Zydus Lifesciences

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Excerpts of an interview with Mr. Sharvil Patel, MD, Zydus Lifesciences (ZYDUSLIFE) with CNBC-TV18 on 24^th March 2022:

• In the US, the generic business has always been cyclical and it needs to be seen in a three-to-five-year window. They believe any company with a very strong portfolio and good cost management and backward integration capabilities can do well in the US market.
• Mr. Patel believes that the US generic market is a very large opportunity that exists and the volumes are very large as well which makes it an opportunity worth taking effort for.
• For ZYDUSLIFE, the pricing pressures are expected to continue and one has to constantly optimize costs, and build efficiencies through larger scale and backward integration. This is what ZYDUSLIFE is doing in terms of operational efficiencies as well as sourcing efficiencies.
• In the next 18 months, ZYDUSLIFE is expected to have a very good portfolio of generic launches that will help it cross the current USD 700-800 mn revenue range that it is at and come closer to a billion-dollar revenue range.
• Once it has a resolution for one of its facilities as well as more important launches in FY24, ZYDUSLIFE will be on an upward trajectory for its US generic business.
• For India business, ZYDUSLIFE has taken efforts to reduce complexity both in terms of the large portfolio and the way its business units were formed. With a lot of restructuring, it is at a stage where the focus is on the top 30 molecules with the new introductions on the proprietary molecule side.
• ZYDUSLIFE is confident about delivering better than market growth and double-digit growth for the India formulations business.
• It is expected to produce 10 mn doses per month of the Covid vaccine ZyCov-D which means they can vaccinate about 3 mn people. ZYDUSLIFE has submitted a trial of the vaccine for the age group of 12-18 and has received a DCGI (Drugs Controller General of India) approval but is waiting for NTAGI (National Technical Advisory Group on Immunization) clearance.
• A booster dose strategy has worked out where it has to change vaccines from the earlier vaccination to the next vaccine.
• Even though ZYDUSLIFE is delayed by 6 months, it believes there is enough room for it to make the vaccine available with a production of 8 to 10 mn doses a month.

Asset Multiplier Comments

• The US business is expected to ramp up in the next 18 months on the back of new launches and approvals and meet its revenue guidance of USD 1 bn. With its backward-integration capabilities and operational efficiencies, we believe ZYDUSLIFE is well placed to tackle the US pricing pressures.
• It is working on a pipeline comprising injectables, biosimilars, NCE-led specialties, and vaccines. We expect these to contribute to ZYDUSLIFE’s growth trajectory over subsequent quarters.
• We expect EBITDA margins to be under pressure due to increased raw material costs.

Consensus Estimate: (Source: market screener website)

• The closing price of ZYDUSLIFE was ₹ 366/- as of 24-March-2022. It traded at 17x/ 15x the consensus earnings estimate of ₹ 21/ 24/- per share for FY23E/FY24E respectively.
• The consensus target price of ₹ 482/- implies a P/E Multiple of 20x on FY24E EPS estimate of ₹ 24/-

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