Zydus Cadila

All figures consolidated. Income statement and balance sheet series from Screener.in consolidated data (accessed 11 September 2026), cross-checked against company earnings releases for FY25 and FY26.

Income statement

Five-year revenue CAGR (FY2021 ₹15,102 crore → FY2026 ₹27,148 crore): 12.4%. Three-year revenue CAGR (FY2023 → FY2026): 16.4%. Five-year net profit CAGR per Screener: 18.8%.

Commentary on trends, inflections and drivers.

The FY22 distortion: FY22 looks anomalously profitable at a 30.3% net margin because ₹2,581 crore of "other income" reflects the gain on divesting the Indian animal health business to Multiples. Underlying EBITDA margin that year was 21.9%, the trough of the period.

The FY24 inflection: The genuine inflection is FY24, when EBITDA margin jumped 510 basis points to 27.5% and EBITDA rose 39.5% on 13.4% revenue growth. The driver was the US business — specifically the launch and scale-up of generic Revlimid (lenalidomide) and generic Myrbetriq (mirabegron), high-value limited-competition opportunities. This is the single most important fact about Zydus' recent earnings: roughly one-third of the margin expansion between FY23 and FY26 rests on two products with defined erosion timelines.

FY25-FY26 consolidation and the acquisition pivot: FY25 delivered 18.9% revenue growth and a further 290 basis points of margin. FY26 added 16.8% growth and 80 basis points, reaching a record 31.2%. But the composition changed materially: North America grew only 5.7% in FY26 and declined 5.7% in Q4 FY26 and 2.6% in Q1 FY27, while International Markets (+39.9%), Consumer Wellness (+46.0%) and MedTech (from nil) carried the growth. Absent acquisitions, FY26 organic growth would have been substantially lower.

The Q1 FY27 rupture: Revenue rose 22.0% to ₹8,017 crore but EBITDA fell 7.6% to ₹1,929 crore and net profit fell 35.9% to ₹940 crore. Margin contracted 770 basis points to 24.1%. Three causes: the disappearance of the prior year's foreign-exchange gains, Revlimid erosion, and the dilutive mix effect plus integration costs of Comfort Click, Amplitude and Assertio. Depreciation more than doubled year on year to ₹555 crore as acquired intangibles began amortising, and finance costs rose to ₹156 crore from ₹85 crore. This quarter is the clearest available picture of the post-Revlimid, post-acquisition earnings base.

Cost structure: Depreciation and amortisation rose from ₹713 crore in FY22 to ₹1,408 crore in FY26 and is annualising above ₹2,200 crore on the Q1 FY27 run rate — a direct consequence of purchase price allocation on four acquisitions. Finance costs rose 165% in FY26 to ₹439 crore and are annualising above ₹600 crore. Together these two lines consume roughly 1,000 basis points more of revenue than they did three years ago, which is why EBITDA growth no longer translates cleanly into PAT growth.

Balance sheet

Notes: the "Cash, equivalents and investments" row uses the Screener "Investments" line for FY2022-FY2025 and CRISIL's stated ₹7,465 crore of cash and equivalents including mutual funds for FY2026; these are not strictly like-for-like and the FY22-FY25 figures should be treated as indicative. Net debt for FY2026 is CRISIL's figure. FY25 net cash of ₹4,883.6 crore has also been reported in the financial press, which conflicts with the derived ₹3,199 crore above — the discrepancy arises from differing treatment of current investments and is flagged. Goodwill and intangible assets are not separately broken out in the extracted series; the ₹10,972 crore increase in net fixed assets between FY25 and FY26 is overwhelmingly attributable to acquisition-related intangibles and goodwill from Comfort Click, Amplitude, Agenus and the LiqMeds group.

Commentary. The balance sheet story of FY26 is unambiguous: Zydus converted a net-cash position into net debt of ₹5,050 crore in a single year to fund roughly US$700 million of acquisitions. CRISIL's adjusted debt figure of ₹12,515 crore as at 31 March 2026 versus ₹3,213 crore a year earlier confirms this. Even so, adjusted gearing of 0.53x and adjusted net debt/EBITDA of 0.60x remain comfortable for a AAA-rated issuer, and CRISIL expects net debt/EBITDA to fall below 0.5x by March 2027. By 30 June 2026 net debt had risen further to ₹5,904 crore (0.22x net debt/equity, 0.70x net debt/EBITDA) as the Assertio consideration and the ₹1,100 crore buyback settled.

Cash flow

Company-disclosed organic capex for Q4 FY26 was ₹3,577 million and for Q1 FY27 ₹5,852 million; CRISIL guides to ongoing annual organic capex of approximately ₹1,500-1,600 crore.

Commentary. The FY26 cash flow is the most alarming line in the entire financial profile and deserves emphasis: operating cash flow collapsed from ₹6,781 crore to ₹2,117 crore, a 69% decline, in a year when EBITDA rose 20%. CFO/EBITDA conversion fell from 96% to 25%. The proximate cause is working capital: inventory days rose from 227 to 282 and the cash conversion cycle from 160 to 212 days, with CRISIL noting gross current assets of 188 days at year end. Some of this is the mechanical effect of consolidating inventory-heavy acquired businesses at year end without a full year of associated sales, and some is the Mirabegron settlement payment. But a 52-day deterioration in the cash cycle in a single year, combined with negative free cash flow, is the item most worth interrogating on the next earnings call. Financing inflows of ₹5,807 crore in FY26 funded the ₹7,895 crore investing outflow — this was a debt-financed acquisition year, not a self-funded one.

Returns and efficiency ratios

CRISIL-adjusted PAT margin (adjusting for goodwill and intangible amortisation) was 14.7% in FY26 versus 17.6% in FY25 — a useful sanity check that the acquisition programme has diluted quality of earnings even as headline profit grew.

Management guidance

For FY2027, management has guided to high-teens revenue growth and EBITDA margins in excess of 24%, reaffirmed at the Q1 FY27 results on 11 August 2026. Both elements matter. High-teens top-line growth is achievable largely on the annualisation of Comfort Click, Amplitude and Assertio plus continued 20% India and 34% International Markets momentum — but it is not primarily organic. The margin guide of ">24%" against 31.2% delivered in FY26 is an explicit acknowledgment that roughly 700 basis points of the FY26 margin was Revlimid- and forex-derived and will not repeat. CRISIL, which has visibility into management's plan, models "double-digit revenue growth this fiscal and the next" with "healthy operating margin at 24-25%" and net debt/EBITDA falling below 0.5x by March 2027 after ₹1,500-1,600 crore of organic capex and "moderate inorganic growth."

Management has also stated that global biosimilars expansion is a FY29-FY30 event, that 505(b)(2) scale-up is predominantly an FY27 story, and that the US specialty and rare-disease portfolio is "in its early stages but is expected to scale up significantly over the next few years."

Consensus growth expectations

Applying management's own guidance to the FY26 base yields an FY27 revenue range of approximately ₹31,500-32,000 crore and EBITDA of approximately ₹7,600-8,000 crore at a 24-25% margin — that is, revenue up roughly 17% and EBITDA down roughly 6-10%. Q1 FY27 actuals (revenue ₹8,017 crore, EBITDA ₹1,929 crore at 24.1%) annualise consistently with this. Investors should be clear that FY27 is guided to be a year of revenue growth without earnings growth.

Bull case

1. Saroglitazar approval in PBC transforms the US narrative. Priority Review implies a decision within months. An approval would give Zydus a proprietary, branded, orphan-adjacent specialty product in the US — a first for an India-discovered NCE. Management has tied the expansion of US branded share beyond 11% explicitly to this launch. The market currently ascribes little value to it at 22.9x trailing earnings, a discount to the 25-40x range typical for the sector.

2. The diversification is already carrying the company through the Revlimid cliff. In Q1 FY27, with North America declining 2.6%, consolidated revenue still grew 22%. India grew 19.5%, International Markets 34.0%, Consumer Wellness 67.2%. This is what a successful diversification looks like in the quarter it is stress-tested. If the acquired businesses hold their growth rates and North America stabilises in FY28 on 505(b)(2) and biosimilar launches, the earnings trough is FY27 and the recovery is steep.

3. Balance sheet capacity returns quickly. With ₹5,000+ crore of annual cash accrual, ₹1,500-1,600 crore of organic capex, and CRISIL modelling net debt/EBITDA below 0.5x by March 2027, Zydus regains inorganic firepower within twelve months. A AAA-rated acquirer with demonstrated cross-border execution and a promoter at the 75% ceiling — meaning no equity dilution appetite — is a structurally advantaged consolidator.

Bear case

1. The FY26 margin was substantially an artefact. CRISIL states FY26 margins benefited from "foreign exchange gains" and that Q1 FY27's collapse was driven by "reduction in forex gain and Revlimid erosion." Management's own FY27 guide concedes roughly 700 basis points. If ">24%" proves to be 24% rather than 25%, and Mirabegron erosion arrives on schedule in September 2027, FY28 EBITDA could be lower still. The company would then have grown revenue by 60% over four years with flat absolute EBITDA.

2. Cash generation has broken and nobody has explained why. Operating cash flow fell 69% in FY26 while EBITDA rose 20%. The cash conversion cycle lengthened by 52 days. Free cash flow was negative. Inventory days of 282 are extreme. Some of this is acquisition mechanics, but a company that generates ₹8,475 crore of EBITDA and ₹2,117 crore of operating cash is not converting profit into cash, and the FY26 annual report and earnings call did not address this with the prominence it warrants. Until CFO/EBITDA returns above 70%, the reported margin should be treated sceptically.

3. Four unrelated integrations, an outstanding warning letter, and a twice-delayed acquisition. Comfort Click (UK D2C vitamins), Amplitude (French orthopaedic implants), Zylidac (California biologics CDMO) and Assertio (US specialty oncology) share no operational logic with each other or with the legacy business. Simultaneously, the Baddi warning letter is unresolved, the Sterling Biotech deal has slipped twice with no public explanation, and the dividend has been cut 91%. This is a management team with a very full plate and a shrinking margin for error.

Catalysts and monitorables — next 12 months

Analyst verdict

Zydus Lifesciences is executing a genuine and largely coherent strategic transformation, and it is doing so at exactly the moment its legacy earnings engine is failing. Both halves of that sentence are true, and the tension between them is the entire investment case.

The transformation is real. Branded revenue exceeds 55% of the total. India grew 19.5% in the June quarter with a chronic mix of 54.2%. International Markets grew 34% organically. The company has a US specialty commercial platform, a US biologics CDMO, a European MedTech business, an international consumer wellness franchise, three NCEs in the clinic or on the market, and a nivolumab biosimilar that reached market before anyone else's. Saroglitazar's Priority Review in PBC would be a landmark for Indian pharmaceutical innovation. CRISIL has held its AAA rating through the entire acquisition programme.

The failure is equally real. FY26's record 31.2% margin was materially assisted by foreign exchange gains and a Revlimid contribution that is now eroding; management's own FY27 guide of ">24%" concedes roughly 700 basis points. Q1 FY27 delivered 22% revenue growth alongside a 36% profit decline. Most importantly, FY26 operating cash flow fell 69% to ₹2,117 crore against ₹8,475 crore of EBITDA, and free cash flow turned negative — a 25% conversion rate that neither the annual report nor the earnings call adequately addressed.

At 22.9x trailing earnings the market is pricing the trough, not the transformation, which is defensible given the disclosure gaps on segment profitability and cash conversion. The stock is not expensive; it is appropriately discounted for uncertainty that management could reduce with better disclosure.

Watch three numbers each quarter: EBITDA margin against the 24% floor, CFO/EBITDA conversion against 70%, and inventory days against 282. If all three improve while saroglitazar advances, the re-rating case is strong. If cash conversion stays broken, the record margin was never real.

End of dossier. Data current as at 12 September 2026.