Prabhudas Lilladher Recommends Accumulating Zydus Lifesciences with a Target of ₹1,305 Amid Strong Order Growth

Prabhudas Lilladher has recommended accumulating shares of Zydus Lifesciences, setting a target price of ₹1,305 in their research report dated August 12, 2024.

Key Highlights:

• Order Growth: Zydus Lifesciences saw an 18% year-on-year (YoY) increase in order inflow, reaching ₹62.5 billion. This growth was mainly driven by the Smart Infrastructure, Energy, and Mobility sectors, although the Digital Industries segment showed weaker order intake.
  
• Revenue Breakdown: In the third quarter of the fiscal year 2024 (Q3SY24), the revenue distribution across different segments was as follows: Energy (28%), Smart Infra (37%), Mobility (12%), Digital Industries (18%), and Portfolio Companies (5%). Compared to the same period last year, these percentages have seen slight changes.
  
• Earnings Estimate: The estimated earnings per share (EPS) for the fiscal year 2024 have been revised down by 2.2%, reflecting slightly lower-than-expected execution during the year. Despite slower growth in Digital Industries, the overall revenue for Siemens (SIEM) grew by 6.8% YoY, and there was an expansion of 166 basis points in EBITDA margins.
  
• Demand Outlook: The company expects demand to stay strong, supported by the government’s focus on infrastructure spending and an increase in private sector investment. To meet this demand, Zydus Lifesciences has planned over ₹10 billion in capital expenditure (capex) for the year, aimed at expanding its capabilities in various areas such as power transformers, vacuum interrupters, gas-insulated switchgear, and metro train manufacturing.
  
• Long-Term Prospects: Prabhudas Lilladher remains positive about Siemens’ long-term prospects due to its strong and diverse presence in industries focusing on electrification, digitalization, and automation. Other factors supporting this outlook include product localization, a strong balance sheet, healthy public and private sector investments, and potential value gains from the planned demerger of the Energy business.
  
• Stock Valuation: The stock is currently trading at price-to-earnings (P/E) ratios of 99.4x, 78.9x, and 65.4x for fiscal years SY24, SY25, and SY26 respectively. Prabhudas Lilladher has rolled forward their estimates to June 2026, maintaining an “Accumulate” rating with a revised target price of ₹7,362, based on a P/E ratio of 73x June 2026 earnings.

Performance Summary:

• Revenue Growth: The company’s consolidated revenue grew by 6.8% YoY to ₹52 billion, though this was below the expected ₹57.1 billion. Growth was particularly strong in Smart Infra (up 14.5% YoY) and Digital Industries (up 7.7% YoY), while Energy saw a slight decline of 2.1% YoY.
  
• Margins: Gross margins increased by 82 basis points to 33.4%, while EBITDA rose by 22% YoY to ₹6.9 billion, with an EBITDA margin of 13.3%, which was slightly below expectations.
  
• Order Inflows: Year-to-date (YTD) order inflows stand at around ₹174 billion, with Q3SY24 alone seeing an 18% YoY increase to ₹62.5 billion. The order book is estimated at ₹217 billion, excluding a significant ₹263 billion order for locomotives.