Pharma Stock Falls 7% Despite Turning Profitable in Q4 as Cash Flow Declines

A sharp turnaround in quarterly earnings failed to impress the markets today, as shares of a midcap pharmaceutical manufacturer dropped nearly 7% despite posting a return to profitability in the March quarter. The decline reflects investor caution over deteriorating cash flows and ongoing losses from discontinued operations factors that continue to cloud the company’s long-term financial health.

The company in focus is Bajaj Healthcare Ltd, a pharmaceutical firm based in Thane, Maharashtra, engaged in the manufacture of Active Pharmaceutical Ingredients (APIs) and finished formulations. Bajaj Healthcare caters to both domestic and global markets and operates across several therapeutic areas, including anti-infectives, cardiovascular, and gastrointestinal segments.

Q4 Performance

In the quarter ended March 31, 2025, the company reported a total income of ₹16,804 lakh, up from ₹14,035 lakh in the same period last year. Net profit for the quarter stood at ₹778 lakh, compared to a loss of ₹3,294 lakh in Q4 FY24. The strong finish to the year was driven by improved operating efficiency and higher revenues across core pharmaceutical segments.

For the full financial year, Bajaj Healthcare posted a net profit of ₹3,743 lakh, reversing a significant loss of ₹6,379 lakh in FY24. Annual revenues increased by 16%, reaching ₹56,007 lakh. The company’s EPS improved accordingly, reflecting a healthier bottom line after a difficult prior year.

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Cash Flow Concerns

Despite the rebound in profit, Bajaj Healthcare reported a steep 77% drop in operating cash flow. Net cash generated from operations fell to ₹2,162 lakh in FY25, down from ₹9,220 lakh in FY24. This sharp decline raised immediate concerns about liquidity, particularly given the rise in both trade receivables and inventory.

Trade receivables surged 40% year-over-year, from ₹18,024 lakh to ₹25,167 lakh, while inventory climbed to ₹16,189 lakh. These figures suggest that a significant portion of revenue is not being converted into cash a potential red flag for short-term working capital management.

Discontinued Operations

The company’s discontinued operations, stemming from divestments of non-core assets acquired under the SARFAESI Act, continued to affect overall performance. For FY25, this segment posted a loss of ₹343 lakh down from ₹6,947 lakh the previous year, but still a material impact on consolidated results.

Assets classified as held for sale remained at ₹7,551 lakh, with associated liabilities of ₹2,472 lakh. The prolonged holding period and lack of resolution in these legacy units continue to act as an overhang on the balance sheet.

Capital Raise and Debt Realignment

In FY25, Bajaj Healthcare completed a preferential allotment of equity shares and convertible warrants, raising ₹14,970 lakh. The funds were used primarily to repay existing debt and support general corporate needs.

Short-term borrowings were reduced from ₹29,349 lakh to ₹15,796 lakh, while long-term borrowings increased to ₹6,467 lakh. This restructuring has eased near-term debt pressure, though it adds to long-term liabilities.

The Board has recommended a final dividend of ₹1 per share, or 20% of face value, underscoring management’s confidence in the financial recovery. Additionally, the company acquired Genrx Pharmaceuticals Pvt. Ltd. an entity previously under liquidation on a going concern basis post year-end, aiming to expand its capabilities and product pipeline.

Future Outlook

While the return to profitability marks a key milestone for Bajaj Healthcare, the weak cash flow, rising receivables, and unresolved discontinued operations have dampened market optimism. The 7% decline in share price following the results highlights that investors are focused not just on profit figures but on the company’s ability to sustain financial health.

To restore investor confidence, Bajaj Healthcare must prioritize liquidity improvements, tighter working capital controls, and a resolution of legacy liabilities. Until then, markets are likely to remain cautious despite an improved income statement.