Encube Ethicals IPO Gets SEBI Nod: Profits Jump 75%, Why the ₹3,000 Cr Share Sale?

Encube Ethicals has received SEBI approval for its proposed ₹3,000 crore IPO after reporting an impressive 75% jump in annual profit. Its revenue grew 37.47% to ₹1,848.7 crore in FY26, while net profit reached ₹436.7 crore. However, there's an interesting twist: the company will not receive a single rupee from the IPO proceeds.

Instead, the entire issue involves existing shareholders selling their stakes. This raises an important question for retail investors: is Encube Ethicals entering the stock market with a strong growth story, or are there financial and business risks that deserve closer attention?

Why Are Shareholders Selling ₹3,000 Crore in Encube Ethicals IPO?

Encube Ethicals received SEBI's observation letter on November 4, 2026, allowing it to proceed with its proposed public offering. The IPO will consist entirely of an Offer for Sale (OFS), meaning existing shareholders will sell shares to public investors rather than the company issuing new shares.

Source: Encube Ethicals DRHP.

Before the offering, promoter Mehul Madhusudan Shah held approximately 61.15% of the company, while Frontier Investment Holdings, backed by private equity firm Quadria Capital, held 15.02%.

The distinction between an OFS and a fresh issue matters. None of the ₹3,000 crore will be available to Encube for expanding manufacturing capacity, funding research or repaying debt. The money will instead go to the selling shareholders, after applicable expenses and taxes.

However, an OFS does not automatically indicate financial weakness. Private equity investors often sell portions of their holdings to realise returns, while promoters may reduce their ownership as a company becomes publicly listed.

The more important question is whether Encube's financial performance can justify the valuation at which these shareholders are selling.

What Does Encube Ethicals Actually Do?

Established in 1995, Encube Ethicals specialises in pharmaceutical products such as medicated creams, gels, ointments and skin patches. Unlike pharmaceutical companies that manufacture a wide variety of tablets and medicines, Encube focuses on technically complex topical and transdermal formulations.

It operates through three main businesses.

• Global Generics: The company develops and commercialises generic medicines, primarily for international markets. This segment contributed 46.61% of FY26 revenue.
• Global CDMO: Encube manufactures and develops medicines for other pharmaceutical companies through its contract development and manufacturing business. This contributed 42.34% of revenue.
• India Branded Formulations: This business includes products sold under brands such as Soframycin and contributed 8.97% of FY26 revenue and the remaining 2.08% came from other operating revenue.

Encube had commercialised 51 ANDAs in the United States as of March 31, 2026. Its specialised manufacturing capabilities and international presence help differentiate it from companies primarily focused on the Indian pharmaceutical market.

The key growth opportunity lies in expanding its portfolio of specialised medicines. However, bringing new products to market also requires regulatory approvals, research expenditure and consistent manufacturing quality.

Why Did Encube Ethicals' Profit Jump 75% in FY26?

Encube's financial performance has strengthened considerably over the last three financial years.

Source: Encube Ethicals Draft Abridged Prospectus.

Revenue increased by 37.47% in FY26, while EBITDA grew 46.72% and net profit increased approximately 75%. This shows that the company is not only generating more sales but also retaining a larger portion of its revenue as profit.

One important growth driver has been its Global Generics business, where revenue increased 58.49% in FY26. This was considerably faster than the 21.74% growth reported by its Global CDMO business.

As the generics business expanded, Encube's EBITDA margin improved from 33.62% to 35.88%, suggesting stronger operating efficiency and benefits from scaling its business.

Encube's net profit also benefited from ₹42.7 crore in foreign exchange gains in FY26, compared with ₹7 crore in FY25. This contribution may fluctuate and should be distinguished from operating profitability. Therefore, investors should distinguish sustainable operating improvement from earnings benefits that may not repeat every year.

Is Encube Ethicals' Cash Flow Keeping Up With Its Profits?

This is one of the most important financial questions surrounding the IPO. While Encube's net profit increased approximately 75% in FY26, operating cash flow rose only around 1.1%, from ₹299.8 crore to ₹303.1 crore.

In simple terms, the company's accounting profits grew significantly faster than the cash generated from its operations. Its FY26 operating cash flow represented approximately 69% of net profit, compared with around 120% in FY25.

This does not necessarily mean the earnings are weak. Growing pharmaceutical businesses often need to maintain inventory and extend credit to customers, particularly when expanding into international markets.

However, Encube's net working capital cycle remained relatively long at 143 days in FY26, compared with 141 days in FY25. This indicates that a substantial amount of money remains tied up in day-to-day operations.

The positive aspect is that borrowings declined from ₹230.5 crore in FY25 to ₹221.7 crore in FY26, suggesting that the company's balance sheet is not becoming increasingly dependent on debt.

For investors, the next test is whether future revenue and profit growth translate into stronger operating cash generation. This becomes particularly important because the IPO itself will not provide additional funding to the business.

What Are the Biggest Risks in Encube Ethicals IPO?

Encube's overseas operations provide growth opportunities, but they also create concentration and regulatory risks.

• Dependence on the US market: The United States accounted for 64.70% of FY26 revenue. This exposes Encube to US pharmaceutical pricing, competition, regulatory requirements and foreign exchange movements.
• Manufacturing concentration: The Goa facility contributed approximately 85.12% of FY26 revenue. Any major production disruption or regulatory issue at this facility could materially affect the business.
• Customer concentration: The company's five largest customers contributed 42.83% of FY26 revenue. Losing a major customer or experiencing pricing pressure could affect future sales and profitability.

There is also a disclosed US regulatory matter worth monitoring. According to the DRHP, the US Department of Justice has been investigating whether Encube's US subsidiary caused improper Medicare claims involving prescription labelling of a product. The filing states that no further action had been taken as of its date, and no provision was recognised for the matter. This disclosure does not establish wrongdoing, but the unresolved matter remains a risk investors should track.

These factors make consistent regulatory compliance, customer retention and geographic diversification important for sustaining the company's recent financial performance.

Source: Encube Ethicals DRHP.

Is Encube Ethicals IPO Valuation Justified?

Encube enters the IPO process with encouraging financial metrics, including 37.47% revenue growth, approximately 75% profit growth, a 35.88% EBITDA margin and declining borrowings.

However, the IPO valuation cannot yet be assessed because the company has not announced its price band. The ₹3,000 crore offer size represents the value of shares being sold, not the market capitalisation of the entire company.

Once pricing is announced, investors can calculate the implied market capitalisation and price-to-earnings ratio using Encube's latest reported earnings. They can then compare these figures with listed pharmaceutical companies while accounting for differences in business mix, growth and profitability.

A company delivering strong earnings growth can still be an expensive investment if its IPO valuation already assumes that the same growth will continue for several years.

For Encube, the final valuation should be considered alongside the sustainability of its margins, cash conversion, international exposure and regulatory risks.

Author's Take

Encube Ethicals has a compelling operating story. Its specialised pharmaceutical business, growing international generics portfolio and improving profitability demonstrate meaningful progress. The increase in EBITDA margin and reduction in borrowings further strengthen its financial profile.

However, the difference between approximately 75% profit growth and just 1.1% operating cash flow growth deserves attention. Its dependence on US customers and the Goa manufacturing facility also creates risks that investors should not overlook.

The ₹3,000 crore OFS is not necessarily a warning sign, but it means public investors are purchasing ownership from existing shareholders without providing fresh growth capital to the company.

The most useful next step for retail investors is to examine the IPO price band, implied P/E valuation and any updated financial disclosures in the final prospectus. The quality of future cash generation and sustainability of earnings growth will ultimately determine whether Encube's operating performance can support its public-market valuation.

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