Not Rated Gland Pharma Ltd For Target Rs. Not Rated by InCred Equities
Strong CDMO demand exceeds capacity; Fosun binds Gland closer
1. Revenue of Rs18.34bn (+23% YoY) and EBITDA of Rs4.80bn (26.2% margin) beat consensus by ~5% and ~10%, led by US CDMO launches. PAT of Rs2.91bn beat by only ~4% as Cenexi losses lifted the tax rate to ~33%, and ~5% of revenue was milestone income.
2. Demand is no longer the constraint, capacity is. Liquid vials run at ~92% utilisation, maintenance shutdowns are being deferred and ~Rs30bn of capex adds only ~300-400mn units on 1.7bn by FY30, so FY28-29 volume growth rests on debottlenecking and the bag line approval.
3. Fosun sold 6% in Sep 2026 to fund its own buyback and debt, its second 6% sale in ~27 months, while adding a board seat and co-investing in Novelstar. We see group capital recycling rather than a verdict on Gland, but the China link helps product sourcing more than CDMO wins.
CDMO demand is now running ahead of capacity
a) CDMO revenue grew 31% YoY to Rs8.23bn (45% of revenue), with US CDMO up 81% to Rs3.21bn on Dalbavancin and multivitamin infusion. With Cenexi flat at EUR41mn, we estimate ex-Cenexi CDMO at ~Rs4bn, up ~75-85% YoY.
b) Contract flow supports durability. The global pharma partner added more tech transfer dossiers to the 55-SKU deal, and Gland signed three royalty-based microsphere projects, respiratory contracts and another GLP-1 project, all monetising from FY29-30.
c) Capacity is now the binding constraint. Liquid vials run at ~92% utilisation, bags and ophthalmics are tight, a new bag line awaits USFDA inspection and planned line shutdowns are being deferred, a compliance risk after four procedural observations at Dundigal in Oct 2026.
d) Capex has stepped up to ~Rs30bn (Rs20bn of new lines plus a Rs10bn three-line brownfield at Pashamylaram from FY30) and an unsized Vizag greenfield. Management says the Rs30bn is backed by signed contracts or forecasts, but it adds only ~300-400mn units on 1.7bn.
e) We think the CDMO thesis has moved from proving demand to executing tech transfers and capacity on time. Net cash of ~Rs32bn funds the build without leverage, so the risk is timing rather than balance sheet.
The operating beat is cleaner than the PAT suggests
a) Revenue of Rs18.34bn grew 23% YoY and 2% QoQ, ~5% ahead of consensus. EBITDA of Rs4.80bn grew 53% with margin at 26.2% (+~510bps YoY), ~10% ahead of consensus, and adj. EBITDA (ex ESOP of Rs226mn) was Rs5.03bn at 27.4%.
b) Two items flatter the operating line. Milestone income of ~Rs0.95bn (~5% of revenue) is lumpy and high margin, and profit share of ~Rs2.02bn (~11%) moves with partner pricing, so we would not extrapolate the 26% margin linearly.
c) R&D rose to Rs1.08bn (5.9% of revenue) from 4.3% in 1QFY27, but was 5.5% in 2QFY26, so the YoY step-up is modest. Management expects R&D intensity to drift up with in-licensed complex products while holding margins.
d) Gross margin fell ~185bps QoQ to 63.5% as a one-month Cenexi shutdown cut its high gross margin revenue. PAT of Rs2.91bn (+58% YoY) beat consensus by only ~4% because Cenexi losses carry no tax shield, lifting the tax rate to ~33% from ~27% in 1QFY27
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