Onesource Specialty Pharma Q1 FY27 earnings call

Onesource Specialty Pharma Limited reported a robust Q1 FY27, with revenues reaching INR 4,490 million, marking a 37% year-on-year growth. EBITDA also saw significant improvement, growing 39% year-on-year and 34% sequentially to INR 1,233 million. This performance was primarily fueled by the commercial launch of semaglutide, new MSA contracts, and customer wins across various businesses, particularly a meaningful step up in sema commercialization in Canada. The company also noted that over 40% of the generic pens market sold in India are manufactured at its site.

The company's first phase of US$100 million capex is nearing fruition, with approximately 80% already committed, mostly for drug device combination (DDC). A second cartridge line is set for commercialization this quarter, which will double sterile days available for production. This additional capacity is crucial for onboarding new customers, as the company previously faced supply constraints, and has already brought on a new GLP customer. Another line is expected to be installed within FY27, making Onesource one of the very few global CDMOs with complete end-to-end capabilities.

The biologics segment is emerging as a key future growth pillar, with the RFP funnel growing almost 4x compared to a year ago. The company recently partnered with Formycon, a global biotech major, and expects commercial revenues from new biologics customers to start from FY29 onwards. To support this long-term growth, Onesource plans further capacity expansion in both mammalian and microbial biologics, indicating confidence in the sticky nature and long gestation period of this business. This segment is expected to be a significant contributor to growth even beyond FY28.

The soft gelatin business, with its expanded capacity from 800 million to 2.4 billion units, is transitioning from an IP-led captive model to offering CDMO services. Management expects the newly added capacity to be fully utilized within the next 12 to 15 months, driven by ongoing tech transfers from new CDMO customers. The company is also initiating plans for a greenfield site to further expand this segment beyond the current site's limits, demonstrating strong confidence in its future growth trajectory.

The injectable business is focused on scarcity plays, particularly products requiring dedicated manufacturing like penicillin and those on FDA shortage lists. The company is adding new capabilities, including pre-filled syringes and significantly increasing lyophilization capacities. A plant shutdown for this expansion is scheduled for Q2 FY27 and will last through Q3, with the new capacity expected to contribute significantly to FY28 numbers. The company maintains an excellent compliance track record, evidenced by 12 successful inspections this quarter, including two surprise FDA audits.

Despite a temporary disruption in supplies announced by Dr. Reddy's, Onesource's diverse customer base and full existing capacities have allowed them to pull demand and avoid impact on their supplies. The company also addressed geopolitical issues, noting freight challenges and increased shipment times due to routes like the Cape of Good Hope. However, the financial impact is muted as the company operates on ex-works contracts, where customers bear the additional time and cost, and management does not foresee long-term harm from potential US tariffs on generics.

The company reiterated its FY28 outlook of $400 million organic revenue and 40% EBITDA margins. The Q1 FY27 margin improvement was attributed to a favorable product mix, with higher contribution from the drug device combination business. Management expects sequential quarter-on-quarter improvement in revenue and EBITDA as new capacity lines come online and operating leverage kicks in, absorbing the upfronted opex incurred for these expansions. The company's strategy involves shifting towards significantly more commercial sales (CSA) as new capacities become available.