Windlas Biotech

Windlas makes generic medicines for other pharma companies. Five plants in Dehradun, a sixth ready. FY26 revenue was Rs 904 cr: CDMO Rs 664 cr, trade generics and institutional Rs 195 cr, exports Rs 46 cr. It owns the formulation IP on 99% of what it sells and counts 8 of the top 10 Indian pharma companies as customers.

The economics are simple once you see them. Margins are thin, 13% to 14% at the EBITDA line, because Windlas is paid for conversion, not for the drug. But the asset turn is high. Net fixed assets of about Rs 187 cr, excluding the Plant 6 work in progress, carried Rs 904 cr of revenue in FY26. That is 4.7 times. Thin margin multiplied by high turns gives 32% ROCE and 29% ROE on the capital actually employed. Reported ROCE reads 16% only because Rs 280 cr of surplus cash sits on the same balance sheet.

Two numbers say the franchise is improving, not just growing. Top ten customer concentration has fallen from 52% of CDMO revenue in FY22 to 32% in FY26. Complex generics are now 74% of the CDMO mix, up from 67% a year earlier. The work is getting harder and the revenue is getting less dependent on any one client.

The plants are full. Utilisation was 66% in FY26 against 59% a year earlier. Management has said 60% to 65% is the practical peak for this kind of business and 70% is a stretch. Growth has been running into a wall.

Plant 6 removes it. Mechanical completion is done and commercialisation is guided for the end of Q2 FY27. It takes revenue capability to around Rs 1,100 cr, with management pointing to a further Rs 100 cr to Rs 150 cr on top and another 10% to 15% from routine debottlenecking. This is an extension of the core oral solids business, not a new dosage form, so customers approve a familiar portfolio at a new site rather than waiting on fresh development work. Management drew that distinction themselves against the injectables plant.

The accounting drag is temporary. Reported profit carries a non-cash ESOP charge of Rs 17 cr in FY26 and about Rs 22 cr in FY27, falling to Rs 12 cr in FY28, Rs 6 cr in FY29 and effectively nothing after. It gets no tax shield, so it hits profit rupee for rupee. Adjusted profit for the last twelve months is Rs 90 cr against Rs 66 cr reported. That Rs 24 cr gap closes on its own.

Trade generics has a date on it. The vertical fell 32% to Rs 30 cr in the June quarter after codeine-based products were discontinued. The base resets around Q4 FY27. Underneath it, the structure is intact: 546 brands, 1,582 stockists across 29 states, and a vertical that compounded at 34% before the ban.

The estimates assume CDMO compounds near its FY26 rate of 20%, trade generics holds the reset base and recovers slowly from Q4 FY27, exports stay small and lumpy, and margin improves by about 100 basis points across FY28 as Plant 6 fills. Reported profit closes the gap to adjusted profit as the ESOP charge decays.

Plant 6 commercialising at the end of Q2 FY27, and the customer plant approvals that follow through H2.

The ESOP charge halving in FY28, which lifts reported EPS with no operating change at all.

Trade generics annualising out of the codeine base around Q4 FY27, turning a 32% decline into a clean comparison.

Exports scaling. Rs 11 cr in the quarter, up 79%, with Plant 4 and Plant 5 both cleared by the Philippines in FY26 and Plant 4 already holding South Africa and EU GMP. Longer gestation, but the registrations are done.

A second injectables line. The building, water systems and air handling are already in. Management put it at 6 to 8 months from a decision to revenue.

Pricing is cost-plus, so margin expansion comes from mix and efficiency rather than price. Anyone underwriting 15% plus EBITDA margins is underwriting a change in industry structure.

Trade generics recovery has no timeline attached to it. Management would not give one.

All plants are in one location. The Uttarakhand minimum wage revision, applied retrospectively, is part of why employee cost excluding ESOP rose 17% year on year.

The injectables plant ramped slower than management expected. Plant 6 is a different case, but it is the recent precedent for new capacity.

Payables have stretched to 156 days from 76 in FY22 while debtor days went from 80 to 92. The negative working capital cycle is supplier funded. Worth tracking if API volatility makes suppliers tighten.

Dilution of about 2.8% from the 2025 grant of 5.69 lakh units at face value.

At Rs 935 the market cap is Rs 1926 cr against net cash of roughly Rs 250 cr at March 2026, before the Rs 47 cr buyback and Rs 13 cr dividend paid in Q1.

That is 21 times trailing adjusted earnings of Rs 90 cr and 18 times FY28. For a business growing in the mid to high teens, sitting on net cash, earning 32% on employed capital and about to add a third more capacity, that is inside our range rather than above it.

The board's own mark is useful here. In April 2026 it bought back 4.7 lakh shares at Rs 1,000, without promoter participation, which took promoter holding to 63.3%. That is what the people running the company thought the shares were worth four months ago.

CDMO growth falling below 15% for two consecutive quarters, which would say the June quarter was conversion timing rather than trend. Adjusted EBITDA margin slipping below 13% once Plant 6 fixed costs land. Trade generics still stuck at Rs 30 cr a quarter in Q1 FY28, a full year after the ban. Payable days reversing and operating cash flow falling below EBITDA. A greenfield capex announcement, since the capital discipline case rests on management sticking to incremental brownfield additions.

This is a well run, cash generative business at a fair price with two clean catalysts already dated. Capacity arrives this half and the accounting drag on reported profit falls away over the next two years. Fourteen consecutive record quarters, halving customer concentration, net cash, and a management team that refuses to give guidance and tells analysts not to extrapolate a single quarter. The stock has not participated. It is 15% below its 52 week high and roughly flat over a year while the business compounded 19%.

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