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Strong growth in Formulation Business

Shilpa Medicare (SLPA IN) Revenue (Rs. 3,700mn up 7.6% YoY) and EBITDA (Rs. 1,083mn) was ahead of our expectations owing to a higher-than-expected contribution from Licensing /service income. Licensing / service income (Rs. 716.5mn) was up 26% QoQ but declined 30% YoY. Revenue growth was driven by formulation business which was up 16% YoY. The growth was led by ramp up in 505(B)(2) launches – Pemetrexed / Bortezomib and continued traction in exclusive launch of nilotinib generic in Europe. Company expects Nilotinib to remain low competition in the near term. Going forward, ongoing ramp up in market share for its 505(b)(2) launches in the US - pemetrexed and Bortezomib should continue to support earnings growth and also help offset any adverse pressure owing to potential competition in nilotinib sales. The key growth drivers in FY27 would be a) ramp up in Nor UDCA sales in domestic markets, b) potential approval and launch of transdermal rotigotine in Europe c) potential CDMO supplies for Oxylanthanum carbonate which is contingent on approval d) approval and launch of biosimilar Aflibercept and e) launch of biosimilar adalimumab in other markets (outside India). We tweak our forecasts and maintain hold rating on the stock with a PT of Rs. 392 based on 25x FY27 EPS.

Q2FY26 earnings highlights

Shilpa Medicare’s Q2FY26 revenue at Rs 3,699.7 mn, was up 7.6% YoY and 15.1% QoQ. EBITDA at Rs 1,083 mn grew 25.9% YoY and 18.2% QoQ. EBITDA margin stood at 29.3%, was up by 425 bps YoY and 76 bps QoQ. PAT at Rs 441 mn was up by 145.6% YoY and down by 6% QoQ. PAT margin stood at 11.9%, was up by 669 bps YoY and down 267 bps QoQ.

Q2FY26 earnings call highlights

API Business Division

* Oncology & NCE Programs

* The first NCE program for a Big Pharma US customer received approval, with commercial supplies expected to commence from Q4 FY26.

* The second NCE program's partner is in Phase 3 clinical studies and is expected to file for the next financial year. o Two new products were successfully filed in the US and Europe.

* Nilotinib: Volumes are increasing, and the company is gaining market share quarter-on-quarter

* Non-Oncology

* Tranexamic Acid: Volume is growing QoQ. An additional 100 metric ton capacity is planned for commissioning in the next financial year.

* UDCA: Commercial supplies in export markets are expected to begin from Q3 FY26.

* Nor-UDCA: Commercial supplies for this first-of-its-kind product will start from Q3 FY26 and are expected to contribute meaningfully in the next financial year.

* The API business is expected to continue double-digit year-on-year growth.

* CDMO and Peptide/Polymer

The company is seeing good traction in the CDMO business.

* OxyLanthanum carbonate (for Unicycive Therapeutics): The dedicated facility is planned for commissioning in Q3 FY26, with commercial launch expected in the next financial year.

* Peptides: Development for Semaglutide is complete, and campaign has been initiated and is planned for completion in Q4 FY26.

* Peptide Facility: A large, dedicated Peptide facility with advanced automation systems is being invested in, with commissioning planned for the next financial year.

• Formulations Business Division

Growth is being driven by increasing market share of complex products in the US and limited competition products in the EU.

* Nor-UDCA (FDF): Successfully launched in India (first company globally). The company estimates converting 10-20% of the treated NAFLD population to Nor-UDCA over the next 3-5 years.

* Rotigotine Transdermal Patch: European approval is expected in Q4 FY26. The US submission is planned for Q3 FY26, following the successful completion of the US clinical study.

* Ondansetron Long-Acting Injection: Phase 3 studies are complete. Filing in India is planned for Q4FY26, with a launch planned for the next financial year.

* Pipeline: Four more differentiated 505(b)(2) programs are in various stages of development.

• Shilpa Biologics

The division continues to progress, driving improved operating leverage.

* Recombinant Human Albumin: India clinical studies have permission to start. The submission for the European Phase 3 clinical study is planned for Q4FY26.

* Biosimilars (Aflibercept): The most advanced biosimilar program, with Phase 3 studies ongoing, is expected to launch in FY26.

* Biosimilars (Nivolumab): The Phase 1/3 human clinical trial in India is planned to start in Q4 FY26.

* CDMO: Six active CDMO programs are currently in development.

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