Nomura maintained its neutral stance with a target price of Rs 1,020 while Motilal Oswal also stuck to a neutral tone with a target price of Rs 1,210.
“The JV will set up a new manufacturing facility to manufacture animal free protein using fermentation. Currently, SBL is engaged in production of gelatins and APIs but some of these are based on animal extracts. Given the new objective of the entity to produce animal-free products, the company states that a strategic review of the existing business will be undertaken. This could mean divesting a part of the existing business, in our view,” Nomura said.
Following completion of the deal, SBL will be a 50:50 joint venture between Zydus Life and Perfect Day.
Motilal said considering the fermentation-based APIs, including those for oncology in the portfolio, and two years of operational control by Perfect Day, it is awaiting clarity on renewed strategy and additional investments by the JV to revitalize the SBL business prospects.”Zydus Life continues to build a niche product pipeline in the US generics market to sustain its growth momentum. That said, the valuation adequately factors in a 12% earnings CAGR over FY24-26,” Motilal said.The acquisition will also mark Zydus’ foray into specialised biotech products for health and nutrition, specifically catering to consumers who prefer animal-free protein or suffer from lactose intolerance. Perfect Day’s precision-fermented protein is found in ice creams, cream cheese, sports nutrition products, and baked goods with high functionality benefits and lower environmental impact.In FY24, Sterling Biotech reported a turnover of Rs 454.9 crore. Its sales bottomed out in FY21 and since then has recorded a CAGR of 10%. The company recorded EBITDA of Rs 58.8 crore in FY23, while FY24 number is not known.
“Zydus has a strong balance sheet with a net cash balance of Rs 18.9 billion as of June 2024. We expect Zydus to pursue acquisitions to build new expertise. The company may invest
in acquiring capabilities and brands in consumer wellness and specialty. We have a Neutral rating on the stock with a Mar-25 target price of Rs 1,020, based on 27.5x FY26F ex gRevlimid EPS of Rs 37.2,” Nomura said.
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