Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The company has successfully tackled engineering challenges at its new drug product facility in France, leading to normal operations.
- India CRAMS revenue saw a substantial increase from INR 38 crore to INR 82 crore, translating to a positive EBITDA of about 14%.
- The cosmetic market in Europe is recovering post-COVID, providing large opportunities for increased production volumes.
- The company has reorganized its business into three segments (Drug Substance, Drug Products, and Specialty), which is expected to lead to better market penetration and success.
- A renegotiated supply agreement for key raw materials in the Dutch entity is expected to result in significant cost savings from Q3 onwards.
Negative Points
- The global results for the quarter were not as expected due to challenges from the previous quarter.
- Approximately $9.8 million worth of orders were deferred to the next quarter, impacting Q1 revenue.
- The Dutch entity saw a 16% revenue decline due to lower sales of high-margin vitamin D analogues.
- The French operations are expected to see an EBITDA burn of about CHF 5 million for FY25.
- The company has faced consistent losses over the past four years, with concerns about recurring one-off issues impacting profitability.
Q & A Highlights
Q: Pascal, you mentioned that Switzerland might impose some challenges because of the floods. Do you believe that the CHF200 million revenue target for the CRAMS business of Carbogen Amcis is achievable for FY25 despite these adverse developments?
A: Yes, definitely. Although the numbers were not as high as expected, they were not low enough to be concerning. We have fixed the technical issues and are confident that Switzerland will grow beyond CHF200 million for the activity.
Q: Congrats on the Bavla site coming back. How should we see the revenue from this business going forward? Historically, it delivered INR100 crore to INR120 crore top line. Any guidance for the remaining part of FY25?
A: We expect the current year revenue from CRAMS to be closer to INR325 crore to INR350 crore. The Q1 number is on target post-EDQM clearance in February. We anticipate additional orders from existing and new customers, and internal collaborations between the Swiss and Bavla sites.
Q: The Netherlands business has shown striking developments. Can you elaborate on the revised contract with your vendor and its impact on margins?
A: The Netherlands business saw high sales of cholesterol FS, which has lower margins. We renegotiated the contract with our supplier, reducing prices by almost 35%. This will improve our competitiveness and margins from Q3 onwards.
Q: What's the net debt as of June 30, 2024? And do you stick to the guidance of CHF4 million to CHF5 million EBITDA burn for the French operations in FY25?
A: The net debt stood at CHF164 million. We expect the French entity to have a negative EBITDA impact of about CHF5 million for the current financial year, with losses decreasing substantially from Q3 onwards.
Q: Why not remove the entire goodwill from the books to clean them up?
A: Writing off the entire goodwill would imply that the value of our intangibles is zero, which has tax and regulatory implications. We reassess the goodwill annually for impairment and have now extended its useful life to 99 years, reducing the annual amortization impact on the P&L.
Q: Can you quantify the percentage of revenue from development and commercial projects at the Swiss entity?
A: Historically, about 55% to 60% of revenue comes from development work and 40% to 45% from commercial projects. In Q1, development revenue was 40% and commercial was 60%.
Q: Could you repeat the change in depreciation?
A: The goodwill on the stand-alone books, which also affects the consolidated books, stood at INR594 crore as of March 31, 2024. We have changed its useful life to 99 years, reducing the annual amortization from INR45 crore to INR6 crore, effective from April 1, 2024.
Q: What is your guidance for top line and margins for the current financial year?
A: We expect a 10% top-line growth and an EBITDA margin of around 18% for the current financial year. The Q1 numbers already reflect the changes in depreciation.
Q: Given the global pharmaceutical market changes, do you see any large tailwinds for the CRAMS business?
A: Yes, we see potential benefits from the US legislation that might prohibit sourcing APIs from China. This could lead to more projects moving to our European and Indian facilities, benefiting our CRAMS business.
Q: Our company has been in loss for the last four years. Is there a possibility of returning to profit in the next two years?
A: Yes, we expect to return to profit this year and in the years going forward. The issues that caused the losses have been addressed, and we anticipate improved profitability.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
