Zydus LifeSciences domestic growth and Saroglitazar pipeline offset US pricing pressure

Investment View and Earnings Update

Motilal Oswal Financial Services maintained its Neutral view on Zydus LifeSciences in its August 11, 2026, 1QFY27 results update. Revenue and EBITDA were broadly in line with expectations, but earnings were below estimates because of higher depreciation, interest expense and the tax rate.

The broker retained largely unchanged FY27E-FY28E revenue and EBITDA estimates, but reduced earnings estimates by 9 per cent for FY27E and 5 per cent for FY28E.

1QFY27 Financial Performance

The decline in EBITDA margin reflected higher employee and other expenses, along with increased research and development spending. R&D expenditure was Rs 640 crore, equivalent to 8 per cent of revenue. Adjusted PAT was below the broker's estimate because of higher depreciation, interest expense and the tax rate.

Domestic Formulations Continue to Gain Share

Domestic formulations were a principal positive, with revenue growing 19.5 per cent year-on-year to Rs 1,816 crore, representing 23 per cent of sales. Zydus LifeSciences has outperformed the Indian pharmaceutical market over the past three years, recording share gains across cardiology, diabetology, gynecology, anti-infectives, pain management, oncology and nephrology.

Chronic and sub-chronic therapies accounted for 54.2 per cent of domestic-formulation sales, an increase of 360 basis points over four years. MOFSL expects domestic formulations to grow at approximately 12 per cent CAGR over FY26-FY28, supported by market-share gains, a greater chronic mix, differentiated launches and innovative therapies.

Phase III trials of Desidustat in sickle cell disease in India were approved, while Lipaglyn continued to gain traction.

Consumer Wellness Growth and Expansion

Consumer Wellness revenue increased 67.2 per cent year-on-year to Rs 1,429 crore, driven primarily by the Comfort Click acquisition. Domestic consumer revenue grew 5 per cent. Growth in healthy skin and hair care and food and nutrition was partly offset by a weaker summer season for seasonal brands.

Organised channels accounted for 38 per cent of domestic consumer revenue, comprising 17 per cent modern trade and 21 per cent e-commerce. The international consumer business, including Comfort Click, grew 25 per cent on a like-for-like basis.

MOFSL forecasts Consumer Wellness revenue CAGR of approximately 24 per cent over FY26-FY28, driven by acquisition synergies, premiumisation, innovation, organised-trade penetration and international expansion.

North America Remains the Key Concern

US revenue declined 2.6 per cent year-on-year to Rs 3,098 crore, although it improved 4.9 per cent sequentially. In constant-currency terms, US sales fell 12 per cent year-on-year. New launches, biosimilars and specialty products are expected to offset generic pricing pressure and product erosion, but MOFSL remains cautious about rising competition in important generic products.

During the quarter, Zydus LifeSciences launched 11 US products, filed five ANDAs and received nine ANDA approvals. It also launched NUFYMCO, its first US biosimilar, completed the Assertio Holdings acquisition and received USFDA priority review for Saroglitazar magnesium in primary biliary cholangitis. MOFSL expects US revenue CAGR of 8 per cent over FY26-FY28.

Management Guidance and Pipeline Developments

Management reiterated its FY27 guidance for strong double-digit revenue growth and an EBITDA margin of approximately 24 per cent. It expects mid-teen growth in India, double-digit growth in international markets and single-digit growth in the US.

• Management plans 30-40 US product launches in FY27.
• Saroglitazar is targeted for launch in April 2027, with limited first-year sales expected before a stronger ramp-up in the second and third years.
• Saroglitazar's peak sales potential was conservatively indicated at USD 200-300 million, with upside potential above USD 400 million.
• Higher depreciation and amortisation are expected from acquisitions and Mirabegron settlement-related licensing amortisation.
• FY27 capex guidance stands at Rs 1,500-1,600 crore.

Valuation and Key Risks

MOFSL values Zydus LifeSciences at 23 times 12-month forward earnings to derive a target price of Rs 1,125, below the report CMP of Rs 1,191.

The broker recognises investments in differentiated products, acquisitions and domestic-formulation marketing as growth levers. However, it expects only a moderate 5 per cent earnings CAGR over FY26-FY28 and sees limited valuation upside.

Key factors weighing on the investment thesis include:

• US generic competition and pricing pressure;
• Acquisition-related costs;
• Elevated depreciation and interest expense; and
• Weaker near-term earnings growth.