Neuland Labs.

Neuland Labs reported a strong Q4 FY26 with total income reaching INR 788.7 crores, marking a 134.9% year-on-year increase from INR 335.8 crores in Q4 FY25, primarily driven by Commercial CMS projects. The gross margin improved significantly to 62.1% from 56.3% in the prior year's quarter. EBITDA for Q4 FY26 stood at INR 319.4 crores, achieving a margin of 40.5%, while Profit After Tax (PAT) was INR 212.5 crores compared to INR 27.7 crores in Q4 FY25. For the full fiscal year FY26, revenue grew 37.1% to INR 2053.1 crores from INR 1497.3 crores in FY25, with EBITDA at INR 603.4 crores and an improved EBITDA margin of 29.4% compared to 22.9% in FY25. Full-year PAT was INR 363.1 crores, resulting in an EPS of INR 283.01 per share.

Despite strong profitability, the company reported a negative free cash flow of INR 49.4 crores for FY26, mainly attributed to higher working capital and increased capital cash outflows. Working capital days rose to 137 days in Q4 FY26 from 107 days in Q4 FY25, primarily due to higher inventories and receivables. Management indicated that these working capital metrics are expected to normalize in FY27. The closing cash balance for FY26 was INR 75.4 crores, down from INR 130.4 crores at the end of FY25, but the balance sheet remains resilient with comfortable liquidity.

The robust Q4 performance was largely driven by existing commercial projects and the ramp-up of previously commercialized products, alongside one new commercialization in FY26. While the GDS business experienced a softer FY26, management anticipates good growth potential ahead, supported by substantial resource deployment in development, customer engagement, and capability building. The company expects one new commercialization in FY27, with potentially one or two more to follow, indicating continued pipeline progression.

Neuland is making significant investments in large-scale peptide commercial facilities, with a new facility projected to be operational by July 2026. This move aims to position the company in a more differentiated space, focusing on peptide fragments and APIs. Management highlighted the substantial market opportunity in peptide CDMO, estimated at $5-6 billion with a healthy CAGR, and believes it has the potential to become a major growth driver. Additionally, a new R&D center is being developed to enhance scientific depth and support complex programs from early development through commercialization.

The company's capital allocation strategy is evolving towards a longer-term, more strategic approach, moving beyond tactical investments. FY26 saw a capex cash outflow of INR 397.1 crores. With revenue now at INR 2,000 crores and expected to grow by hundreds of crores annually, the focus is on creating foundational production blocks and being ready to engage with larger pharma clients. Neuland is also emphasizing cost and process improvements, including procurement efficiency and operating discipline, to strengthen financial discipline and ensure consistent cash flow generation. Current capacity utilization for Units 1 and 2 is between 85-90%, and Unit 3 is around 65%.

Management acknowledged the inherent risks and uncertainties in the business, including demand variability, customer ordering patterns, regulatory timelines, geopolitical developments, and supply chain volatility. They are closely tracking raw material coverage and price volatility, taking actions to protect supply continuity. Despite the potential for short-term variability, the company remains confident in its long-term growth trajectory, driven by pipeline diversification, strong operational execution, prudent capital allocation, and a robust balance sheet.