Zydus hits 52-week high, can the optimism continue?
Zydus Lifesciences has gained 32% in 2026, helped by favourable US FDA inspections, resilient India growth and a strong pipeline, but US weakness and margin pressure remain key risks.
The Zydus Lifesciences stock hit a fresh 52-week high of ₹ 1,232.10 on Tuesday, even as the broader market remained under pressure. The stock has gained 32% in 2026 so far, running ahead of an 18% rise in the Nifty Pharma Index. Favourable US Food and Drug Administration (FDA) inspections over the last few days have extended regulatory comfort, while resilient domestic growth and a deepening innovation pipeline have helped ease concerns around the degrowth in its US business.
Zydus announced on 26 September that the US FDA’s inspection of its New Jersey office, covering pharmacovigilance and post-marketing surveillance, concluded with nil observations. Two days later, its SEZ II manufacturing facility in Ahmedabad inspection closed with just one observation and no data-integrity findings.
That’s not all. The Ahmedabad injectable facility had received a voluntary action indicated classification last month, which was an improvement following the deficiencies cited at the June review of its Baddi facility.
However, Zydus is not immune to the recent industry-wide US business pressures. Its US sales, which contributed 40% to revenues in the June quarter (Q1FY27), declined year-on-year for the second straight quarter. Weighed down by a higher base from large gRevlimid contribution, competition and price pressures, it registered a 12% constant-currency drop in Q1FY27.
But there is a silver lining from a medium-to-long-term view. The US pipeline remains robust, with 30-40 products expected in FY27. Saroglitazar, which has received priority review from the US FDA for primary biliary cholangitis, is expected to launch early in FY28.
With sales ramp-up in FY29 and FY30, its conservative peak sales potential is pencilled in at $200-300 million. This is significant against Zydus’ US sales of $327 million in Q1.
Zydus is also advancing Desidustat in Phase III for sickle-cell disease, Usnoflast in Phase IIb for ALS, and its US biosimilars business is expected to contribute meaningfully from 2029.
Its June acquisition of US-based specialty pharmaceuticals company Assertio Holdings is expected to bulk up the US branded products portfolio from 10% to 15% of US revenues. This should bode well for US business profitability, while revenue growth is expected in single digits.
Domestic formulations, contributing 23% of Q1 revenues, have also been taking some pressure off the weakness in the US. It grew 19.5% year-on-year to ₹ 1,820 crore.
Chronic and sub-chronic therapies account for 54.2% of domestic formulations sales, up 360 basis points (bps) over four years. The management has guided for mid-teens growth in the India business, outperforming the industry by 300-500 bps.
But margins need to be monitored. Higher costs across the board, including raw materials, staff expenses and R&D, compressed Ebitda margin by 750 bps year-on-year to 23.4% in Q1, while depreciation and amortization from acquisitions and patent-related expenses resulted in a 36% decline in net profit to ₹ 940 crore.
The management expects Mirabegron settlement-related amortization to continue until Q1FY28, while FY27 capex is guided at ₹ 1,500-1,600 crore.
Against this, an improving product mix can offer some comfort. Branded products, which accounted for 55% of revenue in Q1FY27, are targeted to exceed two-thirds of the business over the medium term. The overall business is expected to grow in double digits with around 24% Ebitda margin.
At 24x FY28 earnings, according to Bloomberg estimates, valuations are no longer inexpensive, leaving execution on margins and the US pipeline, including Saroglitazar, critical to sustaining the premium.
