Release Date: May 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Solara Active Pharma Sciences Ltd (BOM:541540, Financial) achieved a significant improvement in gross margins, moving almost 10 percentage points closer to historical highs of around 50%-51%.
- The company reaffirmed its guidance for FY25, projecting revenue growth to approximately INR1,500 crore and an EBITDA run rate of around INR260 crore to INR290 crore.
- Solara Active Pharma Sciences Ltd (BOM:541540) is focused on improving its margin profile, quality of business, and sales discipline, which is expected to yield positive results in the upcoming quarters.
- The company announced a rights issue to support its balance sheet and significantly reduce debt, aiming for a strong balance sheet and free cash generation.
- Solara Active Pharma Sciences Ltd (BOM:541540) is adding new products and customers to its portfolio and working on a significant cost reduction program, which is expected to enhance profitability.
Negative Points
- The company had to take a provisioning of approximately INR120 crore of COVID inventory due to restricted freedom to operate post-pandemic.
- There was a delay in uploading the Q4 FY24 results due to technical issues, which could have impacted investor confidence.
- The sales ramp-up is taking longer than expected, which may affect short-term revenue growth.
- Solara Active Pharma Sciences Ltd (BOM:541540) had to defer several actions due to an unexpected FDA inspection of its Vizag plant, impacting operational timelines.
- The reported EBITDA for Q4 was only INR11 crore, significantly lower than the adjusted EBITDA of INR38 crore, indicating ongoing financial challenges.
Q & A Highlights
Q: Can you comment on the pricing erosion in the base portfolio of Solara?
A: Arun Kumar, Founder & Non-Executive Director: We have improved our gross margin profile by 10 basis points, which is more about correcting our selling behavior rather than market conditions. We have long-standing relationships with customers that help mitigate pricing pressures. We expect to maintain gross margins around 50% and will need more time to fully address this question.
Q: Is the inventory for base products at the industry level now normalized?
A: Arun Kumar, Founder & Non-Executive Director: We still have excess inventory of over INR100 crore, but none of it is at risk. We plan to use this inventory within the financial year. We made specific provisions for COVID-related products to improve cash flows, and we expect our cash flows to be as good as or better than our EBITDA.
Q: What is the expected cost benefit for the full year from the cost optimization efforts?
A: Arun Kumar, Founder & Non-Executive Director: We expect a cost reduction of INR60 crore to INR75 crore for the full year.
Q: What are the key revenue growth drivers for FY25?
A: Arun Kumar, Founder & Non-Executive Director: The growth will come from disciplined marketing and sales actions. We are targeting a 15% to 16% growth, aiming for a quarterly run rate of INR400 crore.
Q: What is the potential revenue from the current capacity?
A: Arun Kumar, Founder & Non-Executive Director: With our current capacity, we can potentially achieve revenues close to INR2,500 crore, depending on the product mix.
Q: Are there any additional one-offs expected in the coming quarters?
A: Arun Kumar, Founder & Non-Executive Director: No, there are no more exceptional items to worry about.
Q: Why did you opt for a partly paid-up rights issue rather than a full amount rights issue?
A: Arun Kumar, Founder & Non-Executive Director: A partly paid rights issue was considered more practical under the circumstances. We are confident of reducing debt significantly through operations and inventory liquidation.
Q: What is the status of the insurance claim for the loss of inventory and capital assets?
A: Arun Baskaran, Chief Financial Officer: We have claimed around INR50 crore for the Pondicherry incident, and the process is ongoing. We expect to receive the first ad-hoc amount of INR10 crore within a month.
Q: How many DMFs do you have for the US market, and how many are currently being supplied to customers?
A: Poorvank Purohit, CEO & MD: We have close to 95 DMFs filed with the US market and have commercialized roughly 25 to 30 products. We are evaluating other products for potential launch based on cost improvement programs.
Q: What percentage of your sales is domestic versus exports?
A: Arun Kumar, Founder & Non-Executive Director: Over 75% of our sales are to regulated markets, including sales to Indian formulators who export.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
