This is because Peak XV Partners sold 22% stake in a bulk deal in September. FIIs and DIIs picked up most of that stake. Peak XV Partners is classified under “Public” shareholders.

Some points from concall :

• company expects to grow overall at 25-30 percent for many years to come (over 3 yrs) and
  CDMO will have a much bigger growth and expects exports to grow around ~50% YoY with
  EBIDTA margin ~25%
• operating profit margins back to 22% compared to 18% last time (last time platin prices were
  high which caused margin impact)
• Currently focus is on EU and in 2-3 yrs to expand in USA as well

Disc : Not invested , tracking.

**Any views on price range to enter supporting the valuations? **

Zydus Lifesciences –

Q2 FY 25 results and concall highlights –

Revenues – 5237 vs 4368 cr, up 20 pc
EBITDA – 1461 vs 1146 cr, up 27 pc ( margins @ 27.9 vs 26.2 pc )
PAT – 911 vs 800 cr, up 14 pc ( due increased tax rate )

Geography wise sales breakup –

India formulations – 1456 cr, up 9 pc
India consumer wellness – 487 cr, up 12 pc
US formulations – 2416 vs 1864 cr, up 29 pc
International formulations – 538 vs 450 cr, up 19 pc
APIs – 119 vs 140 cr, down 15 pc
Others – 94 vs 34 cr, up 177 pc

Launched 12 new products in India in Q2. Out of these, 4 were first to mkt products

Share of chronic sales @ 42 pc vs 38 pc in FY 21

Consumer wellness business registered 8 pc volume growth

Zydus Wellness ( company’s subsidiary ) acquired – Naturell Pvt Ltd in Q2 ( for 390 cr ). It manufactures and sells Nutrition bars, protein cookies, protein chips and other health foods

Q2 capex @ 301 cr. Q1 capex spends were @ 302 cr

Cash on books @ 2590 cr

In India, 10 of company’s brands have sales > 100 cr. Another 21 brands have sales between 50-100 cr

Launched 4 new products in US in Q2. Filed 8 ANDAs and received 9 approvals ( including 3 tentative approvals )
Share of chronic sales @ 42 pc vs 38 pc in FY 21

Consumer wellness business registered 8 pc volume growth

Company acquired – Naturell Pvt Ltd in Q2. It manufactures and sells Nutrition bars, protein cookies, protein chips and other health foods

Q2 capex @ 301 cr. Q1 capex spends were @ 302 cr

Cash on books @ 2590 cr

In India, 10 of company’s brands have sales > 100 cr. Another 21 brands have sales between 50-100 cr

Launched 4 new products in US in Q2. Filed 8 ANDAs and received 9 approvals ( including 3 tentative approvals )

Entered into an exclusive licensing and supply agreement with Viwit Pharma for 02 – Gadolinium based MRI – contrast agents – to be supplied in the US mkts. These are injectables – used to increase the visibility of organs during MRI procedures. This is a niche but valuable drug. There r no generics for this drug currently in the mkt

Updates on Innovation –

Saroglitazar Magnesium – Recruited patients for phase 3 trials for the indication – Primary biliary cholangitis

Unsoflast – Completed phase 2 trials in India for the Indication – ALS ( Amyotrophic Lateral Sclerosis )

Desidustat – Initiated phase 2 trials in US for Sickle cell disease

Received WHO approval for their TCV vaccine – ZYVAC ( to prevent Typhoid )

Company has acquired 50 pc stake in Sterling Biotech for 550 cr. Currently setting up state of the art manufacturing facility to produce fermented animal free proteins. Also acquired sterling Bio’s API business that manufactures fermentation based APIs like – Lovastatin, Daunorubicin, Doxorubicin and Epirubicin

During the Qtr, 02 of company’s facilities were inspected by US FDA – Injectables facility at Jarod received a warning letter ( a key negative ), Ahmedabad SEZ facility successfully completed the inspection and received an EIR with a VAI status

Guiding for an R&D expense of 8 pc of topline for full FY 25 – a key positive ( IMO )

Maintaining high teens topline growth guidance with EBITDA margins > FY 24 margins for FY 25 ( likely to exceed their guidance )

Naturell Pvt ltd currently does an annual sales of 130 cr

Mirabegron sales in US continue to remain strong – which is why the gross margins are holding up > 70 pc despite Revlimid not contributing in Q2 ( Revlimid sales happen only in Q1 and Q4 )

Sales and pricing of Asacol are likely to get adversly affected wef Q3 { as the competitor (Teva) ramps up their product }. Zydus was the only generic for Asacol in the US mkt for quite some time now

Opportunities like – Palbociclib ( breast cancer drug ) and Riociguat ( for treatment of pulmonary arterial hypertension ) and Cabizantinib ( used to treat thyroid cancer ) generics should help them offset the loss of exclusivity on Revlimid ( to a large extent ) wef Jan 26. Company is also looking to file and launch a few more 505(b)(2) opportunities immediately. On both – Palbociclib and Riociguat – company is expected to get exclusivity for meaningful time period

Hopeful of getting a WHO approval for their MR ( measles and rubella ) Vaccine as well. Both these vaccines ( MR + TCV ) should bring in sizeable business for the company as UNICEF buys them in bulk every year ( to the tune of 8-10 cr doses ). Scale up should begin sometime in FY 26. Even if they get a fraction of this business – it can be very significant business for the company

Despite loss of exclusivity on Asacol, company is confident of growing their US business in FY 26 over FY 25

Company has won a US govt tender for supply of Sitagliptin for a 3 yr period starting next FY. This should be valuable business for the company. Company will also sell Sitagliptin in US through the 505(b)(2) route for FY 26 before it goes generic in FY 27

Company has a healthy pipeline of Transdermal and complex Injectable products to be launched in US – these should help them sustain the business momentum in the US mkt

Key things to watch out for in the Indian innovative portfolio of the company for the near future should be their mkt share in products like – Saroglitazar, Desidustat and the Biologics that the company is launching. Company’s mkt share – both in volumes and value for Ujvira ( Trastuzunab – for treatment of breast cancer ) is now higher than the innovator

Company aspires to take Saroglitazar and Desidustat to among top 50 products in IPM

If Saroglitazar is approved in US as per the expected timelines, company should be launching it in Q1 FY 28 or so

Disc: holding, biased, inclined to add more, not SEBI registered, not a buy/sell recommendation

Results look great on a surface level but even greater things are hidden underneath the numbers.

The standalone topline shows 78 Cr which is split under geospatial 43 Cr and Technology solutions 35 Cr. Margins for geospatial segment is 39% and TS is 32%. While this may look outstanding, it is not the right way to look at it in a business like this. H1 FY25 is a somewhat better comparison and even there margins are stellar (Geospatial 24% and TS 41%).

Recently the company has changed its segments where segments which were previously reported under geospatial are now partly clubbed under technology solutions. From one of the earlier calls

These projects (IoT, digital project management systems, inspection work) have a geospatial component but bulk of the value-add is from elsewhere so these are now reported as technology solutions. Technology solutions also of course includes the AllyGrow business which was amalgamated with Ceinsys and so gets reported under standalone (AllyGram JV profits are reported under consol). AllyGrow topline would be around 13 Cr or so per quarter (52 Cr topline from earlier memory). If this is removed from TS, then 22 Cr from TS used to be earlier reported as geospatial. So while it may look like there’s no growth from geospatial YoY, the right numbers to compare are 40 Cr from last yr vs 65 Cr from this year (43 + 22) to compare apples with apples which is ~60% growth.

On a consol basis PAT is relatively muted due to

1. Higher employee costs (22 Cr in standalone vs 33 Cr in consol).
2. Higher tax outgo – 9 Cr for Q2 when PBT was 21 Cr (15 Cr in H1 FY25 is same as tax for whole of FY24)

The VTS employees + Kelly Yagi + Data center employees in Singapore I think contribute to bulk of the increase in consol along with 5.27 Cr of ESOP expense. VTS and Data center business should contribute to profits going forward so this drag should be lower. If you normalise for these, consol PAT should be almost 18 Cr levels for the quarter

The other thing to note is the healthy cash flow from ops – 57 Cr in consol and 52 Cr in standalone. While the company has had healthy cashflows, it has never even crossed 50 Cr on a whole year basis but has crossed it in just H1 when business is generally H2 heavy.

The company has received 62 Cr from equity and 43 Cr from warrants (~130 Cr more will come in when warrants are converted)

The overall cash levels in the company have gone up from 30 Cr in Mar ’24 to 205 Cr in Sep ’24.

Now even if you add this 105 Cr from dilution, cash levels are up by 70 Cr from internal accruals!

We know that ~52 Cr is from CFO and looks like bulk of the rest (~15 Cr) has come from dividend from AllyGram

205 Cr cash + another 130 Cr from warrant conversion when it happens puts a very healthy 335 Cr on the balance sheet for acquisitions.

Coming to the acquisition, i noticed an escrow to the tune of 38 Cr. Not sure if this means some acquisition is close to completion.

The last two highlights – the orderbook now stands at 1200 Cr as of Sept ’24. There’s L1 of 500 Cr on top of this after this date that we know of – 385 Cr wainganga-nalganga river-linking and 115 Cr IDDP for MMRDA. So overall order book should be around 1700 Cr.

The other things is the working capital days which has trended like this

237 days → 190 days → 108 days

this is nothing short of phenomenal for a B2G facing business. The balance sheet and CFO also confirm this claim by the management as receivables are down YoY despite growth in revenues and healthy CFO of 57 Cr in standalone.

So yes, while the growth is phenomenal, there’s more here when you look deeper that the numbers are telling from order book, working capital, cash flow, scope for margin improvement etc.

Disc: Invested. No recent transactions