Strides Pharma Science Limited

Strides Pharma reported a strong Q1 FY26, achieving a revenue of ₹1,120 crores (₹11.2 billion). The company demonstrated robust profitability, with gross margins expanding by 300 basis points to reach 60%. EBITDA stood at ₹218 crores, marking a 15% year-on-year growth and an EBITDA margin of 19.5%. Operational PAT was ₹114 crores, translating to an operational EPS of ₹12.4 per share, an impressive 81% year-on-year increase.

The US market contributed to a 7% year-on-year growth in Q1 FY26. Management reiterated its long-term business outlook of achieving $400 million in the US by 2028. While the quarter saw a temporary sequential decline in sales, attributed to seasonality and product discontinuations, growth is expected to accelerate from Q2 onwards. The company launched one new product and received one approval, bringing the total commercial products to 70, and strategically discontinued four products that did not meet margin thresholds.

Other regulated markets grew 9.2% year-on-year, generating $42 million in Q1 FY26. Management anticipates much better growth in these markets in the coming quarters^⏳, driven by the expansion of the product portfolio and new customer acquisitions. The growth markets segment, though from a small base, grew significantly by 32.2% year-on-year, with expectations for substantial growth over the next 2-3 years as regulatory efforts progress.

Strides Pharma is actively pursuing a 'beyond generics' strategy, focusing on higher-value products and increased R&D investment. This includes a significant pipeline of programs such as 505(b)(2)s, nasal sprays, patches, and films, representing entirely new areas of operation. The first nasal spray product has been filed, and 3-4 additional filings are planned for this year, with the first patch expected to be available for commercial operations by the end of the financial year.

The company's focus on profitability and efficiency was evident in the 60% gross margin and 19.5% EBITDA margin. Management considers the 58-60% gross margin range to be sustainable and optimal, not expecting to expand significantly beyond it. Operating expenses were managed at 40.8% of sales, with a quarter-on-quarter reduction of ₹16 crores. The effective tax rate for Q1 was under 15%, projected to be in the range of 17-20% for the remainder of the year.

Operational cash flow for the quarter was ₹118 crores, resulting in a free cash flow of ₹26 crores, which was directed towards debt reduction. Net debt decreased to ₹1,496 crores, achieving a trailing 12-month EBITDA to net debt ratio of 1.8x. The company's R&D spend for the quarter was ₹29 crores, funded entirely through internal accruals without new borrowings. Strides Pharma aims to become net debt-free within the next 3-4 years.

The access market experienced a significant lull in Q1 FY26, primarily due to severe challenges in the donor funding environment. Management highlighted that approximately 80% of the funding for this market segment comes from USAID, which has completely cut off funding for anti-retrovirals and malaria programs. This situation has led to a significant downturn in demand and order cancellations across the industry, impacting the market's performance.