’ Q4 Ebitda margin at ~26% was ahead of IIFL Capital Services estimate of ~21%, driven by USD25/20m incremental QoQ sales from Revlimid /Trokendi-XR. Analysts of IIFL Capital Services estimate that on ex-Revlimid basis also, Zydus’ US sales grew 10% cc in FY23 driven by the launch of >30 new products and benefit from one-time supply opportunities. The outlook for the US business remains encouraging with mgmt guiding for single-digit growth in FY24, on the back of MS gains in Revlimid and potential high-value launches (Vascepa, 2 REMS products, 3 transdermals, and 5 other niche launches). With consistent double digit growth in the India business as well, Analysts of IIFL Capital Services expect Zydus’ Ebitda margins to expand ~100bps in FY24 and company’s overall EPS to clock ~8% Cagr over FY23-25 (Analysts of IIFL Capital Services have factored-in Asacol competition in FY25).

Revlimid and Trokendi drive Q4 beat: 

Zydus’ US sales increased QoQ from USD235m to USD275m (vs IIFLe of USD240m), with the US beat driven by Revlimid as we estimate Revlimid sales increased QoQ from USD15m to USD40m, while Trokendi-XR additionally would have contributed USD20m revenue in Q4. Trokendi-XR sales would start moderating now given incremental competition. However, we forecast Revlimid sales to increase from USD70m in FY23 to USD160/180m in FY24/25 and expect Revlimid to account for ~30% of Zydus’ EPS in FY24/25 vs ~13% in FY23.

Encouraging outlook for the US base business: 

Analysts of IIFL Capital Services expect Zydus’ US sales to increase 10% cc in FY24, driven by ramp-up in Revlimid and 35 new product launches expected including Vascepa, 2 REMS products, 3 transdermals and another potential 5 high-value launches. Mgmt is confident of getting sufficient API supplies to ensure its fair MS in Vascepa. However, we assume competition in Asacol from FY25 and accordingly project Asacol sales to decline from USD100m in FY23 to USD40m in FY25.

India business to clock double digit growth: 

Zydus’ ex-Covid India formulations business grew 12% each in Q4/FY23 (vs reported 11/2% growth) driven by continued focus towards strengthening its key therapies and niche launches such as Lipaglyn. Analysts of IIFL Capital Services expect Zydus’ India business to grow at 11% Cagr over FY23-25 and improving rep productivity (currently at Rs6.5-7 lakhs pm) will support company’s overall margin profile as well.

Zydus currently trades at ~23x FY25 base business EPS (ex-Revlimid) and analysts of IIFL Capital Services maintain their ADD rating with a TP of Rs540 (upgraded FY24/25 EPS by 9/3%).