Akums Drugs — Q3 FY25 earnings call

Call held 7 Feb 2025

Management summary

Akums Drugs reported a mixed Q3 FY25 with total income declining to INR1,025 crores, but EBITDA and PAT showed growth, reaching INR136 crores and INR66 crores respectively. A significant highlight was securing a EUR 200 million CDMO contract for European markets, with an upfront payment of EUR 100 million expected. The API segment saw reduced losses, and the company continued to invest in R&D and capacity expansion, though overall capacity utilization remains low at 40%.

Highlights

  • EBITDA grew 1% QoQ to INR136 crores and 12% YoY to INR136 crores.

  • PAT grew 15% YoY to INR66 crores, up from INR57 crores in Q3 last year.

  • Secured a EUR 200 million CDMO contract for European markets, including an upfront payment of EUR 100 million.

  • API business losses significantly reduced to INR11 crores in Q3 FY25 from INR14 crores in Q2 FY25.

  • Received DCGI approvals for 7 products in Q3, including Empagliflozin combination.

Concerns

  • Total income declined 2% QoQ to INR1,025 crores and 6% YoY.

  • CDMO volume growth was subdued at 0.6% QoQ and 1% for 9 months FY25.

  • Overall capacity utilization is low at around 40%.

Key financials

2 periods

Headline

  • Total Income
    ₹1,025 Cr
    YoY -6% QoQ -2%
  • EBITDA
    ₹136 Cr
    YoY +12% QoQ +1%
  • PAT
    ₹66 Cr
    YoY +15% QoQ -1.5%
  • Cash Flow from Operations
    ₹91 Cr
    QoQ +378.9%
  • Free Cash Flow
    ₹50 Cr

9M FY25

  • R&D Investment
    ₹94 Cr

What they filed

Q1 FY27: revenue up 18.1%, net profit up 0.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue328 337 329 332 309 −6%369 +9%338 +3%392 +18%
EBITDA43 34 18 44 17 −60%25 −26%12 −33%49 +11%
Net profit50 41 28 45 23 −54%28 −32%15 −46%45 +0%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Revenue
₹1,009 Cr Total
  • CDMO ₹787 Cr 78.0%
  • Branded Generics ₹182 Cr 18.0%
  • API ₹40 Cr 4.0%

Order book

high confidence

Total value

EUR 200 Mn

as of 2024-12-31 quantified

Inflow this quarter

EUR 200 Mn

Execution

commercial supply will commence from 2027 and will continue until 2032

Composition

  • Oral liquid formulations (product)
This is the first of many such contracts and partnerships we will undertake to serve the European markets in the years ahead.

Source: Prepared remarks

Capital allocation

high confidence
  • Capex ₹175 Cr
    • R&D capabilities improvement and upgrade ₹32 Cr
    • Commission new plants and production lines ₹175 Cr
    To further bolster our R&D capabilities, we will incur a capex of INR 32 crores over the next 2 quarters to improve and upgrade our R&D capabilities. ... And over the next 2 years, we will likely incur capex to commission new plants and production lines between INR 175 crores to INR200 crores annually.
  • Debt Debt disclosed
    But before the IPO, the company in the quarter had a debt of INR322 crores.
  • Liquidity Cash ₹340 Cr Cash flow for the Group stands at surplus.
    The cash flow for the Group stands at surplus at around INR340 crores, which is similar to the last quarter.

Guidance & targets

Capex

  • R&D Capex Capex · next 2 quarters · High confidence INR 32 crores
    To further bolster our R&D capabilities, we will incur a capex of INR 32 crores over the next 2 quarters to improve and upgrade our R&D capabilities.

    — Sahil Maheshwari

  • New Plants and Production Lines Capex Capex · next 2 years · High confidence INR 175-200 crores annually
    And over the next 2 years, we will likely incur capex to commission new plants and production lines between INR 175 crores to INR200 crores annually.

    — Sahil Maheshwari

Profitability

  • API Business Breakeven Profitability · 1 to 2 years · Medium confidence Breakeven
    So we are progressing well. I think this is in a ZIP code of 1 to 2 years when we'll be in a breakeven.

    — Sahil Maheshwari

Volume

  • CDMO Volume Growth Volume · future · Medium confidence 4-5%
    Yes. So 4% to 5% certainly, right. So what are we doing? I think, essentially, everything we do, right from R&D to establishing manufacturing capabilities to the client engagement, we have.

    — Sahil Maheshwari

Revenue

  • CDMO Revenue Growth Revenue · future · Medium confidence 12-13%
    So what will get us our volume back to like 4%, 5% because our aspiration to grow ahead of IPM, which is at least average, we take a 9% to 10%, and you want to grow at 12%, 13%. And the pricing sales swing comes back to normalization, that's 8% delta, would you expect the volumes to grow at 4%, 5% for you thus achieving a 12% to 13% approximate revenue growth in CDMO?

    — Palak Shah (question, confirmed by Sahil Maheshwari)

Capacity

  • Capacity Utilization for Breakeven Capacity · future · High confidence 60-65%
    So is the math right that we need to reach at least 60%, 65% to breakeven on the operational cost, I mean, EBITDA level? Sumeet Sood: Yes.

    — Palak Shah (question, confirmed by Sumeet Sood)

What to watch in Q4 FY25

API business breakeven

Next 1-2 years
Current INR11 crores EBITDA loss in Q3 FY25
Target Breakeven (EBITDA)

Why it matters

API is a loss-making segment; achieving breakeven will significantly improve overall profitability.

So we are progressing well. I think this is in a ZIP code of 1 to 2 years when we'll be in a breakeven.

Risks & concerns

  • API Segment Losses

    medium

    The API business is currently loss-making (INR11 crores in Q3 FY25) due to low prices of cephalosporin APIs, but management is rationalizing the portfolio and targeting breakeven in 1-2 years.

    Management acknowledged

  • Subdued CDMO Volume Growth

    medium

    CDMO volume growth was 0.6% QoQ and 1% for 9 months FY25, lower than historical rates, but management attributes this to a transient period and expects recovery, seeing 'green shoots' in Q4 and Q1 FY26.

    Management acknowledged

  • Low Capacity Utilization

    medium

    Overall capacity utilization stands at around 40%, impacting operational leverage, but management is commissioning new facilities and expects utilization to improve as new orders come in.

    Management acknowledged

Q&A highlights

7 direct
API business turnaround and breakeven timeline Direct
So we are progressing well. I think this is in a ZIP code of 1 to 2 years when we'll be in a breakeven.

Management provides a specific timeline for the loss-making API segment to achieve profitability.

Asked by Darshil Jhaveri

European CDMO contract revenue realization and upfront payment Direct
So the money has been transferred from overseas, and we are still to receive it in our account.

Clarifies the status of the significant upfront payment for the EUR 200 million contract and its timing.

Asked by Vivek Agarwal

CDMO volume growth compared to industry trends Partial
Having said that, the volume should come back. I think this is a transient period. The volume should come back. We are seeing good green shoots in Q4 as well. Q1 also looks good.

Addresses concerns about subdued volume growth in the core business and provides an optimistic outlook for recovery.

Asked by Naman Bhansali

Overall capacity utilization and breakeven level Direct
So this is around 40-odd percent. ... So is the math right that we need to reach at least 60%, 65% to breakeven on the operational cost, I mean, EBITDA level? Sumeet Sood: Yes.

Highlights the current operational efficiency and the target utilization required for profitability.

Asked by Gautam Gosar

Formulation/Branded generics margins breakdown Direct
So I think the way we look at this business is that the margins if you look at the last period, our margins were around 10.3-odd percent, right? And we are at 10.8%. So I don't think that the margins are decreasing.

Provides clarity on the margin trajectory and drivers within the formulations business.

Asked by Gautam Gosar

Market size and impact of new partnerships (Triple Hair, Caregen, Jagdale) Direct
So individually, as a basket, so the beauty about this business is none of the products or a segment of a product becomes large enough that we are concentrated in our offerings. So this is similar to the R&D project that we do. That each of the product will have some size and scale. But if your question is hinting towards, will it become sizable within the overall CDMO business? That will not be the case, unlike the global European CDMO contract, which we signed.

Clarifies the strategic intent and expected scale of these new in-licensing initiatives for the Indian market.

Asked by Naman Bhansali

Rationale for API product discontinuation Direct
Yes. So GC and on top of it, if you add just the direct manufacturing expenses of manpower and utility, they would be -- the amount will be higher than the current selling prices.

Explains the strategic decision to rationalize the API portfolio to reduce losses.

Asked by Palak Shah

Mumbai R&D project rationale Direct
So what we are doing is, we are expanding and upgrading the R&D for the new dosage forms as well as the additional markets we had. Also the previous one which we had was on rent. Now we are moving to a property which we'll own.

Provides the strategic justification for the investment in the Mumbai R&D facility.

Asked by Naman Bhansali

2 min read 6 chapters

Detailed narrative

Q3 FY25 Financial Performance Overview

Akums Drugs reported a total income of INR1,025 crores in Q3 FY25, marking a 2% QoQ and 6% YoY decline. Despite this, adjusted EBITDA grew 1% QoQ to INR136 crores and 12% YoY, while PAT increased 15% YoY to INR66 crores. Cash flow from operations significantly improved to INR91 crores from INR19 crores QoQ, and free cash flow turned positive at INR50 crores from negative INR73 crores.

CDMO Business Performance and European Contract

The CDMO segment, contributing 78% of revenue (INR787 crores), saw its EBITDA grow 9% YoY, with overall CDMO EBITDA margins close to 15.4%. Volume growth in CDMO was subdued at 0.6% QoQ and 1% for the 9 months of FY25, though management expects recovery. A major highlight was securing a EUR 200 million CDMO contract for oral liquid formulations in European markets, with commercial supply commencing in 2027 and an upfront payment of EUR 100 million already transferred.

API Business Rationalization

The API segment, representing 4% of revenue (INR40 crores), continued to incur losses, though these significantly reduced to INR11 crores in Q3 FY25 from INR14 crores in Q2 FY25. This improvement was a result of rationalizing the portfolio, discontinuing lower-margin cephalosporin APIs due to a 20-30% price drop. Management aims for the API business to reach breakeven within 1 to 2 years by focusing on higher-margin products, general APIs, and exports.

R&D and New Product Development

Akums invested INR94 crores in R&D over the first 9 months of FY25, securing 7 DCGI approvals in Q3, including for Empagliflozin combination. The company plans to incur an additional INR32 crores in capex over the next two quarters to upgrade R&D capabilities for regulated markets and niche dosage forms. DSIR accreditation was received for the Barwala R&D facility for APIs.

Strategic Partnerships

Akums entered into several strategic partnerships, including an exclusive master sales agreement with Caregen (South Korea) for nutraceuticals in India and a licensing deal with Triple Hair (Canada) for a patented topical solution for alopecia in India, valid until 2035. They also partnered with Jagdale Industries for aseptic carton technology products in wellness and sports nutrition. These are primarily in-licensing deals for the Indian market, not global CDMO, and are expected to contribute to the P&L from 2027.

Capacity Expansion and Utilization

The company incurred INR191 crores in capex over 9 months FY25, primarily in the CDMO vertical, and plans to spend INR175-200 crores annually over the next two years for new plants and production lines. Current overall capacity utilization stands at around 40%. The new injectable facility, which recently started operations and received WHO GMP approval in January, has insignificant utilization currently but is expected to ramp up over the next 6 months. Management targets 60-65% utilization for operational breakeven.

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