Onesource Specialty Pharma Limited

OneSource Specialty Pharma Limited reported a challenging Q3 FY26, with revenue declining 26% year-on-year to INR 2,903 million. This revenue shortfall led to an EBITDA of INR 173 million. The company recorded an adjusted PAT loss of INR 472 million, translating to an adjusted EPS of negative 4.1 per share, primarily due to deferred revenues and resulting negative operating leverage.

The primary factor impacting Q3 FY26 results was the delay in Canadian regulatory approval for semaglutide, particularly for a key partner like Dr. Reddy's, which was initially expected in January 2026. These approvals are now estimated to occur between 'now and May,' leading to deferred revenues. Consequently, the company anticipates the next two quarters (H2 FY26 and H1 FY27) to remain 'relatively soft' due to these delays and the absence of new Manufacturing and Supply Agreements (MSAs).

Despite the near-term challenges, OneSource reiterated its FY28 guidance of $400 million in revenue and $160 million in EBITDA, excluding inorganic accretions. Management expressed high confidence in achieving these targets, citing expanding order books, upwardly revised customer forecasts, and strategic readiness for scale. They expect a Q4 FY27 exit run rate for both revenues and EBITDA to be a strong indicator of achieving the FY28 numbers.

The company's aggressive capex of over INR 700 crores for capacity expansion is progressing well, with nearly three-quarters of the planned $100 million investment for the flagship site already committed, including $75 million for its expansion. By the end of FY27, OneSource expects to have approximately 200 million units of installed capacity. A four-month shutdown is underway at the Bangalore general injectable site to increase lyophilization and high-viscosity pre-filled syringe capabilities, which will enhance long-term capacity.

OneSource is experiencing strong tailwinds in its nascent biologics business, driven by new FDA guidelines on biosimilars and the Biosecure Act, which have led to a near 4x increase in RFPs and a historic high funnel. The company onboarded a new US-based biosimilar major customer and secured approval for its first oncology asset, partnering with a top 10 US generic company, further diversifying its specialty offering.

The company's cost of debt has improved significantly, now 200 basis points lower than last year, at less than 9% effective interest rate, following two credit rating upgrades. While capex funding has led to an increase in net debt, management is confident in maintaining a near-term net debt to EBITDA ratio of less than 1.5x and aims to be debt-free by 2028, excluding future capex for biologics.

OneSource is proactively working with partners to manage delayed approvals and increasing batch sizes. This includes deferring take-or-pay contracts while securing significant advances, and in some cases, invoking contractual obligations. This approach aims to build long-term partnerships and ensure mutual benefit, especially given the regulatory nature of the delays, and reprioritize business actions.

The acquisition of two injectable facilities is progressing as planned, with the application submitted to the Stock Exchange. Management anticipates receiving all final regulatory approvals for this transaction by the third quarter of FY27. This acquisition is expected to further enhance the company's manufacturing capabilities and contribute to its strategic value.