Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Glenmark Life Sciences Ltd (BOM:543322, Financial) reported a 9.7% quarter-on-quarter increase in revenue for Q1 FY25, reaching INR588 crores.
- The company achieved a 14.1% quarter-on-quarter growth in EBITDA, with margins at 28%, aligning with their guided range.
- The CDMO segment showed strong performance, with revenues growing by 20.2% quarter-on-quarter.
- The company remains debt-free and generated strong free cash flow of INR121 crores during Q1 FY25.
- Glenmark Life Sciences Ltd (BOM:543322) has a robust pipeline with 532 DMF and CEP filings, including five new products added in Q1 FY25.
Negative Points
- The discontinuation of PLI benefits and an unfavorable product mix led to a decline in gross margins to 51.1% from 55.5% in Q4 FY24.
- The Gujarat Pollution Control Board issued a closure notice to one of the company's plants due to pollution issues, potentially impacting production.
- The company faces challenges in maintaining gross margins due to product-specific issues and market dynamics.
- Working capital days increased to 167, and the company anticipates further increases due to extended credit terms with Nirma Pharma.
- The company expects significant CapEx outlays of INR300-350 crores for FY25 and similar amounts for FY26, which may impact cash reserves.
Q & A Highlights
Q: Just to understand this notice from the Gujarat Pollution Control Board, can you give some sense what is this -- about what is the reasoning behind their notice? Like I just want to understand what is the core issue from their perspective.
A: The Pollution Control Board samples water discharge from industries. During heavy rains, there was more than usual discharge from storm water drains, and our samples taken outside our plant exceeded the limits on COD and a few other parameters. As a result, a closure notice was issued. We are working with authorities to resolve this and are also investigating internally to rectify any issues.
Q: Could there be a major production issue from our end because of this?
A: We have not stopped production immediately to bring the plant to a safe state. The authorities understand and have given us time. While there will be some impact, we should be able to catch up with any production loss within the quarter.
Q: Understanding the gross margins a little better, is it fair to assume that 51% is sort of a bottom quartile range in terms of gross margins?
A: Yes, we would still assume that way. This quarter's lower margins are due to a unique product mix. We don't see margins going below this level.
Q: You had shared guidance of mid- to high-teens growth for the external business. How should we think about growth for FY25-26?
A: The demand outlook is good, and the non-GPL business has grown nicely. Our brownfield expansions will give us a good runway for the next 1.5 years, and the first phase of Solapur should be done in about 18 to 20 months. The medium-term growth outlook remains unchanged.
Q: Can you share more color on the CDMO outlook?
A: Our fourth project with a Japanese innovator should start commercial supplies in Q3 or Q4. The fifth project is on track and should start in late Q3 or early Q4. Both are driven by regulatory approvals.
Q: Will we consider getting into CDMO, which caters to Phase 1, Phase 2, Phase 3 trials?
A: This segment requires fresh investments in R&D and manufacturing with a long gestation period. We prefer shorter gestation projects and can comfortably prospect business in our selected segments for the next three to five years.
Q: How has been the pricing pressure in the first quarter, and are our margins expected to remain stable?
A: Pricing pressure has not been significant. We are seeing normal erosion, which is common in our business. Margins are expected to remain stable or improve from this quarter's levels.
Q: Does the improving funding environment for biotech startups have any impact on your business?
A: Yes, it will have a positive impact, especially in the specialty segment. The interest from the specialty segment, mainly from the US, has been much better than last year.
Q: Any thoughts on cash allocation and distribution of dividends with the new ownership?
A: The dividend payout will not be as high as in the past due to high CapEx plans. We will sit on some cash and have some element of dividend payout, but it will not be as high as before.
Q: What is our strategy to de-risk dependence on Glenmark Pharma, and are we facing any pricing challenges from them?
A: Pricing with Glenmark Pharma has always been at arm's length. Our other business is growing faster, which will naturally reduce the percentage contribution from Glenmark Pharma. We continue to work on new projects with them, and there is no significant risk to this business.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
