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ICICI Securities Report
Cohance Lifesciences Ltd. reported its weakest quarter as shipment across segments have deferred to the quarters ahead. Lower utilisation at manufacturing plants, higher overheads and continued losses at NJ bio resulted in exceptionally weak margin (down ~2,000bps YoY to 0.3%).
Performance of the Pharma CDMO segment is expected to improve in H2 FY27, albeit from a lower base and with order inflow for a commercial product. Traction in nucleic acid capabilities at Sapala is picking up; and in Q1 FY27, it reported revenues of Rs 274 million.
Management has so far gained success in building an integrated nucleic-acid business under Sapala and is repositioning itself with innovator in the agrochemicals segment. While the new management is trying to revamp operations, the pace of recovery in earnings would largely depend on execution of commercial programmes, better utilisation of existing capacities and improvement at NJ Bio.
Management expects to post a sequential recovery in Q2 FY27 and reach FY26 margins level of 19% in the near term.
ICICI Securities cuts its FY27E/FY28E earnings by ~38%/5% to factor in slower growth and lower margins.
At CMP, the stock trades at 56.7x FY27E and 33.3x FY28E EV/EBITDA.
The brokerage maintains its Reduce rating with a lower target price of Rs 365 from Rs 415 based on 25x EV/EBITDA (unchanged).
Key upside risks:
Surge in new order inflow; resumption of supplies for existing large projects; and new order wins for commercial projects and M&As.
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