Buy Innova Captab Ltd For Target Rs. 1,152 By JM Financial Services
Visibility strengthens; Margins improve
Innova Captab delivered mixed results in 4QFY25, with revenue growing 20% YoY (7% below expectations), while the EBITDA margin came in higher at 15.2% (up 65 bps, 102 bps above estimates). Reported PAT stood at Rs 296mn, up 3% YoY, impacted by higher depreciation costs following the commercialisation of the Jammu plant during the quarter. During the quarter, the CDMO segment grew 11% YoY, while the Domestic Gx segment expanded 30% YoY. On the export side, both International Formulations and Sharon reported healthy growth of ~50% and 16%, respectively. CDMO growth was affected by the cannibalisation of sales due to project transitions from Baddi to Jammu. This disruption is expected to ease in the coming quarters. Overall, management has maintained its guidance of low-teens growth for the base business and incremental sales of Rs 4 bn from the Jammu unit in FY26. Margins are expected to improve over time, driven by a better mix from Jammu sales. With the commercialisation of the Jammu plant, the company has expanded its addressable market to include injectables and liquid formulations, which will support the delivery of 29%/33%/34% revenue/EBITDA/PAT CAGR over FY25–28—the highest among domestic CDMO peers. At the current market price, the stock is trading at 21x times FY27 EPS, which we find attractive given the superior growth visibility versus peers. We maintain a BUY rating with a target price of Rs 1,152.
* Guidance: The management directed 25% growth guidance for the next three years. Margins are expected to improve, but there is no firm guidance on the management’s part. The newly commissioned Jammu (Kathua) facility to increase growth across businesses, on the back of significant ramp up from INR 360mn topline in Q4FY25 to INR 4bn FY26 (incl. INR 300-350mn GST benefits). Ex-Jammu FY26 revenue to grow at low teens. Normalization of working capital in FY26 to lead to significant cash generation.
* CDMO: The company made significant strides during the quarter, growing 11% YoY and taking the total clientele to 200. The annual 6% YoY growth in CDMO was volume led, with pricing impact being negligible. The company has 3,300 products now, up from 2,209 in FY24. Focus going forward is on new client acquisition and new formulations.
* Domestic BGx: The segment delivered 30% YoY growth in Q4 on the back of increased volume. Innova continues to expand distribution network to 6,000 distributors, up from 5,000 in FY24. The product offered too has expanded to 750 from 650 in FY24. Future guidance of growth – in line with company growth.
* International BGx: The segment delivered a ~50% YoY growth in Q4 and ~25% YoY growth on annual basis. Innova’s products now enjoy presence in 30+ countries, including EU and Canada.
* Sharon Bio: Sharon delivered a 16% YoY growth this quarter with EU, Canada and Australia being the major contributors. Upcoming Panchkula R&D would be dedicated for Sharon’s regulated markets projects. IP will be owned by Innova while the marketing will be executed by partners with negligible impact on margins. Focus going forward in on increasing the presence in the aforementioned regions and on adding more markets.
* Financial highlights:
- Revenue grew 20%YoY to INR 3.1bn (6.6% miss)
- EBITDA came in at INR 477mn, up 25%YoY (in line)
- EBITDA margin were at 15.2%; expanded 65bps YoY due to lower than expected RM and other expenses , partially offset by increased staff cost
- Reported PAT stood at INR 296mn, up 3% YoY (4.1% miss); underperformance on account of higher than expected interest and lower other income
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SEBI Registration Number is INM000010361
