Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Marksans Pharma Ltd (BOM:524404, Financial) reported an 18.1% increase in operating revenue for Q1 FY25, reaching INR590.6 crore.
- The US and North America markets saw a significant 29.8% year-on-year growth, contributing INR251 crore.
- Gross margin expanded by 432 basis points year-on-year and 386 basis points quarter-on-quarter, driven by reduced raw material pricing and favorable product mix.
- The company remains debt-free with a total of INR691 crore in cash as of June 30, 2024.
- Marksans Pharma Ltd (BOM:524404) has successfully commenced product supplies from its newly acquired manufacturing facility, expecting substantial revenue contribution in upcoming quarters.
Negative Points
- The company continues to face elevated freight costs due to ongoing global crises, container shortages, and port concessions.
- The UK and EU formulation markets, while growing, have shown a slowdown in growth rates from 20%-22% to 12% year-on-year.
- Capacity utilization at the newly acquired facility is currently at 25%, indicating underutilization.
- The company faces potential cost increases if API prices rise, particularly those originating from China.
- Freight costs have increased significantly, impacting overall profitability despite operational efficiencies.
Q & A Highlights
Q: Congrats on the great numbers. Can you discuss the sustainability of the gross margin given the current API prices and geopolitical risks?
A: The gross margin increase is sustainable barring significant geopolitical disruptions. We are managing raw material costs effectively, but any major price hikes in APIs could impact margins. However, we are confident in maintaining profitability through strategic supplier relationships.
Q: The growth in the UK and EU markets has slowed. What is the expected growth rate in these regions moving forward?
A: The base has become larger, so growth rates have naturally slowed. We expect a 10%-12% growth rate in the UK and EU markets, which is realistic given our current market share and ongoing efforts to expand.
Q: What are the future growth levers for Marksans Pharma beyond the US market?
A: We see significant growth potential in the UK market due to our product pipeline. Additionally, we are exploring M&A opportunities to expand our presence in other markets. Our strategy includes leveraging our existing strengths and exploring new segments.
Q: Can you provide an update on the capacity utilization across your manufacturing units?
A: The newly acquired facility is at about 25% capacity utilization, with plans to increase monthly. Other facilities are at approximately 65% utilization. We aim to optimize production to meet growing demand.
Q: What is the status of the Teva plant's contribution to revenue, and what are the expectations for the year?
A: The Teva plant contributed INR60 crore in the first quarter. We expect this to increase to INR100 crore per quarter by the third quarter. The plant is ramping up as planned, and we anticipate significant contributions in the upcoming quarters.
Q: Are there any plans to expand the product range in the US market?
A: Yes, we are focusing on better market penetration with our existing product basket and targeting new customers. We also plan to launch new products and enter new segments to drive growth in the US market.
Q: What are the benefits of having onboarded a strategic investor like OrbiMed?
A: OrbiMed has added both tangible and intangible value, including corporate governance insights and M&A opportunities. Their involvement has been beneficial in guiding our growth strategies and exploring new opportunities.
Q: How are you managing the increased freight costs, and what impact do they have on your margins?
A: Freight costs have increased significantly, but we are managing them through operational efficiencies and leveraging our scale. While these costs impact margins, we are confident in our ability to sustain profitability through strategic measures.
Q: What is the order book visibility for the next one to three years?
A: We have good visibility and confidence in achieving INR2,000 crore in revenue for the next year. Our contracts typically span two to three years, with provisions for price escalations based on raw material costs.
Q: Are there any updates on potential M&A activities in Europe?
A: We are actively exploring M&A opportunities in Europe, focusing on companies with strong market authorizations and distribution networks. Our goal is to leverage low-cost manufacturing in India while expanding our market presence in Europe.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
