Granules India Q4 FY25 earnings call

Where management's figures differ from the filing

• Q4 FY25 EBITDA: said Rs. 2,524 million, 21.1% of sales; filed ₹283.11 cr, 23.6% margin (excl. other income). Management cited professional expenses for FDA remediation (close to Rs. 60 cr for FY25) hitting EBITDA margin; ~12% absolute and 250 bps margin gap vs filed.

What moved the numbers, as management explained it

• Higher finished dosage sales mix drove Q4 gross margin up 333 bps YoY to 63.4%, with FY25 gross margin up 635 bps from FY24 on strategic shift to high-margin formulations.
• Professional and consultancy expenses for FDA remediation (close to Rs. 60 crores for FY25 including air freight) weighed on Q4 EBITDA margin, which fell 67 bps YoY to 21.1%. (one-off)
• Continuous price erosion in API and PFI segments constrained overall revenue growth despite formulation strength.
• Gagillapur voluntary production pause in September 2024 and ongoing FDA remediation slowed formulation output, expected to continue for 1-2 more quarters.
• Paracetamol API demand slowdown post-COVID impacted API sales and Europe revenue; management does not expect return to prior levels.
• R&D expenses rose 9% YoY in Q4 to Rs. 665 million from Rs. 609 million in Q4 FY24, with full-year R&D up 20% to Rs. 2,377 million.

Guidance on this call

Guided on earlier calls, and what was filed

Filed figures are summed from the company's own quarterly results for the whole period (EBITDA excludes other income); where one sits against what was guided is arithmetic, not a judgement.

By business

Balance sheet, capex and funding

• Net debt Rs. 7,061 million at end of Q4 FY25, down from Rs. 8,289 million in Q3 FY25 and Rs. 8,421 million at March 2024 end.
• FY25 CAPEX Rs. 5,700 million including Rs. 3,135 million for Granules Life Sciences; Q4 CAPEX Rs. 1,598 million.
• FY26 CAPEX guided at Rs. 600 crores including Senn Chemicals CAPEX; Senn EV Rs. 450 crores (equity + debt) on top.
• Cash flow from operations FY25 Rs. 8,666 million vs Rs. 4,394 million in FY24; Q4 alone Rs. 3,183 million.
• Cash-to-cash cycle 202 days in Q4 FY25, improved from 213 days in Q3 FY25; 161 days at FY25 start.
• ROCE 16.6% in Q4 FY25 vs 16.4% in Q3 FY25 and 16.5% in Q4 FY24.

The industry, as management sees it

Management views peptide therapeutics as a $50 bn market growing to $100-150 bn by 2030, with GLP-1 receptor agonists as the most transformative class. ADHD, oncology and CNS are highlighted as high-growth therapy areas. US generics pricing is expected to remain under pressure on long-genericised products; paracetamol API over-capacity globally has structurally reset pricing lower with no expectation of recovery to COVID-era levels.

Risks management named

• Gagillapur remediation costs of ~Rs 60 cr in FY25 to continue through Q1-Q2 FY26 before declining
• FDA warning letter may temporarily delay review of pending product submissions from Gagillapur
• API/PFI price erosion, especially in paracetamol; API share to stay below 25% of revenue
• Senn Chemicals currently breakeven; integration and capex required for scaling
• US tariff exposure with pricing pass-through conversations underway with customers

Not answered directly

• FY26 revenue/EBITDA guidance (declined citing Gagillapur disruption)
• Oncology filing cadence (deferred to future updates without committing to quarterly)
• Senn Chemicals near-term profitability outlook (acknowledged breakeven status for 1-3 quarters)

Asked for a number, answered without one

• FY26 revenue and EBITDA guidance: Management declined, saying only that 'it's going to be better than last year' and that Gagillapur slowdown will continue for a quarter or two despite that.
• Senn Chemicals investment and CAPEX plan: Management said CAPEX analysis is ongoing for Switzerland and Hyderabad peptide facility; clear plan expected in next quarter.
• FY27 CAPEX guidance: Management provided only FY26 estimate of Rs. 600 crores, said FY27 is still being worked on.
• Senn Chemicals medium and long-term milestones: Management gave qualitative direction: improve CDMO segment, develop GLP-1s and other peptides, transfer technology to India for volume scale-up; no specific milestones or targets provided.

Every question, with its answer

1. 1. Senn Chemicals capex

   Tushar Manudhane, Motilal Oswal Financial Services

   Question. With respect to Senn Chemicals, what further investment would be required over the next two years to integrate with Granules and scale up capability or capacity?

   Answer, Dr. Krishna Prasad Chigurupati, Chairman and Managing Director. Management is analysing the situation. Significant capex will be required in Switzerland for the peptide business. Additionally, Granules is setting up a peptide R&D facility in Hyderabad followed by peptide manufacturing. Some development work will continue in Switzerland while large-volume commercialisation happens in India. Granules will provide a clearer capex outline next quarter, but peptide capex is confirmed.

   Follow-up. Currently, can you share Senn Chemicals' sales or profit numbers?

   Answer. Mukesh Surana: Senn is currently at breakeven or slight loss. It is expected to remain at that level for the next one to three quarters before improving with the new strategy.

   Partly answered.

2. 2. FY26 guidance and remediation costs

   Tushar Manudhane, Motilal Oswal Financial Services

   Question. On Gagillapur, given the production disruption for a couple of quarters, can you share FY26 revenue and EBITDA guidance? Can you quantify the professional and consultancy fees paid for Gagillapur in FY25? Will this recur in FY26?

   Answer, Dr. Krishna Prasad Chigurupati, Chairman and Managing Director. On FY26 guidance, Dr. Krishna Prasad declined to provide specific numbers but indicated the business will be better than FY25 despite the Gagillapur slowdown continuing for a quarter or two. On remediation costs, Mukesh Surana quantified that combined expenses including professional fees, air freight and US FDA consultancy totalled close to Rs 60 crores in FY25. Dr. Krishna Prasad added that remediation spend will continue through Q1 and Q2 FY26 but slowly declining, with three consulting firms actively engaged.

   Follow-up. Will the air freight component be lower in FY26?

   Answer. Mukesh Surana: Air freight should not be as high as in FY25 with better planning, though some level of remediation-related professional spend will persist.

   Not answered directly.

3. 3. GLP-1 value chain and markets

   Rashmi Shetty, Dolat Capital Market

   Question. On Senn Chemicals, which part of the GLP-1 value chain are you targeting — intermediates or full formulation? Will Senn serve generic companies or innovators? Which markets?

   Answer, Dr. Krishna Prasad Chigurupati, Chairman and Managing Director. For CDMO, Senn will serve some innovators already in the pipeline. The relationship with Senn began with developing GLP-1 products for Granules; the company was acquired to leverage ready-made peptide technology rather than starting from scratch. Granules is working on APIs for GLP-1 and plans to do formulations in India via contract manufacturing initially. The US is the primary target market; other GLPs and markets will be targeted subsequently. India may be slightly late given API availability timeline.

   Follow-up. What are Senn Chemicals' current sales and what products does it manufacture?

   Answer. Mukesh Surana: Senn Chemicals does roughly CHF 20 million in annual sales with breakeven EBITDA. Products are largely CDMO peptides for pharma, cosmetics, theragnostics and amino acid derivatives.

4. 4. FY26/27 capex guidance and GLS Phase-II

   Rashmi Shetty, Dolat Capital Market

   Question. What is the capex guidance for FY26 and FY27 combined for Granules and Senn Chemicals? On GLS Phase-II (7.5 bn doses), is the entire capex already done or will more come in FY26?

   Answer, Mukesh Surana, Chief Financial Officer. FY26 capex estimate is approximately Rs 600 crores, including further spend for Granules Life Sciences, oncology and peptide investments. This figure includes Senn Chemicals' capex as well. On GLS Phase-II, additional capex creditors remain and expansion of packing facility and press-fits will be incurred in FY26. Dr. Krishna Prasad clarified Phase-II commercial dispatch has begun and 7.5 bn dose capacity will be available from next month, with full utilisation dependent on FDA and European approvals expected in Q2 FY26 — targeting 40-50% utilisation this fiscal and ~90% by FY27 end.

5. 5. API/PFI gross margin outlook

   Rashmi Shetty, Dolat Capital Market

   Question. With FY25 gross margin at 61.5% on strong formulation mix, what is the outlook for API and PFI segments? If API/PFI sales increase in FY26, will gross margin decline or stay similar?

   Answer, Dr. Krishna Prasad Chigurupati, Chairman and Managing Director. Most APIs and PFIs are increasingly being consumed in-house (vertical integration) — except paracetamol API where Granules has large capacity and which has been impacted by global over-capacity. The strategy is to convert API/PFI capacity into PFI and FD rather than pushing API into the market at negligible margins. FD share will stay at this level or increase; API percentage will not increase. Gross margin sustainability is confirmed as of today.

6. 6. European sales decline

   Rashmi Shetty, Dolat Capital Market

   Question. Europe and rest of the world saw declines in Q4 and FY25, while US and India did well. Is this mainly paracetamol API impact, and can European sales recover?

   Answer, Dr. Krishna Prasad Chigurupati, Chairman and Managing Director. Europe was dominated by paracetamol API sales to large brands and is now seeing continued price erosion that is not expected to revert to COVID-era levels. Granules will not push paracetamol API except for valued customers. European sales recovery will come from formulations where multiple filings are pending and launches were slightly delayed — these should drive growth, though as a percentage Europe may remain similar with US continuing to dominate.

7. 7. Senn Chemicals milestones and success metrics

   Tarang Agarwal, Old Bridge

   Question. On Senn Chemicals acquisition, what are the medium-term and slightly longer-term milestones, and how should investors calibrate the eventual success or failure of this acquisition?

   Answer, K.V.S. Ram Rao, Joint Managing Director and CEO. Medium-term focus: strengthening the CDMO segment by exploiting existing customer base and expanding science/technology and infrastructure to make Senn a competitive diversified CDMO. Second segment: GLP-1s where significant development progress has already been made, leveraging technology to serve both CDMO customers and Granules' own consumption. Dr. Krishna Prasad added the strategic importance is gaining ready-made capabilities and transferring technology from Switzerland to India for scaled GLP-1 production and other peptides over time.

   Follow-up. R&D spend has grown significantly over the last five years — how is productivity being measured?

   Answer. K.V.S. Ram Rao: Productivity is measured through quality filings (US/Europe in ADHD and oncology) and value of filings (NCE-1s, first-to-files as differentiated products). Lisdexamfetamine chewables and oral tablet approvals mark the start of the ADHD journey. Dr. Krishna Prasad added there is a benchmark for return on investment per ANDA with different numbers for regular, P3, and first-to-file products.

8. 8. US tariff exposure

   Tarang Agarwal, Old Bridge

   Question. With tariff uncertainty over the last 2-3 months and significant US exposure, how is the company positioned and what internal conversations are happening?

   Answer, Dr. Krishna Prasad Chigurupati, Chairman and Managing Director. Granules is in active conversations with US customers about potential tariff impact. The company is communicating that any duties/tariffs will have to be passed through via price increases as there is no way to absorb them. No significant customer resistance seen so far. Management expects this to be a level playing field impacting everyone — especially for long-genericised products where margin absorption is limited.

   Follow-up. On capex, what is the FY26 number?

   Answer. Mukesh Surana: FY26 capex is Rs 600 crores as guided. Senn Chemicals investment is on top of that — Rs 450 crores enterprise value (equity plus debt) recently deployed.

9. 9. Genome Valley capacity and revenue impact

   Sahil Vora, M&S Associates

   Question. On the new formulation facility at Genome Valley which commenced commercial dispatches, can you discuss the impact on overall capacity and revenue?

   Answer, Dr. Krishna Prasad Chigurupati, Chairman and Managing Director. Only Phase-I of Genome Valley has been commercialised; Phase-II commercialisation is in progress and will happen within a quarter or two. While Gagillapur faces a slowdown for FDA remediation, the gap will be made up by GLS and US site launches from this quarter and more meaningfully in Q2. Going forward, Genome Valley will play an important revenue role even after Gagillapur returns to normalcy as product demand continues to grow.

   Follow-up. How is the company addressing the European sales decline and what are plans to regain market share there?

   Answer. Dr. Krishna Prasad reiterated Europe was driven by paracetamol API sales that are unlikely to recover. API capacity is being redirected to PFI and formulations for US and other markets. Recovery will come from European formulations where launches were delayed and margin profile is higher, though US will continue to be the primary growth driver.

10. 10. Geographic diversification

    Varun Mishra, SK Investments

    Question. North America accounts for ~79% of revenue — what strategies are in place to diversify the geographic mix?

    Answer, Priyanka Chigurupati, Executive Director. The North America strategy has been built over 10-12 years through filings and will continue to be the primary growth driver given the size of the market. Granules filed 11 dossiers in Europe this year and is increasing that momentum. Additional strategy is being framed for ROW finished dosages plus expansion of existing API and PFI business. Absolute ROW numbers will increase, but US will remain the focus area.

    Follow-up. What is the outlook for API and PFI segments and their current revenue contribution?

    Answer. Mukesh Surana: API/PFI is currently less than 25% of revenue. The trend going forward will remain similar with APIs increasingly for in-house consumption; focus is on formulation growth.

11. 11. GLS and CZRO capex and revenue contribution

    Varun Mishra, SK Investments

    Question. Can you provide an update on GLS and CZRO capex spend in FY25 and how these projects will contribute topline in coming years?

    Answer, Mukesh Surana, Chief Financial Officer. Rs 313 crores was spent on GLS in FY25 with further spend in FY26. CZRO has been deprioritised — only land and pilot facility spend to date, with caution exercised. Priority is GLS expansion along with new oncology and peptide facilities. CZRO and peptides are not expected to contribute meaningfully in the near-term other than the Senn-acquired revenue. GLS this year should be ~40% utilised, ~90%+ next year.

12. 12. Oncology pipeline

    Mr. Doshi, Individual Investor

    Question. On the oncology portfolio — what are the total molecules in the pipeline, regulatory timeline and market sizes?

    Answer, K.V.S. Ram Rao, Joint Managing Director and CEO. Oncology portfolio has a double-digit pipeline with NCE-1 segments, first-to-launch opportunities and Para IV 181 filings. Most products are for global development with oncology becoming significant to European and ROW business build-out. Revenue expected from FY28 onwards. Filing cadence will likely be quarterly but specific timing was not committed to given R&D complexity.

    Follow-up. Should we expect filings every quarter or six months? Will API be in-house with full integration?

    Answer. K.V.S. Ram Rao: Granules will make progress on filings each quarter but won't commit to a specific cadence. The entire differentiation strategy revolves around vertical integration of API into formulations.

    Partly answered.

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In their words