Zydus Lifesciences Q4 Review: Citi Maintains 'Sell'; Sees Earnings Concentration In Specific Products

Zydus Lifesciences Ltd. reported growth in the fourth quarter of fiscal 2025, driven by higher non-recurring components in the US market. Despite the positive numbers, Citi has maintained its 'sell' rating on the stock, citing concerns over earnings concentration in specific products. The brokerage has set a target price of Rs 900 on the stock.

The firm posted a 33.2% Ebitda margin for the fourth quarter, an increase of 380 basis points year-on-year. The company's US sales reached $363 million, up 19% year-on-year and 27% quarter-on-quarter. According to management, the minimal impact of generic Revlimid and price corrections contributed to the quarterly jump in US sales, likely driven by generic Myrbetriq or channel filling in Sitagliptin.

"Extended sales of Myrbetriq and Sitagliptin may prevent US sales from declining in FY26E, despite erosion in gRevlimid." However, the FY26E Ebitda margin guidance of over 26% is expected to be 300-400 basis points lower than FY25, indicating baseline Ebitda margins in the range of 20-22%.

Zydus Lifesciences Q4 Highlight (Consolidated, YoY)

• Revenue up 18% to Rs 6,527.9 crore versus Rs 5,533.8 crore.

• Net profit down 1% to Rs 1,170.9 crore versus Rs 1,182.3 crore.

• Ebitda up 30% to Rs 2,125.5 crore versus Rs 1,630.5 crore.

• Margin at 32.6% versus 29.5%.

The company's revenues increased by 17% year-on-year, with US sales showing significant growth. Indian formulations grew by 11.5% year-on-year, while consumer sales rose by 17% year-on-year. Gross margins improved by 400 basis points quarter-on-quarter to 74%, driven by a better mix of products, resulting in a 33% Ebitda margin for Q4, the brokerage noted.

Citi highlighted key upside trends that could lead to higher trading prices for Zydus shares; better-than-expected execution on the complex generic front, faster-than-expected growth in the India business, and higher-than-expected synergies from Heinz India business.

Despite Q4 growth, Citi remains cautious about the concentration of earnings in specific products and the potential for negative surprises as these products taper off.