Zydus Lifesciences Q2 FY26 Earnings Spark Mixed Brokerage Views Amidst US Portfolio Shifts

Zydus Lifesciences' financial performance for the second quarter of the fiscal year 2026 (Q2FY26) has elicited a divided response from financial analysts. Most acknowledge the company's robust operational performance and the strength of its domestic market business. However, opinions diverge regarding its future growth trajectory, particularly concerning its significant US product portfolio.

Foreign brokerage Nomura noted that Zydus Life's results surpassed their estimates, largely due to a stronger-than-expected performance in India. While consolidated sales were 2% ahead of projections, driven by a 6% beat in the domestic market, export sales fell short by 4%. Revenue from the United States stood at $313 million, which was $7 million below Nomura's expectation, primarily impacted by a lower contribution from gRevlimid, a critical generic product.

Nomura also observed that earnings before interest, tax, depreciation, and amortisation (Ebitda) exceeded expectations by 4%, and profit after tax (PAT) outpaced forecasts by a substantial 34%, boosted by foreign exchange gains of ₹414 crore. The company has guided for an Ebitda margin exceeding 26% for FY26. Nomura reiterated its 'Buy' rating, citing strong domestic fundamentals and future growth drivers from its specialty and vaccine segments, setting a target price of ₹1,140.

Conversely, Nuvama Institutional Equities maintained a 'Reduce' rating with a target price of ₹900. Nuvama analysts pointed out that after adjusting for forex gains, Ebitda and PAT missed expectations by 1% and 11%, respectively, despite headline revenue beating consensus. They noted that the adjusted Ebitda margin fell short of their forecast. Nuvama highlighted priorities for Zydus, including securing specialty product approvals, integrating its Consumer Health and MedTech segments, stabilizing the recently acquired Agenus business, and reducing debt. They anticipate a contraction in earnings for FY27 and view the outcome of the Mirabegron litigation as a key factor.

Motilal Oswal Financial Services maintained a 'Neutral' stance, describing Q2 as an 'in-line operational show' with promising long-term diversification efforts into consumer wellness and med-tech. They expect strong execution in US generics and new launches but foresee near-term growth being capped by the high base of gRevlimid. They raised FY27 and FY28 earnings estimates and set a target price of ₹990.

Impact This news can impact Zydus Lifesciences' stock price as brokerages adjust their ratings and targets based on the earnings performance and future outlook. It provides investors with different perspectives on the company's valuation and growth potential, influencing investor sentiment and trading activity. The divergent views highlight key risks and opportunities for the company, particularly concerning its US business, regulatory challenges, and diversification strategy, which are critical for the pharmaceutical sector. Rating: 7/10.

Difficult Terms Explained: Ebitda: Earnings Before Interest, Taxes, Depreciation, and Amortisation. A measure of a company's operating performance. PAT: Profit After Tax. The profit remaining after all expenses and taxes have been deducted. gRevlimid: A specific generic drug, likely referencing lenalidomide, which is a significant product for the company. Forex gains: Profits made from fluctuations in foreign currency exchange rates. Basis points (bps): A unit of measure used in finance to denote the percentage change in a financial instrument. 100 basis points equals 1 percent. 505(b)(2) launches: Refers to a pathway for drug approval in the US for certain new drug applications that rely partly on previously approved products, often involving formulation or delivery improvements. DF segment: Domestic Formulation segment, referring to the company's sales of pharmaceutical products within its home country.