Strong domestic traction and quality norms to drive growth…
About the stock: Established in 2006, Innova Captab Limited, is an integrated pharmaceutical company engaged in Contract Development and Manufacturing Organization (CDMO) services and Branded Generics. It’s manufacturing capabilities encompass tablets, capsules, liquid orals, ointments, dry syrups and dry powder injectables; and along with advanced formats such as BFS-based parenterals.
• It has 9 manufacturing blocks and 5 manufacturing units in India with diversified portfolio of ~4200 products and a presence across 60+ countries
• FY26 Revenue contribution – CDMO services: 69% and Branded Generics: 31%
Investment Rationale
• Expansion in Jammu for revenue traction: The company has commissioned its Jammu facility for Domestic CDMO services and branded generics in January, 2025 with a capex of ~₹450+ crore. The plant’s capacity utilisation was ~5–10% in FY26 and it generated revenues of ~₹300 crore. It is expected to ramp up to 40–50% over the next 2–3 years. At the peak utilization of 55- 60%, the Jammu facility can generate annualized revenues of ₹1400 crore (3- 4x asset turnover). Supplies for 14 out of the top 15 customers are expected to begin by Q1FY27 and we believe this should boost growth and aid margin expansion driven by better operating leverage (expected to generate positive cash in FY27) and stability in API prices. The management targets to double revenues, EBITDA and PAT over the next three years.
• Tailwinds from new Schedule M norms shift: The government’s Schedule M manufacturing norms which are in sync with the WHO standards in terms of quality, safety, hygiene and documentation, have become mandatory from 1st January 2026 (no further extensions). Over 60% of India’s ~8,500 registered small and medium pharmaceutical units could be compelled to cease operations due to non-compliance with revised Schedule M rules. These units together account for an estimated ₹75,000 crore of turnover (~1/3rd of overall market). With the impending implementation of schedule M by the government, we expect significant number of smaller pharma players who do not adhere to the standards to vacate the manufacturing space and create tailwinds for domestic CDMOs like Innova Captab.
• Piggybacking on strong domestic growth: Domestic Pharmaceuticals growth has been impressive recently with the TTM May growth touching ~11%, thus trending well above the 7-9% range over the past 2-3 years. Qualitatively, the growth has been driven by increased patient volumes, increased penetration of players into tier II-VI towns via MRs and distributors addition and continued traction from chronic therapies. This bodes well for domestic-heavy CDMO players such as Innova.
Rating and Target Price
• We expect revenue to grow at ~20% CAGR over FY26-28E while EBITDA & PAT are expected to grow at ~24% & ~31% CAGR respectively.
• We recommend BUY with a target price of ₹ 1,180 based on 28xFY28E EPS.
