Hikal Limited — Q1 FY26 earnings call

Call held 7 Aug 2025

Management summary

Hikal reported a challenging Q1 FY26, primarily due to deferred shipments in its Pharmaceutical Business following a US FDA OAI status at its Bangalore facility, leading to a significant drop in revenue and EBITDA margins. The Crop Protection business remained flat amidst pricing pressures. Despite the slow start, management expressed confidence in resolving the regulatory issues and reiterated its full-year guidance, anticipating a strong recovery in the second half of FY26, driven by increased offtakes and new product commercialization.

Highlights

  • Consolidated Revenue for Q1 FY26 stood at ₹380 crores, a 6.6% decline YoY from ₹407 crores in Q1 FY25.

  • Consolidated EBITDA was ₹25 crores, with an EBITDA margin of 6.5%, down from 14.3% in Q1 FY25.

  • Pharmaceutical Business revenue degrew by 11.7% YoY, reporting ₹203 crores with an EBIT loss of ₹27 crores.

  • Crop Protection Business revenue was ₹178 crores, largely flat YoY, with an EBIT of ₹17 crores.

  • Approximately ₹50 crores of Q1 revenue was deferred to Q2 and Q3 FY26 due to the US FDA OAI status.

  • Q1 FY26 CAPEX was ₹31 crores, with a full-year guidance of ₹200 crores.

  • The company's debt-equity ratio remained stable at 0.54.

  • Management expects Pharma business revenue growth of 12-14% for FY26 and flat growth for Crop Protection.

Concerns

  • US FDA Official Action Indicated (OAI) status at Bangalore facility

Key financials

  1. Revenue ₹380 Cr -6.6%YoY
  2. EBITDA ₹25 Cr
  3. EBITDA Margin 6.5% -54.5%YoY
  4. Depreciation ₹39 Cr
  5. Finance Costs ₹17 Cr
  6. Cash Profit ₹16 Cr
  7. Free Cash Flow ₹15 Cr
  8. CAPEX ₹31 Cr

What they filed

Q1 FY27: revenue up 5.9%, net profit up 67.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue453 448 552 380 319 −30%494 +10%519 −6%403 +6%
EBITDA75 72 123 25 7 −90%83 +15%105 −15%37 +47%
Net profit18 17 50 -22 -35 −291%-6 −134%14 −71%-7 +67%
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
₹381 Cr Total
  • Pharmaceuticals ₹203 Cr 53.3%
  • Crop Protection ₹178 Cr 46.7%

Guidance & targets

Capex

  • Full year CAPEX Capex · FY26 · High confidence ₹200 crores
    We are maintaining our full year CAPEX guidance of Rs. 200 crores and remain disciplined in allocating capital towards high ROI projects aligned with our long-term growth strategy.

    — Kuldeep Jain, Chief Financial Officer

Revenue Growth

  • Pharma Business Revenue Growth Revenue Growth · FY26 · High confidence 12-14%
    We had given it last time, crop protection was flat and Pharma we expect it in low-teens growth. Yes, 12% to 14%

    — Sameer Hiremath, Vice Chairman and Managing Director

  • Crop Protection Revenue Growth Revenue Growth · FY26 · High confidence Flat
    We had given it last time, crop protection was flat and Pharma we expect it in low-teens growth.

    — Sameer Hiremath, Vice Chairman and Managing Director

Profitability

  • EBITDA Margins (Pharma) Profitability · FY26 · Medium confidence Improve slightly
    EBITDA margins will improve slightly more or less in the Pharma business, crop will be about flattish.

    — Sameer Hiremath, Vice Chairman and Managing Director

  • EBITDA Margins (Crop) Profitability · FY26 · Medium confidence Flattish

    — Sameer Hiremath, Vice Chairman and Managing Director

Revenue

  • Q1 Revenue Deferment Recovery Revenue · Q2 and Q3 FY26 · High confidence ~₹50 crores
    So, it's not a revenue loss, it's a revenue deferment, which is about Rs. 50-odd crores in the first quarter, which is getting deferred to Q2 and Q3.

    — Sameer Hiremath, Vice Chairman and Managing Director

OAI Remediation

  • Completion of CAPA OAI Remediation · End of September (Q2 FY26) · High confidence Remaining balance by end of September
    We have till date completed majority of the corrective actions, and we expect the remaining balance to be closed out before end of this quarter.

    — Manoj Mehrotra, President, Pharmaceutical Business

New Product Launches

  • New products launched annually (Pharma) New Product Launches · Annually (medium-term) · High confidence 2-3 products
    Our product development pipeline remains strong with eight to nine molecules currently under development, and we remain on track to launch two to three new products annually in line with our medium-term road map.

    — Manoj Mehrotra, President, Pharmaceutical Business

  • Personal care products launches New Product Launches · Q3 onwards · High confidence Launches
    And we are retooling some of our crop production lines to make personal care products and the launches are being done from Q3 onwards from our sites.

    — Sameer Hiremath, Vice Chairman and Managing Director

Food & Nutraceuticals

  • Reach peak output Food & Nutraceuticals · Next 18 to 24 months · Medium confidence Peak output
    In the food and nutraceutical ingredients, we are on track to gain scale and expect it to reach peak output over the next 18 to 24 months.

    — Manoj Mehrotra, President, Pharmaceutical Business

Key Starting Materials (KSM)

  • Commercial launch Key Starting Materials (KSM) · FY '27 · Medium confidence Commercial launch
    Separately, the key starting materials being manufactured for global innovators have advanced into Phase III clinical trials, and we expect this to translate into commercial launch by FY '27.

    — Manoj Mehrotra, President, Pharmaceutical Business

Business Mix

  • CDMO revenue percentage Business Mix · Next couple of years · High confidence 70%

    Previously 60% → 70%

    We are moving towards 60:40, 60% CDMO, 40% owned. And very soon, we will get to about 70 CDMO and 30 owned in the next couple of years.

    — Sameer Hiremath, Vice Chairman and Managing Director

CAPEX Returns

  • Returns from past CAPEX CAPEX Returns · FY28, FY29 · Medium confidence Start returning expected returns
    That being said, yes, the plan is on FY '28, '29, all the CAPEX should surely start returning the return that is expected to give.

    — Sameer Hiremath, Vice Chairman and Managing Director

Pharma Business Recovery

  • Pharma business growth Pharma Business Recovery · FY26 · Medium confidence Come back this year
    Pharma will come back this year and crops will come back in the year after that.

    — Sameer Hiremath, Vice Chairman and Managing Director

Crop Business Recovery

  • Crop business growth Crop Business Recovery · FY27 · Medium confidence Come back in the year after that
    Pharma will come back this year and crops will come back in the year after that.

    — Sameer Hiremath, Vice Chairman and Managing Director

OAI Cost

  • Cost of corrective measures OAI Cost · FY26 · High confidence ₹10-12 crores
    We have hired these consultants so that we expect Rs. 10 crores to Rs. 12 crores impact for this year, almost 50% has come in, in the first quarter. And we expect it to continue for Q2 and Q3 as well.

    — Sameer Hiremath, Vice Chairman and Managing Director

Risks & concerns

  • US FDA Official Action Indicated (OAI) status at Bangalore facility

    high

    The OAI status led to a deferment of ~₹50 crores in Q1 revenue, but management is actively remediating procedural observations and expects resolution by end of September 2025. Customers have re-audited and are comfortable.

    Management acknowledged

  • Global tariffs impacting Pharma business

    medium

    Management noted global tariffs as a 'question mark' for the industry, though currently not impacting Hikal's Pharma business. The situation is fluid and could change.

    Management acknowledged

  • Persistent overcapacity and aggressive price competition in Crop Protection business

    medium

    This has led to margin pressure and flat revenue growth in the Crop Protection segment. Management is focusing on operational efficiency and cost controls, anticipating volume recovery in H2 FY26.

    Management acknowledged

  • Delayed returns on significant past CAPEX investments

    medium

    Analysts raised concerns about ~₹900 crores CAPEX over the last 4 years not yielding expected returns. Management expects these investments to start generating returns by FY28-FY29.

    Analyst acknowledged

Areas of evasion (1)

  • Specific plans for immediate improvement on long-term flat sales/profit growth and industry bottom margins.

Q&A highlights

2 direct
Impact of US FDA OAI status on customer orders and future business Direct
On the Pharma part, we received the OAI status from US FDA towards the end of May. So, that does mean that the customers do their own risk assessment... And they have found that everything is in order, whatever corrective actions we are taking. It does not give any risk to their products. The shipments have restarted now.

This question directly addressed the primary cause of the Q1 Pharma business setback, and management's response provided crucial reassurance regarding customer confidence and the resumption of shipments.

Asked by Dhrumil Wani

Long-term returns from significant CAPEX investments and current disappointing performance Partial
No, that's the plan. I mean, yes, you are right. I mean, the CAPEX has been spent in the last three, four years... That being said, yes, the plan is on FY '28, '29, all the CAPEX should surely start returning the return that is expected to give.

The analyst challenged management on the lack of returns from substantial past CAPEX, highlighting investor frustration and prompting management to provide a longer-term timeline for expected benefits rather than immediate solutions.

Asked by Manoj Bagadia

Strategy for CDMO business growth and diversification, including conversion of crop protection capacity Direct
CDMO has already overtaken even in this quarter significantly the own products... We are moving towards 60:40, 60% CDMO, 40% owned. And very soon, we will get to about 70 CDMO and 30 owned in the next couple of years. ...And we are retooling some of our crop production lines to make personal care products and the launches are being done from Q3 onwards from our sites.

This question revealed the company's strategic pivot towards CDMO and diversification into personal care, outlining specific targets for business mix and new product launches, which are key future growth drivers.

Asked by Henil Bagadia

3 min read 6 chapters

Detailed narrative

Q1 FY26 Financial Performance Overview

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.

Pharmaceutical Business Impacted by US FDA OAI

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.

Regulatory Compliance and Remediation Efforts

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.

Crop Protection Business Stability and Diversification

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.

Strategic Shift Towards CDMO and Pipeline Development

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.

CAPEX Investments and Future Returns

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.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Healthcare earnings calls