What I like about Kwality Pharmaceuticals.

A seemingly boring formulations business undergoing some notable changes...

Kwality Pharmaceuticals is in the business of manufacturing formulations, i.e. the end product that patients can consume.

Formulations can be in the form of tablets, capsules, syrups, inhalers, etc.
The company has over 3000 different formulations across 25+ different therapeutic areas, with 55% of the revenue coming from domestic sales and 45% from foreign sales.

It does not conduct quarterly or even annual earnings calls, so we are left to decipher the business on our own with whatever public information is available. First, let’s look at the financials.

Currently trading at a market cap of 1054 Cr, it is in the micro to small cap range.

The PE of 24, and 5-year compounded profit growth of 37% gives it a PEG of ~ 0.65, and a 10-year annualised profit growth of 47% gives it a PEG of 0.52.

Since pharma companies go through deep cyclicality in terms of margins, the Price to Sales (PS) ratio is typically considered a better valuation metric than PE, and the current PS stands at 2.54.

On the face of it, the company seems either fairly priced or undervalued.

In terms of efficiency, the ROCE is 18.4% and ROE is 16.3%, well over the commonly perceived cost of capital.

Debt-to-Total-Assets is 25%, indicating that the balance sheet is not overly leveraged.

The operating margins have been at 22-24% for the last 3 years, indicating core business stability, and a lack of volatility commonly associated with certain pharma niche (eg, CDMO)
Enough numbers, let’s get to the story.

The company is foraying strongly into the regulated markets, which offer higher margins, and that too in high-value therapeutic areas such as Oncology, biosimilars, complex generics and anti-biotics.

The most recent quarter (Q1 FY26) numbers were quite strong.

The management commentary accompanying the results noted that growth was driven by increased sales of registered products in international markets (emphasis added).

The recently published annual report (FY25) also mentions a strong focus on the regulated market: “With approvals from leading global regulatory bodies such as EU-GMP, SFDA, INVIMA, ANVISA, among others, we have deepened our footprint in over 80 countries. Our diverse portfolio—comprising more than 3,000 formulations across General, Beta-Lactam, Cephalosporins, Oncology, and Biological segments—remains a cornerstone of our competitive advantage.”

Note that the regulatory bodies mentioned above are

• EU-GMP → European Union (applies across EU member states)
• SFDA → Saudi Arabia (Saudi Food and Drug Authority)
• INVIMA → Colombia (Instituto Nacional de Vigilancia de Medicamentos y Alimentos)
• ANVISA → Brazil (Agência Nacional de Vigilância Sanitária)

Again, this highlights the management’s effort in expanding the company into regulated markets (hint: higher margins).

The next point to note is that the company is not simply moving ahead with generic or even just complex generics, but also oncology (high margin + high growth) and biosimilars.

The valuation multiple (and the implied competitive advantage) of a pharma company is its focus on research and development (R&D), something that small and even mid-sized formulation players usually completely ignore, but Kwality is “moving decisively” on the “R&D and marketing front”. The company is in the “process of obtaining DSIR approval to further enhance our research capabilities”, with their pipeline including “carefully selected mix of peptide-based oncology products and complex generics, aimed at global filing of the same.”

DSIR here refers to the Department of Scientific and Industrial Research.

It is an Indian government body, under the Ministry of Science & Technology, that recognises and approves in-house R&D units of companies, offering Tax benefits, incentives, custom duty exemptions, and grant eligibility.

A small company like Kwality working in a highly complex (and upcoming) area like peptide oncology signals competence and groundwork for a much larger scale-up.

Peptides are Target-specific (can bind to receptors overexpressed on tumour cells), have lower toxicity compared to chemotherapy and are easier to synthesise than antibodies.

Global peptide drugs market is $40–50B (2025E), with oncology as the fastest-growing segment (8–10% CAGR).

Peptide oncology drugs are replacing older hormonal therapies and emerging as targeted treatments.

Indian pharma is still nascent here, so Kwality gains first-mover edge in a high-margin, less crowded space. Also, oncology peptides typically command 30–50% EBITDA margins, versus ~15–20% for routine formulations.

Management notes that “These programmes are currently at various stages of BE and PE studies.” (BE = Bioequivalence; PE = Pharmacoequivalence)

The co. is also making progress in biosimilars, “our biological erythropoietin has successfully completed preclinical studies and is currently undergoing clinical trials. We expect to commercialize this product within the ongoing financial year, which would mark a major milestone in our foray into biologics.”

(Erythropoietin: protein secreted by the kidneys that stimulates the production of red blood cells)

What I find surprising is how something which is still undergoing clinical trials can be expected to commercialise within the same year. (any thoughts?)

Overall, this seems like a pretty solid long-term pharma story, a story of a generic pharma moving towards its own innovative speciality products, driven by in-house R&D. Those who have spent enough time in the sector can maybe resonate with the obvious that I am trying to highlight here. With an EV/EBITDA of just 13, the current price does not seem to factor in the growth that can come from new, highly complex product launches.

Disclaimer: This post is not a recommendation to buy or sell.