Release Date: May 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sequential revenue increase of 15% to INR514 crore and EBITDA increase of 45% to INR94 crore.
- Full year FY24 revenue stood at INR1,785 crore with EBITDA margins at 15%, an increase of 230 basis points.
- FDA audit of API facility in Panoli, Gujarat concluded with zero 483 observations.
- Commissioning of new multi-purpose plant for animal health at Panoli with several product validations completed.
- Strong pipeline of projects within the CDMO space and active pursuit of additional opportunities.
Negative Points
- Current operating environment marked by inventory backlog, oversupply, and heightened price competition in the crop protection industry.
- Global crop protection industry continues to face significant headwinds, including subdued global demand and intense price competition.
- Destocking situation continues to impact demand globally, with improvements expected only towards the end of FY25.
- Asset turns have decreased to 1.1 to 1.3 times due to increased CapEx and infrastructure investments.
- ROCE has dropped in the last two to three years, with expectations to improve only once full capacity utilization is achieved.
Q & A Highlights
Q: What is your view on the US Biosecure Act and how it will benefit our business?
A: The US Biosecure Act is promising and will take some time to materialize. We are seeing an increased number of enquiries from US pharmaceutical companies, which will benefit companies like Hikal in the medium-to-long term. It is very positive for us. - Sameer Hiremath, CEO
Q: How aggressive is China in the crop protection business, and does the same hold true for our pharma business?
A: China is very aggressive in the crop protection sector due to overcapacity and low prices, leading to severe competition. However, the pharma sector is less impacted due to regulatory barriers like FDA and GMPs, which limit competition. - Sameer Hiremath, CEO
Q: Where do you see both our businesses in the next three years?
A: We expect both businesses to grow significantly. The animal health business will also reach a critical size in the next two to three years, and we anticipate returning to pre-COVID levels of growth. - Sameer Hiremath, CEO
Q: Have you witnessed the shifting of any molecules or clinical stage projects from China to India?
A: Yes, we have seen serious enquiries and some projects have already moved to the R&D stage. More RFQs are coming in, indicating a shift away from China. - Sameer Hiremath, CEO
Q: Can you explain the significant improvement in gross margins?
A: The improvement is due to a combination of stabilized raw material prices, better operational efficiency, and an improved product mix. Selling prices have also stabilized. - Sameer Hiremath, CEO
Q: What is the CapEx guidance for FY25 and the coming years?
A: For FY25, we estimate CapEx of INR100 crore to INR120 crore, primarily for debottlenecking and infrastructure. The ROI from this CapEx will start from FY26. - Kuldeep Jain, CFO
Q: What is the outlook for the animal health business and its revenue potential?
A: The animal health business is progressing well with multiple API developments. We expect commercial quantities to start in the next two years, with a revenue potential of INR300 crore to INR400 crore over the next four to five years. - Anish Swadi, Senior President
Q: How do you see the current industry dynamics in the pharma sector?
A: The generic business continues to grow despite pricing pressures. Our strategy focuses on being global cost leaders in key APIs, and we see healthy traction in this segment. - Manoj Mehrotra, President - Pharmaceuticals Business
Q: What is the dependency on China for key starting materials in the animal health business?
A: We have diversified our supply chain to reduce dependency on China, ensuring dual sourcing for key materials. This strategy applies across our pharma and crop protection businesses as well. - Anish Swadi, Senior President
Q: What is the status of the destocking situation in the crop protection business?
A: The global crop protection industry is still dealing with high inventory levels. Prices have hit rock bottom and are expected to improve once inventories normalize, likely in six to nine months. - Sameer Hiremath, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
