Fundamental Analysis Of Zydus Lifesciences: Following the pandemic outbreak, global health issues have gained attention, resulting in a greater focus on pharmaceutical corporations. Zydus Lifesciences is one of these Indian pharmaceutical businesses. During the pandemic, the stock attained its all-time high but soon declined. However, it has since recovered and is now nearing its peak.
In this article, we will conduct a Fundamental Analysis Of Zydus Lifesciences and try to identify what the company has on hold for the future.
Table of Contents
Fundamental Analysis Of Zydus Lifesciences
We’ll begin our Fundamental Analysis Of Zydus Lifesciences by becoming acquainted with the company’s operations and products. Following that, we’ll go into the stock’s financials. The article concludes with a highlight of future plans and a summary.
Industry Overview
India is the 12th-largest market in terms of value and the world’s third-largest pharmaceutical manufacturer in terms of volume. The Indian pharmaceutical sector includes over-the-counter medicines, generic medications, bulk drugs, vaccines, contract research and manufacture, biosimilars, and biologics.
From 2016 to 2019, the Indian pharmaceutical sector increased at a compound annual growth rate (CAGR) of 6.6%. From 2020 to 2030, it is expected to grow at a CAGR of 12.3%.
This sector’s growth can be attributed to a wide range of factors, including the enormous potential of the generics market, advancements in the country’s medical infrastructure, the gradual introduction of patented pharmaceuticals, and increased public awareness of health and hygiene, particularly in light of COVID-19.
The following image with show you the Therapeutic area-wise break of the Indian pharma market as of FY23:
Company Overview
Zydus Lifesciences Limited, formerly called Cadila Healthcare Limited, is an Indian multinational pharmaceutical business based in Ahmedabad, Gujarat.
Zydus Lifesciences is a fully integrated healthcare company, with capabilities across the entire pharmaceutical value chain, including research and development, manufacturing, marketing, and distribution.
It is a fully integrated, global healthcare provider with in-depth domain expertise understanding in healthcare and strong capabilities across the pharmaceutical value chain. Formulations, active medicinal components, animal healthcare products, and wellness items are among the products available.
The company has a network of 35 cutting-edge production facilities spread across 5 states in India. Furthermore, the company has 7 R&D centres set up for the purpose of NCE, APIs, Gx formulations, Biosimilars and Vaccines.
Currently, the company is ranked 12th among India’s 300 brands and has also established a strong presence in the regulated markets of the US, Europe (France & Spain) and the high-profile markets of Latin America and South Africa.
Zydus Lifesciences – Financials
Using the annual reports declared by the company, we will now conduct a fundamental Analysis Of Zydus Lifesciences
Revenue and Net Profit Growth
The company’s profit and loss account indicates a slight increase in the company’s revenue in the last 4 years.
But in FY23, there was a 14% increase in its earnings as a result of a 28% increase in the US formulations business and a 5% increase in the Indian geography which comprises formulations and consumer wellness business.
During FY23, the company reported a total revenue of ₹17237 crores and its CAGR growth stood at 6.96% from FY19 to FY23.
On the other hand, the company’s profit has declined in FY23. This was due to the impairment of goodwill relating to Sentynl Therapeutics and expenses incurred in connection with the cessation of operations at one of the facilities of Zydus Wellness Ltd.
During FY23, the company registered a net profit of ₹1960. This gives the company a CAGR growth of merely 1.48% from FY19 to FY23.
The table below shows the total income and net profit of Zydus Lifescience for 5 financial years:
| Year | Total income (₹ In crores) | Profit after tax (₹ In crores) |
|---|---|---|
| 2023 | 17237 | 1960 |
| 2022 | 15265 | 4487 |
| 2021 | 14403 | 2133 |
| 2020 | 14253 | 1176 |
| 2019 | 13165 | 1848 |
| 4-year CAGR growth | 6.96% | 1.48% |
Margin Analysis
Over the past 5 years, the company has maintained steady operating margins ranging from 19% to 23%. This indicates that the company has managed to maintain a stable operating expense despite the increasing earnings.
On the other hand, the company’s net profit margins have declined from 15.4% in FY22 to 11.6% in FY23. This can be attributed to the reasons mentioned in the above sections.
The table below shows the operating profit margins and net profit margins of Zydus Lifescience for 5 financial years:
| Year | Operating Profit Margin | Net Profit Margin |
|---|---|---|
| 2023 | 20.72% | 11.61% |
| 2022 | 21.01% | 15.40% |
| 2021 | 23.50% | 15.31% |
| 2020 | 19.50% | 8.25% |
| 2019 | 22.62% | 14.00% |
Return Ratios: RoCE and RoE
The company’s return ratios indicate a slight improvement in the company’s performance in FY23 after a drop in FY22.
Return on equity excluding exceptional items and profit from discontinued operations improved to 14.9% from 14.4% during FY22.
Return on Capital Employed for the year improved to 15.5% from 13.6% registered during the previous financial year. The increase in ROCE was driven by increased profit and a decrease in capital employed as a result of debt reduction and equity buyback.
The table below shows the ROE and RoCE of Zydus Lifescience for 5 financial years:
| Year | ROE | ROCE |
|---|---|---|
| 2023 | 14.90% | 15.50% |
| 2022 | 14.40% | 13.60% |
| 2021 | 17.60% | 14.30% |
| 2020 | 11.30% | 11.20% |
| 2019 | 19.30% | 15.20% |
Debt & Interest Coverage Ratio
If we take a look at the leverage situation of the company, we can notice that the company has reduced its debt year-on-year. For FY23, the company reported a negative debt-to-equity ratio of -0.03.
Additionally, the company’s interest coverage ratio has increased to 29.7. The increased interest coverage ratio can be attributed to the company’s increased profits clubbed with its major reduction in debt.
The table below shows the leverage ratios of Zydus Lifesciences for 5 financial years:
| Year | Debt to Equity | Interest Coverage Ratios |
|---|---|---|
| 2023 | -0.03 | 29.7 |
| 2022 | nil | 26.3 |
| 2021 | 0.27 | 20.4 |
| 2020 | 0.65 | 8.1 |
| 2019 | 0.68 | 15.8 |
Future Plans Of Zydus Lifesciences
So far we looked at the previous fiscals’ data for our fundamental analysis of Zydus Lifesciences. In this section, we’ll try to make sense of what lies ahead for the company and its investors.
- The company has plans to spend over 8% on research and development in FY24 with its major expenses incurred towards innovative portfolio. The R&D spending for the Q4FY23 stood at Rs 354.1 crore, translating into 7.1% of revenues.
- The company has launched 32 ANDAs (abbreviated new drug application) in FY23 and further expects to launch 35 ANDAs in FY24.
- The company is developing a robust pipeline of complex pharmaceuticals such as injectables, transdermals, new chemical entities (NCE), biosimilars, and vaccines, which are scheduled to be available in the next 2-3 years.
- Through the use of advanced technical tools, the Company has launched a number of projects to digitize various shop floor procedures. These initiatives, which are focused on real-time data gatherings, will result in well-informed decision-making and, as a result, assure dependable and responsive operations.
Key Metrics
We are almost at the end of our fundamental analysis of Zydus Lifesciences. Let’s take a quick look at the stock’s important metrics.
| Particulars | Figures | Particulars | Figures |
|---|---|---|---|
| CMP | ₹ 590.2 | Market Cap (Cr.) | ₹ 59,644 Cr |
| EPS | 24.98 | Stock P/E | 24.22 |
| RoCE (%) | 15.50% | RoE(%) | 14.90% |
| Promoters Holding | 74.98% | Debt to Equity | -0.03 |
| Net Profit Margin(%) | 11.61% | Operating Profit Margin(%) | 20.72% |
In Closing
As we conclude our fundamental analysis of Zydus Lifesciences, we can say that, the company had good revenues in FY23, but its profits were lower than expected due to exceptional non-operating expenses. Therefore, if the company can increase its revenues in the coming years without such expenses, it can experience favorable growth in the future.
It is also important to note that investment decisions should not be based solely on the information provided above. It is recommended that individuals conduct their own research before making any investment decisions.
What are your thoughts on the future of Zydus Lifesciences? Please share in the comments section.
Written by Aaron Vas
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