IOL operating cash falls to Rs 8.3 crore despite H1 FY27 profit

IOL Chemicals & Pharmaceuticals Ltd generated Rs 8.3 crore of net cash from operating activities in H1 FY27 despite reporting Rs 174 crore of profit before tax. A Rs 175 crore working-capital movement and Rs 32.5 crore of direct taxes paid reduced cash conversion, while cash and cash equivalents ended Sep 26 at Rs 9.2 crore.

Why did IOL's H1 FY27 profit not turn into cash?

IOL's reported profit did not translate fully into operating cash because working-capital changes and tax payments substantially reduced cash generated from operating profit. The standalone cash-flow statement starts with Rs 174 crore of profit before tax in Sep 26, compared with Rs 86.1 crore in Sep 25, and adds Rs 41.8 crore of adjustments for non-operating items. This produced Rs 215.8 crore of operating profit before working-capital changes, up from Rs 127.1 crore a year earlier.

The statement records a Rs 175 crore change in working capital in Sep 26, compared with Rs 100.1 crore in Sep 25. This reconciles Rs 215.8 crore of operating profit before working-capital changes to Rs 40.8 crore of cash generated from operations. Direct taxes paid of Rs 32.5 crore, compared with Rs 15.9 crore a year earlier, then reduced net cash from operating activities to Rs 8.3 crore from Rs 11.1 crore.

The comparison shows that profit before tax increased by Rs 87.9 crore while net cash from operating activities decreased by Rs 2.8 crore. The working-capital movement increased by Rs 74.9 crore and direct taxes paid increased by Rs 16.6 crore. The presentation does not allocate the Rs 175 crore working-capital figure among individual balance-sheet lines.

Which balance-sheet movements coincided with IOL's cash gap?

IOL's inventories and trade receivables both increased between Mar 26 and Sep 26, alongside a Rs 138.5 crore increase in total current assets. Inventories rose to Rs 464.4 crore from Rs 371.1 crore, an increase of Rs 93.3 crore. Trade receivables increased to Rs 689.2 crore from Rs 603.1 crore, while other current assets rose to Rs 76.5 crore from Rs 44.1 crore.

These asset movements were only partly offset by higher current liability balances. Trade payables rose by Rs 5.2 crore to Rs 487.8 crore, while other financial liabilities increased by Rs 19.7 crore to Rs 70.4 crore. Current borrowings increased by Rs 62.2 crore to Rs 194.2 crore, showing that short-term borrowings were higher at Sep 26 than at the Mar 26 year-end.

Cash and cash equivalents declined to Rs 9.2 crore at Sep 26 from Rs 65.3 crore at the beginning of the year. Bank balances other than cash equivalents also declined to Rs 117.1 crore from Rs 133 crore. The cash-flow statement reports a Rs 116.8 crore investing outflow and a Rs 52.4 crore financing inflow, resulting in a Rs 56.1 crore net decrease in cash and cash equivalents, compared with a Rs 50.9 crore decrease in Sep 25.

How did IOL's earnings and segments change in H1 FY27?

IOL's earnings increased in H1 FY27, with revenue from operations rising 38.6% year on year to Rs 1,551.3 crore and profit after tax rising 102.5% to Rs 129.5 crore. Earnings before interest, tax, depreciation and amortisation, or EBITDA, increased 69.7% to Rs 226.6 crore. EBITDA margin was 14.5%, compared with 11.8% in H1 FY26, while profit-after-tax margin increased to 8.3% from 5.6%.

The Pharmaceuticals segment reported Rs 942.2 crore of H1 FY27 revenue, compared with Rs 665.7 crore in H1 FY26, and earnings before interest and tax, or EBIT, rose to Rs 136.9 crore from Rs 75.5 crore. Chemicals revenue, net of intersegment sales, increased to Rs 609.1 crore from Rs 453.5 crore, while EBIT rose to Rs 40.5 crore from Rs 11 crore. The two segments together equal the reported Rs 1,551.3 crore of revenue from operations.

Q2 FY27 revenue from operations was Rs 795 crore, 40.1% above Q2 FY26 and 5.1% above Q1 FY27. Q2 FY27 profit after tax was Rs 65 crore, compared with Rs 30 crore in Q2 FY26 and Rs 64.5 crore in Q1 FY27. The presentation reports that exports accounted for 28% of H1 FY27 revenue and domestic sales for 72%.

Can IOL fund its planned investment from internal accruals?

IOL states that its Rs 495 crore planned investment across three strategic projects will be funded through internal accruals. The largest allocation is Rs 350 crore for a 6,000 metric-tonnes-per-annum, or MTPA, Ibuprofen capacity expansion at Barnala, Punjab. The project would raise total Ibuprofen capacity to 18,000 MTPA and is expected to be commercialised in FY28.

The other two projects total Rs 145 crore. IOL has allocated Rs 110 crore to a pharmaceutical formulations contract development and manufacturing organisation, or CDMO, facility with annual capacity of 1,500 million tablets or equivalent direct-compressible grade volume, expected to be commercialised in FY27. It has also allocated Rs 35 crore for a dedicated specialty-chemicals facility under a long-term tolling arrangement, also expected to be commercialised in FY27.

The funding plan follows Rs 8.3 crore of net operating cash in H1 FY27, a Rs 116.8 crore investing outflow and an ending cash-equivalent balance of Rs 9.2 crore. Capital work in progress increased to Rs 189.4 crore at Sep 26 from Rs 93.6 crore at Mar 26. The presentation does not provide a period-by-period funding schedule for the Rs 495 crore plan or projected operating cash flow from the projects.

Conclusion

IOL reported substantially higher H1 FY27 earnings, with profit before tax of Rs 174 crore and profit after tax of Rs 129.5 crore. However, its cash-flow statement records only Rs 8.3 crore of net cash from operating activities after a Rs 175 crore working-capital movement and Rs 32.5 crore of direct taxes paid. Higher inventories and receivables coincided with the difference between reported earnings and operating cash generation.

The next disclosed milestones are commercialisation of the CDMO and specialty-chemicals tolling projects in FY27, followed by the Ibuprofen expansion in FY28. IOL's stated plan is to fund Rs 495 crore of investment through internal accruals. Changes in inventories, receivables, current borrowings, operating cash flow and capital work in progress are therefore relevant as the projects approach their stated timelines.