Strides Pharma Science Ltd (STAR) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day and welcome to Strides Pharma Science Limited Q2 FY27 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note this conference is being recorded. I now hand the conference over to Mr. Abhishek. Thank you and over to you, sir.
Abhishek (Strides Pharma Science Ltd): Thank you, Nazneen. Very good morning and thank you for joining us today for Strides' earnings call for the second quarter and half year ended September 2026. Today we have with us Badree, Managing Director and Group CEO, and Vikesh, Group CFO, to share the highlights of business and financial performance for the quarter. I hope you have gone through our results release and quarterly investor presentation that have been uploaded on our website as well as stock exchange website. The transcript for this call will be available in a week's time on the company's website. Please note today's discussion maybe forward-looking in nature and must be viewed in relation to risks pertaining to our business. After the end of this call, in case you have any further questions, please feel free to reach out to the investor relations team. I now hand over the call to Mr. Badree to make his opening comments.
Badree (Strides Pharma Science Ltd): Thank you, Abhishek. Good morning, good afternoon, and good evening, everyone, and a warm welcome to the Strides Q2 and H1 FY27 earnings call. Thank you for joining us and for the trust and support so many of you have shown us over the years. As always, I'll begin with the overview of the quarter, and I'll share an update of our overall FY28 aspirations, followed by our US ex US and ex-US business. Vikesh will then take you through the financial performance in greater detail, after which we will be happy to take your questions. Q2 FY27 has been a quarter of firsts for Strides. We delivered our highest quarterly revenue and, for the first time in our history, our ex-US business became larger than our US business, a milestone we had set for FY28 and have reached well ahead of the schedule. Let me share the headline first. Our overall FY28 growth aspiration remains intact.
Badree (Strides Pharma Science Ltd): business is accelerating fast, faster than the US and well ahead of the schedule. Let me say that again. Our overall revenue ambition for FY28 is firmly in place. What will change is the regional mix with ex-US accelerating accelerating more than the US. Our goal for ex-US was to match the US by FY28, and we have achieved that in the Q2 of FY27 itself. As we highlighted last quarter, we expect H2 to be stronger than H1. On the Q2 FY27 performance, I'll cover the broad highlights. With this, let me take you through the quarter, and I am delighted to report a strong second quarter. Revenue for Q2 FY27 reached 14,297 million, our highest ever, growing at 17% year-on-year and 13% quarter-on-quarter, led by our ex-US business and delivered against a challenging macro backdrop. Ex-US now contributes 49% of our revenues, up from 43% in Q2 of last year, a clear sign that our diversification strategy is delivering. Absolute gross margins grew a healthy 13% year-on-year to 8,003 million, and gross margins stood at 56% compared to 57.8% in Q2 last year and 60.9% in Q1 this year, reflecting a higher input cost linked to the geopolitical situation. EBITDA grew 8% year-on-year to 2,509 million, crossing the 2,500 million mark in a single quarter for the first time. Another milestone for Strides, another milestone for Strides. EBITDA margin was 17.6% compared to 19% in Q2 last year and 18.2% in Q1 as we absorbed the high material, freight, and logistics costs linked to the same geopolitical situation. We are actively addressing these cost pressures through an alternative sourcing, procurement initiatives, and continuous cost optimization measures across the business, and we are confident in our ability to manage them. Operational PAT grew a strong 12% year-on-year to 1,358 million, and an operational EPS rose to 14.7 from 13.2 in Q2 of last year. Before I move to our individual businesses, let me step back and share an update on our FY28 aspirations, which many of you will have already seen in our presentation. Let me begin with our track record because I think it tells our story better than any words I could use. Over the last 10 quarters, since Q1 FY25, we have delivered a steady and predictable growth across key metrics. Revenue has compounded at at about 14% and EBITDA at about 13%, and operational PAT at about 41%. The consistency gives us a real confidence as we enter the next phase of our growth. We had shared an aspiration of about 375 million in US original revenue by FY28. Given how the market has evolved, we now expect to reach this a little bit beyond FY28. The timing has moved, the ambition has not. Importantly, our growth ambition for the rest of the company remains fully intact. Our ex-US market is accelerating well ahead of the plan, and we expect Strides to sustain the overall top line growth along with its profitability. On the US, the only thing that has moved is the timeline. The business continues to grow at a more measured pace, and the reasons lie in the market rather than in our commitment. A few things have changed since we set this aspiration. First, the drug shortage opportunities in oral solids, which lifted the industry at that time, have largely normalized. Secondly, operating costs are higher with increased material costs and our decision to hold more inventory to sustain our industry-leading service levels. We also chose not to launch products that did not meet our margin profile to protect the profitability. And third, the growth in controlled substances is constrained by quota allocation, which we expect to improve progressively. Our response is rooted in our core business philosophy and rest on three pillars. First, the profitability-led growth. We'll protect our established profitability thresholds and drive margin accretive revenues through selective launches and an expanding set of differentiated platforms. We will not compromise on the profitability or the quality of our business
Badree (Strides Pharma Science Ltd): to chase revenue. Second, rebalancing our growth engines with a sharper focus on the ex-US to drive geographical diversification and accelerate overall growth. And third, the US remains as a strategic growth market for us, with growth anchored in differentiated platforms such as nasal sprays, patches, films and a steady, expanding controlled substance portfolio. While our US business has remained an anchor for us, the ex-US business has grown up right alongside it. This is where we are seeing the real acceleration. Our ex-US business grew 24% in H1 FY '27. Our goal for ex-US revenue to match the US by FY '28, the ex-US was 76% of the US business in FY '25, 90% in FY '26 and in Q2 FY '27 it reached 102% crossing the US well ahead of the schedule. That is a strategy patiently pursued for years and coming to life. Ex-US now stands equal with the US not instead of it, but alongside it and the market and that makes Strides stronger as a whole. With growing scale, operating leverage and a better portfolio mix, we expect the continued margin expansion in the business. As a result, we now have two strong growth engines both pointing in the same direction. Our US business is our foundation with deep market leadership, a broad approved portfolio and a growing pipeline of differentiated and controlled substances products. Our ex-US business is our accelerator with a strong presence across Europe, UK, Nordics, Africa, a robust launch engine and a long runway to into new territories. Both are powered by the same discipline, a deep pipeline, steady launches and a relentless focus on serving our customers. These two engines do not compete, they strengthen each other. They give us more ways to grow and make us more diversified and resilient. With that, let me take you through the through our US business. Revenue for Q2 stood at Rs. 6,855 million or $73 million, growing 9% year-on-year and 9% quarter-on-quarter. For H1, the US revenue was Rs. 13,137 million, up 7% year-on-year. As we indicated in our last call, we expected a shorter, softer first half, and I'm encouraged by the healthy sequential recovery we delivered this quarter. Our B2B partner business saw a strong order book and was and we secured meaningful new business wins during the year from our partner products, our recent launches and other key molecules in our portfolio. These wins will begin to show up in our performance over the coming quarters and underpin the hit better H2 we have been talking about. We continued to deliver industry-leading service levels to all our customers. This is a real competitive advantage and it is central to winning and retaining business with some of the largest customers and partners in the market. Our portfolio gives us a strong foundation. As of October 26, we have filed 230 ANDAs, out of which 212 have been approved, covering 154 products. We also have a basket of ANDAs yet to be launched, and we will commercialize these at an opportune time. During the quarter, we launched three products, taking our commercial portfolio to 75 products, up from 72 at the end of Q1. We now hold top three positions in 38 product products, which together contribute approximately 70% of our revenues. As I mentioned earlier, our US portfolio is steadily shifting towards higher-margin, differentiated products. We have more than 40 value-accretive products in our active pipeline with filings and approvals planned in a phased manner and commercial commercialization through FY '30. Controlled substances is a key part of the strategy and we see a much larger opportunity ahead. Our CS business saw higher customer orders in Q2 and today our five commercialized
Badree (Strides Pharma Science Ltd): domains including nasal sprays, patches, films, which will expand our addressable market size to around $4.5 billion, about 6 times the market we serve today. Importantly, these niche products need only limited API quota, so they can drive the ramp-up of this business even with within today's allocations. We also hold an advantage that takes years to build. Regulators require these products to be manufactured in the US, and our Chestnut Ridge facility already has the capacity and expertise to do exactly that. Beyond the controlled substances, we have more than 25 non-CS products to strengthen our core core portfolio. Together, these products are set to broaden our addressable market, deepen our portfolio differentiation, and create exciting medium to long-term growth opportunities. Our near time mile milestones are already in sight. We continue to invest in building our nasal spray portfolio, and as committed in our last call, we filed our third nasal spray, also a controlled substance, in September 2026. Our nasal spray has a GDUFA goal date in H2 FY '27, and we expect approval in Q4. In transdermal patches, we expect to launch a controlled substance patch in Q3. This product came to us as a part of the ANDAs we acquired, and we expect its full benefit to flowing into in FY '28. Overall, we expect a better H2 for the US business. We are committed, we are invested, and we are building for the long term, growing in a disciplined way that protects the quality of our earnings. Moving to the ex-US markets, our accelerator, the most exciting part of our story, the ex the ex-US market for Q2 reached INR 6,963 million, an outstanding 31% growth year to year-on-year. For H1, the revenue was INR 12,838 million, up 24% year-on-year. Importantly, even as ex-US markets grew faster than the company average, we maintain the profitability of this business. What encourages me most is how broad the growth is. Every U ex-US market continues to show healthy momentum driven by new product launches and expansion of our core base into new geographical into new geographies and with new partners. In Q1, we had said that certain shipment delays were a matter of timing and not demand. I am pleased to say that with a robust supply chain execution, we delivered Q2 without any spillovers and demand, and order books across our key US markets have remained very healthy. In the UK, our prescription business delivered a strong performance with healthy pricing, volume momentum across several key molecules. We continue to deepen our relationship with the leading wholesalers in the market, positioning us as a dependable supply partner. We expect to launch we expect that launch momentum to pick up here and drive the next stage of next leg of growth. In Europe, our partner business delivered a strong performance on the back of higher customer offtake. Our private label business, OTC business in Germany, continues to grow strongly with wider pharmacy reach and an expanding product portfol portfolio. We are adding new customers across several countries and multiple new out-licensing deals we signed in the first half, which will further strengthen our momentum. Focused R&D investments and a broader customer base will continue to fuel growth in that region. The Nordics delivered a strong quarter-on-quarter growth led by base portfolio. Our branded prescription business is showing very encouraging early signs of in in in the market in-market uptake with some of our branded products now positioned as first-line treatment across several regions in Denmark and more regions expected to follow. Together with the increasing launch momentum, our branded portfolio is expanded to drive growth in the Nordics in the second half. In Australia, the supply contract improved meaningfully, and we have agreed on new projects with our key partners, which are now at various stages of implementation. In Africa, our branded business in Francophone Africa delivered stellar growth, and we continue to outpace the underlying market. Our deal with Sandoz is now awaiting antitrust approvals
Badree (Strides Pharma Science Ltd): the independent pharmacy channel and added new products and new business with a leading retail pharmacy chain. Overall, the strong launch pipeline and an expanding customer base and a significant regulatory filings underway is underway across all of our territories. We expect the full ex-US business to keep grow growing faster than the company average. Before I close, I am delighted to share an important governance update. We are pleased to welcome Mr. Byram Vakil to our board as an independent director. Byram is a chartered accountant with a more than three decades of experience in financial reporting, audit, taxation, and corporate governance and has chaired the audit committee of eClerx Services and 3M India. His appointment will further strengthen the board's financial oversight and with it, independent directors is now to make up six of our 10 directors. Byram, welcome to Strides. Before I hand over to Vikesh, let me leave you with a one clear message. Our overall growth growth story is intact. While our US aspiration will take a little longer, our focus on growth is unchanged. We'll continue to pursue top-line growth across geographies without compromising on profitability. Our commitment to US is equally unchanged. It remains a core market, central pillar of our growth, and a home to some of the most exciting opportunities in our pipeline. Our US business is strong, our ex-US business is accelerating, and together, they give us more ways to grow than at any point of time in our history. With that, I will hand it over to Vikesh to take you through the financial performance. Vikesh, over to you.
Vikesh (Strides Pharma Science Ltd): Thank you Badree. Good morning, good afternoon, and good evening and thank you all for joining us. Badree has taken taken us through the headline performance for the quarter. I will focus on the drivers behind our profitability, cash flows, and balance sheet metrics. Starting with gross margins, our material cost rose to 44% of revenues in Q2 from 42% 42.2% last year, reflecting the increase in raw material costs that Badree described. This moderated our gross margins to 56% for Q2. Importantly, for the first half, gross margin stood at a healthy 58.3%. Our ex-US businesses, which where we have maintained profitability even as it's scaled, continues to support the quality of our margins. With cost increases now moderating and our cost improvement programs, including alternate sourcing and procurement initiatives gaining traction, we are confident of sustaining our H1 gross margins going forward. Even in this challenging environment, we remained we remained committed to our margin discipline, launching only products that meet our profitability threshold and continuing to focus on the quality of our revenue growth. Our EBITDA for the quarter was ₹251 crores, our highest ever at a margin of 17.6%. Higher materials, freight, and supply chain costs linked to the geopolitical situation compressed our margins and tempered the flow-through of a very strong revenue growth. But it did not hold back the growth in our absolute profitability. With the two growth engines, US and ex-US now contributing in balance, our earnings base is more diversified and resilient than ever before. On operating costs, other operating costs, excluding freight, increased by ₹47 crores year-on-year due to higher manufacturing and other operating costs in manufacturing and freight costs increased ₹21 crores year-on-year to 5.5% of revenues. Even with this cost increases increases, operating leverage is still visible as total operating costs improved by 40 basis points to 38.4% of revenues. In terms of cost line items below EBITDA, our depreciation and amortization was at ₹57 crores for the quarter and net finance cost was at ₹43 crores, slightly higher due to the higher average working capital borrowings we had during the quarter. Operational PAT grew a healthy 11.5% year-on-year to ₹136 crores with an operational EPS of ₹14.7 per share and our EBITDA to operational PAT conversion remains steady at 54%.
Vikesh (Strides Pharma Science Ltd): From a H1 perspective, the first half delivered steady growth across all our key metrics. H1 FY27 revenues grew 15.1% to 2,695 crores. EBITDA grew 6.9% to 481 crores with a seven 17.8% EBITDA margin, and operational PAT grew 9.8% to 259 crores with operational EPS of of rupees 28.1 per share. Reported PAT for for the first half was at 300 crores, which was up 26.4%, and this included the gain on pivot parts parts divestment which we recognized in Q1. Moving to working capital, our cash-to-cash cycle stood at 137 days. This is up 13 days from March 2026, with absolute working capital increasing by 307 crores during the first half. This reflects two components: investment in inventory to counter the elongated supply chain timelines and the working capital which supported our growth. Approximately 174 crores reflects the 14 days increase which we have seen in our inventory levels from Q4. This has been due to the higher transit and lead times due to the geopolitical situation, and we also had a deliberate increase in our finished goods inventories at all our front-end locations. This has helped us get back to the industry leading service levels in a tough operating environment. These service levels have been central to the new business wins we secured in in the US in this quarter and also delivering growth on our ex-US markets. The remaining 133 crore increase in working capital is on account of the 15% revenue growth we achieved in H1. We remain steadfast in our efforts to continuously improve our cash-to-cash cycle and get them back to our historic levels. On net debt, as we had earlier indicated, the inventory buildup over over the last two quarters was expected to lift our net debt to EBITDA ratio temporarily. The ratio now stands at 1.72x, reflecting the 211 crore increase in net debt duri- during H1 driven by working capital. At the same time, we continue to invest in our future, deploying 208 crores in CapEx and intangibles to support our growth platforms, including our nasal spray and transdermal patch programs. These investments are directed at differentiated at the differentiate differentiated pipeline Badri outlined, including our con- controlled substances opportunity, which will broaden our addressable market and support margin accretive growth. As inventory normalizes and H2 launches and business wins begins to contribute, we remain continue we remain focused on growth and improving our cash-to-cash cycle. With this, we expect our net net debt to EBITDA ratio to stabilize and improve by the end of the year. This net debt is not adjusted for the retained investment we hold in OneSource, which is now valued at approximately 290 crores. On ROCE, our trailing 12 12 months ROCE was at 14.4%, remaining in the 14% to 15% range. As growth con as our growth continues and recent investments mature, we expect these returns to improve. To summarize, Q2 delivered record revenues and EBITDA in a challenging cost environment, and the first half saw steady growth across all our key metrics with both our US and ex-US business contributing in tandem. As we enter the second half, our priorities are clear: build on build on our growth momentum across these markets, preserve our gross margins, improve our cash-to-cash cycle, and strengthen our net debt to EBITDA ratio. With the overall growth aspiration for FY28 being intact and operating leverage playing out, we continue to maintain that bot- bottom line should accelerate ahead ahead of top line. We are confident in the strength of our business and in our ability to deliver on these priorities. Thank you, and we are now happy to take your questions.
Moderator: [laughter] Nazneen, we open for Q&A, please. Yes, sir. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.
Moderator: The first question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
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