Aurobindo Pharma

Aurobindo Pharma reported consolidated revenues of ₹7,868 crores in Q1 FY26, marking a 4% year-on-year increase. EBITDA for the quarter stood at ₹1,603 crores, achieving a margin of 20.4%. The company's PAT was ₹824 crores. R&D expenditure amounted to ₹367 crores, representing 4.7% of revenue, reflecting an ongoing commitment to innovation. Gross margins remained stable at 58.8%, supported by favorable raw material prices and an improved product mix.

The formulations business grew 7% year-on-year to ₹6,953 crores, contributing 88% of total revenues. This growth was primarily fueled by strong performance in Europe, which saw a 9% increase to €241 million, and the ARV segment, which surged 55% to ₹355 crores ($41 million) due to volume uptick and new tender wins. In contrast, US formulations revenue declined 4% to $408 million, mainly due to reduced gRevlimid sales and temporary customer destocking. The API business also faced headwinds, declining 16% to ₹916 crores, impacted by pricing pressures and business mix.

Net CapEx for the quarter was $73 million, aligned with strategic investments in manufacturing footprint expansion and compliance. The Pen-G manufacturing plant successfully resumed operations on July 1st, with healthy EBITDA expected from Q3 FY26. The $145 million China facility, which commenced invoicing in Q1 FY26, is ramping up and projected to break even at the EBITDA level by Q3 FY26. Additionally, two US facilities in Dayton, with a $70 million investment, are expected to start production in Q2-Q3 FY26, pending regulatory approvals. The company does not anticipate further greenfield CapEx in the near to mid-term.

The contribution from gRevlimid was significantly lower in Q1 FY26, impacting EBITDA by approximately ₹150 crores compared to Q1 FY25 and ₹550 crores versus Q4 FY25. Management indicated that most of the gRevlimid settlement quantities have been sold, and significant future sales from this product are not expected. The 16% decline in the API business was attributed to pricing pressures from both domestic and international sources, but management anticipates a recovery over time as these pressures are deemed unsustainable in the long run.

The acquisition of Lannett is currently awaiting FTC approval, with an estimated closure timeline of up to nine months. Management expressed confidence in the integration process, citing the target's similar product portfolio, particularly in the ADHD segment and controlled substances. Lannett's underutilized manufacturing capacity (currently at 40%) for oral solids, liquids, and potent substances, along with its CMO business and strong business development team, are expected to provide significant synergies and growth opportunities, especially in government markets. The company aims for Lannett to achieve an EBITDA margin of 15% or more.

The European business continued its robust growth, with revenues reaching €241 million, a 9% year-on-year increase. The company is on track to achieve €1 billion in annual revenues for the region by the end of FY26. Aurobindo has received four biosimilar product approvals in Europe and expects revenue generation from Q3-Q4 FY26, with above-average EBITDA margins. The initial focus for biosimilar commercialization is on ensuring adequate supplies, sorting out the supply chain, and stabilizing QP testing services in Europe to support launch quantities.

The temporary decline in US formulations revenue was primarily due to customer destocking in anticipation of tariffs, rather than a fundamental issue with demand or market share. Management confirmed that demand for oral solids remained stable. Addressing the US government's push for domestic manufacturing, Aurobindo highlighted its existing US facilities in New Jersey and the acquired Lannett capacities, positioning the company favorably to adapt to potential shifts in manufacturing requirements and maintain competitiveness.