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Temporary Setbacks, Long-term Growth Intact

Despite the challenges faced in Q1FY27, including delayed rains, higher power costs following the policy change and lower EU sales, we maintain our positive view on the company, as these headwinds are largely temporary and do not alter the overall FY27E outlook. We expect revenue to grow at a 23% CAGR in FY26–29E, with EBITDA margin remaining within the earlier guided range of 33– 35%. Growth is expected to normalise from H2FY27E, as Q2 is likely to be impacted by planned maintenance shutdowns at select blocks. However, underlying demand remains intact, while the Ambernath facility is expected to start contributing from H2FY27E, supporting the company's growth trajectory. We marginally revise our FY27E estimates downwards by 1.5%, while maintaining our TP of INR 1,030 (27x FY28E EPS)and ‘BUY’ rating. This implies a PEG of 1.1x.

Temporary Disruptions Do Not Alter Growth Outlook

Revenue growth remained healthy during the quarter, although profitability was impacted by several temporary factors, including, changes in Maharashtra’s solar policy, water scarcity due to delayed monsoons and lower sales in Europe. Excluding these one-offs, margin would have largely been in line with expectations. We believe these issues are transitory in nature and expect the company to deliver a revenue CAGR of 23% in FY26–29E, supported by continued demand and a strong launch pipeline in relatively non-competitive therapies such as ADHD, anesthetics and cardiovascular.

Growth may not be evenly distributed across quarters, as Q2FY27E is expected to witness a temporary slowdown due to planned maintenance shutdowns in Blocks A–D at its Lote facility for technology upgrades aligned with the new Block E. The shutdown is being implemented in a phased manner as the company has already lost 15–20 days of production. Hence, while Q2 growth may be softer, we do not expect any material impact on overall FY27 performance

Margin Recovery Expected Through Cost Pass-Through and Integration Benefits

We expect EBITDA margin to remain within the earlier guided range of 33– 35% in FY27E, supported by the company’s plans to pass on the incremental costs arising from changes in solar policy to customers. In addition, normalisation in European sales, stronger backward integration and improving operating leverage should support margin recovery over the coming quarters

Revenue Grows YoY, While Margin and Profitability Weakens

* Revenue grew 30.8% YoY / declined 31.4% QoQ to INR 1,897 Mn (vs. CIE estimate of INR 1,950 Mn).

* EBITDA declined 8.2% YoY / 51.4% QoQ to INR 475 Mn; margin contracted 1,063 bps YoY / 1,029 bps QoQ to 25.0% (vs. CIE estimate of 30.0%).

* PAT declined 30.9% YoY / 67.6% QoQ to INR 240 Mn (vs. CIE estimate of INR 380 Mn).

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