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DOMESTIC CAPACITY EXPANSION IN CONJUNCTION WITH ROBUST INSTITUTIONAL DEMANDS TO DRIVE REVENUES

The company has expanded its international footprint by setting up a manufacturing facility for Cephalosporin injectable in Addis Ababa, Ethiopia. With a capacity of ~26.4 million vials per annum, KDIL operates one of the largest facilities of its kind in the region. In February 2024, the company secured an order worth USD 9.13 million, executable over six months, underscoring its growing visibility and strong positioning in the international market. On the domestic front, KDIL is undertaking a capex of Rs. 100-125 crore, scheduled for completion in FY25–26, which is expected to be a key revenue growth driver over the near to medium term.

STRONG FUNDAMENTALS, HEALTHY PROFITABILITY AND HEALTHY GEARING TO DRIVE GROWTH PATH.

The company, with a proven operating track record of over four decades, is now consolidating its position in Ethiopia while strengthening its global footprint. Revenues have delivered a robust CAGR of 30% between FY21– FY25, reaching Rs. 198.3 crore in FY25. Operating performance has improved meaningfully, with EBITDA margins expanding from 7.6% in FY21 to 15.9% in FY25. We expect margins to sustain at healthy levels of 16–17% over FY26–FY28, aided by scale benefits, product mix improvements, and operating leverage. The balance sheet remains robust, with the company being virtually debt-free and holding net cash of Rs. 33 crore (including investments of Rs. 72.4 crore). Strong cash generation and healthy accruals are likely to support future growth capex while ensuring financial flexibility. Overall, the company offers strong earnings visibility, margin sustainability, and balance sheet strength, positioning it well for sustained value creation.

INDIAN PHARMA INDUSTRY – GLOBAL LEADERSHIP AND SUSTAINED GROWTH

According to industry reports, the Indian pharmaceutical industry is projected to grow at a compounded annual growth rate (CAGR) of ~12% during 2020–2030, reaching USD 130 billion by 2030 from USD 41.7 billion in 2021. While the sector delivered a healthy CAGR of ~13% over the past two decades, growth has moderated to ~8.5% in the last decade and further to ~6.2% over the past five years. However, increased investments in R&D in recent years are expected to drive innovation and improve long-term growth prospects. Furthermore, supportive government policies, rising healthcare expenditure, and robust export opportunities are likely to act as key enablers for sustaining industry growth momentum over the medium to long term.

OUTLOOK & VALUATION

We expect Kilitch Drugs (India) Ltd. to deliver topline growth of ~60% by FY28E over FY25, driven by strong international demand and incremental domestic capacity addition. Furthermore, we estimate the company to sustain healthy profitability, with EBITDA and PAT margins at ~16.1% and ~9.0%, respectively, in FY28E. Our EPS estimates stand at Rs. 14.5, Rs. 15.0, and Rs. 18.6 for FY26E, FY27E, and FY28E, respectively. Assigning a target P/E multiple of 25x FY28E EPS, we arrive at a fair value of Rs. 464 per share, implying an upside of ~37% from the current market price of Rs. 339. With an investment horizon of 24–30 months, we reinstate coverage on Kilitch Drugs (India) Ltd. with a BUY rating.

KEY RISK

* Foreign Exchange Fluctuation Risk: The company has started its operations in Africa, and forex translation gain/loss of the subsidiary may have a substantial impact on the financials of the parent.

* Political Uncertainty: Ethiopia is not as stable a region as other countries in the world; political uncertainty and social unrest plays an important role in ascertaining the business sustainability of the company.

* Competition Risk: The products manufactured by the company are generally off patent and for general usage; this can create competition risk.

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