Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Operational revenue experienced a year-on-year growth of 11% for Q1 FY25.
- Profit before tax for the quarter grew by 20% year-on-year, excluding the share of profits from JV and associates.
- EBITDA margins for Q1 FY25 stood at 38%, a growth of 63 bps year-on-year.
- Formulation segment revenues grew by 43% in Q1 FY25 on a year-on-year basis.
- Development of the upcoming injectable facility is progressing well, expected to commercialize by the last quarter of this financial year.
Negative Points
- API revenue growth was relatively low at 5% year-on-year for Q1 FY25.
- Lower share of profits from JV partially impacted the PAT growth.
- There has been a delay in the commencement of the injectable facility, now expected by the beginning of Q4 FY25.
- Export revenue from international business moderated by 3% in Q1 FY25.
- Utilization rates for some facilities remain relatively low, with the Limbasi facility at 38% and formulation plant at 24%.
Q & A Highlights
Q: Our year-on-year API sales growth has been relatively low for the past three quarters now. Specifically, for this quarter, the base was also favorable. Can you highlight the issues which impacted API sales in this quarter? And also, if you could talk a bit about the scale-up of the Limbasi facility? Is it going in line with your expectations?
A: Last quarter, we faced challenges in getting regulatory approval for one of our products intended for the European market, which we received by the end of March. Supplies to Europe have started, and we expect to meet our annual guidance. The Limbasi facility is scaling up as planned, with many customers already buying commercial quantities for regulated markets. New products are also being taken at the Limbasi facility, and it is progressing in line with our expectations. (Ankur Vaid, CEO)
Q: Given that we have been growing well in formulations while API has been relatively soft, would you like to revisit the long-term guidance of keeping formulation share at 20%? And does higher formulation share pose any risk to our EBITDA margins?
A: We stand by our long-term guidance of 80-20 (API-Formulation). The EBITDA margin in formulations is lower than in API, but we do not see any significant impact on our long-term EBITDA guidance. The injectable plant, once operational, is expected to improve formulation margins. (Ankur Vaid, CEO)
Q: There seems to be some delay in the injectable facility. We were earlier talking about Q1 FY25 commencement, then it got pushed to early Q3. Now it’s mentioned for Q4. Any reasons for the delay?
A: The delay is due to the time-consuming qualification activities, including media fill studies and smoke tests. We have now received necessary approvals from local regulators and expect to take exhibit batches by the beginning of Q4. (Ankur Vaid, CEO)
Q: Can you provide utilization rates of the plants for the quarter?
A: Unit I plant utilization was around 76-77%, formulation at 24% (up from 20% last year), and Limbasi facility at 38% (up from 34% last year). (Lalit Sethi, CFO)
Q: On the CDMO business, what is our expertise, and are we looking for any commercial revenues to begin in this financial year or next?
A: We have filled several RFQs and are engaging with potential customers. These are more contract manufacturing opportunities, which could lead to revenue contributions and profitability improvements. However, switching facilities is a big decision for large MNCs, so it may take time. (Ankur Vaid, CEO)
Q: Are we seeing any pricing pressure in the top-5, top-7 API products?
A: No, our prices have been stable across the products we are commercial in. (Ankur Vaid, CEO)
Q: How do we see the formulation business panning out? Do we envisage similar growth trajectory for coming years? What will be the margin differential between API and formulation business?
A: We see growth opportunities in both API and formulation segments. The split is expected to remain 80-20. The margin differential is significant due to limited competition in fermentation APIs compared to formulations. (Ankur Vaid, CEO)
Q: On the R&D side, what molecules are we looking to commercialize, and what will be the typical addressable market for these molecules?
A: We are developing molecules in oncology, anti-infectives, and antifungal segments, with most products in anti-infectives. These are niche, complex products with limited competition. (Ankur Vaid, CEO)
Q: Can you let us know which geography is seeing lower demand in exports, and what is our split of revenue from the US and rest of the world?
A: The split is 17% from the US and 33% from the rest of the world. Japan has seen some dip in demand, but we expect improvement in subsequent quarters. (Lalit Sethi, CFO)
Q: Can we be a tangible supplier to large pharma companies as a Tier I supplier?
A: Yes, we are one of the few players in the fermentation segment with a large portfolio. The global competition is shrinking, creating more opportunities for us. (Ankur Vaid, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
