Onesource Specialty Pharma Limited — Q3 FY25 earnings call

Call held 29 Jan 2025

Management summary

OneSource Specialty Pharma delivered a strong inaugural quarter post-listing, characterized by significant margin expansion driven by its biologics and drug-device combination (DDC) business. Management is aggressively positioning the company as a leading specialty CDMO, particularly in the GLP-1 space, with massive capacity expansions planned over the next 3-4 years. The company is focused on deleveraging and optimizing its balance sheet following a complex restructuring process.

Highlights

  • Revenue for Q3 FY25 stood at ₹392.6 crores, representing approximately 18% growth.

  • EBITDA for the quarter reached ₹143.2 crores with a strong margin of 36%.

  • 9-month FY25 revenue exceeded ₹1,000 crores with an EBITDA of approximately ₹284 crores.

  • GLP-1 business traction is high with 20 active customers and 7 actual or potential NCE-1 programs.

  • Company plans to increase cartridge capacity 5x from 40 million to 220 million units by 2028.

  • Net debt stood at ₹581 crores at the end of Q3, with a target to be debt-free by the end of FY27.

  • Fully diluted EPS for the quarter was reported at ₹7.8.

  • Received EIR from USFDA for the penicillin site in Bangalore, reinforcing a stellar compliance track record.

Key financials

  1. Revenue ₹392.6 Cr +18%YoY
  2. EBITDA ₹143.2 Cr
  3. EBITDA Margin 36%
  4. EPS ₹7.8
  5. Net Debt ₹581 Cr

What they filed

Q1 FY27: revenue up 37.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue334 393 426 327 376 +13%290 −26%428 +0%449 +37%
EBITDA77 142 183 88 106 +38%17 −88%92 −50%123 +40%
Net profit-42 -69 98 0 10 +124%-89 −29%5 −95%25
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.

Guidance & targets

Revenue

  • Annual Revenue Target Revenue · next 3 to 4 years · High confidence $400 million
    will be a 400 million revenue company in the next 3 to 4 years

    — Neeraj Sharma, CEO & MD

  • Revenue CAGR Revenue · next 3 to 4 years · High confidence 25% to 30%
    looking at a growth of anywhere between 25% to 30% on a CAGR basis

    — Neeraj Sharma, CEO & MD

Profitability

  • EBITDA Margin Profitability · next 3 to 4 years · High confidence 40%
    with a very significant EBITDA margin of 40%

    — Neeraj Sharma, CEO & MD

Capex

  • Total Capex Investment Capex · next 2 to 4 years · High confidence $100 million
    we will be investing about 100 million in capex over the next 2 to 4 years

    — Neeraj Sharma, CEO & MD

Debt

  • Debt Status Debt · by end of FY27 · High confidence Debt Free
    We actually aim to be debt free before end of financial year ‘27.

    — Anurag Bhagania, CFO

Capacity

  • GLP-1 Cartridge Capacity Capacity · next 3 to 4 years · High confidence 220 million units

    From 40 million units today

    increasing our capacity 5x from the 40 odd million to almost 220 million in the next 3 to 4 years.

    — Arun Kumar, Founder

Risks & concerns

  • Large Goodwill Impacting ROCE

    medium

    Restructuring added ₹5,000 cr in goodwill, which management admits has a negative impact on ROCE.

    Analyst acknowledged

  • Long Lead Times for Equipment

    medium

    Isolator-based filling lines have lead times of 24-36 months, creating a barrier to entry but also a risk for rapid scaling.

    Management acknowledged

  • API Availability for GLP-1

    low

    Analyst raised concerns about issues getting API right; management countered by highlighting their 20 active customers and pioneer status.

    Analyst downplayed

Areas of evasion (1)

  • Specific split of the $100 million capex between different business lines.

Q&A highlights

3 direct
Goodwill and Balance Sheet Size Direct
almost INR5,000 crores has been added because we didn't have common control... We are evaluating the possibilities of how to address this very quickly.

Explains the massive intangible asset on the balance sheet which currently dilutes ROCE.

Asked by Nitin Agarwal

Seasonality and Margin Fluctuations Direct
I think the fluctuations in EBITDA and seasonality, fluctuations in EBITDA and not necessarily seasonality is the more apt word that you need to use for us.

Clarifies that performance will vary based on commercial launch timings (CSA) rather than traditional quarterly seasonality.

Asked by Kunal Dhamesha

Market Share in Cartridge Fill-Finish Direct
More like 15%-20% is our estimate... I think steady state, once all markets are out, I think we could be about a third of the total generic market.

Provides management's expectation of their dominance in the global generic GLP-1 fill-finish market.

Asked by Anubhav Agarwal

2 min read 5 chapters

Detailed narrative

Strategic Pivot to Specialty CDMO

OneSource was formed to simplify supply chains for customers by bringing multiple capabilities under one roof, creating India's first specialty pharma CDMO. The company has evolved from having no common customers across service offerings to having many customers utilizing multiple modalities. Management highlights that this 'one-stop-shop' approach is already resulting in a higher share of customer wallets and increased traction across biologics, sterile injectables, and soft gelatins.

GLP-1 and Cartridge Capacity Expansion

The company is making a massive bet on the GLP-1 market, planning to increase its cartridge capacity from 40 million to 220 million units by 2028. They currently have 20 active customers in the GLP-1 space, including some of the 'who's who' of the global generic industry. Management estimates they could eventually capture up to one-third of the total generic market for GLP-1 fill-finish, leveraging their early-mover advantage and specialized isolator-based technology.

Financial Trajectory and Margin Expansion

Q3 FY25 saw a significant jump in EBITDA margins to 36%, up from the combined margins of the previous two quarters. This expansion is attributed to the increasing traction of the high-margin biologics and drug-device combination business. Management has set a medium-term target of achieving a 40% EBITDA margin as the business shifts from pre-approval (MSA) revenue to commercial (CSA) revenue, which is expected to reach an 80-20 mix in favor of commercial sales by FY27.

Balance Sheet Optimization and Debt Reduction

Following the NCLT process and listing, the company is focused on cleaning up its balance sheet. It raised ₹801 crores during the quarter, using half to retire high-cost debt and reduce guarantees. The company aims to be completely debt-free by the end of FY27, down from a current net debt of ₹581 crores. Management is also actively working with advisors to address the ₹5,000 crore goodwill sitting on the balance sheet to improve future ROCE.

Biologics and Integrated Manufacturing

OneSource differentiates itself with an integrated biologics site that handles both drug substance and drug product in one location. They have already onboarded their first innovator customer in the microbial area and are seeing increased RFPs from American, Japanese, and biotech companies. While biologics is a long-gestation business, management expects significant commercial revenue to begin contributing in 3-4 years, providing a long-term growth tailwind beyond current guidance.

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