ADC Payload Scaling Risks And Regulatory Hurdles Will Shape Long-Term Margin Upside

Catalysts

About Cohance Lifesciences

Cohance Lifesciences is a diversified pharma and specialty chemicals company providing CDMO, API and advanced intermediate solutions to global innovators across small molecules, ADCs and oligonucleotides.

What are the underlying business or industry changes driving this perspective?

• Although global innovators are accelerating supply chain diversification away from China in small molecules and complex chemistries, Cohance still needs to translate its stronger RFQ funnel and late stage wins into timely reloads and commercial volumes. Otherwise, revenue growth may lag the broader opportunity and underutilization could cap earnings.
• While demand for high potent ADC payloads and integrated conjugation capabilities is structurally rising, execution risks around scaling new OEB6 and conjugation suites, as well as dependence on a few commercial payload programs, could temper the pace of margin expansion and delay operating leverage on recent capex.
• Although the company has built an early but differentiated oligonucleotide and GalNAc building block franchise aligned to growing pipelines in rare and orphan diseases, slower than expected customer validation, audit clearances or technology adoption could mean that this platform contributes modestly to revenue and earnings over the next few years.
• While increased collaboration with large innovators in agrochemicals and OLED performance materials positions the specialty portfolio to benefit from long term shifts toward higher value, lower volume chemistries, continued Chinese price pressure and delayed product registrations may restrict pricing power and keep net margins below potential.
• Although a deeper bench of senior scientific talent and expanded global BD coverage should support higher quality CDMO and API pipelines, any further delays in biotech funding recovery or Phase II or III reloads could push out commercialization timelines. This could limit near term revenue visibility and keep EBITDA margins in the high 20s rather than trending toward the mid 30s target.

Assumptions

This narrative explores a more pessimistic perspective on Cohance Lifesciences compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Cohance Lifesciences's revenue will grow by 52.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 14.6% today to 19.5% in 3 years time.
• The bearish analysts expect earnings to reach ₹8.4 billion (and earnings per share of ₹21.06) by about December 2028, up from ₹1.8 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as ₹11.3 billion.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 51.2x on those 2028 earnings, down from 116.3x today. This future PE is greater than the current PE for the IN Pharmaceuticals industry at 28.6x.
• The bearish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.76%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent biotech funding headwinds in the U.S. and longer CMC timelines at NJ Bio could keep project starts and IND enabling work below potential, limiting conversion of a strong RFQ funnel into actual small molecule and ADC revenues and constraining overall earnings growth.
• Ongoing destocking by large pharma customers, delayed reloads for multiple Phase II and Phase III programs and shipment deferrals in late stage and commercial molecules could turn what management calls timing issues into a structural drag, suppressing top line growth and delaying operating leverage on recent capex, which would weigh on EBITDA margins and net earnings.
• Regulatory and quality related disruptions, such as the Nacharam FDF plant issues and the need for audit clearances before fully normalizing shipments, highlight execution and compliance risk that, if repeated across sites, could trigger further shipment delays, customer hesitation and remediation costs, eroding revenue visibility and compressing net margins.
• Intensifying Chinese competition and excess capacity in agrochemicals and certain specialty segments, combined with delayed innovator registrations, may keep pricing under pressure even as Cohance invests in higher value chemistries. This could cap the profitability of the Specialty Chemicals and API businesses and limit group EBITDA margin expansion.
• A growing gap between ambitious long-term guidance, such as the USD 1 billion revenue and mid 30s EBITDA margin aspiration, and repeated near term guidance cuts and flat FY 2026 outlook risks further erosion of investor and customer confidence. This could increase the cost of capital, slow new business wins and ultimately constrain both revenue growth and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Cohance Lifesciences is ₹640.0, which represents up to two standard deviations below the consensus price target of ₹801.11. This valuation is based on what can be assumed as the expectations of Cohance Lifesciences's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1150.0, and the most bearish reporting a price target of just ₹640.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be ₹43.1 billion, earnings will come to ₹8.4 billion, and it would be trading on a PE ratio of 51.2x, assuming you use a discount rate of 12.8%.
  
• Given the current share price of ₹538.25, the analyst price target of ₹640.0 is 15.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.