Gland Pharma Limited (GLAND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Gland Pharma Limited Q3 FY '26 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Shriniwas from the Investor Relations team. Thank you, and over to you, sir.

Thank you, Rayo. Good evening, everyone. We welcome you to Gland Pharma Earnings Conference Call for Q3 of FY '26. I'm Shriniwas Dange from the Investor Relations team at Gland Pharma. Today, we have Mr. Srinivas Sadu, Executive Chairman; Mr. Shyamakant Giri, Chief Executive Officer; Mr. Ravi Mitra, Chief Financial Officer from India Office; and Mr. Alain, CEO of Cenexi, who is connected virtually from France. We will begin the call with the business highlights from Mr. Sadu, followed by operational highlights from Mr. Giri. This will be taken up by updates about Cenexi from Mr. Alain. And lastly, the group financial overview by Mr. Ravi. Before we proceed, I would like to remind everyone that some of the statements made today will be forward-looking and are based on management's current estimates. These statements should be considered in light of the risks associated with our business. This call is being recorded. The playback and script will be available on our website shortly. I hand over the call to Mr. Sadu for his opening remarks. Over to you, sir.

Thank you, Shriniwas. Good evening, everyone, and wishing you all a very happy and prosperous new year. Welcome to Gland Pharma's earnings call for Q3 and 9 months ended FY '26. I will begin with a brief strategic overview, following which our CEO, Mr. Shyamakant Giri, will provide operational updates. Alain will then share an update on Cenexi and Ravi will walk you through our financial performance. Now let me give you a performance overview. I'm pleased to report that quarter 3 FY '26 was a strong quarter, marked by solid revenue growth and improved profitability, reinforcing our confidence in full year FY '26 performance. During the quarter, revenues grew by 22% year-on-year to INR 16,954 million with broad-based growth across businesses, including Cenexi. Adjusted EBITDA increased by 25% year-on-year to INR 4,490 million, supported by higher base business revenues, continued traction in CDMO programs, cost efficiency initiatives and a visible EBITDA turnaround at Cenexi. For the 9 months ended FY '26, revenue grew by 12%, while adjusted EBITDA increased by 26%. This reflects strong execution, better operating leverage and disciplined capital allocation. We remain confident in sustaining this momentum, supported by upcoming product launches, ramp-up of recently secured CDMO contracts and incremental contributions from new capacities. Looking at the growth drivers and pipeline expansion. We are significantly expanding our cartridge fill and finish capacity from 40 million to 140 million units. Beyond cartridges and GLP-1s, our pipeline of complex products, including hormones, suspensions, peptides, RTU bags, co-development programs, biosimilars and specialty injectable platforms provides long-term growth visibility. We also secured multiple new CDMO partnerships across oncology, peptides and prefilled syringes. What are our strategic focus areas? Our strategy is anchored on growth, capability, efficiency and ROCE with a clear objective of building Gland Pharma into a high-end innovation-led CDMO and specialty injectables company. This translates into a focus on CapEx and brownfield expansions to build differentiated capabilities, R&D investments to strengthen the product pipeline, cost efficiency initiatives to protect margins, new contract wins to drive sustained revenue growth and Cenexi turnaround to enhance profitability. On the brownfield expansion front, over the next 5 years, we plan to invest approximately INR 2,000 crores in CapEx, primarily towards BFS and ophthalmic lines as well as CapEx towards CDMO contracts. Brownfield expansions will include new lines, lyophilizers and additional warehouse capacity. India's pharmaceutical industry is undergoing one of the most exciting transformations in global health care. Rising R&D investments are fueling complex molecules, novel therapies and deeper manufacturing capabilities. This is not just growth, its strategic evolution. India Pharma is moving from being the pharmacy of the world to becoming a global innovation hub. Our investments are aimed at not only to support growth of base business, strong pipeline of CDMO contracts, but also a pipeline of complex differentiated and higher-value products and will help us grow not just from volume-led but also from value-led products as well. Selective and disciplined capital deployment will ensure strong ROCE, healthy cash generation and effective working capital management. Cost efficiency and margin sustainability is key to the success. While driving growth, maintaining healthy margins remains a key priority. Our cost savings initiatives include yield improvement, alternate vendor development, alternative energy sourcing, enhanced line efficiencies, operational excellence programs and automation. These measures typically deliver savings of 1 to 2 percentage points, helping offset any pricing pressure or product mix impact. Sustained base margins is supported by process optimization and alternate API sourcing, portfolio rationalization, focusing on higher-margin products, reallocation of capacity to our complex and niche formulations, increased automation and digitalization to improve productivity and reduce waste. R&D is also becoming a core differentiator, both in speed and delivering differentiated products for Gland. Our R&D investments continue to increase, reflecting our commitment to differentiated pipeline. During this quarter, we invested 5.4% of revenues in R&D, primarily focused on complex injectables, advanced delivery systems and platform-based development. We filed 9 ANDAs, received 4 approvals and launched 10 new products in the U.S. Our RTU bag portfolio continues to scale with 20 products filed, 16 approved and 13 under development, addressing an estimated market opportunity of $685 million. Our co-development pipeline now includes 15 products under active development across high potential categories, including 7 505(b)(2) filings and 8 ANDAs, reinforcing our focus on differentiated injectable platforms. There are new contract wins during the quarter. Long-term growth is being driven through new superior and technically differentiated CDMO contracts with large pharma companies, in-licensing opportunities for complex products and expansion beyond traditional B2B models. We have entered into a few long-term CDMO contracts for already commercialized products. While these require dedicated lines, it can add revenues over the medium term with durable revenue visibility. In the GLP-1 and cartridge segment, new partnerships are getting added further strengthening our medium- to long-term growth outlook. I'm pleased to inform you that our partner has received approval for liraglutide in the U.S., and we are ready for the U.S. launch in this quarter. On Cenexi turnaround update, Cenexi delivered revenues of EUR 50 million and EBITDA of EUR 1 million during the quarter, in line with our guidance. Performance improved through focused capacity debottlenecking, contract repricing to account for inflation, workforce optimization, higher utilization and deeper operational integration with Gland. We continue to see steady progress in stabilizing the business and building a foundation for profitable growth with additional synergies expected over the coming quarters. We expect Cenexi to remain on a growth trajectory through the mid- to long term. The overarching objective of these initiatives is to enhance not just scale, but also the quality of earnings and capital productivity, ensuring sustainable value creation for shareholders. Our strategic direction remains clear: to build Gland Pharma into a global innovation-led injectable and CDMO company that consistently delivers revenue growth, margin expansion and superior capital efficiency. Thank you for your continued trust and support. I will now invite our CEO, Mr. Shyamakant Giri, to share his perspective on the operational and business performance. Over to you, Giri.

Thank you, Mr. Sadu. Good evening, everyone, and my best wishes for the new year. Thank you for joining us today. This was a strong quarter with 22% revenue growth and solid profitability. Adjusted EBITDA margins were 26% and adjusted PAT margins 16%. Growth was broad-based with strong results in both Gland's core business and Cenexi, where we met our near-term quarterly sales target of EUR 50 million. In quarter 3 FY '26, we posted robust growth in regulated market. Revenue rose 19% in the U.S. and 54% in Europe, driven partly by 39% top line growth at Cenexi. Given this momentum, we are confident we can maintain full year FY '26 growth. Let me now walk you through our consolidated performance. In Q3 FY '26, consolidated revenue was INR 16,954 million, up 22% year-on-year. Consolidated adjusted EBITDA grew 25% to INR 4,490 million, supported by Cenexi reaching breakeven. Consolidated EBITDA margin was 26%. Our year-to-date numbers show strong progress. For the first 9 months FY '26, consolidated revenue reached INR 46,879 million, up 12% over 9 months FY '25. Adjusted EBITDA was INR 11,582 million, with margins up to 25% from 22% last year, driven by better base business performance and the Cenexi turnaround. I will now highlight the performance of our base business and Gland, excluding Cenexi, before detailing performance by each key market segment. In the U.S. market, we launched 9 molecules in Q3 FY '26, including Argatroban, acetazolamide and doxycycline. U.S. revenue grew 16% year-on-year to INR 8,290 million in quarter 3 and reached INR 23,446 million (sic) [ INR 23,466 million ] for 9 months FY '26. In other regulated markets like Europe, Canada, Australia and New Zealand, they generated INR 881 million in quarter 3 FY '26, reflecting a 16% year-on-year increase. For the 9 months ended FY '26, revenues from this market reached INR 2,454 million, marking a 17% year-on-year rise. In the ROW market, it grew by 12%, contributing to INR 1,876 million in Q3 FY '26. In ROW, own product revenue grew 7%, while tech-transfer and CMO revenues increased 44%. For 9-month FY '26, ROW revenues were INR 5,044 million, up 5%. India generated revenues of INR 744 million in Q3 FY '26, up 32% year-on-year. For 9 months FY '26, India business revenues were INR 2,002 million, which is 6% of the total base revenues. Cenexi delivered a strong performance. Quarterly revenues were EUR 50 million, up 21% in constant currency. For 9-month FY '26, Cenexi revenue rose to EUR 138 million from EUR 121 million last year, a 14% constant currency increase. This performance reflects disciplined execution over the past year, including higher capacity utilization, contract renegotiations, workflow rationalization, new product ramp-ups and stronger integration with brand in business development, tech-transfer and shared functions. With several strategic initiatives underway, including expanding the ampoule line at Fontenay and adding a vial and a combo lines at BLA, we are confident in Cenexi's medium- and long-term growth despite inherent quarter-to-quarter fluctuations. Overall, this quarter, we strengthened our market footprint, driven by broader reach and more traction from our differentiated high-value product portfolio. Our commitment to quality and regulatory compliance is unwavering and so is the strong cost discipline operational efficiency. We remain focused on building capabilities through organic and inorganic investments, talent development and leadership. We believe these efforts position us for sustained growth and long-term value. In summary, our strong results this quarter reaffirm our strategic direction and ability to deliver sustained value. We are well positioned to seize future opportunities and drive long-term success. I will now invite Alain to provide more details on Cenexi's performance. Over to you, Alain.

Thank you, Mr. Giri. Good evening, and Happy New Year to everyone. This has been a strong quarter at Cenexi, and we are pleased to have delivered on our guidance. Cenexi recorded EUR 50 million in revenue this quarter, a 21% increase over the same period last year and the highest quarterly revenue during CY 2025. All sites showed a major revenue improvement compared to the previous year with a pickup in revenues from Hérouville and Fontenay. We are happy to inform you that we delivered an EBITDA of EUR 1.4 million in Q3 FY '26, in line with our guidance. This underscores that our turnaround strategy is gaining momentum. During the first 9 months of FY '26, revenue stands at EUR 138 million, reflecting a 14% growth year-over-year and an EBITDA improvement by EUR 10 million. I will now provide key site level updates. First, at Fontenay, we are investing in a new high-capacity ampoule line, adding 30 million in capacity by 2027. This will strengthen the position of the site on the market as the largest ampoule manufacturing site in Europe. The site will continue to improve realization by passing on price increases to customers in line with inflation and regulatory requirements. The activity of our Hérouville site continues to grow strongly, supported by the continuous ramp-up in production of 2 products launched in 2025, an inactivated vaccine and a sterile ophthalmic gel. Both sites in Braine-l'Alleud and Osny maintained strong momentum and profitability. At Braine, we are planning to install a new vial line under an isolator. Also, we will install a new combo line for prefilled syringes and cartridges in 2026. This line will significantly increase our manufacturing capacity and allow us to attract new high-value projects. We remain confident in our outlook for calendar year 2026. The strategic initiatives and investments made so far are expected to begin delivering meaningful results from 2026 onwards, setting the stage for sustained momentum. Thank you for your attention. I now invite Ravi to take you through our financial performance in more detail. Ravi, over to you.

Thank you, Alain. Good evening and a very happy New Year to everyone. Thank you for joining us today as we review our financial performance for the third quarter and 9 months of FY '26. I am pleased to share that Q3 FY '26 was a strong quarter for us, marked by healthy revenue momentum across key markets and continued improvement in profitability. Our consolidated revenue for the quarter stood at INR 16,954 million, reflecting a year-on-year growth of 22%. The base business performed well with revenues of INR 11,790 crores, reflecting a year-on-year growth of 16%, supported by broad-based improvement across geographies. Cenexi also delivered a solid performance with revenues increasing 39% year-on-year to INR 5,164 million. Overall, gross margins for the quarter was 66%, broadly in line with the previous year and higher compared to 63% of previous quarter. Excluding Cenexi, base business gross margins stood at 61% versus 63% last year, primarily due to product mix and similar to Q2 of FY '26. Our performance for 9 months FY '26 has been equally robust. Consolidated revenue for the 9-month period reached INR 46,879 million, a year-on-year increase of 12%. Base business revenues came in at INR 32,965 million, Cenexi revenues rose 26% year-on-year to INR 13,913 million. Overall, gross margins improved to 65%, up from 62% last year, driven by a favorable business and product mix. Excluding Cenexi, base business gross margins were 60% compared to 57% in the previous year. Expenses during both Q3 FY '26 and 9 months FY '26 were higher, primarily on account of increased R&D investments, employee costs and certain onetime items. R&D expenses for the quarter stood at INR 650 million, representing 5.4% of sales, up from INR 437 million last year, demonstrating increase in R&D efforts and filings. Our R&D programs, including complex pipeline continue to progress well. For the 9-month period, R&D expenses were INR 1,725 million or 5.2% compared to INR 1,419 million last year. During Q3 FY '26, adjusting for ESOP-related noncash expense of INR 141 million, EBITDA stood at INR 4,490 million, with a margin of 26%. The EBITDA margins were in line with Q3 FY '25 despite increased R&D spend. For the base business, excluding Cenexi, adjusted EBITDA was INR 4,342 million with a margin of 37%. We are particularly pleased that Cenexi delivered positive EBITDA of INR 148 million during the quarter. For 9 months FY '26, adjusted EBITDA after excluding ESOP-related expense and one-off items stood at INR 11,582 million with a margin of 25%. For the base business, excluding Cenexi, adjusted EBITDA was INR 11,965 million with margin of 36%. Cenexi's EBITDA loss narrowed significantly to INR 383 million compared to INR 1,283 million last year, a meaningful improvement. Other income, comprising mainly foreign exchange gains and interest from bank deposits amounted to INR 632 million in Q3 FY '26 and INR 2,049 million for 9 months FY '26. After adjusting for an exceptional wage code-related impact of INR 243 million and its consequent tax effects, net profit for the quarter stood at INR 2,797 million, translating to adjusted PAT margin of 16% against 15% in Q3 FY '25. Adjusted net profit for 9 months FY '26 came in at INR 6,789 million with margin of 14% compared to 12% last year. On a stand-alone basis, our effective tax rate for the quarter was 25%. As of December 31, 2025, total cash and equivalents at the group level were INR 30,525 million, including non-callable deposit of INR 3,960 million. External debt at the Cenexi level stood at INR 3,363 million. Cash flow from operation was INR 337 million for the Q3 FY '26 and INR 6,269 million for 9 months FY '26. Our cash conversion cycle averaged 166 days for the first 9 months, an improvement from 172 days at the end of FY '25, largely driven by better inventory and receivable management. Total CapEx during the first 9 months of FY '26 amounted to INR 3,566 million, primarily directed towards new projects at Cenexi, capacity and capability upgrades at our India facility and regular maintenance CapEx. For this full year FY '26, CapEx for the base business is expected to be around INR 2,500 million and EUR 25 million at Cenexi. With that, I would now request the operator to open the line for questions. Thank you.

[Operator Instructions] The first question is from Tushar Manudhane from Motilal Oswal Financial Services.

So firstly, on this CMO contract, if you could also share what's the size of this contract and the time line for completing this contract and starting time line for [indiscernible] the one with respect to oncology...

Tushar, you're referring to the new CDMO contract. That's -- the time line is '28, probably third or fourth quarter, end of '28. And that the expected revenue is around INR 25 million, INR 30 million per year.

Usually INR 25 million to INR 30 million per year, starting end '28, correct?

Yes, correct. Yes.

So this would require certain CapEx from our side and which is why this contract timing is end of '28?

Yes. So it's a dedicated -- it's a complex product. So we have to create some dedicated compounding area for this product. So that's why we need this time and then the tech-transfer and then the variation filing. It's a commercial product in Europe and many countries. So the variation filing has to happen in Europe in several countries. So that's why the commercialization will happen in third or fourth quarter of '28.

And how much CapEx would you be requiring for this project?

About INR 80 crores.

Got it, sir. Sir, just secondly, if you could also share U.S., Europe constant currency growth for the quarter on a year-on-year basis?

About 5%.

In U.S. And in Europe?

Overall, it's around 5%. You can take overall.

For the base business?

Yes.

Got it. And just lastly, if I may, if you could share milestone and profit share for the quarter?

Profit share is around 9% and the milestone around 7%.

The next question is from Tarang Agrawal from Old Bridge.

I had 2 questions. One, if you could give us a sense on how the Cenexi trajectory should play out going forward from here on? And second, in your initial address, you did call out about investing INR 2,000 crores. If you could give more color in terms of what is the time line within which you're looking at investing it, the approval time lines and the kind of asset turns that you would look out of these investments given that it's going to be a mix of both volume as well as value.

So I'll take the CapEx question first. So we would be building a brownfield expansion of capacity, which would be adding to existing vial, lyo, other delivery formats. And that is considering the increased demand and other expectations we have. In addition to that, we are also putting up BFS line. We are putting up new ophthalmic line, which is a suspension line. And this would be spent over a period of next 5 years. So next year, our CapEx should be around more than INR 400 crores. And asset turn should be more than around 3x, considering the high-value business we are expecting in this new facility.

On the Cenexi question -- yes, go ahead, Tarang.

Yes. Just to follow-up on this. I mean, what is driving this kind of confidence? I mean, from the point of view of customers, you did call out demand, you did call out India being an innovation hub. So if you could just elaborate in terms of the structure of the industry because it's a sizable portion now from the point of view of where your gross block is today and the kind of investment that you're committing?

So one is on the ophthalmic side, the current capacity, we have almost -- we're not able to cater to actually the demand. And we have several products under approval stage, and we need additional capacities. Ophthalmic line, which also has capability of suspensions. Today, we don't have ophthalmic line with suspension capability. So that's a need. There are several key products in that space. So that's one line we're investing into. The BFS, there are some specialty products on Blow-Fill Syringe technology, which you want to get into. And we also see in the market -- in several markets, the 3-piece is also moving to BFS technology. And currently, we only have a 3-piece line, and we are not able to sell -- cater to the ROW business because of lack of this BFS technology also. So as an injectable company, you need that technology and also the way the market is moving, we need to be ahead of the curve. So that's one of the reasons we want to invest into BFS. But there are also several -- we have done some projects we're doing, which falls under BFS, which are under specialty category. So that's the other one. In terms of additional capacities, we are running, I would say, next 1, 1.5 years we will be running out of lyo capacities. If you see the growth coming from our -- if you look at last few quarters growth, the volume growth is larger. Even last quarter, if you see volume growth is almost 19% in the U.S. So while the prices dropped. So we are aggressively looking at -- while we have reduced our costs internally, we have become more efficient. So we are utilizing that gain to get more contracts in the U.S., and that's why we did mention in our last couple of quarters that we worked on efficiencies, we got on our cost down, and that's why we are able to win a lot of contracts and GPO contracts in the U.S. and the supply started from this quarter. So the volumes are higher, so we need those capacities as well. So it has -- and also the fourth aspect is the CDMO contracts, which we are entering. Some contracts are backed by commercial quantities where the players are entering into different segments and we're trying to move the commercial products to our sites. So we need to invest into that as well. So there are a lot more focus on the CDMO contracts last 12 to 18 months. So that business we are trying to grow substantially. But not into a me-too generic kind of products, more complex specialty kind of products and also focusing on the commercialized products where the revenues are -- you have clear visibility on revenues in next 2 to 3 years with worst case take-or-pay agreements, I would say.

And Tarang, on your Cenexi question, the performance in this quarter reflects a disciplined execution over the past so many quarters, including capacity utilization, workforce rationalization, optimization, ramp-ups and all of that. So there will be quarter-to-quarter fluctuation. But overall, on an annualized basis, EBITDA to remain positive and we are confident in Cenexi's medium- to long-term growth.

And just a follow-up on Cenexi. So would it be fair to presume that EUR 50 million is a good baseline to work with now?

So on an annualized basis, yes, you can take it to EUR 100 million, but there could be some quarter-to-quarter [indiscernible].

The next question is from Neha Manpuria from Bank of America.

My first question is again on the CapEx number. The INR 2,000 crores that we had mentioned, how much of this would be for Cenexi versus the base business?

This is for base business, Neha.

Okay. So that means we are nearly doubling the gross block or nearly doubling the gross block once this CapEx is completed?

Yes, that's correct, yes.

And what would be the average utilization of the existing capacity that we have? And at what point do you think capacity becomes a constraint for growth? I mean how soon do we need to get this capacity up and running to maintain the mid-teen growth that you've guided to?

It depends on the lines, but most of the lines we are running at 80% to 90% capacity. Some lines are almost top of the output. On the prefilled syringe, we have enough capacity and we're not investing into that. And of course, the cartridge, these are new technologies we got into those, we have enough capacities. But if you look at lyophilizers or liquid vials and also I think those are almost -- we're running at -- most of the lines are at 90% capacity, a few lines at 40%, 50%. So at least for next 2 years, we need to invest into additional capacity. So this INR 2,000 crores will be spread across the next few years.

Understood. My second question is on the overall guidance. I think we'd had mentioned a mid-teens guidance. I think we're tracking at about 12%. And there was scope of a large product launched by a partner in the U.S., which seems to have been delayed. Based on the 12% growth in the 9 months, do we still have confidence in that 15%? And what's the update on the dalba launch by the partner?

Good thing is we got approval in 6 countries in Europe. So we launched in December in 6 of the European countries. So more countries get launched out of U.S. U.S., we have goal date in February. So hopefully -- we're just waiting for an approval, so they need an additional data, which we submitted this month in January. So we should be able to get some.

And let's assume dalba does not come through in Feb, would we still be able to maintain the mid-teens growth that we've been guiding to?

So there are actual batches -- actual demand which came from Europe. So that will at least offset some of the gain even some of the losses if you don't get an approval. But hopefully, they're also trying to get a player so that we can ship out some batches. So if that happens, we'll see some numbers coming to the U.S. as well.

Okay. And how should we think about the growth from here for FY '27 for the base business? So I feel like you mentioned it's EUR 200 million base, which we should grow on. But for the base business, what's the growth? Because even for Europe, if we see the CMO contract, it is ramping up much lower than what I would have -- we would have expected. So is it possible for us to maintain this mid-teens growth going? Or should we see this growth momentum possibly improve given the investments we are making?

I think overall as a company, we should be growing at 12%, 13% at least that's the minimum confidence we have. And if the CMS get faster approval in Europe, where the variation filing is happening and if we get that earlier than anticipated, so we thought at least in second half of this year, we should get some quantities. If that happens, it will be a bit more. But I think 13% -- 12% to 13% is I think the best bet.