Hikal Limited — Q2 FY26 earnings call

Call held 13 Nov 2025

Management summary

Hikal reported a challenging Q2 FY26, with consolidated revenue of ₹319 crores and a low EBITDA margin of 2.6%, primarily due to a significant deferral of pharmaceutical sales to October 2025 following US FDA regulatory actions. Both pharma and crop protection segments recorded negative EBIT margins. Despite the short-term headwinds, management expressed confidence in a strong recovery in H2 FY26, driven by new product commercialization, increased capacity utilization, and ongoing remediation efforts for the FDA observations, with a re-inspection anticipated in early to mid-2026.

Highlights

  • Consolidated Revenue for Q2 FY26 stood at ₹319 crores.

  • Consolidated EBITDA for Q2 FY26 was ₹8 crores, with a margin of 2.6%.

  • Consolidated Revenue for H1 FY26 reached ₹699 crores, with EBITDA of ₹32 crores (4.6% margin).

  • Pharmaceutical business revenue for Q2 FY26 was ₹190 crores, with an EBIT margin of negative 9.2%.

  • Crop Protection segment revenue for Q2 FY26 was ₹129 crores, with an EBIT of negative ₹10 crores.

  • Approximately ₹80 crores of Q2 FY26 pharma sales were deferred to October 2025 due to customer risk assessments post-FDA warning letter.

  • Full-year CAPEX guidance maintained at ₹200 crores, with ₹65 crores spent in H1 FY26.

  • Remediation plan for the Bangalore facility's US FDA observations is on track for completion by December 2025.

Concerns

  • US FDA Official Action Indicated (OAI) status and warning letter for Bangalore facility

  • Short-term deferral of sales in pharmaceutical business

Key financials

3 periods

Headline

  • Consolidated Revenue
    ₹319 Cr
  • Consolidated EBITDA
    ₹8 Cr
  • Consolidated EBITDA Margin
    2.6%
  • Debt-Equity Ratio
    0.55

Q2 FY26

  • Finance Costs
    ₹15 Cr
    YoY -13%

H1

  • FY26 Consolidated Revenue
    ₹699 Cr
  • FY26 Consolidated EBITDA
    ₹32 Cr
  • FY26 Consolidated EBITDA Margin
    4.6%
  • FY26 Capital Expenditure
    ₹65 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
₹319 Cr Total
  • Pharmaceutical Business ₹190 Cr 59.6%
  • Crop Protection Segment ₹129 Cr 40.4%

Guidance & targets

Capex

  • Full-year CAPEX Capex · FY26 · High confidence ₹200 crores
    We are maintaining our full-year CAPEX guidance of Rs. 200 crores with a continued emphasis on discipline, capital allocations toward high ROI projects, aligned with our long-term growth strategy.

    — Kuldeep Jain, Chief Financial Officer

Regulatory Compliance

  • Remediation plan completion Regulatory Compliance · December 2025 · High confidence December 2025
    The remediation plan is on track for completion by December 2025.

    — Manoj Mehrotra, President, Pharmaceutical Business

  • US FDA re-inspection timeline Regulatory Compliance · 2026 · Medium confidence March, April, May
    So, I think February is the right time to really approach them. And then if they believe that we are ready and we are able to convince them, then they come for a re-inspection. So, we will expect in maybe March, April, May, they should come for a re-inspection.

    — Manoj Mehrotra, President, Pharmaceutical Business

Pharma Supply

  • Resumption of supply Pharma Supply · October 2025 · High confidence October 2025
    We expect and we are progressing now well to resumption in the supply which has begun from October 2026. (Erroneously spoken as 2026, it is to be read as 2025).

    — Sameer Hiremath, Vice Chairman and Managing Director

Product Launches

  • Specialty chemicals product commercialization Product Launches · H2 FY26 · Medium confidence two to three products
    we expect to commercialize two to three products in the second half of this financial year and ramp up the volumes in the next financial year.

    — Sameer Hiremath, Vice Chairman and Managing Director

  • New API product launches Product Launches · annually · High confidence two to three new products
    We are on course to launch two to three new products annually, consistent with our medium-term strategy.

    — Manoj Mehrotra, President, Pharmaceutical Business

  • Key Starting Materials (KSMs) commercial launch Product Launches · FY27 · Medium confidence FY27
    key starting materials produced for global innovators have advanced into Phase III clinical trials with commercial launch anticipated in FY27.

    — Manoj Mehrotra, President, Pharmaceutical Business

Volume Growth

  • Specialty chemicals volume ramp-up Volume Growth · FY27 · Medium confidence next financial year
    we expect to commercialize two to three products in the second half of this financial year and ramp up the volumes in the next financial year.

    — Sameer Hiremath, Vice Chairman and Managing Director

Product Pipeline

  • API molecules under development Product Pipeline · High confidence eight to nine molecules
    Our development pipelines remain robust, with eight to nine molecules currently under development are progressing well.

    — Manoj Mehrotra, President, Pharmaceutical Business

Capacity Utilization

  • Food and nutraceuticals peak output Capacity Utilization · next 18-24 months · Medium confidence within next 18 to 24 months
    In the food and nutraceutical ingredients space, we are on track to scale operations and expect to reach peak output within the next 18 to 24 months.

    — Manoj Mehrotra, President, Pharmaceutical Business

Financial Performance

  • Recovery in H2 FY26 Financial Performance · H2 FY26 · High confidence strong recovery
    Despite the challenges faced in the first half of this year, we expect a strong recovery in Q3 and Q4 as mentioned in our last conference call, supported by improved demand visibility, higher capacity utilization, and the commercialization of new products which are being ramped up as we speak.

    — Sameer Hiremath, Vice Chairman and Managing Director

Cost Optimization

  • Manpower cost optimization Cost Optimization · by end of this year · Medium confidence some optimization
    And by end of this year, we will see some optimization of cost in the manpower segment.

    — Sameer Hiremath, Vice Chairman and Managing Director

Revenue Impact

  • Lost revenue from new products due to warning letter Revenue Impact · FY26 · High confidence ₹20-30 crores
    Yes, the new products do get affected, but if you really see, say in this FY '26, we would not have really lost more than, say, Rs. 20 crores, Rs. 30 crores, which is very minimum if you see our Rs. 1,200 crores, Rs. 1,300 crores business.

    — Manoj Mehrotra, President, Pharmaceutical Business

Cost

  • GMP consultants fixed cost Cost · High confidence ₹8-10 crores
    yes, Rs. 8 crores to Rs. 10 crores gets added in the fixed cost because we have to take some US-based GMP consultants who are helping us in the remediation plan.

    — Manoj Mehrotra, President, Pharmaceutical Business

Business Development

  • Pharma RFP conversion ratio Business Development · High confidence 15% to 20%
    Yes, for the pharma business, our rate is usually between 15% to 20%, the RFP conversion ratio.

    — Manoj Mehrotra, President, Pharmaceutical Business

Revenue

  • Development revenue from new customers Revenue · this year · High confidence $4 to $5 million
    So, this year itself, we will get around $4 to $5 million of development revenue from these customers.

    — Manoj Mehrotra, President, Pharmaceutical Business

  • Major revenue from repurposement Revenue · FY28 onwards · Medium confidence FY28 onwards
    Some revenue will start from next financial year, but the major revenue will start coming in from the FY28 onwards, when the repurposement is done.

    — Sameer Hiremath, Vice Chairman and Managing Director

Product Commercialization

  • High-potency lab commercialization Product Commercialization · next 2-3 years · Medium confidence two to three years
    Yes. That is right. It will take two to three years. It will take two to three years. What we will get initially is development revenue from these small companies or innovator companies. But going to commercial, it will take three years.

    — Manoj Mehrotra, President, Pharmaceutical Business

Capacity Expansion

  • Repurposement Phase 1 completion Capacity Expansion · FY26 · High confidence end of this financial year
    The Phase 1 will be completed by end of this financial year.

    — Sameer Hiremath, Vice Chairman and Managing Director

  • Repurposement Phase 2 completion Capacity Expansion · CY26 · High confidence end of calendar year
    followed by end of calendar year will be the Phase 2 completion for the entire repurposement.

    — Sameer Hiremath, Vice Chairman and Managing Director

Outlook

  • FY27 outlook Outlook · FY27 · High confidence transition year
    FY27 will be like a transition year.

    — Sameer Hiremath, Vice Chairman and Managing Director

  • FY28 outlook Outlook · FY28 · High confidence growth come back
    And then FY28, we expect to start seeing the growth come back in the business.

    — Sameer Hiremath, Vice Chairman and Managing Director

Risks & concerns

  • US FDA Official Action Indicated (OAI) status and warning letter for Bangalore facility

    high

    Delayed off-take across generics and CDMO, temporary deferral of sales, potential impact on new US product approvals until OAI is lifted.

    Management acknowledged

  • Short-term deferral of sales in pharmaceutical business

    high

    ₹80 crores of sales deferred from Q2 FY26 to October 2025 due to customer risk assessments post-FDA warning letter, impacting Q2 financials.

    Management acknowledged

  • Structural overcapacity and pricing challenges in the crop protection business

    medium

    Ongoing oversupply in the global market weighing on pricing, resulting in negative EBIT for the segment.

    Management acknowledged

  • Delay in commercial launches for CDMO due to regulatory filing lead time

    medium

    Regulatory filing lead time is delaying commercial launches for some CDMO projects, with KSMs going into commercialization FY27 onwards.

    Management acknowledged

  • Manpower cost escalation impacting profitability

    medium

    Manpower costs increased, especially in crop protection where profitability is already low, but management expects optimization by year-end.

    Both acknowledged

  • Investor dissatisfaction with long-term returns and capital erosion

    low

    An analyst expressed frustration over not seeing huge returns and successive quarters of losses over many years.

    Analyst acknowledged

Q&A highlights

3 direct
Revenue deferral and accounting for ₹80 crores in Q2 FY26 Direct
because of the customers asking us to do the risk evaluation, even though the orders of the system, if we are asked to ship them, we are asked to hold the material. And the material got delayed by a week or so in shipment. It went into the first week of October. So, we took a decision to reverse these sales because of the accounting technicalities and they have been accounted already from the October sales.

Clarifies the reason for the significant revenue miss in Q2, attributing it to customer-requested holds post-FDA issues and subsequent accounting reversal, with sales booked in October.

Asked by Dhaval Shah from Girik Capital

Impact of OAI/warning letter on DMF filings and timeline for US FDA re-inspection Direct
Yes, you can file DMF, but you may not get approval till the OAI is lifted. So, what we are doing, we are filing DMFs now from the Panoli side as well... we will expect in maybe March, April, May, they should come for a re-inspection.

Addresses the critical regulatory impact, outlining mitigation strategies (Panoli filings) and a potential timeline for resolution with the US FDA, which is crucial for future product approvals.

Asked by Henil Bagadia from EquiCorp

Manpower cost escalation and crop protection profitability Direct
Well, we had to front-load some of the manpower costs because of the new assets that are coming on stream. So, we are building up new assets in our businesses based on the CAPEX... we have taken an exercise for rationalizing the manpower cost this year. And the initiative is underway. And by end of this year, we will see some optimization of cost in the manpower segment.

Highlights a cost pressure point and management's plan to address it, while also revealing the ongoing low profitability in the crop protection segment.

Asked by Pranay Dhelia from Panchatantra Advisors LLP

3 min read 6 chapters

Detailed narrative

Q2 FY26 Financial Performance Overview

Hikal reported a consolidated revenue of ₹319 crores for Q2 FY26, with an EBITDA of ₹8 crores, translating to a margin of 2.6%. For the first half of FY26, revenue stood at ₹699 crores and EBITDA at ₹32 crores (4.6% margin). The quarter's financials were significantly impacted by a short-term deferral of approximately ₹80 crores in pharmaceutical sales, which were subsequently booked in October 2025. Finance costs for Q2 FY26 reduced by 13-20% year-on-year to ₹15 crores, and H1 FY26 capital expenditure was ₹65 crores, with a full-year guidance of ₹200 crores.

Pharmaceutical Business Challenges and Remediation

The pharmaceutical segment recorded ₹190 crores in revenue for Q2 FY26, with an EBIT margin of negative 9.2%. This performance was primarily due to the US FDA's Official Action Indicated (OAI) status and a subsequent warning letter in August 2025 for the Bangalore facility. This led to a temporary delay in off-take across both generics and CDMO businesses as customers conducted internal risk assessments. Management confirmed that all orders remain intact, and deliveries resumed in October 2025. The remediation plan, developed with global CGMP consultants, is on track for completion by December 2025, with a re-inspection by the US FDA anticipated in March-May 2026.

Crop Protection Segment Performance

The Crop Protection segment's revenue for Q2 FY26 was ₹129 crores, with an EBIT of negative ₹10 crores. Margins in this segment remained under pressure due to ongoing pricing challenges stemming from global oversupply. However, management noted that volumes have started to recover. The company is also focusing on joint development projects with customers in the crop protection space, anticipating increased R&D outsourcing in this segment, similar to trends in pharma.

CDMO and Specialty Chemicals Growth Initiatives

Hikal's CDMO business, currently contributing about 50% of total revenue, is in ramp-up mode with eight to nine projects in various development stages expected to drive revenue and margin uptick in the next two to three years. The company is also expanding into specialty chemicals, particularly the personal care division, with plans to commercialize two to three products in H2 FY26 and ramp up volumes next financial year. A new High-Potency laboratory has been inaugurated to enhance capabilities in high-potency molecule development, including anti-cancer drugs and peptides, with commercialization expected in two to three years.

Animal Health Business Progress

The animal health business is showing continued progress, with most molecules under long-term supply agreements now being delivered at small commercial volumes as registrations come through. Hikal has secured new development contracts for two molecules from global innovators and submitted proposals for two new RFPs. The company aims to diversify its offerings in animal health by leveraging its HP API capabilities and expanding into Tier-2 innovators and biotech customers.

Strategic Investments and Future Outlook

Hikal is undertaking a repurposement project for a large asset, converting it entirely to pharma use. Phase 1 is expected to complete by the end of the current financial year, and Phase 2 by the end of the calendar year, with major revenue contributions anticipated from FY28 onwards. The company expects FY27 to be a 'transition year' and anticipates growth to return in FY28. Management is also focusing on optimizing manpower costs, with initiatives underway to show benefits by the end of the year.

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