Back in 2022, a shipment of Indian-made eye drops was linked to a rare bacterial infection in the US. Three people lost their vision. One person died.
The USFDA traced the contamination to a manufacturing plant in Chennai. The facility was shut down. The damage to India's pharmaceutical reputation, however, was harder to contain.
This wasn't an anomaly. It was a pattern. For decades, India has worn the badge of the world's pharmacy with pride, and for good reason. Indian manufacturers supply nearly 20% of global generic medicines by volume.
But affordability built on shaky manufacturing standards is a ticking clock. So it was about time regulators stepped in, and they did so in January 2026.
The Drugs Controller General of India mandated full enforcement of Schedule M norms that set baseline manufacturing standards covering factory design, hygiene, quality systems, staff training, and process validation.
Within the pharma segment, the CDMO, or contract manufacturing, space is very interesting. It’s touted as the fastest-growing segment of the vast healthcare industry.
Many pharma companies in India have stepped up in CDMO and are well placed to capture this opportunity.
With that in mind, we look at some undervalued CDMO stocks investors should track.
These stocks are filtered using Equitymaster’s stock screener: Best Pharma CDMO Stocks.
Akums Drugs & Pharmaceuticals stands out as the largest CDMO in the Indian market, with roughly 30% share of outsourced manufacturing for domestic pharma companies.
It caters to therapeutic areas such as cardio-diabetes, neurology, gynaecology, nephrology, anti-infectives, respiratory, analgesics, and multi-vitamins.
Twenty-six of the top 30 Indian pharma firms are its clients. While India and other developing markets remain core, Akums has been steadily preparing for regulated markets, particularly Europe, by getting its facilities approved.
Turning to its financials, Akums Drugs’ sales and net profit have grown at compound annual growth rates (CAGRs) of 11% and 51%, respectively.
The company’s return on equity and return on capital employed have averaged 8% and 6% during the same period.
In its recent earnings call, the management highlighted that margins saw a dip as API prices continued their downward trend.
However, it has strong growth plans for the coming quarters. It has entered into a partnership with the government of the Republic of Zambia. There will be a joint venture with the Zambian government to establish a manufacturing plant in Lusaka, the capital. It’s anticipated to begin production in 2028.
Additionally, Akums Drugs and Pharma recently completed a European GMP audit, with approval expected by the fourth quarter of this year.
On the export side, the company has successfully shipped its first commercial batch of Dapagliflozin tablets to Switzerland.
As Schedule M enforcement tightens, Akums is well placed to attract incremental business. Higher volumes, better capacity utilization, and operating leverage could enhance its profits.
As far as valuations are concerned, at the current price of ₹499, Akums Drugs trades at a price-to-earnings multiple of 24, slightly above its five-year average of 23.5. This is lower than its peers, trading at high PE multiples of 50-60.
The company is a global contract research, development and manufacturing organization (CRDMO). It provides integrated scientific services to pharmaceutical, biotechnology, animal health, consumer goods, nutrition and speciality chemical companies worldwide.
It has some of the world's leaders in their fields as its top clients, including global multinationals such as BMS, Baxter, Amgen, and Herbalife. What's more, it holds over 400 patents jointly with clients and has a base of 6,000 scientists.
A 70% subsidiary of Biocon, it currently derives around 90% of its revenue from exports. One-third of its revenue comes from long-term dedicated contracts with commitments of five years or more.
Turning to its financials, over the past five years, sales have grown at a CAGR of 13%, while profit growth has been around 4%.
The company's five-year average ROE and ROCE stand at 13% and 15%, respectively.
While long-term financials are intact, its recent earnings have taken a toll on its business. In the third quarter of FY26, its revenue from operations declined 3% year-on-year to ₹917.1 crore. The net profit dipped sharply to ₹15 crore compared to ₹131.1 crore in the year-ago period.
A key factor that impacted performance was the ongoing issue with a single commercial product from the largest large-molecule biology customer.
In its Q3 earnings call, management highlighted the impact of the single-product headwind, which could spill into Q4 and a few quarters of FY27.
However, the company is actively working to diversify its business and build stronger relationships, so that exposure to single-product events is minimised.
Syngene recently extended its partnership with Bristol Myers Squibb, which remains its largest client. The collaboration has been extended through to 2035.
It has also expanded its advanced chemistry capabilities in Hyderabad, including new catalytic screening and flow chemistry laboratories.
The company has also commissioned a new commercial-scale facility for liquid-filled hard gelatin capsules, significantly enhancing its oral solid dosage platform.
Overall, the company's differentiated scientific capabilities, long-standing client relationships and diversified business model across research services and CDMO will provide resilience, balance, and growth.
Valuation-wise, the stock is trading at a PE of 38 compared to its five-year average of 57.
The company is engaged in speciality pharmaceuticals, contract development and manufacturing, generics, drug discovery and proprietary novel drug businesses.
It manufactures radiopharmaceuticals, with a network of 46 radio-pharmacies in the US, allergy therapy products, contract manufacturing of sterile injectables and non-sterile products, APIs and solid dosage formulations through six USFA-approved manufacturing facilities.
Among all the key segments it operates in, the CRDMO is expected to drive major growth in the coming years, with the company planning significant capex outlays for this business. The management has said that incremental revenue from the capacity expansion of the CDMO business shall accrue in FY26 onwards.
Its CDMO sterile injectables business has been witnessing a healthy order book traction, led by MNC pharma companies based in the US and Europe.
Coming to its financials, the company’s sales and net profit have grown at a tepid rate of 4% over the past five years.
Its five-year average ROE and ROCE stand at 7% and 9%, respectively.
Last year, Jubilant announced a partnership with Pierre Fabre of France, which would enable it to expand its footprint in Europe. This is in addition to its existing services, including integrated drug discovery services from India.
As for valuations, the stock trades at a PE of 29, compared to its five-year average of 36.
The companies we have discussed have big plans for their CDMO segments.
This sector offers a growth opportunity linked to global supply chain diversification.
However, investors should evaluate the long-term fundamentals, corporate governance, and valuations as key factors when conducting due diligence before making investment decisions.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
The promoters of HT Media Ltd, which publishes Mint, and Jubilant Pharmova are closely related. There are, however, no promoter cross-holdings.
This article is syndicated from Equitymaster.com