Add Innova Captab Ltd For Target Rs. 787 By JM Financial Services
Mixed 2Q; slower than anticipated Jammu ramp-up
Innova Captab reported a mixed 2QFY26, with revenue growth of +20% YoY and EBITDA margins contraction of 200bps YoY (at 13.6%). Revenue growth was enabled by the Branded Generics segment, which grew +31% YoY. It was led by the portfolio expansion and traction in key products. Despite headwinds of price pressure in APIs, the CDMO segment grew at +15% YoY. Growth in the CDMO business was driven by deeper client engagement and portfolio expansion. However, 1HFY26 remained muted for the Jammu facility – reporting INR 1.2bn in sales. The management now expects FY26 sales of INR 2.7–2.8bn (vs. INR 4bn guided earlier) from this facility, with no significant ramp-up expected in the second half. This, coupled with the continued API pricing pressure as well as the impact of GST revision on the entity level margins prompts us to revise our FY26/27/28 estimates downwards. We value the stock at 20x Sept’27 EPS vs. hitherto 24x, to arrive at a TP of INR 787. Re-rate to ADD.
* CDMO: The business has been reorganized via integration of Sharon Bio and part of international BGx into CDMO. The reorganized segment delivered revenue of INR 2.7bn (+15% YoY growth) in 2QFY26 and INR 5.2bn (+12% YoY) in 1HFY26. This growth was despite headwind of deteriorating API prices for key products, though the management now states seeing early signs of API price stabilization. Double-digit growth was enabled by deeper client engagement and expansion of product portfolio.
* Jammu facility: Jammu facility did INR 1.2bn worth of business in 1HFY26, and expects to do better in 2HFY26 (FY26 guidance of INR 2.7-2.8bn vs INR 4bn guided earlier). Impact of GST revision – Pharma formulation GST reduced from 12% to 5%, Jammu had maximum incentive cap of INR 750-800mn. Earlier had to achieve INR 6.5bn business to get maximum benefit, now has to achieve INR 14bn sales to attain maximum benefit in a single year. The prices with B2B client will be re-nogiated as earlier part of the benefits were passed on to clientele. The facility is seeing multiple client visits – some have commissioned contracts, while others remain in conversation. At optimum capacity utilization of 65- 70%, the facility should deliver INR 14bn+ peak revenue, attainable in 4-5 years.
* Branded generics: The segment has been reorganized via merger of part of international BGx and domestic BGx to form Branded generics. The segment delivered revenue of INR 1.1bn (+31% YoY) in 2QFY26 and INR 2.2bn (+43% YoY) in 1HFY26. Strong growth was led by expansion of product portfolio and increased traction in existing portfolio.
* Other highlights: The company successfully closed inspection at its: 1. Cephalosporin plant in Baddi by the UK-MHRA; 2. Jammu facility by the State Service of Ukraine on Medicines and Drugs Control (SMDC). The company has multiple growth levers in sight– substantial room for scale-up, geographic diversification, and robust product pipeline. A key highlight of the performance is strong export orientation, with contribution being 30% to the overall revenue mix, both in 2QFY26 and 1HFY26. The company pointed out its target is to double top-line over the next 3 years.
* Implication of GST revision: GST for pharma formulations has been reduced from 12% to 5%. Subsequently, the Jammu facility which earlier had to achieve INR 6.5bn sales to get the maximum benefit available in a given single year, now has to attain INR 14bn sales. This is likely to have a detrimental impact on the company’s margins.
* Valuation: In light of the slower than earlier anticipated ramp-up of Jammu facility, continued API pricing pressure and impact of GST revision on the entity level margins, we have revised our FY26/27/28 estimates downwards. We now value the company at 20x Sept’27 EPS vs. hitherto 24x, to arrive at a TP of INR 787. Re-rate to ADD.
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SEBI Registration Number is INM000010361
