Indian Domestic CDMO Companies

[this post has interactive charts so best viewed on desktop]

Domestic formulations CDMO refers to contract development and manufacturing organisations that primarily serve the Indian pharmaceutical market. These CDMOs typically provide services to Indian pharmaceutical companies that market generic products under their own brand names.

Domestic formulations CDMO is distinct from international CDMO in terms of market focus and regulatory landscape. Some key differences are as follows:

• Market focus: Domestic CDMOs cater primarily to the Indian market, while international CDMOs operate globally, serving clients in various countries.

• Regulatory compliance: Domestic CDMOs need to comply with Indian regulations, such as Schedule M of the Drugs and Cosmetic Act, 1940, while international CDMOs need to meet the requirements of different regulatory authorities, including the US FDA and WHO.

• Client base: Domestic CDMOs primarily work with Indian pharmaceutical companies, International CDMOs, on the other hand, have a more diverse client base, often including multinational pharmaceutical companies.

• Pricing and cost structure: Domestic CDMOs often have a lower cost structure than international CDMOs due to factors like lower labor costs and capital expenses in India. This can enable them to offer competitive pricing to Indian pharmaceutical companies.

The Indian domestic CDMO market is highly fragmented, with many small, unorganised players. However, the industry is expected to consolidate as larger CDMO companies with better infrastructure, technology, and regulatory compliance gain market share. This consolidation may be driven by factors like:

• Cost optimization efforts by pharmaceutical companies

• The need to provide a broader range of integrated services

• Stringent regulatory norms like Schedule M, which encourage the adoption of Good Manufacturing Practices (GMP)

The increasing use of outsourcing by pharmaceutical companies, both in India and globally, is creating growth opportunities for CDMOs, including those focused on the domestic market.

In this post we will look at three listed players in this space

Akums is largest in terms of sales and market cap however Innova is most expensive

Akums has also scaled up its sales fastest in last 5 years compared to peers

This fantastic sales growth for Akums have come at cost of sacrificing operating margins

on closer examination of cost analysis we see that Innova cap’s material cost have reduced dramatically over last 3 years this would need investigation, Also there employee cost are lowest that will also need investigation

Also one of the reasons for margin difference is that

o For Akums, 15-20% of the business comes from their branded generic sales (under its subsidiaries Akumentis & Unosource).

o For Innova, 30-40% of the business comes from branded generic sales & exports (under its subsidiaries Univentus & Sharon)

o For Windlas, ~20-25% of the business comes from trade generic sales and exports.¹

Having looked at present,Now we will shift our focus to future or at-least try to 🙂 All CDMOs have grown big in size the below chart on their fixed assets depicts this

Although Akums has the largest base, Innova is doing most aggressive expansion with its net block is multiplying by 5 times

Innova is also funding this aggressive expansion by deploying all of its Cash generated from operations leaving nothing for maintenance capex thats why we see there debt to equity increasing

Mr Market short verdict has been punishing Akums and rewarding shareholders of Windlas and Innova

It will be interesting to track the execution record of these companies.

Footnotes

1. https://perpetuity.co.in/blog/f/cdmo-for-domestic-formulations---an-emerging-theme-in-healthcare ↩