Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Formulation segment's revenues grew by 4.2% quarter on quarter, reaching INR70.4 crores.
- The greenfield project at Gujarat Sayakha for specialty chemicals and intermediates is on track and expected to commence by the end of Q2 FY25.
- The company incurred CapEx of INR52 crores in Q1 FY25, mainly towards capacity expansion, backward integration, and new product launches.
- The company anticipates a total CapEx of INR200 crores for the full year, mainly funded through internal accruals and partly through term loans.
- Aarti Drugs Ltd (BOM:524348, Financial) plans to expand its capabilities and enhance offerings in the oncology therapeutic area.
Negative Points
- There was a drop in revenues to INR557 crores due to lower realization from negative rate variance and subdued export market demand in the API business.
- EBITDA margins stood at 11.9%, which is lower than pre-COVID levels of 15-16%.
- The company faced teething issues for the scale-up of the dermatologic products facility in Tarapur, leading to a negative impact of around INR6 crores at PBT level.
- A fire incident at the N-198 unit in Tarapur disrupted production operations temporarily.
- Export volumes were impacted by almost 8% year on year, contributing to lower overall EBITDA margins.
Q & A Highlights
Highlights of Aarti Drugs Ltd (BOM:524348) Q1 FY25 Earnings Call
Q: What is the reason for slower demand in the export API business, and how has the domestic API volume been affected?
A: Domestic volume remained stable year-on-year, but export volume declined by around 8%. This decline significantly impacted EBITDA margins despite an improvement in gross contribution. The antibiotic category, particularly ciprofloxacin and levofloxacin, saw major demand impacts. (Adhish Patil, CFO & COO)
Q: What is the outlook for the API business for the full year, excluding specialty and intermediate businesses?
A: We expect improvement in the second half of the year, especially with the ramp-up of dermatology products. While the first half may see negative rate variance, the second half should see growth, driven by new product availability and better volume growth. (Adhish Patil, CFO & COO)
Q: Can you provide guidance on the specialty chemicals segment for this year?
A: The specialty chemicals segment is expected to perform well in the second half of the year, with a potential 50% year-on-year growth due to new capacities coming online. (Adhish Patil, CFO & COO)
Q: What is the expected impact on operating margins for the full year?
A: Gross margins are expected to improve slightly, with better capacity utilization reducing other expenses. We aim for 13-14% EBITDA margins in the second half of the year. (Adhish Patil, CFO & COO)
Q: What caused the significant drop in formulation exports, and what is the outlook for this segment?
A: The drop was due to lower volumes driven by audits and a temporary shutdown for capacity expansion. We are focusing on increasing international business, which should offset any decline in domestic toll manufacturing. (Vishwa Savla, MD, Pinnacle Life Science Private Limited)
Q: Are API prices stable, and what is the outlook for the rest of the year?
A: API prices have stabilized and are expected to remain stable in the next quarter. (Harit Shah, Executive Director)
Q: Can you provide guidance on revenue and profitability for the next two years?
A: We aim to achieve upwards of INR4,000 crore in revenue by FY27, with long-term EBITDA margins between 14-15%. (Adhish Patil, CFO & COO)
Q: What capacities are being expanded with the INR200 crore CapEx this year?
A: The CapEx will complete ongoing greenfield projects, brownfield expansions for API blocks, and R&D for new formulation products. (Adhish Patil, CFO & COO; Vishwa Savla, MD, Pinnacle Life Science Private Limited)
Q: What is the impact of the INR6 crore dermatology facility issue on margins?
A: Around INR3.5 crore impacted EBITDA, and INR2.5 crore affected post-EBITDA expenses like interest and depreciation. (Adhish Patil, CFO & COO)
Q: What is the potential of new product developments, especially in oncology?
A: We are developing 15 oncology products with an expected peak revenue of INR300-400 crore. Initial sales are expected from FY26, with significant contributions from FY27. (Vishwa Savla, MD, Pinnacle Life Science Private Limited)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
