Akums Drugs & Pharmaceuticals Limited (Akums) reported its first-quarter FY25 results, showcasing steady growth in its core Contract Development and Manufacturing Organization (CDMO) business, while expanding its Active Pharmaceutical Ingredients (API) vertical and navigating challenges in the trade generics segment. The company emphasized its commitment to volume growth, margin expansion, and strategic initiatives to solidify its leadership in the Indian CDMO space and expand its global footprint.
a. Financial Performance:
- Consolidated Revenue: Increased by 5.1% YoY to Rs. 1,019 crores.
- Consolidated Adjusted EBITDA: Grew from Rs. 108 crores to Rs. 131 crores, representing a margin expansion from 11% to 12.7%.
- Consolidated Adjusted PAT: Improved significantly from Rs. 38 crores to Rs. 57 crores, with margins increasing from 3.9% to 5.6%.
- CDMO Segment: Revenue grew by 5.6% YoY to Rs. 782 crores, driven by a 14% volume growth, outpacing the flattish industry trend. CDMO EBITDA margin improved from 14.4% to 15.5%.
- Branded Generics: Revenue declined by 12.5% YoY to Rs. 167 crores, but EBITDA margin improved substantially from 3.9% to 10.2% due to efforts to consolidate the trade generics business.
- API Segment: Revenue surged by 82% YoY to Rs. 70 crores, fueled by increased exports. However, API price softening impacted EBITDA margin, which improved slightly from -23% to -17.4%.
Notable Factors: Softening API prices impacted revenue realization in the CDMO segment, while efforts to curtail losses in the trade generics segment impacted revenue but improved profitability.
b. Operational Updates:
- New Injectable Facility: Commenced operations in August 2024 with an annual capacity of 36 crore units. The facility is undergoing customer audits and expected to ramp up in the next 24 months.
- Expansion Plans: Akums plans to establish a multi-dosage facility and a nutraceutical facility in Jammu to augment capacity.
- New Dosage Forms: The company has ventured into new process forms, including nasal sprays and gummies, and plans to commercialize lyophilized injections soon.
- R&D Investment: Akums invested over Rs. 30 crores in R&D during Q1 FY25 and received 75 additional approvals for dossiers globally, strengthening its formulation development capabilities.
c. Management Insights:
- CDMO Leadership: "Akums is the largest India-focused pharmaceutical CDMO with over 30% market share," stated Sandeep Jain, Managing Director.
- Volume Growth: "It's pertinent to mention that the pharma industry had a flattish volume growth during this period. The moderation of the revenue growth compared to the volumes was due to softening of the API prices," explained Sumeet Sood, CFO.
- Trade Generics Consolidation: "Efforts to consolidate the trade generic business and continued performance of the branded and generic formulation business has led to the improvement of EBITDA," highlighted Sumeet Sood.
- API Business Focus: "The endeavor is to go global, the first step is how can we do ride for Indian markets, move slowly, move from the semi-regulated and finally to more regulated markets," commented Sahil Maheshwari, General Manager, Strategy.
d. Strategic Initiatives and Future Plans:
- Capacity Expansion: Akums aims to strengthen its CDMO leadership by expanding capacities, venturing into new dosage forms, and developing a robust portfolio of innovative formulations.
- API Business Growth: The company plans to scale up its API business by strengthening R&D, manufacturing, and customer reach, focusing initially on the Indian market and gradually expanding globally.
- Global Market Expansion: Akums aims to expand its presence in international markets through its branded generics business, focusing on building brand recall and generating business across various continents.
- Inorganic Opportunities: The company is exploring inorganic growth opportunities that offer synergies with its existing businesses.
e. Q&A Session Highlights:
- Trade Generics Outlook: Management clarified that the loss-cutting measures primarily focus on the trade generics segment, while both domestic branded and export businesses are performing well.
- Parabolic Drugs Performance: The management noted that Parabolic Drugs, acquired through Pure and Cure, is showing improvement in EBITDA margins and expanding its export reach.
- CDMO Pricing Dynamics: Management explained that API price fluctuations impact CDMO revenue realization due to the cost-plus pricing model. They acknowledged the impact of destocking and softening API prices on revenue growth.
- API Inventory: Akums maintains approximately two months of API inventory for its CDMO business.
- Injectable Facility Ramp-up: The new injectable facility is expected to contribute meaningfully to revenue from FY25-26 onwards, following customer audits and capacity ramp-up.
- Capacity Utilization: Management outlined the cyclical nature of capacity utilization and expansion plans based on demand and growth. They highlighted that current capacity utilization allows for significant growth potential.
- Free Cash Flow Utilization: Akums plans to utilize free cash flow for debt repayment, working capital management, inorganic growth opportunities, and maintaining a corporate war chest for future needs.
Conclusion:
Akums Drugs & Pharmaceuticals Limited delivered a solid performance in Q1 FY25, demonstrating resilience in its core CDMO business amidst challenging market conditions. The company's focus on volume growth, margin expansion, and strategic initiatives, including capacity expansion, API business development, and global market penetration, positions it well for continued growth. While uncertainties remain regarding API price trends and the evolving regulatory landscape, Akums' strong operational capabilities, diverse product portfolio, and established market presence provide a foundation for future success.
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