Release Date: April 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Completion of the deal with Nirma Limited, providing increased growth capital.
- Secured business with Glenmark Pharma through a five-year master supply agreement.
- Gross margins remained strong at 56.1% for FY24, up from 53.1% in FY23.
- CDMO segment showed steady growth with expectations for commercialization of new products in H2 FY25.
- Strong order book and promising demand environment for the coming quarters.
Negative Points
- Geopolitical issues and Red Sea crisis caused significant supply chain disruptions, delaying shipments and inflating costs.
- Q4 revenue was impacted due to delayed flight availability and alignment with Nirma policies.
- Anticipated annual reduction in margins of 100 to 150 basis points due to the discontinuation of PLI scheme benefits.
- Higher employee costs due to a one-time bonus linked to management's past performance.
- Japan market experienced significant inventory destocking, impacting overall growth.
Q & A Highlights
Q: You had guided in your Q3 earnings about soft GPL business in Q4, but the volatility or the fall that we saw was quite steep. How should we see it going forward? Can we expect these quarterly aberrations even from here on?
A: The GPL business has been cyclical due to demand fluctuations. The significant softness was due to inventory destocking. We expect them to come back in the year, but quarter-on-quarter variations are likely. On a yearly basis, it should be fairly stable. (Yasir Rawjee, CEO)
Q: What kind of visibility do you have on the GPL business?
A: Typically, we have about one to two quarters of visibility on their business. (Yasir Rawjee, CEO)
Q: Could you elaborate on the master agreement signed with GPL?
A: It’s a five-year agreement ensuring existing supplies continue and new products filed with our APIs are included. This ensures predictability on supplies and earnings at competitive prices. (Yasir Rawjee, CEO)
Q: What was the GPL revenue of the overall revenue for FY24?
A: It was around INR717 crores, approximately 30% of the total revenue. (Yasir Rawjee, CEO)
Q: Could you give some color on the impact of the Red Sea crisis on ROW and LatAm supplies?
A: The crisis caused a backlog of around 10 to 12 days due to higher demand on air routes, delaying shipments. We are working on earlier bookings and alternative routes to mitigate this. The crisis has also impacted raw material supply, leading us to consider alternative ports and increased road transport. (Yasir Rawjee, CEO)
Q: Is there a risk to the mid-teen revenue guidance due to the ongoing Red Sea crisis?
A: Demand remains stable across markets except Japan. We are hopeful to adjust and ensure timely shipments to recognize sales. (Yasir Rawjee, CEO)
Q: Could you provide more details on the CapEx budget for FY25?
A: The CapEx budget for FY25 is around INR340 crores, with INR140 crores allocated for the Greenfield site in Sholapur and the remaining for brownfield projects in Ankleshwar and Dahej, along with regular maintenance CapEx. (Yasir Rawjee, CEO)
Q: What is the expected trajectory of freight costs in Q1 FY25 due to the Red Sea crisis?
A: Both sea and airfreight costs have increased. If the crisis continues for an entire year, the impact could be around INR10 crores to INR12 crores. However, we do not expect the crisis to last that long. (Yasir Rawjee, CEO)
Q: Could you share insights on the upcoming filings or approvals in your R&D pipeline?
A: Our high-potency API pipeline is progressing well with 16 molecules. One product has already been commercialized in select markets, with significant revenue expected from this pipeline in about two years. (Yasir Rawjee, CEO)
Q: What percentage of your FY24 revenue came from goods manufactured using imported raw materials, and what was China’s share?
A: Approximately 40% to 45% of our procurement is imported, with China accounting for about 40% of that. (Yasir Rawjee, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
