Recommendation from a Pharmaceuticals Sector

This column gives you a scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.[EasyDNNnews:PaidContentStart]

ZYDUS LIFESCIENCES LIMITED-

Pharmaceuticals : IMPRESSIVE GLOBAL PRESENCE

HERE IS WHY

✓ Leading position in the pharmaceutical space
✓ Strong on research and development
✓ Good presence worldwide

In the global landscape, the Indian pharmaceutical industry plays a prominent role. In fact, India is one of the biggest suppliers of low-cost vaccines in the world. According to a recent EY FICCI report, the Indian pharmaceutical market is expected to reach USD 65 billion by 2024 and estimated to touch USD 130 billion in value by the end of 2030. Meanwhile, the global market size of pharmaceutical products is estimated to cross over the USD 1 trillion mark in 2023.

India is the largest provider of generic medicines globally, occupying a 20 per cent share in global supply by volume. The Indian pharmaceutical sector supplies over 50 per cent of the global demand for various vaccines, 40 per cent of generic demand in the US and 25 per cent of all medicine in the UK. Considering the growth of the Indian pharmaceutical industry and to participate in it, our choice scrip for this issue is Zydus Lifesciences.

It is a prominent integrated pharmaceutical company operating across the entire value chain from research and development to the marketing and distribution of pharmaceutical products. With a diverse product portfolio encompassing active pharmaceutical ingredients (APIs) and human formulations, the company’s focus extends to new chemical entities (NCE), biologics, vaccines, specialty and complex generic formulations, and API process development.

In Q1FY24, on a consolidated basis its revenue rose by 28.8 per cent YoY to ₹5,052.80 crore compared to ₹3,922.90 crore from the previous year’s same quarter. PBIDT excluding other income increased by 107.74 per cent to ₹1,505.30 crore YoY as compared to ₹724.60 crore from the previous year’s same quarter, while sequentially it increased by 19.89 per cent. Net profit stood at ₹1,112.10 crore compared to ₹554.30 crore, a YoY increase of 100.63 per cent, while sequentially it increased by 221.04 per cent from ₹346.40 crore.

In terms of geographical revenues, 46 per cent is derived from India, 39 per cent from the US and 15 per cent from the rest of the world. The company also holds majority stake in Zydus Wellness Ltd., which has popular products like Sugarfree, Everyuth, Complan, Nycil, GluconD and Nutralite. About 15 per cent of the revenue is derived from its wellness products. In the current quarter the company has received 20 new product approvals, including three tentative approvals. It has launched four new products. The company has filed four ANDAs during the quarter while 62 ANDAs are pending for approval with the USFDA. 

The launch of generic Vascepa is expected in Q3 and the company plans to launch two REMS products in Q3 and Q4. It expects competition in the Asacol HD product in the second half of FY24 and has factored it into their growth guidance. Over the years, the company has excelled in research and development, manufacturing, marketing and selling finished dosage human formulations, APIs and consumer wellness products. The company is currently trading at a PE of 21.9x as against the industry PE of 30.4x and around its three-year median PE of 23x. Over the past three years the company has delivered average ROE of 20.8 per cent and ROCE of 15.5 per cent. Considering the company’s business and its leading position, we recommend BUY.

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