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Strong traction in base API/DCV milestones drive earnings On track to file ANDAs, execute long-term CDMO contracts

* Symbiotec Pharmalab (Symbiotec) reported its strong first quarter after IPO, supported by healthy base business in API segment and milestone achievement in injectable segment.

* Symbiotec, global leader in corticosteroid and hormone APIs, witnessed healthy demand for its products in 2Q. Volume growth and favorable product mix led to 16% YoY growth in revenue from this segment.

* Portfolio mix and operating leverage led to strong profitability in this segment for the quarter.

* After implementing efforts for the development of formulation in the DCV injectable segment, Symbiotec not only has an agreement with a commercial partner in place, but also has filed ANDA for one molecule in this segment. It is on track to file another product as well.

* Symbiotec has also advanced into a 10-year take-or-pay agreements with a US and an EU-based alternate protein player. The EU project is expected to commence manufacturing in 4QFY27.

* We raise our earnings estimates by 5%/3% for FY27/FY28, factoring in

a) improved visibility for CDMO contracts in alternate protein segment

b) expanding product portfolio and increased traction in existing products in API segment. Considering the enhanced visibility for CDMO contracts in industrial biotech, insulin space and sustained high profitability in API segment, we now value Symbiotec at 45x12-month forward earnings to arrive at a TP of INR1,800. Maintain BUY.

Favorable product mix drives margins

* Symbiotec sales grew 43.2% YoY to INR2.8b.

* Gross margin expanded 750bp YoY to 71.6%.

* EBITDA margin expanded 700bp YoY to 32.7%, majorly due to a reduction in employee expenses (down 250bp YoY) as % of sales.

* EBITDA increased 81.9% YoY to INR915m.

* PAT stood at INR517m, up 169% YoY.

* In 1HFY27, consolidated revenue/EBITDA/PAT grew 25%/26%/34% YoY to INR5b/INR1.4b/INR658m.

Highlights from the management commentary

* Reiterated guidance of ~20%/25% YoY growth for revenue/EBITDA.

* Signed a manufacturing agreement with an EU-based alternate protein company, with initial technology transfer and qualification batches planned at the existing 100KL facility, followed by expansion to 250KL. Management indicated potential tolling fees of tens of millions of dollars from Phase 1 onward, with meaningful revenue contribution expected in FY29. Phase 0 production is expected to commence by the end of FY27.

* Total investment for the EU customer's multi-million-liter requirement is ~INR10b, with significant portion expected to be funded by the customer. Phase 1 capacity will take 12-15 months to build.

* The existing 10-year take-or-pay agreement with a US-based alternate protein company is progressing, with commercial production expected from 1QFY28. Downstream capabilities are nearing completion.

* Five-year take-or-pay contract for insulin drug substance is progressing, with facility commissioning and validation batches expected in 4QFY27. Commercial sales are anticipated in 2HFY28, subject to regulatory approvals.

* DCV's first ANDA received FDA acknowledgement without a Refuse-to-Receive (RTR) notice and has been granted accelerated review status. FDA approval and inspection are currently expected by late CY27, subject to regulatory queries.

Maintain BUY

* We raise our earnings estimates by 5%/3% for FY27/FY28, factoring in a) improved visibility for CDMO contracts in alternate protein segment, and b) expanding product portfolio and increased traction in existing products in API segment. Considering the enhanced visibility for CDMO contracts in industrial biotech, insulin space and sustained elevated profitability in API segment, we now value Symbiotec at 45x12-month forward earnings to arrive at a TP of INR1,800. Maintain BUY.

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