Neuland, Lupin, Divi's lead domestic, CDMO surge amid US generics headwinds

Domestic formulations and contract manufacturers are emerging as the bright spots in India’s pharmaceutical sector, even as US generics face growing margin pressures, according to Nuvama analysts’ note dated November 24, 2025. 

 

Companies such as Neuland Laboratories, Lupin, IPCA, and Divi’s Laboratories delivered strong quarterly results, driven by robust domestic demand and thriving CDMO businesses, while gRevlimid-related revenues in the US continued to taper.

 

Revenue, earnings before interest, tax, depreciation and amortisation (Ebitda), and profit after tax (PAT) of the coverage universe rose 12 per cent, 11 per cent, and 14 per cent year-on-year (Y-o-Y) in Q2FY26, with Ebitda margins largely stable at 25.9 per cent. 

 

 

Strong Ebitda gains were seen at Neuland and Lupin, supported by a healthier product mix, analysts said. On the other hand, Dr Reddy’s, Cipla, Zydus, and Natco faced margin pressure due to gRevlimid erosion. Analysts noted that Neuland, Natco, Lupin, IPCA, and Divi’s Labs substantially beat estimates, whereas Aurobindo, Zydus, and Biocon lagged. FY27E earnings upgrades are expected for Lupin, IPCA, Alkem, and Neuland.  CATCH STOCK MARKET UPDATES TODAY LIVE

Domestic market remains resilient

 

India’s pharmaceutical market (IPM) grew 7.3 per cent Y-o-Y, while revenue for the coverage universe increased 9.5 per cent Y-o-Y. Dr Reddy’s India business led the charge with 13 per cent growth on the back of price-volume gains and new launches. Alkem, Ajanta, Torrent, and Sun Pharma posted growth between 11-12 per cent Y-o-Y. Lupin’s India business rose a modest 3 per cent in H1FY26; adjusting for loss of exclusivity (LOE) products, the growth was 10.7 per cent Y-o-Y. Analysts see semaglutide as a key domestic opportunity for FY27, along with productivity gains from medical representative (MR) expansions.

US generics face headwinds; emerging markets hold up

 

North American revenue for the coverage universe rose only 2 per cent Y-o-Y, reflecting declining gRevlimid sales. Lupin benefited from Tolvaptan exclusivity, while Alkem, Torrent, and Ajanta Pharma posted strong growth via new launches. Dr Reddy’s US revenue fell 16 per cent Y-o-Y. Sun Pharma’s global innovative medicines business grew 16 per cent Y-o-Y to $333 million. Meanwhile, revenue from emerging markets and the Rest of World (RoW) expanded 19 per cent Y-o-Y, largely led by Lupin and Zydus.

CDMOs deliver strong gGrowth

 

The contract research and manufacturing organisation (CRDMO) segment maintained momentum, delivering 23 per cent Y-o-Y growth. Neuland Labs doubled its CMS revenue, while Divi’s Laboratories and Jubilant Pharmova grew 28 per cent and 23 per cent Y-o-Y, respectively. Analysts highlighted capacity expansions and new project additions as key drivers, with an overall positive outlook for margins.  ALSO READ | UBS initiates 'Buy' on Shaily Engineering Plastics; sees 60% upside

Top picks: Domestic, CDMO, and Generics/Biosimilars

 

Among domestic companies, Ajanta Pharma (TP: INR 3,250) stands out with an expected 17-18 per cent Ebitda CAGR over FY25-27E, supported by a ~20 per cent expansion of its sales force and domestic growth. Two-thirds of its business comes from branded generics, giving it a strong margin profile. Analysts cite upcoming US launches, MR productivity gains, performance in new therapies in India, and expansion in African markets as potential growth drivers. IPCA (TP: INR 1,610) is expected to achieve 10-11 per cent domestic growth in FY26, supported by its chronic portfolio and 400-500 annual MR additions. Strategic integration of Unichem is expected to stabilise performance, improving Ebitda margins to 15–20 per cent over 1.5-2 years, while ROCE is projected to reach ~18 per cent by FY27E.

 

Torrent Pharma (TP: ₹4,180) is set to merge with JB Chemicals in FY27, providing a stable cash-generating base with potential synergies. Semaglutide launches in India and Brazil are expected to bolster revenue, alongside prospects in the Lozenges CDMO business and export markets such as Russia and South Africa. Among CDMOs, Divi’s Laboratories (TP: ₹7,700) is well-positioned for non-linear growth over the next 2-3 years, driven by commercialisation of multiple CS projects, dedicated capex initiatives, and improved utilisation at its Kakinada unit. Neuland Laboratories (TP: ₹22,130) is expected to benefit from new CMS molecules, a dedicated production block, peptide facility investments, and an improved product mix, providing strong mid- to long-term visibility.

 

In the generics and biosimilars space, Aurobindo Pharma (TP: ₹1,420) offers attractive valuation with potential 10-15 per cent EPS upgrades in FY27E from the Lannett acquisition and possible government MIP announcements. Its US base business excluding gRevlimid has shown steady growth, with long-term catalysts including European generics, biosimilars, and CDMO operations. Biocon (TP: ₹480) is showing recovery, led by biosimilar growth, operating leverage in generics via new launches including GLP-1, and lower finance costs, with a projected 15 per cent/19 per cent revenue/Ebitda CAGR (FY25-28E) while maintaining margins near 23 per cent.

Pharma sector outlook

Analysts noted that while US generics face margin headwinds, domestic formulations and CDMOs remain resilient. Biosimilars are also poised for growth through new launches and regulatory support. Investors are advised to focus on domestic, CDMO, and selected generics/biosimilars companies for mid-to-long-term growth. 

Disclaimer: Target price and stock/sector outlook has been suggested by Nuvama Institutional Equities. Views expressed are their own.