Detailed Narrative
Q2 FY26 Financial Performance Overview
Akums Drugs reported a revenue of INR 1,018 crores for Q2 FY26, marking a 1.5% year-on-year decline and a 0.6% quarter-on-quarter decrease. EBITDA stood at INR 94 crores, a significant 22% YoY and 27% QoQ decline, resulting in an EBITDA margin of 9.3%, down from 11.7% in Q2 FY25. Net profit after tax was INR 43 crores, lower than INR 67 crores YoY and INR 65 crores QoQ, reflecting the challenging quarter.
CDMO and Domestic Formulations Resilience
The CDMO segment, despite API price headwinds, achieved INR 804 crores in revenue with a modest 0.7% YoY growth, though EBITDA declined by 31.3% YoY to INR 84 crores. Domestic Branded Formulations showed strong growth, with revenue increasing 5.3% YoY to INR 122 crores and EBITDA rising 28.2% YoY to INR 26 crores, driven by improved coverage and portfolio. This segment's margins were robust at 21.6%.
API Business Challenges and Turnaround Efforts
The API business continued to face headwinds, with revenue at INR 44 crores (down 25.4% YoY) and reporting a negative EBITDA of INR 14 crores in Q2 FY26. Gross margins for API dipped to 9.3% from 12.8% in FY25 due to continued price downtrend. Management is aggressively working on cost optimization and expects full-year losses to be lower than last year, aiming for month-on-month positive results within 6-7 months.
Strategic International Expansion Initiatives
Akums announced a new joint venture in Zambia with a 51% stake, investing US$45 million to set up a manufacturing plant by CY 2028, targeting US$50 million in supplies from India over the next two years. On the European front, a European GMP audit for Plant 2 was completed in October, with approval expected in Q4 FY26, enabling commercial supplies for a six-year CDMO contract by March/April 2027.
EBITDA Margin Compression Factors
The significant drop in overall EBITDA margins to 9.3% was primarily attributed to two factors: a direct 4% impact on the top line and EBITDA from an 8% API price drop (due to the cost-plus model), and an INR 17 crores EBITDA impact from the operationalization of three new facilities in H1 FY26. These new facilities are currently ramping up, incurring higher overheads.
Capacity Utilization and Capex Strategy
The company clarified that its current capacity utilization is 40% against a peak of 55%, with the remaining capacity serving as buffer for changeovers, SKUs, and maintenance. Capex for H1 FY26 was INR 107 crores, with a similar or slightly lower amount planned for H2, totaling approximately INR 200-220 crores for FY26. New capex is strategically directed towards dosage forms that are either fully utilized or represent new market opportunities, also considering potential shifts due to Schedule M enforcement.
Healthy Balance Sheet and Future Outlook
Akums maintains a healthy balance sheet with a net cash position of over INR 1,600 crores and a cash surplus of INR 1,649 crores, with no interest expenses. Management expressed confidence in long-term growth, driven by strategic initiatives in CDMO, domestic and export branded businesses, and curtailing losses in API and trade generics, expecting H2 performance to improve and overall business to turn the corner into a growth phase from 2026 onwards.