Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Granules India Ltd (BOM:532482, Financial) reported a robust performance in Q1 FY25, with revenue growth of 20% year-over-year, driven by formulations.
- The company has significantly increased its share of finished dosages (FD) to 76% of total sales, up from 65% in FY24 and 55% in FY23.
- New products beyond the legacy five products contributed 35% to Q1 revenue, showing a strong growth trajectory.
- Investments in the US, including local manufacturing and packaging sites, are paying off well, contributing to growth in the US market.
- Granules India Ltd (BOM:532482) continues to prioritize R&D, with significant progress in oncology, antidiabetic segments, and innovative manufacturing technologies like biocatalysis and continuous manufacturing.
Negative Points
- The company faced a decline in Para API and PFI sales volume and price erosion, which offset some of the growth in FD sales.
- European sales were down by 35% in INR terms, primarily due to a downturn in the paracetamol market.
- The cash-to-cash cycle increased to 183 days in the current quarter from 161 days at the beginning of the year, impacted by new launches and Red Sea issues.
- Employee costs and other expenses have increased by approximately 16% to 18% year-over-year, impacting operating leverage.
- The company is cautious about its INR2,000 crore CAPEX in the CZRO project due to infrastructure creation delays and market uncertainties.
Q & A Highlights
Q: Sir, my first question is on the conclusion of FD, we have achieved now 76% of the FD contribution to the overall total sales, how could this for the entire year and are we not focused on increasing the pace of API and PFI during the year? What I want to understand that whether the contribution would fluctuate quarter-on-quarter or more or less it would remain stable during the year?
A: Regarding your question, you are talking about the contribution of finished dosage as a part of our overall sales. With the number of launches we have going forward, we think there is a very strong possibility that it will remain this or grow a little bit further.
Q: And what is your target contribution of FD to total sales and what are you aiming to achieve this in next two, three years?
A: Rashmi, if you have seen our strategy is always to keep on increasing FD and that is why we have been talking about all these years and we are on the path. Most of the APIs we make go into our FDs and PFIs, and PFIs go into FDs today. So even if we sell all the APIs elsewhere and buy the APIs required for FD, our revenues would have been at a different level, but most of the APIs are made for in-house consumption. So we see that this ratio will continue at the same level or possibly grow.
Q: So then, in that case, we expect that there should be decline in both API and PFI segment for this particular year because your FD contribution would be pretty high due to the increase in launches?
A: Yeah, that is the strategy, Rashmi.
Q: Okay. Got it And, sir, then what about the gross margins, if the FD contribution also sustained, then do you think that the gross margin of this 58%, 59% of the sustainable during the year?
A: It should be around this, a little bit here and there, plus or minus a few points. But it should be around that.
Q: And then any guidance on operating margin we would like to give since our gross margins are being improved by around 300 to 400 basis points in FY25 over FY24.
A: Rashmi, again, we always maintain that we will definitely be above 20% and we will keep improving year-on-year. So now the 22% margin has to improve a little bit. How much it will improve, we will see.
Q: And one last question on your OTC business. As a percentage of your formulation business, how much is your OTC contribution?
A: That's about 15% of our overall business.
Q: 15% of overall sales or of formulation business?
A: Overall sales.
Q: Hi, good evening and congrats on an extremely strong set of numbers. So just a couple of questions. Specifically on geographies, North America, are there any industrial tailwinds or would you describe most of the performance to -- idiosyncratic to your business? Second, if you could just comment on what is happening in Europe? And third, Chairman, I heard you made some reference to large molecules in your opening comments, if you could just elaborate a bit on that?
A: I think Priyanka will take this question, but before that let me clarify. I didn’t say large molecules, I said large volume molecules.
Q: Okay. Sure
A: Hi. So I think the US has always been a very strategic market for us as you always know, and we are built for regulated markets. So on that front, it was obvious that the US would be the biggest and continue to be the biggest. And that is primarily because of one, our strategy, like I said, our service levels, our quality and compliance, that I am sure you have seen in the news that we have had absolutely no issues. So I think the combination of all these three and of course having the right products at the right time, all of them contributed towards growing US sales, which will continue to grow as we go. Number of launches also led to this increase in the US numbers. Just a clarification on Europe, what exactly did you mean by can you provide some commentary on Europe?
Q: The Europe business is down about 35% in INR terms. So just wanted -- is there something that you have already commented, and I missed or --?
A: Okay. Yeah, European sales were led by paracetamol all these years. And only recently, we made the shift to empty and FTEs are picking up. It is a two-month like you have mentioned in the last quarter and most of you may know, is in a very bad shape today. There's a lot of inventory which the customers have built up across Europe and US, and some of them have another inventory sufficient for another six months. So literally, there is no big market. And also there's a lot of capacity that was built up anticipating a huge demand. So paracetamol is -- has not contributed and we do not expect it to contribute for at least another two quarters. I think it's only possibly next year paracetamol will come back and add to our revenue and profitability.
Q: Just a follow-up on U.S. Roughly, the run rates moved from about INR700 crores, INR710 crores in March 23 quarter to about INR870 crores. And in that time span, we've seen additional approvals of about 10 products. So if you could just give us a sense on how much of the incremental 25%, the dollar hasn't moved as much, would be on account of really the traction on the new products and how much -- I mean, just a ballpark, would be on account of you getting more volumes in your base business?
A: I think it's a mix between both. I'm sorry, I forgot your name. My apologies. It's definitely a mix between the both the new launches, to be very honest, we just touched a launch in Q1. So you will see those is making a bigger dent going forwards, but primarily it was increased market share from the existing products.
Q: So, just wanted to get an idea on currently how sales are panning out? So maybe, correct me if I’m wrong, but I think since the last seven, eight quarters, we -- in the range of around INR1,100 to INR1,200 crores. And I understand that US have grown that much. But I think because of our European business that's eating up all our gains.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
