Pharma stock falls as it reports inflated revenues which can impact upcoming results

SYNOPSIS: Hikal flagged employee-linked revenue recognition irregularities across multiple quarters, reversed Rs. 80.7 crore for Q2 FY26, and said sales were genuine with no fund misappropriation.

During Monday’s trading session, shares of a preferred long-term partner for leading global life sciences companies slumped over 3 percent on BSE, after the company had identified certain irregularities/alterations related to revenue recognition across multiple quarters.

At 12:40 p.m., shares of Hikal Limited were trading in the red at Rs. 227.1 on BSE, down by around 3 percent, compared to its previous closing price of Rs. 233.9, with a market cap of Rs. 2,800 crores. The stock has delivered negative returns of over 40 percent in one year, and has fallen by around 37 percent in the last six months.

What’s the News:

According to the latest disclosures filed with the stock exchanges, Hikal Limited has identified certain irregularities/alterations during an internal fact-finding review, primarily related to revenue recognition and supporting documentation for certain periods. The issues have been attributed to misconduct by certain employees and are examined under a misconduct-based review framework. 

The company stated that the potential impact is largely limited to the timing and recognition of revenue. This may involve reversals or adjustments to revenue already recorded, with corresponding impacts on quarterly financial results and related financial statement line items.

Based on the review so far, the suspected irregularities pertain to Q4 FY25, Q1 FY26, and Q2 FY26. Absent these irregularities, reported sales for Q4 FY25 and Q1 FY26 would have been nearly 2 percent lower. Additionally, the company has already reversed revenue amounting to Rs. 80.7 crore for Q2 FY26.

Following the review, Hikal clarified that all underlying sales transactions are genuine and supported by valid Customer Purchase Orders. It further confirmed that there has been no siphoning/embezzlement/misappropriation of company funds.

The suspected misconduct involves certain employees engaged in operational roles, including Sales & Marketing, Logistics, and allied functions. Further, the company highlighted that it is currently assessing its reporting requirements and will take appropriate steps to inform relevant authorities, as required under applicable laws and regulations, and subject to legal advice.

Financials & More:

Hikal Limited is engaged in the business of manufacturing various chemical intermediates, specialty chemicals, active pharma ingredients and contract research activities. It operates in the crop protection and pharmaceuticals space. Its crop protection facilities are located at Taloja, Mahad (Maharashtra) and Panoli (Gujarat), R&T facilities in Pune, and pharmaceutical manufacturing facilities in Jigani (Bengaluru) and Panoli (Gujarat).

Hikal reported a sharp contraction in revenue from operations, experiencing a year-on-year decrease of around 30 percent, from Rs. 453 crores in Q2 FY25 to Rs. 318 crores in Q2 FY26. The company also swung to a net loss of Rs. 35 crores, compared with a net profit of Rs. 18 crores, over the same period.

While operational stability was maintained during the quarter, financial performance was temporarily impacted by pharma sales deferrals linked to regulatory developments in the first half of the year.

In Q2 FY26, the company reported consolidated revenue of Rs. 319 crore, with the pharmaceuticals segment contributing Rs. 190 crore, accounting for 59 percent of total revenue. The crop-protection segment generated Rs. 129 crore, making up the remaining 41 percent.

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