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Highlights from the Quarter (Q1FY26):

Smruthi Organics Ltd (SOL) reported a relatively weaker quarterly revenue of Rs. 18.99cr for Q1FY26, down 30.4% YoY and 50.1% on a QoQ basis. On a full year basis, net sales were at Rs.126.1cr, slightly lower than the previous year's Rs.127.7cr, resulting in a 1.3% margin decrease.

Export growth and market expansion:

* Significant export growth, particularly to China, driven by long-term contracts and new product registrations. Future export growth anticipated from newly registered APIs and additional filings in the Chinese market.

* Filing additional drug master files to expand geographic reach beyond Europe and Brazil. Further regulatory approvals anticipated to diversify customer base and revenue streams.

Backward integration and cost reduction:

* Backward integration efforts resulted in a 2.25% reduction in production cost.

* Import dependence reduced by 32% due to backward integration.

* Continued focus on backward integration and process optimization.

New Product Development and Market Opportunities:

* Two new high-potential APIs developed: an anti-diabetic and an anti-coagulant.

* These products target regulated markets and offer significant commercial opportunities.

* Scale-up and regulatory filings planned for these new products.

Recent challenges at SOL leading to underperformance:

* Input prices increased significantly, which added pressure on margins despite cost optimization efforts.

* Some product categories faced stagnant or even declining price realizations, impacting revenue growth despite stable sales volumes. Domestic markets remained under pressure, restricting the company’s ability to enhance margins.

Future Outlook:

* Growth in regulated markets expected to improve margins and profitability over the next 2-3 years.

* Continued investment in R&D and process improvements to enhance yields and optimize costs.

* Strengthening in-house production of intermediates to reduce dependence on external suppliers and bring down raw material costs.

OUTLOOK AND VALUATION

As backward integration and FDF expansion continues to be a major focus for the company, as well as the continual focus to increase presence in the PIC/S signatory countries sustains, we can expect revenues as well as margins to improve in the coming quarters. We expect FY27E revenue at Rs.150.3 cr, EBITDA of Rs.15.2 cr at an EBITDA margin of 13.6% and PAT of Rs.8.1 cr. We estimate FY27E EPS at Rs.7.1, and assign a PE multiple of 30x, maintaining the target price of Rs.213. We keep our BUY Rating for Smruthi Organics Ltd extending the investment horizon further by 18-24 months.

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