Windlas Biotech Limited (WINDLAS.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Windlas Biotech Limited Q2 and H1 FY 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Omkar Sawant from Stellar Investor Relations. Thank you, and over to you, Mr. Sawant.

Thank you, Ranjit. Good morning, everyone, and thank you for joining us today. To discuss Q2 and H1 FY '26 business performance, we have with us senior management team of Windlas Biotech Limited, represented by Mr. Hitesh Windlass, Managing Director; and Ms. Komal Gupta, CEO and CFO. Before we proceed with this call, we would like to mention that some of the statements made in today's call may be forward-looking in nature and may involve certain risks and uncertainties. The company also undertakes no obligation to update any forward-looking statements to reflect developments that occur after the statement is made. Documents relating to the company's financial performance, including the investor presentation and press release has been uploaded on the stock exchanges and company's website. I now hand over the conference call to Mr. Hitesh for his opening remarks. Thank you, and over to you, sir.

Thank you, Omkar. Good morning, everyone, and thank you for joining us today for our financial results for the quarter ended 30th September, 2025. We have uploaded the press release and investor presentation on our website as well as on the exchanges, and I hope that everyone must have gotten an opportunity to go through it. Initially, I would like to discuss the outlook and way forward for Windlas Biotech, followed by financial highlights for Q2 and H1 of FY '26 of the company, which will be shared by our CEO and CFO, Ms. Komal Gupta. The Indian pharmaceutical market registered a year-on-year growth of 7.7% in Q2 of FY '26 with volume decline of 0.2%. Despite the subdued industry volume growth, we are pleased to report another strong quarter, delivering a revenue increase of 19% in both Q2 FY '26 and H1 FY '26. The growth was driven by steady and balanced contributions across 3 business verticals: Generic Formulation CDMO, Trade Generics & Institutional and the third one being Exports with quality standards remaining at the core of our strategy. The company reported an earnings per share of INR 16.91 for H1 FY '26, reflecting a 21% Y-o-Y growth. In line with our dividend policy, the company paid dividend of INR 12.2 crores, equivalent to INR 5.8 per share related to FY '25. We continue to strengthen our manufacturing infrastructure through sustained investments in capacity enhancement. The Plant-2 extension operational since Q4 of FY '25 is now contributing meaningfully to the business. Our injectable facility has gained further customer approvals with commercial supplies ramping up across both CDMO as well as Trade Generics verticals. Plant-6 expansion is advancing well, and we remain on track to commission the facility within FY '23. Looking ahead, we continue to drive long-term shareholder value through enhancing operational efficiency, talent empowerment, sustained investment in quality and compliance and capability expansion across dosage forms. I will now request Ms. Komal Gupta, our CEO and CFO, to discuss the financial performance highlights. Over to you, Komal.

Thank you, Hitesh. Good morning, everyone. Windlas Biotech continued its growth trajectory, delivering the 11th consecutive quarter of record revenue performance. Backed by strategic initiatives, disciplined execution and a focus on sustainable value creation, the company recorded a 19% Y-o-Y revenue growth in Q2 FY '26 and H1 FY '26 with revenue from operations at INR 222 crores and INR 432 crores. In mid-September FY '26, ESOP grants related to ESOP 2025 scheme were awarded. A non-cash ESOP expenditure impact of INR 12 million is reflected in the financials. In Q2 FY '26, EBITDA stood at INR 29 crores and PAT at INR 18 crores, while gross margin improved by 68 bps Y-o-Y. For H1 FY '26 with EBITDA at INR 55 crores and PAT at INR 35 crores. The gross margin expanded by 70 bps Y-o-Y, supported by a favorable business mix and scale benefits. In H1 FY '26 and Q2 FY '26, the Generic Formulations CDMO vertical delivered steady growth of 18% Y-o-Y, supported by strong customer engagement and sustained demand for high-quality manufacturing capabilities. The Trade Generics & Institutional business gained momentum with 25% Y-o-Y growth in H1 FY '26 and 24% in Q2 FY '26, driven by an expanding product portfolio. The Exports vertical grew 23% and 13% Y-o-Y in H1 FY '26 and Q2 FY '26, reflecting our increasing footprint across semi-regulated geographies. We have further improved our liquidity position to INR 237 crores and generated healthy net operating cash flow of INR 56 crores. As we move ahead, our focus remains on strengthening core capabilities and enhancing efficiencies. With disciplined execution, strong customer partnerships, Windlas Biotech is well positioned to capture opportunities and deliver sustained value for all our stakeholders. That's all from our side. We can now begin Q&A session.

[Operator Instructions] The first question comes from the line of Dhwanil Desai from Turtle Capital.

Congratulations for a very strong set of numbers. Sir, my first question is on the ESOPs. I think you guys have outlined the ESOP schedule for next 3, 4 years. If I add that all up, it's close to INR 50 crore plus kind of a number, even though it's a non-cash charge, I understand that. But with the exercise price of INR 5, I think that's a significant remuneration which will get paid in kind. So can you help us understand what was the underlying idea behind this? Is this ESOP scheme is concentrated in terms of the beneficiary? If you can throw more light on that? Because going forward, at least from the P&L perspective, that will dampen whatever operating leverage that you would have got.

Yes, sure. I can take a stab at that. See, as you rightly mentioned, it is important to note that this is a non-cash expenditure. And we believe that it is an investment really -- and normally, investments are capitalized. But of course, as per accounting treatment, we have to take it through P&L. And we have also provided transparently the full impact across the future years over here. And the idea for doing this is, I mean, we believe that just having infrastructure doesn't really create business. If we have to align the growth of the people who are going to be responsible for delivering this. So this ESOP scheme has been given to key people across various levels of management and almost 100 people have been covered who are making decisions at the department level or at the division level or at the topmost level. And their decisions are going to be very, very important for the future. There are 2 components of this. One is going to be the performance-related ESOPs, which are linked to the deliverable KPIs, both financial as well as operational for each person. And the second is the retention-related ESOPs that are being given. And the scheme is obviously also available for review on the website and everywhere. So for us, we believe that to deliver strong growth into the future, the opportunity is here, but we have to align our people, our infrastructure, our portfolio, our strategy. And these things are very, very key. And this is the reason and the philosophy behind the ESOP program.

Yes. So the baseline is to retain the key people and deliver the long-term goals and growth with these people. So that is where we carved the scheme, ESOP scheme 2025.

Okay. Got it. So as a follow-up to this, so these are all -- can you elaborate some of the key KPIs for the key people? And also -- so let's say, if those KPIs are not delivered or they are not -- the people, the retention time is lower. So this number can be variably changed depending upon that. Is this how we should look at it?

See, in case those employees either resign or because of lack of performance are let go by the company, automatically, the unvested ESOPs don't -- the employee doesn't get that, and it comes back to the pool for being given to the existing employees with whom then company might think. So that is a very clear thing mentioned in the ESOP scheme. In terms of performance, it depends -- the KPIs are relating to the performance of the company and they are relating to the individual performance of the person. Various -- yes.

Yes. So there's -- like, for example, the performance of the company is primarily revenue growth and other metrics like operational efficiency. But obviously, employees at the lower levels cannot impact that. So for them, their KPIs are the departmental KPIs. And we have a very strong balanced scorecard system where each HOD gets KPIs at the beginning of the year, and we do internal assessments. So what will happen is that if an employee does not meet those KPIs, he gets a chance to then make up for that in the next year by overperforming the KPIs of the next year. Otherwise, they lapse. So every year, we will be -- at the end of the year, at the time of appraisal, we will be specifying what percentage of the ESOP will vest depending on the performance achieved. So --

But honestly, the intention of the company is not to hold back on ESOP, because that defeats the basic purpose. The intention is that everyone should earn those ESOP because there is a huge portion of retention behind bringing this scheme. So while someone, if they don't show team spirit or they leave the company or we don't see sufficient effort being put in by those people, only then we intend to not give. But honestly, that -- we don't expect this accounting impact to go away or materially get lower, if that is what you are trying to understand.

Yes.

Okay. Got it. One question on the business side. So I think we have been kind of targeting that 15% margins. And I think we are on that journey already of ESOP, we are 13% plus. But if you guys can highlight a roadmap because this number because of various reasons, we have put up injectable facilities so that investment has come in. So that number is still kind of faraway it looks like. So any roadmap, time line or you guys are thinking that it will happen whenever it happens? How should we think about it?

Dhwanil, we are not saying that it is far away, and we are not saying that it is here already. In terms of timeline, we never gave a guidance. But if you ask us, honestly, even in Q2 FY '26, if I exclude the ESOP impact, we have already delivered 13.5% EBITDA margin, right? So we are very positive in terms of the profitability. If we are able to deliver revenue growth as we internally are tracking and internally are driving, so if that really happens, execution-wise, it can happen sooner than later. But we don't -- we have never given a time line, and we would not want to do it today.

Next question comes from the line of Avnish Burman with Vaikarya.

I wanted to know how much revenue was lost in 2Q due to the GST change and whether -- if there was any revenue loss, has it been added back to the October sales?

No. So thankfully, we were able to align very properly with the customers, get the MRP updates, and we were able to really deliver everything that we had to in September. So there's no holding back in terms of revenue that happened in Q2. And yes.

Okay. The second question was again on ESOPs. I mean, number-wise, if you see, and I'm just taking specifically these 2 large numbers, which will happen in the second half of '26 and first half of '27. It seems -- and I'm just double checking this. It seems that if you continue to -- if you assume a continuation of growth as it has been happening, this comes to about 3% of sales. Is that the right assumption? So the impact on the EBITDA to be around 3%, more or less broadly in the ballpark?

Mr. Burman, are you done with the question?

Look Avnish, mathematically, what you're saying is right, right? But of course, we are not giving a guidance of what the growth will be, right?

Okay. And last question, the inventory days have come down from 39 to 29 days. Is there -- I mean, is there any particular reason? Was it because of the GST change? Is it sustainable there? Like what is the reason?

No, no, that's correct. This is because of GST. So we were holding on to the basic minimum inventory levels that we generally maintain for a few critical products. We tried not doing that, and we only did the absolute necessary purchases for the revenue that we were sure about delivering. So that's why this impact because we wanted to be a little bit cautious. Yes.

So it will go back to the normal levels?

Should go back, yes.

Next question comes from the line of Sajal Kapoor with Antifragile Thinking.

This new ESOP, I think, is a good step. It reinforces the skin in the game and a good way to reward the decision-makers. So I think that's a very thoughtful exercise and needed actually to contain not just the attrition, but to reward the decision-makers. So well done on that one. My question is, given the rising net cash position and the large opportunity pool, how would you evaluate the trade-off between acquiring good quality assets at a premium versus pursuing slower and cost-efficient organic growth? What criteria or framework guides this decision between going for high-quality acquisition versus a slower but cost-effective organic expansion because we would have to do either or.

Honestly, Sajal, the reason is right, we would want to do both. We are very much open and very actively looking at various opportunities and would be open to acquire an asset even at a premium if we see good synergy with our business and potential where we don't have to do the fixing of a very critical problem. So we are okay paying premium for those. Having said that, we want to not lose any percentage of focus on the organic growth that we have been trying to deliver consistently, so at lower cost and maintaining the growth. So we want to do both.

And actually, Sajal, if you see notice also, our organic expansion in the Plant-2 extension as well now Plant-6 is already lined up. So at least on oral solids, where we traditionally had a strong foothold, we want to continue the organic way of growing because we know that we can bring it in at a much lower potential cost and ramp it up quickly. On the other dosage forms, that is where our inorganic expansion thought process has been that can we look at other dosage forms to broaden our portfolio and help all 3 verticals and whether a good non-sick kind of asset is available. So that's where our thought process has been that we don't want to own up and create a distraction for the leadership by entering into somebody else's problem just because maybe we'll get the asset for cheap. So that's something that we definitely are screening for.

And on injectable facility near the peak capacity utilization level. By then, if we don't find something externally, we intend to pick up one dosage form and build it on our own.

That's very sensible. And my second and last question is, this time around in Q2, the Exports growth has moderated compared to what we delivered in Q1 and quarterly variations are absolutely fine. Question is, I mean, how do you look at Exports as a growth segment from this point onwards? And what can be a sustainable annual growth rate, normalizing any quarterly volatility, seasonality variation, et cetera?

Exports, we see growth potential. There is ample growth opportunities on table. However, the results are mostly binary in case of Exports. So we have been working consistently on several factors. In fact, even our injectable facility in the long term, it has to focus on export business. So this vertical, while it is very small and sometimes the growth is high, sometimes low, but we see a lot of growth potential. Difficult to break down the annual kind of growth that we would be able to deliver. But we see growth opportunity there. It stays an important vertical where we see growth.

So Komal, do you think that we need to invest more in business development just to give this vertical all the ample opportunities to grow because it's an exciting space. Is it that we need to invest more in business development? Just to give it a bit more spotlight vis-à-vis the CDMO and the Trade Generics.

You're absolutely right, Sajal. And in fact, we have been doing that. We have expanded our export business development team to some extent and are also looking for more people to add to the division. Also, we have been making other efforts, if not on role or not on business development team, but also external efforts we have been making. But yes, we have.

Yes. And also, Sajal, this is also an area where we think and we believe that an acquisition would also be a very good aspect because the time taken for incubating, getting the permissions, getting the registration done in the country and ramping up the business is long. And if we -- we are also on the lookout for can we bolster this vertical through inorganic also. But you are absolutely right. There is an effort to expand the business development team there is an effort to expand the portfolio. So like injectable products, dossiers are under preparation, they will be filed. There is an effort to open other markets, so geographic also. So all of that is in the works. And we want to build this into a strong vertical and not let it be as small as it is right now.

Next question comes from the line of Ankit Gupta with Bamboo Capital.

Again, harping back on the question on the ESOPs. So normally, the strike price is a discount to the existing trading price of the shares. But in our case, I think the strike price is almost like INR 5 at the face value. So any rationale behind keeping the face -- like does the strike price so low and why not incentivize people for the performance going ahead at some discount to the existing price? So Hitesh, just wanted to hear your views on that.

Ankit, rationale is very, very clear for us. We are thinking of it from the perspective of long-term investors, promoters, everyone, including employees being at the same side of the table. What we want to see is the people who have been with us and the people whom we see potential to really be able to deliver and show where we want to -- whatever we have done in the last 11 quarters, we have seen a strong momentum. This momentum to continue in the long term or what we want to do, that can be -- how that can be done is what we have to think as business people instead of looking at how my P&L is going to look for a limited period of time. That is how we have thought about this. And that is how we have taken a decision. We don't want to just say that we do ESOP. But in terms of liquidity and considering the taxation impact, it becomes difficult for my employees to actually exercise those options is what we noticed in earlier schemes. So the ESOP schemes that we came up with did not become as effective as we would have wanted to. So thinking all that instead of thinking of the immediate impact from the market, we wanted to think more from a business perspective rather than a short-term temporary impact on my P&L or on my market price. This, we expect which are long-term investors to understand because as a shareholder, what matters more probably is the long-term benefit that this would give.

Yes. And also, Ankit, I think just to add to what Komal has said, I think there is an important -- it's very important and the previous questioner also highlighted this. See, it depends on the philosophy, right? There would be companies where maybe the promoter thinks that he is alone sufficient to drive all outcomes. And so they don't do any ESOPs, right? They say that, okay, nobody else has ownership, nobody has any significant gain and people contribute, people are fungible. But when you are building a company like Windlas, and you want to really explore the aspirations for not just the promoter, but also the investors. And -- then value creation has to happen at multiple levels. If it is happening only at the promoter level, then it's not motivational. And then, of course, we are not the only ones in this business, right? It is a hotly contested space. There is -- as you become more noticeable, then if people are -- then the temptation and attrition, all those things have a hidden cost. So what we are trying to do is to say that investment in people are just as important as investments in a plant or a facility, right? If you look at how much we have invested in CapEx since we came to public market, we have an injectable plant. We added a Plant-2 extension. We are now going for Plant-6. We are talking about doing inorganic. So this, if you don't do, then the strategy remains half baked. That is the way at least we at Windlas think.

Also, company has always believed in sharing with all the stakeholders. So if you see in past post listing, when the performance of the company was not too great. Still we ensured that the dividend policy that we have, we ensured that we completely -- 20% is what we distributed. We had in past also come up with the buyback scheme where promoters did not participate. So we always have believed in sharing with our stakeholders, which includes everyone, which includes our shareholders, investors, promoters, employees, all the stakeholders are important for us.

Sure, sure. And secondly, on the injectable plant, if you can give us some qualitative as well as quantitative updates how the plant is shaping up? How has been the ramp-up? Where are we in terms of capacity utilization breakeven? And in FY '26, how do you see the -- do you think this segment will become profitable at either EBITDA or a PBT level?