Zydus Life: Analysts caution EPS dilution post Amplitude acquisition; check latest targets

Brokerage firms remain divided on Zydus Lifesciences Ltd as the company announced to acquire Amplitude Surgical for €257 million (Rs 2,500 crore). The Ahmedabad-based drug maker has entered into exclusive negotiations to acquire a majority stake in France-based Amplitude Surgical. The acquisition is likely to be done at €6.3 per share

"The acquisition price represents an 80.6 per cent premium over the last closing price as on 10 March 2025 and premia of 88.2 per cent and 92.2 per cent over the 3-month and 6-month volume-weighted average price of Amplitude Surgical respectively," said Zydus Lifesciences said in a statement.

Amplitude Surgical is a European MedTech leader in high-quality, lower-limb orthopaedic technologies. It provides numerous value-added innovations to best meet the needs of patients, surgeons and healthcare facilities. As of June 30, 2024, Amplitude Surgical reported a turnover of €106 million (Rs 1,000 crore)

Zydus Life in the first leg, will buyout key shareholders and later it plans to make an open offer to buy the remaining minority shareholders and delist the entity, said Elara Capital. "The overall deal at €300 million works out to be at 3.7 times FY24 revenue and 14.4 times FY24 EV/Ebitda. The business is growing in the mid-single digits. The deal valuation appears to be reasonable," it said.

The company can fund the acquisition through existing cash on books and incremental borrowings, said Elara. "We expect the deal to be slightly EPS-dilutive in the first year, including amortization impact, and EPS-accretive in subsequent years. We retain our estimates. We retain Buy with the target price of Rs 1,311 based on 33 times FY27E core earnings plus cash per share," it added.

Shares of Zydus Lifesciences remained rangebound for the session as the stock was trading between Rs 882.55 and 893.30 for the day. The stock had settled at Rs 889 on Wednesday. The total market capitalization of the company stood at Rs 88,000 crore. However, the stock has wiped out one third of its value from its 52-week high at Rs 1,323.90 hit in August 2024.

Zydus intends have 100 per cent control and hence plans to launch a mandatory cash tender offer for the remaining shares for €43.2 million. The transaction is at an EV of €390 million. The acquisition provides Zydus with access to advanced R&D capabilities, operational synergies, and a robust revenue base with a superior margin profile, said InCred Equities.

"On the valuation front, the deal is fairly priced. Operationally, Amplitude’s operating cash flow remains weak and free cash flow is negative. Post-acquisition, operational efficiencies and synergies will gradually enhance performance," it added with an 'add' rating and a target price of Rs 1,150.

Shares of Zydus Lifesciences has zoomed nearly 250 per cent in the last five years, while the stock down 9 per cent in the last one year. It has dropped more than 20 per cent in the last six months period.

On the other hand, Nuvama Institutional Equities said that the med-tech industry is in a sweet spot with tailwinds aiding its growth, but this bolt-on for Zydus Life is a long-term play with amorphous synergies as of now. The deal would be EPS-dilutive by 1–3 per cent in FY26E/27E, it said.

"At 17 times FY24 EV/Ebitda, the deal is expensive in our view given the target’s performance and current positioning. We are not losing sight of Zydus Life's effort to arrest the gRevlimid fall, but argue the deal comes at a considerable cost. Valuing the stock at 20 times FY27E EPS (earlier 24 times), we maintain ‘reduce’ with a revised target price of Rs 840 (earlier Rs 1,003)," Nuvama said.