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Await US recovery and scale up; D/G to Reduce

Result Synopsis

Q4 turned out a weak revenue quarter but was saved by rather sharp uptick in gross margin QoQ. Company guided to 25 launches in current fiscal though no exclusivity products are lined up in the near term. India growth has been affected by weak acute season and presume current year to revert to normal demand for anti-infectives which would boost Azithromycin business. With no MR addition in domestic business and new facilities being expensed imply limited rise in operating expenditure; hence any traction in US business would lead to significant operating leverage – a 10% higher US business in FY26 compared to our base case leads to 15% higher EPS. For now, we have cut FY25 and FY26 US revenue estimate to US$225mn and US$245mn from US$230mn and US$270mn respectively on lack of near-term large approvals. This results in ~13-14% cut to FY25/26 estimates each and lowering of rating to Reduce from Add earlier with revised TP Rs950 (earlier Rs1,100).

Result Highlights

Revenues at ~8% YoY lower than expectation of +12% YoY US revenues decline a rather sharp ~11% QoQ despite 7 launches during the quarter India sales weak at ~3% YoY, much lower than expectation and driven by animal health growth of 34% YoY API business up 5% YoY on higher off take and better mix Gross margin up a surprisingly 320bps QoQ despite decline in US and India sales; Higher API sales would have help QoQ as well as increased utilization as per management Margin at 17% better than estimate of 16% helped by better gross margin PAT up 17% YoY aided by decline in interest cost YoY

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