Shilpa Medicare Ltd Q3 FY2025 Concall Summary

Key Takeaways

• Earnings inflection, not just a beat: PAT jumped from INR5 cr to INR32 cr YoY, 9M PAT doubled all of FY24, and gross margin hit 72%, all driven by a mix shift toward formulations and biologics.
• Nilotinib is the quarter's hero, and it has legs: The first generic launch in Europe via a non-infringing route delivered a 64% surge in formulation revenue, with management expecting at least a couple of quarters without competition.
• The pipeline is converting from promise to product: Four US approvals landed this quarter (Pemetrexed, Bortezomib, Imatinib oral liquid), Axitinib is set for a day-1 launch in Q1 FY26, and two NCEs are in Phase III, shifting the story from R&D spend to monetization.
• API is the deliberate drag: Oncology API fell sequentially as production blocks were diverted to Nilotinib, and non-oncology API was cut as the company replaced old molecules with high-value ones like UDCA, a margin-positive reset that should reverse from Q1 FY26.
• What to watch next quarter: Whether the Bortezomib April 2025 launch ramps as promised, the pace of the oncology API recovery, and any update on the US FDA re-audit request after remediation.

The Nilotinib Moment & Formulations Surge

• First-mover advantage in Europe: Shilpa launched Nilotinib as the first generic in Europe using a non-infringing strategy, partnered with the number one player, and remains the only generic in the market.
• Competition window is real but finite: Management expects no competition for at least a couple of quarters, though the exact duration depends on litigation outcomes for other partners; the product's complexity means it will not see 10-20 generics even when competition does arrive.
• Formulation revenue jumped 64% YoY: The Nilotinib launch was the primary driver, and this revenue stream is expected to continue for quarters to come.
• Axitinib is the next catalyst: Approval is in hand, a non-infringing API strategy is ready, and a day-1 launch is planned for Q1 FY26 upon patent expiry.
• US approvals stacking up: Pemetrexed (only RTU room-temperature-stable generic), Bortezomib (codes for insurance and premium pricing received, partner launching April 2025), and Imatinib oral liquid (only company with this oral liquid oncology product approved in the US) all landed this quarter.

Bhutada: "Currently, it is difficult for us to give any thought there. But we feel at least for a couple of quarters, we'll not have any competition."

API: A Margin-Positive Reset, Not a Structural Decline

• Oncology API fell sequentially for two fixable reasons: Intas, a major customer, is still ramping up after regulatory remediation, and production blocks were shifted to manufacture Nilotinib for the formulation launch.
• Non-oncology API was deliberately shrunk: The company reduced production of old molecules like Ambroxol and Phenylephrine and replaced those blocks with high-value products such as UDCA and NorUDCA for export markets.
• Recovery timeline is Q1 FY26: Oncology API is likely to improve from Q1, though Q4 may still see some pressure; non-oncology API expects a good increase starting Q1 FY26 as the better-margin molecules begin contributing.
• Pricing pressure is not the story here: Shilpa manufactures complex APIs, not me-too generics, so it has not faced much pricing pressure; the decline is about mix and customer timing, not commoditization.
• Europe API pipeline building: Products like UDCA, Tranexamic Acid, and Peptides (Desmopressin, Octreotide, Liraglutide) with DMFs ready will start contributing revenue delta in quarters and years to come.

Bhutada: "I think for us because as you understand that at Shilpa API, mainly we are manufacturing more of a complex APIs and not a me-too generics. So, we have not had so much of pricing pressure."

Pipeline Conversion: From R&D Spend to Monetization

• Two NCEs in Phase III: One cancer-treatment molecule has completed all clinical trial supplies with Phase III ongoing by a partner; a second NCE with a US big pharma partner is under Phase III with a pending supply order to be completed in Q4 FY25.
• Biologics pipeline is broadening fast: Aflibercept entered Phase III with filing expected next financial year in India and ROW; Nivolumab and Pembrolizumab were added this year with preclinical trials starting in Q4; three new blockbuster biologics were added to the pipeline.
• Albumin approaching pivotal trials: Phase I data was reviewed well, permission for Phase III in India and ROW is in hand with the study planned for Q1 FY26; a global Phase III protocol has been submitted to the EMA with a response expected in Q4 FY25 and a US FDA submission planned for Q1/Q2 FY26.
• CDMO engine is building: More than five biologics CDMO projects are in various stages, some have submitted material for preclinical and Phase I studies, and the company targets signing at least one new CDMO project every quarter.
• ADC molecules enter the pipeline: The company has taken ADC molecules into the pipeline, leveraging its dual capability in biologics and small molecules to manufacture payloads and linkers, though this is a coming-years story.
• Licensing income is now a recurring line: Licensing income will continue every quarter, sometimes very high and sometimes down against previous quarters, but it will be there every quarter as the B2B model and multi-segment offering create a steady hit rate with customers.

Bhutada: "Yes. We are a B2B company, And yes this will be an income which will continue for us every quarter. It can be sometimes very high, sometimes it can be down against previous quarters, but it will be there every quarter."

Margins & Financial Health

• Gross margin hit 72%: Up 5% YoY and 7% QoQ, driven by an improved business mix as higher-margin formulations and biologics grew their share of revenue.
• EBITDA grew 20% YoY: 9M EBITDA already exceeded the entire previous financial year, though the gross margin improvement did not fully flow through to EBITDA because of higher R&D spends during the quarter and an exchange loss from the euro moving against exporters.
• Interest cost halved: Down 55% YoY after repayment of a substantial part of NCDs and other loans following the QIP issue, and management is working on further measures to reduce the interest burden.
• Tax rate should normalize toward 35%: The 9-month rate is approximately 39-40%, with MAT credits providing a benefit this quarter that may not continue; measures to arrest tax leakage on intercompany loans are in place.
• 26-27% EBITDA margin is maintainable: Management sees opportunities to improve further through better operating leverage, improved asset utilization of newer initiatives, and a continuing mix shift.

Biosimilars & CDMO: Lumpy but Building

• Biosimilars revenue grew 43% YoY: The sequential decline from INR31 cr to INR18 cr was not due to an Adalimumab slowdown or demand lumpiness; the prior quarter included a large supply to a Korean partner for Phase I and preclinical work, and CDMO revenue is inherently lumpy depending on development stage.
• Unicycive launch order under execution: A launch order for 0.5 crore tablets is being manufactured, with formulation supplies planned to finish in Q1/Q2 FY26 and repetitive orders expected thereafter.
• New CDMO project in the food sector: A fermentation-based project was signed with a client that has regular commercial requirements; Shilpa will be an additional source, mainly for the export market.
• Albumin excipient grade is a new vector: A business development team has been appointed and efforts are now starting to sell excipient-grade albumin for the first time, with the outcome to be observed in the upcoming financial year.

Guidance & Commitments

Key Metrics