Zydus Lifesciences (Erstwhile: Cadila healthcare)

Cadila is one of India’s large pharma companies involved in selling formulations (generic, branded generics, specialty and biosimilars), APIs, and animal healthcare products. They also have a consumer wellness division which is separately listed (Zydus Wellness). The sales split is shown below. Most of the business comes from the US, followed by India.

US business
They have systematically grown their US generic business, improving their rank from 12th in FY11 to 4th in FY20. As of FY20, they have filed 390 ANDAs, out of these 282 have been approved and more than 175 products have been launched. Their US topline has grown from $212 mn in FY11 to $900 mn in FY19. They also have a large API division with 150 DMF filings as on date. They invest 7-8% of revenues into R&D, with 60% of R&D spent on the generic pipeline while 40% is spent on novel drugs and vaccines.

Their complex generics portfolio is focused on injectables while their specialty business in mostly focused on pain management. They plan to launch 45 injectables in the next 3 years, 30 of these are currently under development. The current contribution of injectables is ~$15 mn which the management expects should scale to $150-200 mn by FY24. Launches are planned from FY22 with meaningful revenues expected to flow in FY23. The company got into pain management through acquisition of Sentynl Therapeutics. It seems they overpaid for this because they later had to impair intangibles acquired through levorphanol which faced stiff competition from other generic launches.

This has been a consistent growth driver, growing from ~1200 cr. in FY09 to ~3700 cr. in FY20. Growth has been slower as their majority of Indian portfolio is acute. They recently regrouped their India business into Mass (55%) and Specialty (45%). Mass is akin to acute and speciality akin to chronic (that’s my interpretation). They seem to be now paying more attention on their domestic business, with a large restructuring which happened recently.

Consumer wellness
This division grew very fast from FY08 (~152 cr) to FY13 (~452 cr.). After this, growth slowed down significantly and reached 490 cr. in FY18. They then acquired certain products from Heinz (Glucon-D, Complan, Nycil, Sampriti Ghee). This portfolio had revenues of 1130 cr. and EBITDA of 225 cr. in TTM June 2018 and was acquired at 4595 cr. for which the promoter entity (Cadila) infused 1356 cr. at a share price of 1273.6. Current share price of Zydus is ~1690. The managment mentioned that Heinz acquisiton has gone better than expected. Adjusted for COVID and Heinz acquistion, base business growth was 10% in FY20.

Biosimilars, vaccine and new drugs business
Cadila started investing in their biosimilar portfolio before 2010, currently they have 21 biosimilars in their pipeline along with 6 novel products (new drugs). Their biosimilar strategy has been to focus on emerging markets and India, instead of US.

Cadila is one of the largest vaccine makers in India. They have initiated Phase I/II human trial for its own vaccine ZyCoV-D and also initiated clinical trials for COFEPRIS in Mexico.

Cadila’s investment into novel drugs have started paying dividends. Saroglitazar became world’s first drug to be approved by DCGI for treatment of Non Alcoholic Steato Hepatitis (NASH). It has successfully completed Phase II clinical trials in US. Saroglitazar Magnesium was also approved by DCGI in treatment of Type II Diabetes Mellitus as an add-on therapy with Metformin. They developed Exemptia (FY15Q3) which was the first ever biosimilar for adalimumab. They have developed Lipaglyn (FY14Q2), the first NCE discovered and developed by an Indian company. They had launched Zypitamag (Pitavastatin Magnesium tablets) through 505 (b) (2) route in FY18.

Animal healthcare
Cadila is the 2nd largest animal healthcare company (as per management). This division has grown from a topline of ~194 cr. in FY12 to ~515 cr. in FY20.

Their overall strategy can be summarized by the figure below

Key risks

  • Management has systematically missed guidance. They had guided for $3bn revenues by FY15 which is still far away! They had earlier guided for 500 cr. topline in consumer business by 2013, however the number was 490 cr. in FY18. So, I will take their injectable revenue guidance of $150-200 mn by FY24 with a pinch of salt.
  • Recently, their injectable facility in Moraiya got a warning letter from FDA. They have initiated site transfer of all injectable products from Moraiya to the injectable facility in Liva near Baroda. They have also launched the first site transfer injectable product from Liva. However, the warning letter needs to be lifted!
  • They have been unable to penetrate the LATAM market (Mexico + Brazil), with revenues kind of stabilizing around 250 cr. since FY12.
  • Their Indian performance is not great, mostly because of their large exposure to acute portfolio. Indian market share has been around 4.2-4.3% since FY14.

Disclosure: Invested (latest position size here)


I have taken a few data points about their operating performance from tikr. Their operating margins vary between 13-22% with net margins varying between 10-20%. The cyclicality in margins is mostly dependent on product launches.

If we adjust for their margins, what is the right price for them? Looking at historical data, it is somewhere around 3.5 times EV/sales (translating into PE of 20-25x assuming normalized margins). They currently trade at ~3.4x EV/sales (based on trailing data). The long term charts are below.

Their long term PE and EV/EBIT is shown below. They broadly trade between 20-30x multiples.

Long term sales growth used to be at 20%+ levels until 2015, it has tapered down to ~10% growth during the past 5 years. Their massive portfolio of novel drugs and biosimilars can sustain double digit sales growth, although it will be lumpy. Also, this is a cheaper way to buy their consumer business (Zydus wellness).


Any views on the working capital days expansion, debt (both term and WC) and the real payoff of the brand acquisitions done by the company. We have typically seen Indian promoters build brands and sell them at a premium to global players. Here we see a reverse strategy. This seems to have weighed down the ROE & ROCE of the company.

Also how much does the COVID vaccine / drug add from an profitability perspective?

Working capital expansion has been for all the generic Indian players because of stretched receivables. This is probably because of buyer consolidation in US with 3 players controlling 90% of the market, this is probably the new normal for Indian generic pharma. In order to control their WC, the only possibility is to extend their payable days.

About increase in debt, that has come mainly from Zydus acquisition of Heinz. The valuation paid for the Heinz portfolio was reasonable (4x sales, 20x EBITDA). This is in stark contrast to what FMCG companies and Zydus Wellness were trading at. So far, sales projections at time of acquisition have been met (except during COVID time). Only time will tell how reasonable the prices were.

I would not even look at COVID vaccine in terms of profitability, given how many players are trying to come up with a vaccine. However, what the market doesn’t price is their very large biosimilar, vaccine and novel drug division which have large embedded optionality.


Cadila receives their first approval for complex injectables. They have a pipeline of 39 injectables under development. Indian generic players are moving up the value chain (from tablets to injectables and respiratories).


Is this from their Liva Facility?

The CRISIL report contain some interesting data points which I didn’t cover in the post before.

  • Moraiya facility (one with the warning letter) accounts for 35% of US revenues and has 8-10 pending ANDAs
  • The investigation on generic price collusion can lead to large 1-time settlement


Can you please explain difference between Zydus Cadila/Zydus wellness and Cadila Healthcare in terms on product profile, promoter shareholding etc? Since the promoters have 2 listed entities, it became bit confusing when I came across “We at Zydus” words in Cadila healthcare’s Annual report.

Cadila gets final approval for Dimethyl Fumarate capsules (generic of Tecfidera from Biogen) and is eligible for 180 days of exclusivity being one of the first ANDA filers. This is a huge drug with sales of $3.8bn in the past year. Also cipla got an approval earlier today. There are a host of other players with tentative approvals (lupin, sun, shilpa, glenmark, torrent, aurobindo, …).

Cipla said that they will be supplying the product, can they sell the drug if Cadila has 180 day exclusivity?

Multiple applicants can get 180 day exclusivity. The exact wordings are

A multiple first applicant approach to 180-day exclusivity will limit the number of ANDAs approved during the exclusivity period to the number of first applicants. Moreover, making multiple applicants eligible for exclusivity may give each first applicant some part of the benefit from the early challenge to the listed patent.

In case you are interested, here is the detailed FDA guideline.


So the lucrativeness of 180 day exclusivity has reduced. I remember a few pharma CEO’s mentioning this.

Zydus Cadila and Cadila Healthcare are the same. Actually the Zydus name was added to differentiate it from Cadila Pharmaceuticals, from which it was demerged in 1995. Zydus Wellness is the consumer healthcare arm of Zydus Cadila, aka Cadila Healthcare, where it holds 63.55% directly and 4.29% via Zydus Family Trust.

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Now Dr Reddy’s and Camber Pharma launches Dimethyl Fumarate, its hard to know how many people got 180 days exclusivity (already 4 players in the market).

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Good set of results, total income increased 13% YOY, EBITDA margins improved to 22.6%.

Business breakup (YOY increased):

  • India business up 11%
  • Animal health business up 20%
  • US sales up 18% with 6 new launches, 8 ANDA approvals, 2 tentative approvals, and 5 new ANDA filings during the quarter
  • Emerging market business up 12%

COVID vaccine trial ongoing in India and Mexico.


Zydus Cadila has filed the IND application of ZYIL1, a novel oral small molecule, which will bridge a critical unmet healthcare need in several inflammatory diseases including the current pandemic of COVID-19 and address complications caused by chronic and uncontrolled inflammation.

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Management interaction with CNBC (link)

  • In last 3 years, have got close to 30-35 approvals, US sales growth is on the back of a large number of product launches
  • India business: Refocusing on priority brands; Growth is driven by chronic segment and acute is muted
    o Animal healthcare: One of the largest in India
    o Human health
    o Consumer facing
  • H2FY21 revenues will be higher than H1FY21
  • In next 3-4 years, should get transdermal sales upto $100mn and injectable sales upto $150-200mn
  • Expect to launch 40-45 products in the next year
  • Transdermal: Large contraceptive patches are filed out of Moraiya, so warning letter is important for these launches. Completed corrective actions and awaiting FDA visit