Growth Strategy
Akums Drugs & Pharmaceuticals is focusing on expanding its Contract Development and Manufacturing Organization (CDMO) business both domestically and internationally. The company secured a significant €200 million contract for the European market, with commercial supply expected from 2027 to 2032. This marks a key step in its global expansion strategy.
Other key strategies include:
- R&D Investments: INR 94 crores invested in the first nine months of FY25, with seven new DCGI approvals, including a key antidiabetic product.
- API Business Rationalization: Focusing on high-margin APIs while reducing exposure to low-margin cephalosporins.
- New Partnerships: Exclusive agreements with Caregen (South Korea) and Triple Hair (Canada) to introduce innovative dermatology and metabolic products in India.
- Infrastructure Expansion: Plans to invest INR 32 crores in R&D upgrades and INR 175-200 crores annually in new production plants and capacity expansion.
Future Outlook
- CDMO Market Leadership: With a 30% market share in India’s CDMO sector and partnerships with 26 of the top 30 Indian pharmaceutical companies, Akums is well-positioned for sustained growth.
- European Expansion: The €200 million contract lays the groundwork for additional opportunities in regulated markets.
- Injectables and Specialty Dosage Forms: Increasing capabilities in injectables, bi-layered tablets, and large-volume parenterals will enhance the product portfolio and margins.
- Financial Strength: Despite a 6% YoY revenue decline in Q3 FY25 (mainly due to API pricing), EBITDA grew by 12% and adjusted PAT by 15%, indicating improved profitability.
Challenges
- API Business Losses: The API segment is still operating at a loss (INR 11 crores in Q3 FY25), with break-even expected in the next 1-2 years.
- Regulatory Approvals: European expansion depends on obtaining manufacturing site approvals by 2026.
- Capacity Utilization: Currently at ~40%, indicating room for improvement before maximizing fixed cost absorption.
- Competitive Pricing Pressures: CDMO and generic markets are highly competitive, requiring continuous cost optimization and innovation.
Is Akums a Good Buy?
Strengths:
- Strong CDMO growth, increasing global contracts.
- Improving profitability despite revenue fluctuations.
- Robust R&D pipeline and strategic partnerships.
- Clear expansion roadmap with controlled capex investments.
Risks:
- Short-term API losses could weigh on margins.
- Dependence on regulatory approvals for global expansion.
- Capacity utilization challenges may delay full margin realization.
Verdict:
For long-term investors, Akums presents a compelling growth story backed by strategic global expansion, improving margins, and a leadership position in India’s CDMO space. However, near-term challenges in the API business and regulatory dependencies must be considered. Investors with a high-risk appetite and a long-term view could find this an attractive opportunity, especially if the company continues to execute its strategic initiatives effectively.