Analyst's Diary: Gaining from generics

A solid track record? Check. Stable profits? Check. Impressive return ratios? Also, check. Our search for these investing holy grails led us to a small-cap pharma player that ticks all the boxes. Windlas Biotech, a contract manufacturing organisation (CMO), has doubled its revenue in the last four years while keeping its operating profit margin stable between 9 and 10 per cent. Beyond stable profits and growth, Windlas also demonstrates impressive operational efficiency as its fixed asset turnover (measures how effectively fixed assets generate sales) has been stable at over four times. All this has been achieved at a capacity utilisation of just 60 per cent. Which means the company's return ratios will only look better as it starts operating at increased capacity. What led to these gains The company's extremely targeted focus on generics has driven its growth. It specialises in manufacturing and developing generic formulations (branded) for pharma companies. It earned 77 per cent of its FY24 revenue from generics formulations and 19 per cent from trade generics (non-branded off-patent drugs). It provided contract man