Shilpa Medicare Q1 FY27 earnings call

Shilpa Medicare achieved its highest-ever quarterly revenue of INR469 crores in Q1 FY27, marking a substantial 43% year-on-year growth. This strong top-line performance translated into a record EBITDA of INR139 crores, up 42% YoY, maintaining a healthy 30% margin. The company's PAT also surged by 115% YoY to INR101 crores, despite a negative tax rate in the quarter due to a deferred tax liability reversal, which is expected to normalize^📎 to 25% in coming quarters.

The company highlighted a significant strategic transformation over the past three years, moving from a debt-heavy API business to a diversified, innovation-focused portfolio. This transformation has resulted in a substantial reduction in net debt-to-EBITDA from 6.7x to 1.3x. Consequently, the Return on Capital Employed (ROCE) improved to 12.5% from 8.8% in FY25, with an adjusted ROCE of 18.3% for the core businesses excluding early-stage Biologics and NBE ventures. This operational and financial strengthening led to a credit rating upgrade from A+ to AA-.

All three core segments contributed to the strong Q1 performance. The API division reported INR260 crores in revenue, growing 15% YoY, driven by CDMO, peptides, and oncology portfolios, with non-captive third-party API sales also growing by approximately 15%. The Formulation division demonstrated exceptional growth, with revenue of INR198 crores, exceeding 100% YoY, primarily from complex FDA portfolio products. The Biologics segment also showed robust growth, increasing 42% YoY to INR52 crores, fueled by continued deal momentum in licensing and partnerships.

Shilpa Medicare has a comprehensive product pipeline with several key milestones anticipated. In the API division, 3 NCE programs are slated for commercialization in FY28, alongside 15 new oncology product validations in FY27. The Formulation segment expects to initiate global Phase II clinical studies for Nor-UDCA in FY27 and launch important filings like Abraxane and Rotigotine transdermal patch in FY28. The Biologics division is on track for Aflibercept biosimilar launch in India in FY27 and Nivolumab in FY28, with ADC biosimilar and NBE programs entering human studies in FY27.

The company invested INR114 crores in capex during Q1 FY27, primarily funded through internal accruals. These investments are directed towards peptide manufacturing capacity in India, expected to be commissioned by end of FY27, and additional capital capex in the API division. Management indicated that significant past investments in Biologics and Albumin mean no substantial new capex is required for these divisions for the next three years, allowing focus on sweating existing assets and targeted growth investments.

Shilpa Medicare's adoption of a new tax regime led to a negative tax rate in Q1 FY27 due to the reversal of deferred tax liability, with expectations for the tax rate to normalize to around 25% in subsequent quarters. While raw material price increases, influenced by global political situations, have impacted gross margins, management expressed confidence in maintaining EBITDA margins in a similar range (around 30%). This confidence stems from a favorable product mix of complex, high-margin products and the ability to partially pass on cost increases.

CDMO remains a strategic focus, leveraging Shilpa's integrated capabilities from clone development to Fill & Finish. The company is actively working on over 25 NCE programs in its API division, with 3 late-stage programs expected to enter commercialization next year. Management also alluded to a 'unique' and 'confidential' strategy involving taking stakes in companies to provide CDMO services, emphasizing a selective approach to partnerships that align with their therapy areas and corporate strategy.