Source: Company website | Photo Credit: BL companies

Neuland Laboratories is an API manufacturer focusing on both generic clients and innovators. The innovator portfolio reflects the company’s evolution beyond generic APIs; that segment has stabilised and is now the largest contributor to revenues. Following a lean patch last fiscal, the company has reported strong growth in Q2FY26 and is expected to sustain the momentum.

We recommend investors accumulate the stock by tracking the stability in the innovator portfolio and the company’s ability to sustain the improved margin profile. The stock trades at 43 times one-year forward earnings, which is a premium to the last five years (28 times) or even the last two years (38 times). This can be ascribed to the increased proportion from the innovator segment and is a critical component for stock appreciation.

Segment-wise growth

The company operates the Prime (28 per cent of H1FY26 revenues) and Speciality (13 per cent) divisions, which cater to generic APIs and intermediates. The Prime division handles high-volume generics and the Speciality division handles low-volume-high-value generics, including ophthalmic products.

The Generics division reported flattish growth in the last two years at 3 per cent and 5 per cent year on year in FY24 and FY25. The volatility of order-flows, especially in the Speciality division, drove the low growth for the segments. The company has added its unit 3, which expands capacity and should support improved growth from the segments; Q2FY26 reported 18 per cent year-on-year growth from generics.

The CMS (contract manufacturing services) division serves APIs and intermediates for innovator companies in clinical testing phase or those that have commercialised the products. As on September 30, 2025, the company has 98 projects in the division across commercial (18), pre-registration (8), early stage of clinical testing (45) and late stages (27). The commercial portfolio is the primary driver delivering 93 per cent of revenues in H1FY26.  

The segment reported 71 per cent year-on-year growth in FY24, but followed it with 17 per cent decline in FY25 owing to slow order-flow. The commercial portfolio saw two product launches last year, which are expected to ramp up in growth, with one additional commercialised molecule anticipated in FY26. The segment has reported 136 per cent year-on-year growth in Q2FY26 based on the order-flow from the recently-commercialised molecules. This, along with the additional molecule, should sustain during the rest of the year.

In the long term, the CMS division should drive revenue growth. The segment, which serves 26 projects in commercialised and pre-registration stages, is expected to witness at least one commercialised project per fiscal. This, along with ramping up sales of already-commercialised projects, should support strong growth.

The company has expanded into the peptide (building blocks of proteins) segment as well, investing in capability, infrastructure and early-stage clients. It has developed process capabilities to develop peptides in the last 10-12 years of development. The company has commissioned a 2,000-litre large peptide facility, which is expected to back research with manufacturing capacity by FY27. Its CMS portfolio includes around 10 peptide projects.

The inclusion of peptides will add another technical line to the portfolio. The Generics division’s new facility, commercialising in FY26, should also support growth. But, just as in FY25 and even Q1FY26, the project and order-flow for Neuland will be “lumpy” and will need to be monitored.

Financials, valuation

The company reported revenue and PAT growth of 65 per cent and 195 per cent in Q2FY26 after a degrowth phase in FY25 that extended well into Q1FY26. From a strong 31 per cent/84 per cent year-on-year growth in FY24 revenues and PAT, the slowdown in order-flow for the three segments delivered a 5 per cent/13 per cent decline in FY25 revenue and PAT.

The company has negligible debt (net debt of ₹6.6 crore on September 30, 2025). Its EBITDA margins are tied to the proportion of revenues from the CMS division. Generics API manufacturing generates 18-22 per cent EBITDA margins. The CMS division and the operating leverage from the additional business can boost the EBITDA margins, as shown in the table. The rise and fall of the CMS division in FY24-25 and its return are well reflected in the EBITDA margins. With expectations of sustained momentum in the CMS division, the EBITDA margins are expected to sustain above FY25 levels with further improvement depending on forex, raw material prices and operational efficiencies.

The stock has declined 21 per cent from the peak in November 2025. But the stock trades at a premium valuation owing to a CMS-heavy revenue mix, which offers high-margin projects and revenue visibility (if there are sufficiently high commercial projects in the portfolio). But revenue volatility is higher till that stage is achieved and investors will have to monitor the company’s revenue stability.

Published on January 17, 2026