SMS Pharmaceuticals Limited — Q2 FY26 earnings call

Call held 11 Nov 2025

Management summary

SMS Pharmaceuticals delivered a strong Q2 FY26, with PAT growing 80% YoY to INR25.3 crores and revenue up 23% to INR242.4 crores, driven by backward integration and product mix optimization. EBITDA margin expanded to 20%. The company is progressing on its INR280 crores capex program and aims for 20% growth and 20% EBITDA margin for FY26, despite some challenges in the Anti-diabetic segment and higher receivables.

Highlights

  • PAT grew 80% year-on-year to INR25.3 crores, the highest ever in a single quarter.

  • Revenue grew 23% year-on-year to INR242.4 crores, supported by strong demand and market share gain.

  • EBITDA for the quarter stood at INR48.3 crores, up 54% year-on-year with margin expanding to 20%.

  • Gross profit rose 30% year-on-year to INR76.8 crores with margins improving to 32%, driven by backward integration, product mix, and economies of scale.

  • Backward integration projects commissioned in previous quarters have stabilized operations and improved utilization levels, strengthening cost competitiveness and supply chain reliability.

Concerns

  • Receivable days and working capital are noted as 'a bit high' by an analyst, though management attributes it to increasing revenue.

  • The Anti-diabetic portfolio has shown limited growth year-on-year due to patent expiry and increased competition, leading to market share consolidation efforts.

  • Ibuprofen API production is currently at ~350 tons/month, below the FY26 target run rate of 5,000 tons/year (approx. 417 tons/month).

Key financials

2 periods

Q2 FY26

  • Revenue
    ₹242.4 Cr
    YoY +23%
  • Gross Profit
    ₹76.8 Cr
    YoY +30%
  • Gross Profit Margin
    32%
  • EBITDA
    ₹48.3 Cr
    YoY +54%
  • EBITDA Margin
    20%
  • PAT
    ₹25.3 Cr
    YoY +80%
  • PAT Margin
    10%

H1 FY26

  • Revenue
    ₹438.4 Cr
    YoY +21%
  • PAT
    ₹45.8 Cr
    YoY +50%

What they filed

Q1 FY27: revenue up 5.6%, net profit up 5.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue197 173 248 196 242 +23%210 +21%238 −4%207 +6%
EBITDA31 33 41 39 48 +55%44 +33%40 −2%41 +5%
Net profit14 18 20 20 25 +79%23 +28%33 +65%21 +5%
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.

Capital allocation

high confidence
  • Capex ₹280 Cr
    • Build in-house capabilities for critical intermediates across API portfolio
    • Enhance capacities for existing APIs and build capacities for new product pipeline
    • Acquiring land for a greenfield project ₹30 Cr
    • Investments in R&D for peptide initiatives
    Over the past 12 to 18 months, we've invested close to INR150 crores to build in-house capabilities for critical intermediates across our API portfolio. This investment strengthens our cost competitiveness, improve supply chain reliability and ensure consistent quality. Importantly, it reduces the dependent on external suppliers, particularly from China, giving us better control over input costs and delivery times. ... we've commenced our INR280 crores new capex program it remains on track for completion by November 2026. It will enhance the capacities for existing APIs and build capacities for new product pipeline. This includes a INR30 crores outlay for acquiring land for a greenfield project. Investments have also begun in R&D for the peptide initiatives with commercial operations targeted to begin in FY '29. Together, these initiatives provide a clear path for growth over the next 24 to 30 months.

Guidance & targets

Growth

  • FY26 Revenue Growth Growth · FY26 · High confidence 20%
    We are confident of achieving our FY '26 targets of around 20% growth and 20% EBITDA margin.

    — Vamsi Potluri

Profitability

  • FY26 EBITDA Margin Profitability · FY26 · High confidence 20%
    We are confident of achieving our FY '26 targets of around 20% growth and 20% EBITDA margin.

    — Vamsi Potluri

Efficiency

  • Net Asset Turnover Efficiency · High confidence 1.5x
    This translates into a net asset turnover of 1.5x among the best in the industry.

    — Vamsi Potluri

Capacity

  • Ibuprofen API Production Capacity · FY26 · High confidence 5,000 tons
    You had mentioned in the earlier con call that you will be doing 5,000 tons of ibuprofen in FY '26.

    — Vamsi Potluri

  • Ibuprofen API Production Run Rate Capacity · High confidence 450 metric tons/month
    Got it. So you think you will be able to scale it up to 450 metric tons? Yes.

    — Vamsi Potluri

R&D

  • R&D Strength (Scientists) R&D · next 2 years · High confidence Double over next 2 years
    We plan to double our R&D strength over the next 2 years.

    — Vamsi Potluri

  • DMF Filings R&D · next 24 to 36 months · High confidence Add 30 more
    To date, we have filed over 120 DMFs and aim to add around another 30 more in the next 24 to 36 months.

    — Vamsi Potluri

Capex

  • New Capex Program Completion Capex · November 2026 · High confidence November 2026
    we've commenced our INR280 crores new capex program it remains on track for completion by November 2026.

    — Vamsi Potluri

  • Peptide Initiatives Commercial Operations Capex · FY29 · High confidence Begin in FY '29
    Investments have also begun in R&D for the peptide initiatives with commercial operations targeted to begin in FY '29.

    — Vamsi Potluri

What to watch in Q3 FY26

Full impact of backward integration on gross margins

next coming quarters
Current 30% YoY improvement in Q2 FY26
Target Further improvement in gross margins

Why it matters

This is a key driver for profitability and was recently commercialized, so its full impact is yet to be seen.

So that those -- that impact you will probably see in the next coming quarters. ... Absolutely. On that product, yes.

Risks & concerns

  • Increased competition in API and CRAMS space

    medium

    Analyst noted more players entering the market; management highlighted backward integration and cost competitiveness as their defense.

    Analyst acknowledged

  • API price pressure and rising costs

    medium

    Analyst asked about maintaining balance sheet stability; management cited backward integration and process tweaks to manage costs.

    Analyst acknowledged

  • High receivable days and working capital

    medium

    Analyst noted high receivables; management attributed it to increasing revenue and stated they are below 10 days.

    Analyst downplayed

  • Slow growth in Anti-diabetic portfolio

    medium

    Analyst noted hardly any YoY growth; management explained it's due to patent expiries and increased competition, leading to market share consolidation.

    Analyst acknowledged

Q&A highlights

7 direct
Competitive advantage in API/CRAMS space Direct
I think the reason we were able to achieve that status because of our backward integration, non-dependency on external sources. And most of the APIs we are vertically integrated and strength on manufacturing and the cost competitiveness of the product.

Management highlighted backward integration and cost competitiveness as key differentiators against increasing competition.

Asked by Sucrit D Patil

Margin and cost planning under pressure Direct
The only reason how -- why it's being improved is because of backward integration and definitely tweaking in process and making sure we continuously improvise the existing process to make sure the cost of the product is constantly coming down.

Management explained their strategy for margin improvement and cost efficiency through backward integration and continuous process optimization.

Asked by Sucrit D Patil

Progress and financial contribution of INR280 crores capex plan Partial
So again, it will take one year for the project completion. As mentioned in my speech, I think this project that we are doing is to expand the capacity for existing products and also to build another block new pipeline products coming in and a few other ancillary requirements. ... So this will be committed in November '26 and we are anticipating revenues coming in from FY '28.

Management provided an update on the capex timeline and purpose, clarifying that revenue contribution is expected from FY28, indicating a longer gestation period.

Asked by Akhilesh Rawat

Customer concentration and receivable days Direct
No, I think you've got that wrong. It is not a single customer. What we mentioned was our largest therapeutic category accounted for 24% of the revenue, not a single customer. ... Receivables is mainly increasing because of increasing our revenue, revenue from operations and all the receivables are in the below 10 days only.

Management clarified that the 24% figure refers to a therapeutic category, not a single customer, addressing a potential concentration risk. They also explained the reason for higher receivables.

Asked by Akhilesh Rawat

Ibuprofen API production target for FY26 Direct
So 5,000 tons in the sense, an average of around 450 tons per month. So right now, we are at almost around 350 tons number at this point of time, around average of around 350 tons per month sort of run rate.

Management provided an update on the current run rate for Ibuprofen API production, indicating they are currently below the FY26 target but aiming to scale up.

Asked by Surabhi

Further gross margin improvement from backward integration Direct
Yes, definitely. I think we just started in, but typically, keep a quarter of inventory with us, right? So the project just got commercialized a couple of months back. So just at the end of the last quarter, it's been commercialized. So that those -- that impact you will probably see in the next coming quarters. ... Absolutely. On that product, yes.

Management confirmed that there is still room for gross margin improvement from backward integration, with the full impact expected in the coming quarters as the project was recently commercialized.

Asked by Surabhi

Outlook for ARV segment growth and margins Direct
Yes. So basically, ARV is not leased margin category is a moderate margin. But again, ARV for the next 1 year, see, as you know, ARV is tender-based, right? So based on multiple tenders awarded across the world, we have a couple of customers, which sort of get this product from us. And fortunately, our customers have our tenders, have been awarded the tenders. So going forward, I think for the next 3 quarters, we definitely see a very good visibility on the ARV front.

Management provided clarity on the ARV segment's margin profile and strong visibility for the next three quarters due to successful tender awards to their customers.

Asked by Surabhi

Growth prospects for the Anti-diabetic portfolio Direct
See, on the Anti-diabetic segment, obviously, I think the agents have expect. See when we've launched the product a couple of years back, we were one of the largest and one of the first and the patent has just expired, and we got a big market share. Now is the patent for sitagliptin phosphate, which is another product has also got expired. So definitely, we saw more players coming in and obviously getting some market share. But definitely, we've been able to consolidate the market share that we currently have.

Management explained the challenges in the Anti-diabetic segment due to patent expiries and increased competition, leading to market share consolidation efforts rather than significant growth.

Asked by Surabhi

3 min read 6 chapters

Detailed narrative

Strong Q2 & H1 FY26 Financial Performance

SMS Pharmaceuticals delivered a robust Q2 FY26, with revenue growing 23% year-on-year to INR242.4 crores. This strong top-line growth translated into significant profitability improvements, with PAT soaring 80% year-on-year to INR25.3 crores, marking the highest ever in a single quarter. EBITDA for the quarter increased by 54% year-on-year to INR48.3 crores, expanding the EBITDA margin to 20%. For the first half of FY26, revenue from operations reached INR438.4 crores, a 21% year-on-year growth, and PAT grew 50% year-on-year to INR45.8 crores.

Backward Integration as a Key Strategic Driver

A significant contributor to the strong performance and margin expansion is the successful commissioning and stabilization of backward integration projects. Over the past 12-18 months, the company invested INR150 crores to build in-house capabilities for critical intermediates, enhancing cost competitiveness, supply chain reliability, and quality. This strategy reduces dependence on external suppliers, particularly from China, and provides a distinct advantage in an environment where global customers seek non-Chinese sources. Gross profit margins improved to 32% in Q2 FY26, partly due to these initiatives, with further benefits expected in coming quarters.

R&D Focus and Product Pipeline Expansion

R&D remains a core pillar of SMS Pharma's strategy, with successful product launches driving strong demand in regulated markets. The company plans to double its R&D strength (currently over 100 scientists) over the next two years and aims to file an additional 30 DMFs in the next 24-36 months, adding to the existing 120+ filings. A joint venture with Chemo, a Spanish multinational, has leveraged R&D strength to develop and manufacture first-to-market APIs, particularly in the Anti-diabetic segment where SMS Pharma established a leading position.

Capex for Capacity Expansion and Future Growth

The company has commenced a new INR280 crores capex program, which is on track for completion by November 2026. This investment is aimed at enhancing capacities for existing APIs, building new product pipelines, and includes an INR30 crores outlay for acquiring land for a greenfield project. Additionally, investments have begun in R&D for peptide initiatives, with commercial operations targeted to start in FY29. These initiatives are expected to provide a clear growth path over the next 24-30 months.

Diversified Product Portfolio and Segment Performance

SMS Pharma maintains a balanced and diversified product mix across therapeutic areas. While inflammatory and ERB segments are key growth drivers, the Anti-diabetic portfolio remains the largest therapeutic category, showing steady growth despite competitive pressures. Other segments like Anti-epileptic and Anti-erectile dysfunction, along with emerging molecules, are also showing healthy traction. The largest therapeutic category accounted for only 24% of the revenue, underscoring the company's focus on diversification and avoiding over-reliance on any single product or customer.

Ibuprofen Production and ARV Segment Outlook

For Ibuprofen API, the company aims for 5,000 tons in FY26, which translates to an average of 450 tons per month. Currently, production is at approximately 350 tons per month, with plans to scale up. The ARV segment, characterized by moderate margins and tender-based sales, has shown good growth. Management expressed strong visibility for the ARV segment over the next three quarters, as their customers have been awarded tenders globally.

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