Executive Summary
The Contract Development and Manufacturing (CDMO) model has steadily gained ground in India’s chemical and pharmaceutical sectors over the past two decades. Built on long-term partnerships with global innovators, CDMOs handle everything from early-stage process development to large-scale commercial manufacturing. For companies that get it right, the payoff can be significant: sticky relationships, expanding margins, and long visibility on revenue streams.
But building a successful CDMO business is rarely quick—or easy.
Across the board, companies that have found success in this space have faced long gestation periods marked by modest revenues, high upfront investments, and constant technical iteration. Innovator clients demand reliability, regulatory compliance, and process excellence before entrusting large-scale production—especially for critical molecules. Cost advantage alone doesn’t open doors.
Take Suven Pharma, which focused on drug discovery CDMO: its early years were shaped by small-volume work dependent on the uncertain timelines of client clinical trials. Laurus Labs spent years as a relatively unremarkable API supplier before growth picked up post-2015 with ARV contracts scaling up. PI Industries invested in custom synthesis capabilities in the early 2000s, but many of its molecules only entered commercial scale much later in the decade.
Eventually, for some, the inflection point arrives. A few successful projects lead to client trust. Trust leads to more contracts. Cash flows improve and are reinvested into capacity and R&D. Margins expand with scale, and a virtuous cycle sets in—strong execution breeds further opportunity.
Divi’s Labs is a prime example. Years of groundwork eventually led to commercial scale-ups in molecules like Naproxen. The resulting cash flows allowed Divi’s to backward integrate and expand capacity—moves that reinforced its credibility with global innovators and created a long-term growth engine. PI Industries followed a similar trajectory in agrochemicals: early success funded new multi-purpose plants and an expanding pipeline of patented molecules.
This pattern—of patience followed by a flywheel effect—runs through many of India’s leading CDMO stories.
At the same time, the cycle varies by sub-sector. Pharma-focused CDMOs often face longer lead times tied to regulatory approvals, but may enjoy decades-long revenue streams once a product succeeds. Specialty chemical CDMOs, especially in agrochemicals, may see revenues scale faster by working on molecules already commercialized—but still need to build trust and consistency over time.
This report explores the path to success in the CDMO space—what defines it, how different companies have navigated it, and what structural features separate those that endure from those that fade. As part of this landscape, it also examines Astec Lifesciences—a company that entered the CDMO space over a decade ago, but has only recently begun to demonstrate meaningful traction, backed by sustained investments and a repositioning toward more complex, value-added work.
The intent is not to project outcomes, but to offer a structured view of how this business model scales—and what it takes to stay in the game long enough for that scale to matter.
Introduction to the CDMO Model
A quiet but powerful shift has taken place in the way global innovators bring complex molecules to market.
Traditionally, companies in the pharmaceutical and chemical industries kept most activities in-house—whether it was process R&D, pilot-scale development, or commercial manufacturing. But as molecules became more complex and cost pressures more acute, a new operating model began to take hold: Contract Development and Manufacturing Organizations, or CDMOs.
At its core, the CDMO model is simple. Innovator companies—whether in pharma, agrochemicals, or specialty chemicals—outsource critical stages of the product lifecycle to external partners. These partners help scale up new chemistries, manufacture to spec, and navigate regulatory standards. In return, they earn long-term, often multi-year contracts that can be highly lucrative once scale kicks in.
A Global Shift Toward Specialization
Globally, the CDMO market has grown into a massive ecosystem. As of 2024, it’s estimated at over USD 240 billion and is expected to nearly double by 2032, growing at 8.5% CAGR (Financial Express).
Much of this growth stems from a simple truth: it’s hard for innovator companies to do everything. From multi-step syntheses to scaling reactions under regulatory scrutiny, manufacturing has become too specialized and capital-intensive to keep in-house—especially when product pipelines keep evolving. That’s where CDMOs come in: offering capacity, process know-how, and the flexibility to adapt to different chemistries.
India Finds Its Footing
India wasn’t always part of this story. For years, its chemical exports were driven by volume—low-cost APIs, generic intermediates, and basic commodity chemicals. But over time, a different narrative began to take shape.
With a large talent base of chemists and engineers, improving regulatory track records, and significantly lower costs than the West, India started attracting attention. What began as simple contract manufacturing has now evolved into full-service CDMO offerings across pharma, agrochemicals, and specialty materials.
In 2024, India’s CDMO market was valued at USD 17.5 billion, and it’s expected to more than double to USD 37.7 billion by 2030, growing at a 13.6% CAGR —outpacing global growth.
Notably, this growth isn’t just about cheap labor. Indian CDMOs have moved up the value chain:
- USFDA and EU approvals are increasingly common.
- Companies are investing in multipurpose plants with flexible reactors to handle complex molecules.
- R&D intensity is increasing, and intellectual property protocols are more robust than they were even a decade ago.
Beyond Pharma: The Agrochemical Opportunity
While pharma remains the largest segment, there’s rising traction in agrochemicals—where molecules are often complex, volume requirements are high, and global players are actively looking to de-risk from overdependence on China.
The agrochemical CDMO market alone is valued at USD 36.8 billion (2024) and is expected to grow at 10.3% CAGR through 2034 (Prophecy Market Insights).
India is well-positioned here too, especially as global crop protection majors seek long-term supply chain diversification. The rising trend of off-patent molecules still requiring advanced process chemistry further tilts the field toward capable CDMOs rather than commoditized bulk producers.
| India | China | European Union | United States | |
|---|---|---|---|---|
| Cost Competitiveness | High – Low labor, energy, and infra costs | High – Though labor costs rising, still cheaper than West | Low – High labor and compliance costs | Low – Among the highest cost structures globally |
| Process Chemistry Talent | Strong – Large pool of chemistry grads and process engineers | Strong – Long history in chemical manufacturing | Strong – Especially in pharma and high-end materials | Strong – R&D driven, often innovator-heavy rather than CDMO-heavy |
| Regulatory Track Record | Improving – USFDA, EMA approvals rising, but gaps remain | Mixed – Capacity-rich but regulatory opacity concerns | High – Stringent environmental and safety norms, high compliance | High – Gold standard for quality and regulatory oversight |
| IP Protection & Client Trust | Improving – Better systems, but trust still building with innovators | Mixed – Historically weaker on IP, but improving | High – Strong systems, legal enforcement mechanisms | Very High – US law provides strong protection, especially for innovators |
| Capex & Scale Agility | High – Fast execution and modular plant setups common | High – Strong infra base, good execution speed | Medium – Capex cycles are longer, often publicly funded | Medium – Often slow due to permitting and zoning constraints |
| Supply Chain Diversification | Beneficiary – Rising as part of “China+1” strategy | Exporter – Now facing pressure from global diversification push | Neutral – Often integrated with upstream Europe-based innovators | Neutral – Focus is more domestic demand than outsourcing |
| Environmental Oversight | Moderate – Tighter norms emerging, especially post-2020 | Mixed – History of lax enforcement, now under tightening norms | High – Strong regulatory push, ESG standards | High – Environmental norms embedded into plant operations |
What Drives Long-Term Success in CDMOs?
CDMO success rarely begins with a big announcement. More often, it starts quietly—an audit passed, a small batch delivered on time, a client who comes back. From the outside, nothing looks remarkable. But under the surface, something is taking shape.
What separates the companies that go on to scale—and sustain—in this business is not just chemistry or cost. It’s a set of behaviors and decisions repeated over years: investing ahead of time, saying no to work that doesn’t fit, earning trust slowly and compounding it deliberately.
At the core, it begins with technical depth. Not generic manufacturing ability, but true process innovation—especially in hard-to-master chemistries like fluorination or continuous reactions. Navin Fluorine leaned into this early, focusing on fluorinated molecules and building a niche others found hard to replicate. Divi’s Laboratories scaled by being best-in-class at a handful of APIs, becoming the global leader in Naproxen and setting benchmarks for quality and scale.
But technical strength alone isn’t enough. CDMO clients—especially in pharma and agrochemicals—don’t hand out large contracts without confidence. Reliability must be proven, again and again. This means audit-readiness, clean compliance records, and on-time delivery under tight tolerances. Companies like Syngene and Divi’s have made this a core discipline. Their reputation isn’t built on marketing slides—it’s built on execution.
And then there’s the nature of the relationship. This is not transactional work. The best CDMOs build long-term partnerships where they co-develop molecules and stay involved from early R&D to commercial production. PI Industries exemplifies this. In the 2000s, it began working with Japanese innovators on crop protection molecules. Those early projects, though small in value, laid the foundation for multi-year manufacturing contracts once the molecules reached scale. That’s how PI ended up with a pipeline of 40+ active projects today. The clients stayed because PI delivered. The flywheel turned because the model was built for trust.
Eventually, the business becomes self-reinforcing. Capacity attracts demand. Demand justifies reinvestment. Reinvestment brings more capabilities, which attract more clients. SRF followed this loop masterfully—scaling its specialty chemical business step-by-step, maintaining discipline on capex, and watching its EBITDA margins rise from 16% to 25% over a decade.
It’s important to remember that almost all of these stories involved a long gestation period. Laurus Labs operated under the radar for years before ARV APIs changed its trajectory. Suven Pharma had lumpy beginnings, as revenues depended on clinical trial outcomes. But both kept investing, refining, and waiting—until scale and stickiness finally arrived.
The best CDMOs know that the payoff isn’t immediate. It’s cumulative.
And once the cycle kicks in, the model starts to resemble an annuity: predictable volumes, high margins, expanding ROCE. Success in one project builds credibility for the next. Clients who know you can deliver rarely walk away. That’s how a CDMO goes from a handful of pilot contracts to being a core part of global supply chains.
In the end, what drives long-term success isn’t one big breakthrough. It’s a series of small wins, executed consistently, over years.
Divi’s Laboratories – A Model Built on Focus, Process Discipline, and Patience
Divi’s Laboratories is often seen as India’s flagship CDMO success story, but the company’s trajectory was never about rapid expansion or opportunistic growth. At its core, Divi’s built a narrow, process-intensive business model that prioritized depth over breadth.
Its focus was clear from the beginning:
- Manufacture a small number of complex APIs and intermediates at global scale,
- Operate as a non-competitive, IP-compliant partner to innovator pharma companies, and
- Invest in process efficiency, regulatory reliability, and backward integration—well before these became investor buzzwords.
Unlike many chemical companies that diversified across end-markets or moved up the value chain through formulations, Divi’s stuck to a few high-volume, high-purity molecules and scaled them relentlessly—while maintaining full visibility on cost, quality, and compliance.
What Drove the Success?
Three structural choices underpin Divi’s rise:
- Early investment in compliance and scale: The company aligned itself with USFDA and EU standards early on, enabling it to manufacture at volumes that others couldn’t match. Its facilities passed global audits regularly, making it a dependable partner for Big Pharma.
- Non-compete positioning: By choosing not to launch its own brands or compete with its clients downstream, Divi’s became a strategic outsourcing partner rather than just another supplier. This helped build long-term trust and sticky relationships.
- Capital discipline and internal funding: Rather than chasing growth through leverage or equity dilution, Divi’s consistently reinvested cash flows into expanding capacity. Every new block, every backward integration project—was funded internally, at its own pace.
The Financial Story That Follows
What emerged over two decades is one of the most capital-efficient and consistent financial stories in Indian manufacturing.
- Revenue scaled 20x, from ₹197 crore in FY01 to ₹7,845 crore in FY24
- Operating profits (EBIT) rose nearly 70x, and
- Net profit grew 80x, from ₹26 crore to ₹1,600 crore over the same period
This compounding was achieved without ever meaningfully relying on debt. The company’s debt peaked briefly in the mid-2000s, but Divi’s has essentially been debt-free since FY17.
The quality of earnings is equally telling:
- The company has maintained an average ROCE of 32% over 23 years
- It has earned cumulative profits of ~₹19,000 crore on a starting capital base of just ₹92 crore in FY01
- Despite aggressive reinvestment, it has returned ₹6,000+ crore to shareholders as dividends—highlighting both surplus generation and payout capacity
Divi’s capital employed grew from ₹142 crore in FY01 to over ₹13,500 crore in FY24, with virtually all expansion funded from internal accruals. Margins remained structurally high, even as raw material costs, regulations, and global supply chains fluctuated. In other words, the model scaled, but never strained.
Divi’s didn’t succeed by constantly reinventing itself. It picked a lane—complex chemistry at scale—and ran it better than almost anyone else in the space. The financial outcomes are simply a reflection of that strategic consistency.
PI Industries – A 15-Year Bet That Paid Off in Year 16
PI Industries didn’t become a leading CDMO by following the industry. It got there by investing well before the demand existed, waiting through a long gestation phase, and scaling only when the model proved resilient.
Its custom synthesis business began in 1996—not with a contract in hand, but with a conviction that global agrochemical innovators would eventually need high-quality, cost-efficient development partners. Over the next decade, PI poured capital into R&D and plant infrastructure, including multipurpose facilities and a Shanghai office—despite little evidence of scale or profitability. From FY97 to FY08, revenue doubled, but net profit moved from ₹4 crore to just ₹7 crore, and ROCE hovered in single digits.
What Shifted – and When
The inflection began around 2009–2010, when early-stage molecule partnerships matured into commercial supply contracts. PI had already built the capacity, compliance systems, and R&D bench strength—so it could scale quickly without delay.
Between FY09 and FY24:
- Revenue grew ~17x, from ₹463 crore to ₹7,882 crore
- PAT grew ~70x, from ₹24 crore to ₹1,682 crore
- EBIT margins rose from ~12% to 25%, and PAT margins from ~5% to 21%
- Stock is up roughly ~100x since 2009 translating into a CAGR of 33% for roughly 15 years
More importantly, the capital employed grew from ₹297 crore to nearly ₹9,000 crore—with ROCE improving steadily and debt falling close to zero.
A Business Model Rooted in Partnership, Not Volume
What makes PI’s CDMO model structurally different is its early-stage engagement and non-compete positioning. It partners with global innovators at the process development stage, helps scale the chemistry, and then manufactures under exclusivity. In some cases, it even in-licenses the product for India, maintaining full alignment with the client.
That means:
- Projects come with long lifecycles and predictable volumes
- Clients are sticky—since switching CDMOs mid-way is operationally and legally expensive
- Capacity gets planned with a higher degree of visibility
By FY23, the CSM business made up 77% of revenues, with a $1.8 billion order book and a growing pipeline in non-agro areas (pharma, electronic chemicals). The business now operates across 15 multipurpose plants and an R&D engine with over 120 PhDs, giving it flexibility, credibility, and scale.
Navin Fluorine – When Legacy Cashflows Funded a Reinvention
Navin Fluorine’s journey into CDMO wasn’t sparked by a single strategic pivot, but rather built layer by layer—funded in part by the past, and made credible by long-term execution.
In the late 2000s, Navin was a steady industrial chemicals company. Refrigerants like R-22 and inorganic fluorides formed the bulk of its business. Then came the 2009–2012 phase, when carbon credit income (generated from refrigerant plant emissions under the UN Clean Development Mechanism) sharply boosted profitability. Between FY09 and FY12, EBIT margins surged to over 25%, and PAT peaked at ₹218 crore in FY12—levels not seen before or immediately after.
This windfall wasn’t sustained—but it was wisely deployed. In 2011, Navin acquired Manchester Organics (MOL) in the UK—an R&D-heavy fluorination specialist. This marked the start of its journey into contract research and synthesis. It also set up pilot and cGMP manufacturing in India, laying the foundation for a fluorine-focused CRAMS business. The financials cooled off after FY12, but by FY16, signs of a structural change began to emerge.
That year marked a turning point. Revenue crossed ₹600 crore, and EBIT margins moved back into the 20% zone. The CRAMS and specialty chemical portfolio began gaining traction—albeit slowly—and capital employed rose, indicating investment ahead of scale. ROCE reached 14% in FY16 and climbed steadily thereafter.
The real inflection, however, came in FY20, when Navin won two anchor contracts:
- A 5-year CRAMS contract in fluorinated pharma intermediates
- A ₹2,900 crore, 7-year HPP supply contract—likely for a next-gen refrigerant or specialty molecule
To execute the latter, Navin committed ₹600 crore in capex for a dedicated greenfield plant. This unlocked a new growth phase. From FY20 to FY24:
- Revenue doubled from ₹1,091 crore to ₹2,172 crore
- PAT grew from ₹180 crore to ₹270 crore
- EBIT margins held in the 23–25% range
- Capital employed grew 2.7x, but ROCE halved from 23% to 12%, reflecting a classic CDMO investment lag
At a business level, the model had matured. CRAMS and specialty fluorochemicals formed over 75% of FY24 revenue, with pharma-led contracts bringing visibility and resilience. Clients engage with Navin from early development to commercial scale-up, thanks to its unique “gram-to-ton” infrastructure and fluorination expertise. With backward integration (like hydrofluoric acid JVs) and GMP-grade plants across Surat and Dewas, Navin now operates as a full-stack fluorine CDMO.
The transition wasn’t overnight. It took 10+ years from the MOL acquisition, and a patient buildout of R&D, compliance, and client trust. But the financial transformation is clear: high-margin, IP-sensitive work has replaced volatile legacy volumes, and Navin now sits among India’s most credible mid-size CDMO players.
The challenge ahead? Converting recent capex into returns, sustaining delivery under multi-year contracts, and staying ahead of global competition. But the roadmap has already shifted—from commodity supplier to specialty partner.
Astec Lifesciences – At the Inflection Point of its CDMO Journey
Astec Lifesciences, established in 1994 by Mr. Ashok Hiremath, has historically operated within the agrochemical space, primarily manufacturing fungicides and herbicides. Despite establishing a credible market presence, Astec’s traditional enterprise business has experienced considerable volatility, with performance tightly coupled to cyclical global agrochemical prices. Recent years have seen extreme volatility, culminating in severe operational losses in FY24and FY25, triggered by an unprecedented 60-70% correction in fungicide prices. This correction led to significant inventory write-downs and cancelled orders, resulting in Astec reporting a net loss of ₹47 Cr on revenues of ₹464 Cr for FY24 and a net loss of ₹135 Cr on revenues of ₹381 Cr for FY25
Strategic Pivot to CDMO: A Timely Shift
Recognizing the inherent cyclicality and commodity-driven risks in its legacy business, Astec, under the strategic ownership of Godrej Agrovet since 2015, embarked on a deliberate pivot towards Contract Development and Manufacturing Organization (CDMO) services—a proven pathway to more sustainable growth, as evidenced by sector leaders like PI Industries and Navin Fluorine. Astec’s management has prioritized CDMO to drive future profitability, significantly investing in infrastructure and capabilities essential to succeed in this specialized domain. Over half of the parent company’s capex has been done in Astec.
Substantial Investments and Infrastructure Development
Astec’s ambition is backed by substantial capital commitment, demonstrated by recent heavy investments amounting to approximately ₹400 Cr. This includes the commissioning of a dedicated herbicide plant at its Mahad facility, specifically designed to cater to global CDMO opportunities. The plant, launched in FY22, marked Astec’s concrete entry into custom manufacturing, initially serving reputed global agrochemical innovators. Despite early-stage challenges, management has affirmed “satisfactory results,” and CDMO revenue notably surged from ₹85 Cr in FY22 to ₹240 Cr in FY25
A further strategic cornerstone is the Adi Godrej Centre for Chemical Research and Development, inaugurated in April 2023 at Rabale, Maharashtra. This advanced R&D facility which was built at a cost of ₹100 Cr, is equipped with synthesis labs, formulation capabilities, advanced analytical instruments, and dedicated process safety infrastructure, and positions Astec as an agile partner capable of rapidly scaling from laboratory research to commercial-scale production. This centre symbolizes Astec’s commitment to becoming an “application-agnostic partner of choice,” facilitating entry into higher-margin CDMO opportunities and significantly broadening its client base and chemistry competencies beyond traditional agrochemicals.
Financial Insights: Temporary Setbacks vs Long-term Potential
While recent financial results paint a challenging picture, a deeper analysis underscores significant hidden potential. Since 2005, Astec demonstrated sustained revenue growth from ₹21 Cr to a peak of ₹687 Cr in FY22, before the cyclical downturn severely impacted FY23 to FY25. Historically, Astec maintained healthy profitability and returns, with an average ROCE of 19% for 2 decades and EBIT margins consistently around 15-20% during stable cycles. The current negative operating margins and losses in FY24 and FY25 appear transitory, driven primarily by extreme inventory write-downs and pricing corrections in enterprise segments, rather than fundamental deterioration in capabilities or competitiveness.
The substantial investments in the CDMO infrastructure (herbicide plant and the Adi Godrej Centre) are yet to reflect materially in Astec’s financial performance, owing to inherently long gestation periods typical of the CDMO business. Sector precedents clearly demonstrate that CDMO contracts require patience; clients often spend years in qualification stages before ramping up to commercial-scale production volumes, as exemplified by PI Industries and Navin Fluorine’s early phases.
Valuation and Margin of Safety
Astec’s market capitalization currently stands around ₹1,300 Cr, with an Enterprise Value (EV) of approximately ₹1,800 Cr, reflecting market skepticism primarily driven by recent losses and temporary operational volatility. This valuation provides a margin of safety considering Astec’s strategic assets, differentiated capabilities, and the significant growth potential embedded in its nascent CDMO business. The broader market’s near-term fixation overlooks the impending cyclical normalization of enterprise products and the structural shift underway towards CDMO-driven revenues.
Given Astec’s CDMO revenues nearly doubled within a year, the trajectory indicates strong early execution. Management’s guidance of 40-50% annual growth in CDMO further supports this thesis. If Astec can replicate even a fraction of the scale achieved by sector leaders, the impact on profitability and returns could be transformational. Historically, companies transitioning effectively into CDMO segments have experienced substantial improvement in valuation multiples, margins, and return profiles, providing a credible upside scenario for Astec.
In a normalized environment, we expect that Astec’s revenues could approach ₹1,000 Cr within the next couple of years, with profits potentially reaching ₹120-150 Cr. Notably, this projection does not take into account the upside optionality available through major innovator partnerships which are a feature of successful CDMO companies. This underscores the embedded earnings power currently overshadowed by short-term disruptions, further strengthening the investment thesis and enhancing the overall margin of safety at current valuation levels.
Risks and Execution Challenges
Nevertheless, Astec faces execution risks inherent in its strategy. Concentration risk from a limited CDMO client base, execution challenges in scaling its new facilities, and ongoing competitive pressures from established peers and others remain critical watchpoints. Additionally, the company must ensure consistent quality and IP compliance to maintain client trust and secure repeat contracts, critical to achieving the promised long-term revenue stability and margin improvement.
Conclusion: Positioned for Recovery and Growth
Astec Lifesciences stands at a critical inflection point, transitioning from a volatile fungicide producer into a potentially stable, higher-margin CDMO partner. The significant recent investments—though not yet reflected in near-term financials—position Astec to capitalize on structural industry tailwinds such as the China+1 strategy, growing global outsourcing trends, and increasing domestic capabilities. The present valuation, depressed by temporary operational headwinds, provides investors a compelling margin of safety, supported by strategic infrastructure assets yet to demonstrate full earning power.
As Astec navigates its early-stage CDMO journey, patient investors recognizing the underlying value of strategic repositioning could potentially realize significant returns as the broader market eventually recalibrates its focus from short-term cyclical challenges to Astec’s considerable long-term structural potential.
Disclaimers
This blog has been prepared by Amaltas Asset Management LLP, a SEBI-registered Portfolio Management Service (PMS) with registration number INP00009126. It is intended solely for private distribution to the recipient and should not be reproduced, redistributed, or shared without prior written consent of Amaltas Asset Management LLP. The views and information contained in this document are for informational purposes only and do not constitute investment advice or a recommendation to buy, sell, or hold any security or financial instrument. The material is based on information that is believed to be reliable but has not been independently verified. Amaltas Asset Management LLP does not represent or warrant the accuracy or completeness of any information contained herein. This document is not an offer or solicitation for investment in any product or strategy managed or advised by Amaltas Asset Management LLP. Investors are advised to consult their financial advisors before taking any investment decisions. Amaltas Asset Management LLP, its employees, and clients may have exposure to the securities mentioned in this report. The firm may also undertake transactions contrary to the views expressed herein. Past performance is not indicative of future results. All investments are subject to market risks, including possible loss of capital.
SEBI Regulatory Disclosures
- This report has been prepared in compliance with SEBI (Portfolio Managers) Regulations, 2020 and other applicable laws.
- Amaltas Asset Management LLP has not received any compensation from the companies mentioned in this report in the last 12 months.
