Hikal

Hikal reported a challenging Q1 FY26 with consolidated revenue at ₹380 crores, a 6.6% year-on-year decline from ₹407 crores in Q1 FY25. The consolidated EBITDA stood at ₹25 crores, leading to an EBITDA margin of 6.5%, a significant drop from 14.3% in the previous year. This margin compression was primarily attributed to under-absorption of fixed costs, an unfavorable product mix, and lower capacity utilization due to scheduled maintenance shutdowns. Despite the downturn, the company generated a cash profit of ₹16 crores and a positive free cash flow of ₹15 crores.

The Pharmaceutical Segment recorded revenue of ₹203 crores, experiencing an 11.7% year-on-year degrowth, and an EBIT loss of ₹27 crores. This performance was largely due to deferred customer offtake following a US FDA Official Action Indicated (OAI) status issued to its Bangalore facility in February 2025. Management confirmed that approximately ₹50 crores of Q1 revenue was deferred to Q2 and Q3 FY26, with shipments having restarted in July. Despite this, the company maintains its FY26 guidance for 12-14% revenue growth in the Pharma business, anticipating a strong recovery in the second half of the fiscal year.

Hikal is actively addressing the US FDA OAI status, clarifying that observations were procedural and not related to data integrity. The company has completed 75-80% of corrective and preventive actions (CAPA) and expects to finalize the remaining by the end of September 2025, with regular updates provided to the FDA. Notably, the same Bangalore facility successfully passed GMP audits by ANVISA (Brazil) and PMDA (Japan) during the quarter, reinforcing Hikal's commitment to quality standards. The cost associated with these corrective measures is estimated at ₹10-12 crores for FY26, with about ₹5 crores expensed in Q1.

The Crop Protection business reported revenue of ₹178 crores and an EBIT of ₹17 crores, remaining largely flat year-on-year. The segment continues to face persistent pricing erosion from oversupplied markets and aggressive competition, particularly from China, leading to sustained margin pressure. Management anticipates a gradual volume recovery in the second half of FY26 and expects the segment's revenue to remain stable on an annual basis. Hikal is also diversifying into personal care and specialty chemicals, retooling crop production lines for personal care products with launches expected from Q3 FY26 onwards, requiring only marginal CAPEX.

Hikal is strategically enhancing its focus on the CDMO segment, which has already surpassed own products in revenue contribution this quarter. The company aims to transition its revenue mix from a historical 50:50 (CDMO:own) to 60:40, and further to 70:30 in the next couple of years, driven by complex and on-patent chemistry. The CDMO pipeline remains robust with 8-9 molecules under development, and commercial revenues are expected towards the end of the financial year. The R&D center in Pune is being leveraged as a profitability center, generating revenue and business for the CDMO segment.

For Q1 FY26, Hikal incurred CAPEX of ₹31 crores, primarily directed towards debottlenecking, regulatory upgrades, and CDMO capacity augmentation. The full-year CAPEX guidance remains at ₹200 crores. Management acknowledged that significant CAPEX of approximately ₹900 crores over the last four years, including investments in the R&D center and Panoli facility upgrades, has not yet yielded substantial returns. However, they anticipate these investments will start generating expected returns by FY28-FY29, contributing to improved operating leverage and healthier returns as the company's strategic initiatives mature.