Nuvama Institutional Equities slashed the target price on Zydus Lifesciences by 16% to Rs 840 from Rs 1,003, maintained its ‘Reduce’ rating on the stock. The pharma major is acquiring France-based orthopaedics player Amplitude Surgical for 300 million euros in two tranches, paying a premium of 81% to its current price. This is likely to “dilute the earnings per share by 1-3% in FY26-27,” stated Nuvama.
Nuvama on Zydus Lifesciences: Synergies with Amplitude’s don’t match
According to a report by Nuvama, the deal between the two companies has “very little synergy.” Amplitude’s EBITDA margins stand strong between 21-24%, but have weak post-tax profitability owing to depreciation and interest expenses. Plus, the financial performance has been weak whether it’s RoE, RoCE, or free cash flow (FCF). Even if the company tries to optimise cost or accelerate sales growth, either of which is likely to take several years.
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Zydus Lifesciences will be funding the transaction through cash and external financing, which is expected to be completed by June 2025. The attractive part of this deal is that Zydus Lifesciences can foray in the $510 billion global med-tech market. Plus, IP-driven and backward-integrated product portfolio and an opportunity to build a med-tech business in India. Zydus expects that the Indian medical devices market is turning attractive due to regulatory changes. “While the med-tech industry is in a sweet spot with tailwinds aiding its growth, we argue this bolt-on for Zydus Lifesciences is a long-term play with amorphous synergies as of now,” said Nuvama.
Zydus Lifesciences Q3 performance
The company reported a consolidated net profit of Rs 1,024 crore ($117.4 million) in the quarter of FY25, a jump of 30% YoY. Its revenue from operations rose 17% to Rs 5,269 crore. The topline was led by a 31% increase in the United States. However, growth in India slowed to 6.7% from 16% last year. The United States is the company’s biggest market,t accounting for 47% of total revenue, followed by India.
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The share price of Zydus Lifesciences has cracked 2.6% in the last five days.
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