We're all set for a new experience. To visit the old Ventura website, click here.
Ventura Wealth Clients

Akums Drugs sees growth potential despite a 10% dip

Stocks
2 min Read Nov 13, 2024
Share

Shares of Akums Drugs and Pharmaceuticals (ADPL) plummeted 10% to ₹645.30 on the BSE during Tuesday’s trade, sparking concerns among those looking to invest in stocks. The sharp fall follows the company’s weak operational performance for the second quarter ending September 2024 (Q2FY25). Over the past two days, the stock has declined by 19% from ₹796.60 on Friday, November 8.

Weak operational results impact stock performance

Akums Drugs reported a 28% year-on-year (Y-o-Y) drop in EBITDA or the earnings before interest, tax, depreciation, and amortisation to ₹134.7 crore in Q2FY25. Margins contracted by 290 basis points to 12.9% from 15.8% in the same quarter last year. Revenue also fell by 12.5% Y-o-Y to ₹1,033 crore, although profit after tax (PAT) increased by 9% Y-o-Y to ₹66.7 crore.

The CDMO, or the contract development and manufacturing organisation segment, contributing 77% of revenue, saw its EBITDA decline from ₹188.2 crore in Q2FY24 to ₹122.7 crore in Q2FY25. Segment margins dropped to 15.4%, compared to 20% a year earlier.

Management remains optimistic despite challenges

The management highlighted ongoing sluggish demand and lower active pharmaceutical ingredient (API) prices as key challenges. Despite these setbacks, they noted quarter-on-quarter growth in revenue, EBITDA, and PAT. They also cited unusually high R&D project income in the previous year’s quarter, which impacted Y-o-Y comparisons.

Looking forward, Akums remains committed to expanding its global presence as a leading CDMO player. The company manufactures over 60 dosage forms, serving major clients like Cipla, Dabur India, and Dr Reddy’s Laboratories.

Challenges in a competitive market

Industry analysts pointed to intense pricing pressure and fluctuating raw material costs as significant challenges for Akums. These factors continue to affect the company’s operating profit margins, particularly in the API segment.

Akums also faces legal and regulatory scrutiny, with summonses from the Directorate of Enforcement (ED) in recent years. While no adverse actions have been taken, analysts will closely monitor developments.

Key takeaways

  1. Akums Drugs’ stock fell 19% in two days, closing at ₹645.30.

  2. Q2FY25 revenue dropped 12.5% Y-o-Y, while EBITDA declined 28%.

  3. Pricing pressures and regulatory risks remain challenges.

  4. Akums is focused on global expansion as a CDMO leader.