Zydus Lifesciences’ Stock Price Soared 110%: What’s the Next Move?

There are several reasons why the company may engage in share buybacks. One reason is to boost shareholder value wherein by purchasing own shares, a company reduces the number of outstanding shares in the market, which increases earnings per share (EPS). This can make each remaining share more valuable to existing shareholders.

The other reason might be the signal of confidence by the management in the company’s future prospects. When a company repurchases its own shares, it demonstrates that it believes the shares are undervalued and that it has confidence in its ability to generate future cash flows and profits.

India’s 4th largest drugmaker, Zydus Lifesciences, has recently announced a share buyback of equity shares. Through a tender offer, the company authorised the repurchase of 59.7 lakh equity shares, or 0.59% of its total paid-up equity capital. The shares will be repurchased at a price of ₹1,005 per share.

Not only that, the company is focusing on the cancer field (Oncology) a lot to propel growth. Olaparib was recently introduced in India by the company under the brand IBYRA. According to the company, the medication would specifically target genetic alterations that are common in some cancer types, opening the door for a more individualised and successful treatment plan.

Also, the shares of the company have been nothing short of disappointment giving a stellar multibagger return of 110 percent over one year. So, given the decision to buy back shares by the management, let’s try to evaluate the future of the company and whether it’s a good investment opportunity.

Corporate Overview Of Zydus Lifesciences

Leading Indian pharmaceutical business Zydus Lifesciences Limited(formerly known as Cadila Healthcare Limited) is a fully integrated, international healthcare provider. It has excellent capabilities throughout the pharmaceutical value chain and extensive domain understanding in the healthcare industry.

Zydus Lifesciences has established a name among Indian pharmaceutical businesses for offering comprehensive and all-inclusive healthcare solutions, ranging from formulations to active pharmaceutical components and animal healthcare goods to wellness items.

The company’s inception can be traced back to the 1950s. Mr. Ramanbhai B. Patel (later), a prominent figure in the Indian pharmaceutical industry and a first-generation entrepreneur, launched the company in 1952.

After the firm underwent restructuring in 1995, Cadila Healthcare was created under the Zydus group’s umbrella. The group had tremendous financial growth, going from a meagre sales of 250 crores in 1995 to over Rs. 17,000 crores in FY-23.

Business Divisions Of Zydus Lifesciences

Formulation Business

One of the keystones of the company’s expansion throughout the years has been its formulations business in India. With 29% of business, it was the second-biggest contribution to the consolidated revenues for the year.

Over the years, the company has steadily grown its business by introducing new goods, offering new therapies, improving reach, and using its innovation engine to provide innovative healthcare solutions.

The company expanded its reach into the highly specialised fields of oncology and nephrology as well as the targeted therapeutic areas of cardiology, anti-diabetes, gynaecology, respiratory, gastro-intestinal, and dermatology.

Due to this, the company was able to grow in both the chronic and sub-chronic segments during the year at a quicker rate than the market, which improved its ranking in these areas when compared to the previous financial year.

Consumer Wellness

The company’s subsidiary, Zydus Wellness Limited (ZWL), is in charge of the group’s operations in the consumer wellness sector. Its portfolio includes both purchased and organically developed top brands. Thirteen percent of the business’s total revenue is generated by this area.

The two main macro factors that affect company performance during the year were an average summer and a higher degree of commodity inflation. Glucon-D and Nycil, two summer-heavy brands, saw a boost in sales due to the typical summer season following two years of pandemic-related disruptions in FY2021 and FY2022.

In each of the company’s six categories, five of the brands are market leaders. With over 50 million customers, the corporation is proof that its brands are deeply ingrained in consumers’ daily lives and shopping carts.

US Formulations

Zydus Pharmaceuticals USA Inc., the company’s wholly-owned subsidiary, is in charge of leading its US operations. The US company performed very well in FY2023, helped by a steady price environment, volume growth in the base portfolio, and the year-round effects of new releases.

With 44% of consolidated revenues for the year, the US was the company’s largest market. In the US market, the company now sells 176 generic medications. Regarding these, the company leads around a quarter of the product families and is in the top three in over 65% of the product families. 

Financials of Zydus Lifesciences

In the fiscal year 2023, Zydus Lifesciences saw an increase in revenue, surging by 14% to reach ₹17,237 crore as opposed to ₹15,109 crore in FY2022. Analyzing a span of four years, encompassing FY2020 to FY2023, the company displayed a  Compound Annual Growth Rate (CAGR) of 6.54% in revenue.

But there was a noteworthy downturn in net profit, experiencing a 120% decrease from ₹4,618 crore in FY2022 to ₹2,092 crore in FY2023. The reason for the decrease in net profit is due to the gain from the discontinued operations worth ₹2,680 crore in FY2022 which didn’t recur in FY2023. Over the cumulative four-year period from FY2020 to FY2023, the net profit showcased 20.22% CAGR.

In FY23, Zydus Lifesciences maintained favourable financial metrics with a Return on Equity (ROE) of 14.05% and Return on Capital Employed (ROCE) of 16.25%.

Future Plans Of Zydus Lifesciences

Focus on NCE Research

The goal of the research on New Chemical Entities (NCEs) is to create NCEs that have the potential to be pharmaceuticals for the treatment of different illnesses. Using state-of-the-art technology, the company is actively searching for new drugs across multiple therapeutic domains.

The company’s NCE research efforts are led by the Zydus Research Centre (ZRC), an Ahmedabad-based specialised research division of the business. There are over 400 highly skilled scientists in the Centre. 

This cutting-edge facility has the capacity to take a chemical from concept to human testing. The main areas of interest for NCE research are infectious diseases, fibrosis, inflammation, and cardiometabolic disorders. Over the previous year, the compounds that are presently undergoing clinical development have advanced as anticipated.

The company kept increasing the number of patients it covered for the in-market brands OxemiaTM (Desidustat for CKD-induced anaemia) and Lipaglyn and Bilypsa (Saroglitazar Magnesium for several indications viz. Diabetic Dyslipidemia, Hypertriglyceridemia, NAFLD, and NASH).

Aim for Double Digit Growth

Through a combination of innovation and strategic business transformations the company is setting its sights on achieving double-digit growth. Sharvil Patel, the Managing Director of Zydus Lifesciences, said that the enterprise’s focus is to streamline the portfolio, expand market reach and ensure that dedicated teams are aligned with specific therapeutic areas.

The company’s portfolio, which includes drugs including Saroglitazar, Desidustat, Monoclonal Antibodies, and Dydrogesterone, is a key component of its business strategy. These goods are doing well in the marketplace, which is fueling the business’s rapid expansion.

In reference to acquisitions and mergers, Patel emphasised taking a strategic stance. Zydus Lifesciences is not actively seeking significant M&A transactions at this time, however it is nevertheless open to prospects.

Conclusion

Zydus Lifesciences appears well-positioned for future growth with its focus on NCE research, double-digit growth targets, and a promising drug portfolio. The share buyback also signals management’s confidence in the company’s prospects. However, the path ahead is never certain. What are your thoughts on Zydus Lifesciences’ future trajectory? Share your views on the company’s outlook.

Written by Nalin Suriya S

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