Reduce Concord Biotech Ltd for Target Rs.1,045 by Choice Institutional Equities
Key Conference Call Highlights
API
* The API business faced temporary headwinds in FY26 due to slower customer procurement in the US, supply-chain disruption, CDSCO approval delays affecting Europe and geopolitical issues in the Middle East.
* Customer procurement activity improved in H2FY26 and the management is seeing increasing customer interest as global companies seek to diversify and de-risk their supply chains.
* Middle East API supplies were constrained due to geopolitical conditions, with a major tender worth INR 250 Mn remaining in abeyance and total company level exposure to the Middle East region is estimated at INR 500 Mn.
* New API products, such as Nystatin and Fusidic Acid are witnessing encouraging customer traction, with the management expecting higher volumes from these products as market share gains.
* Stronger growth is anticipated from the anti-infective and oncology API portfolios, going forward.
Formulations
* The injectable facility successfully completed its first year of operations and received WHO-GMP certification, enabling participation in domestic branded sales, contract manufacturing opportunities and government tenders.
* The management has started commercial sales from the injectable plant, laying the foundation for gradual scale-up and operating leverage in the next few years.
* The injectable plant incurred expenses of INR 380–390 Mn in FY26 with all cost fully booked, with operating leverage now expected to kick in from FY27E.
* A smaller topical formulation facility is being set up in FY27E, adding another avenue for revenue diversification.
* A Softgel facility has been commercialised, further broadening the formulation portfolio.
CDMO Business
* CDMO revenues currently contribute only 1–4% of total revenues, as the company classifies CDMO strictly as projects where IP belongs to third-party innovators.
* The company is actively engaging with multiple CDMO customers and indicated that discussions for at least one opportunity have reached advanced stages, which could meaningfully increase CDMO contribution in the future.
Outlook
* The management guided for FY27 growth to be slightly better than the historical ~18%, with strong visibility already in hand for H1FY27E.
* EBITDA margin is expected to improve by 200 bps or more, driven by 1–1.5% benefit from solar power savings and ~50 bps from operating leverage on Stellon Biotech and the injectable facility.
* The management forecasts the overall API-to-formulation mix to remain broadly stable at around 80:20 over the medium term.
* Inventory days were elevated in FY26 due to staggered customer procurement and some shipment deferrals at year-end, but the management projects normalisation in H1FY27E as deferred supplies begin to flow through.
* Existing manufacturing facilities can support revenue of nearly INR 30 Bn, providing substantial growth headroom without any major capacity expansion requirement in the near term.
* CapEx is guided at INR 200–300 Mn annually for maintenance.
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SEBI Registration no.: INZ 000160131
