Nomura raises Zydus Lifesciences target price to Rs 1,450, maintains 'Buy'

It added that a strong base business was helping absorb the impact of higher investments on profitability and the balance sheet. Investments rise as Zydus expands into new segments Zydus invested Rs 136 billion in capital expenditure and acquisitions over FY24-26, 4.5 times the level recorded in FY21-23. The company concluded seven deals, five of them outside India, and entered new segments including MedTech, Biologics CDMO, global direct-to-consumer consumer brands and US specialty brands.

Operating spending has also increased, with quarterly research and development expenditure now twice the level of three years ago. Other expenses, excluding R&D, have risen as the company incurs overheads for its new initiatives. Nomura described the strategy as "calibrated and deliberate", aimed at diversifying into higher-value segments. It said the impact of increased investment and spending was being cushioned by the strong base business, with India and international markets outside the US growing at a healthy double-digit rate.

The US business continues to offer product-specific opportunities through a strong pipeline of abbreviated new drug application (ANDA) filings and partnerships. Management has guided for an EBITDA margin of 24% in FY27, which Nomura expects to be sustained in FY28 and FY29. Differentiated products and US pipeline offer growth opportunities Nomura said Zydus had emerged as one of the fastest-growing large companies in the Indian pharmaceutical market, with differentiated products such as biosimilars, vaccines and innovation assets contributing to growth.

International pharmaceutical sales outside the US have grown threefold organically over the past six years, supported by traction in existing markets and expansion into new territories. The brokerage highlighted the company's pipeline of high-value exclusive launches and niche opportunities, including cell and gene therapy (CGT) exclusivities, 505(b)(2) products and select biosimilars. Generic versions of Ibrance, Cabometyx and Brukinsa, along with biosimilar Keytruda, are among the opportunities it identified.

Zydus is also building a platform for specialty products in rare diseases. While this is likely to weigh meaningfully on near-term profitability, Nomura said it did not view the investment as value-destructive. The brokerage added that the company's entry into MedTech and Biologics CDMO may not deliver significant upside in the near term, but represents a positive strategic move with long-term prospects.

Nomura raises target price to Rs 1,450 Nomura's revised target price of Rs 1,450 is based on 28.5 times its FY29 estimated earnings per share of Rs 51.1, down from the earlier multiple of 30 times to reflect higher yields. A sum-of-the-parts cross-check indicates a fair value range of Rs 1,300-1,600, equivalent to 26-31 times one-year-forward earnings. The brokerage has maintained its 'Buy' rating on the stock.