What Happens After a Pharma Company Gets an FDA Warning Letter?

Every company has a year it would rather not repeat, and for Granules India, that year was the one just before this. A US FDA warning letter at its Gagillapur facility, elevated remediation costs, and the discipline of rebuilding investor trust meant FY25 was about survival and correction. FY26, reported at the company’s April 29 earnings call, is the year that the correction started showing up in the numbers — and the months since have added a few more data points worth tying back to that story.

FY26 in broad strokes

The headline figure tells you where the company landed: revenue of ₹5,366 crore for the full year, up 20% over FY25’s ₹4,482 crore, and the company’s first year crossing the ₹5,000 crore mark. Six straight quarters of sequential growth got it there, alongside a gross margin that climbed to 65% from 50% just four years earlier and a fourth revenue engine that turned profitable for the first time.

Profitability followed the same trajectory. EBITDA came in at ₹1,185 crore, up 25% year-on-year, with margins expanding 100 basis points to 22.1% — a number that already accounts for a ₹45 crore loss from the peptide business, which is still in its early stages. PAT grew 19% to ₹595 crore. The gross margin expansion of 355 basis points was the real engine underneath all of this, driven by a shift toward complex generics and a richer mix of value-added formulations, with peptide CDMO delivering an outsized boost in the fourth quarter specifically — that segment’s revenue rose from ₹33 crore to ₹70 crore quarter-on-quarter, at margins well above the company average.

The balance sheet did its part too. Net debt fell to ₹402 crore from ₹706 crore, net debt to EBITDA improved to 0.34x from 0.75x, and an additional equity infusion of ₹666 crore during the year helped get there. Return on capital employed improved to 17.6% from 16.6%, even while the company kept funding two large simultaneous bets — the new peptide business and continued remediation at Gagillapur.

Two shifts underneath the headline numbers are worth calling out. The first is a deliberate move up the value chain in medicines. Granules has been pushing into products that are harder to make and harder to copy — drugs for ADHD, oncology, and specialised pill formats that require more sophisticated manufacturing. Their share of Granules’ medicines business has risen from 31% to 43% in a single year, supported by R&D spending of about ₹285 crore. The second shift is the entry into peptide manufacturing through the acquisition of Senn Chemicals, a Swiss company with over six decades of experience in the field. Peptides are the active ingredients behind a fast-growing class of drugs — GLP-1 therapies for diabetes and weight loss being the most prominent — as well as certain cosmetic products. This business generated ₹159 crore in FY26 and turned profitable in the final quarter of the year. Management was clear that one good quarter doesn’t set the pattern — revenue in this business will move depending on when customers place and receive orders — but the goal is for it to be profitable on an annual basis from FY27 onward.

What’s happened since the results

The earnings call itself flagged a handful of loose ends, and several of those have since been resolved — giving a clearer read on how the FY26 story is continuing to play out in real time.

The most direct follow-through is on the ADHD medicines front. Granules has been building a portfolio of generic versions of branded ADHD drugs sold in the US, and two approvals came through in quick succession. In December, the company received a tentative go-ahead from the US FDA for a generic version of ADZENYS XR-ODT, an orally dissolving ADHD tablet with a US market size of about $172 million and very few competitors. In January, another tentative approval came in for a generic version of DYANAVEL XR, a different ADHD formulation, in a market worth about $41 million. Both approvals carry a period of market exclusivity, meaning Granules gets a head start before other generic manufacturers can enter. Getting two approvals in the same therapy area within weeks of each other is not routine — it reflects years of R&D work and is the kind of early-mover advantage that the company has been building towards.

On the regulatory front — the part of the story that has carried the most uncertainty — the months since the results have brought mostly good news, with one piece still pending. Two facilities were inspected by the US FDA in December 2025 and both came away clean. The Shamirpet manufacturing facility near Hyderabad was inspected and received a “Voluntary Action Indicated” rating — meaning the inspector noted some procedural points but did not recommend any action against the company. The US packaging facility in Manassas, Virginia was inspected separately and received the best possible outcome: “No Action Indicated,” with zero observations raised. This was the second consecutive clean inspection at that site.

The Chantilly, Virginia facility — which had received four observations during its March-April inspection — also got a clean closure. The FDA reviewed the company’s responses and issued a “Voluntary Action Indicated” rating, meaning no action will be taken. The stock closed about 2% higher on that news.

The one facility still waiting is Gagillapur, which received a warning letter from the FDA in 2024 and has been undergoing remediation since. The company completed all required responses and submitted them to the FDA by February, and management says the facility is ready for a re-inspection. The FDA has not yet announced when it will visit. Every other Granules facility inspected this year has come back with a clean or near-clean outcome — Gagillapur is the last piece yet to be formally resolved.

What this means heading into FY27

Management’s framing for the year ahead was less about big swings and more about converging multiple smaller wins: getting Gagillapur reinspected and cleared, scaling commercial output from GLS — its newly FDA-approved manufacturing facility at Genome Valley near Hyderabad, deepening the complex-generics mix further, and pushing the peptide platform toward full-year profitability. Capex guidance for FY27 sits around ₹600 crore, broad-based across a new API facility, IT investment, and a US distribution center, with management flagging that net debt could tick up modestly given cost escalation pressures from elevated input and freight costs tied to geopolitical disruption in West Asia.

For anyone tracking the stock, FY26 is best read as the year Granules proved its post-warning-letter operating model works — diversified revenue, expanding margins, a deleveraged balance sheet, and a credible second growth engine in peptides. The developments since the results — clean inspections at three more US and Indian sites, and two consecutive ADHD approvals — reinforce that the rest of the network is executing well. The one piece still pending, a clean Gagillapur reinspection, is what finally closes the loop.

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_{Windmill Capital Team: Windmill Capital Private Limited is a SEBI registered research analyst (Regn. No. INH200007645) based in Bengaluru at No 51 Le Parc Richmonde, Richmond Road, Shanthala Nagar, Bangalore, Karnataka – 560025 creating Thematic & Quantamental curated stock/ETF portfolios. Data analysis is the heart and soul behind our portfolio construction & with 50+ offerings, we have something for everyone. CIN of the company is U74999KA2020PTC132398. For more information and disclosures, visit our disclosures page here.}