Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Glenmark Life Sciences Ltd (BOM:543322, Financial) reported a 9.7% quarter-on-quarter increase in revenue for Q1 FY25, reaching INR 588 crores.
- The company's EBITDA for Q1 FY25 stood at INR 165 crores, up 14.1% quarter-on-quarter, with EBITDA margins at 28%, within the guided range.
- The CDMO segment showed strong growth, with revenues increasing by 20.2% quarter-on-quarter to INR 43 crores.
- The company remains debt-free and generated strong free cash flow of INR 121 crores during Q1 FY25.
- Glenmark Life Sciences Ltd (BOM:543322) has a robust pipeline with 532 DMF and CEP filings, including high-potency APIs and synthetic small molecules.
Negative Points
- The discontinuation of PLI benefits and an unfavorable product mix led to a decline in gross margins to 51.1% from 55.5% in Q4 FY24.
- The Gujarat Pollution Control Board issued a closure notice to one of the company's plants due to pollution issues, potentially impacting production.
- Working capital for Q1 FY25 was high at 167 days, with expectations of it inching up further due to increased credit terms negotiated with Nirma Pharma.
- The company faces some pricing pressure in the market, although it is described as normal erosion.
- CapEx for FY25 is projected to be high, between INR 300 crores to INR 350 crores, with additional significant investments expected for the Solapur facility.
Q & A Highlights
Q: Can you give some sense of the reasoning behind the Gujarat Pollution Control Board's notice?
A: The Pollution Control Board sampled water discharge during heavy rains and found that our samples exceeded limits on COD and other parameters. We are working with authorities to resolve this and ensure compliance.
Q: Could there be a major production issue due to this notice?
A: We have not stopped production immediately to bring the plant to a safe state. There will be some impact, but we should be able to catch up with any production loss within the quarter.
Q: Is 51% gross margin a bottom quartile range?
A: Yes, we don't see margins going below this. The product mix has been a major cause for the reduction in gross margins this quarter.
Q: How should we think about growth for FY25-26 given the demand outlook and CapEx delays?
A: The demand outlook is strong, and our brownfield expansions will provide a good runway for the next 1.5 years. The medium-term growth outlook remains unchanged.
Q: Can you share more color on the CDMO outlook?
A: Our fourth project with a Japanese innovator should start commercial supplies in Q3 or Q4. The fifth project is on track for late Q3 or early Q4. Both are driven by regulatory approvals.
Q: Will Glenmark Life Sciences consider getting into CDMO for Phase 1, 2, and 3 trials?
A: This segment requires fresh investments in R&D and manufacturing with a long gestation period. We prefer shorter gestation projects and can prospect business in our selected segments for the next three to five years.
Q: How has pricing pressure been in the first quarter, and will margins remain stable?
A: Pricing pressure has been normal, and we expect to maintain or improve margins from this quarter's levels.
Q: Does the improving funding environment for biotech startups impact your business?
A: Yes, it positively impacts us, especially in the specialty segment. The BIOSECURE Act also benefits Indian companies catering to innovative business.
Q: Any thoughts on cash allocation and dividend policy with the new ownership?
A: Dividend payout will not be as high as in the past due to high CapEx plans. We will remain debt-free and utilize cash for CapEx.
Q: What is the market share in the 65 molecules supplied to Glenmark Pharma?
A: We have 90%-plus wallet share in these molecules, with Glenmark Pharma being our primary customer.
Q: What percentage of revenue could the CDMO business contribute in the future?
A: We expect CDMO revenue to reach INR500 crores to INR600 crores in the next four years, driven by new projects and a strong pipeline.
Q: What was the production value of the facility affected by the GPCB notice?
A: The facility contributes about 60% to 65% of our overall revenue. We expect to resolve the issue quickly and catch up on production within the quarter.
Q: Can you explain the changes in CapEx plans for Ankleshwar and Dahej?
A: We have adjusted CapEx plans based on product mix, demand patterns, and new launches. Ankleshwar will see additional pharma capacity, and Dahej will add new pharma modules.
Q: How are raw material prices affecting your business?
A: Raw material prices are stable, but solvents like isopropanol, toluene, and hexyl are inching up due to crude oil prices.
Q: Any major CapEx required for resolving the GPCB issue at Ankleshwar?
A: We have always invested in environmental compliance. Any additional CapEx required will be marginal.
Q: Any changes in company strategy after the Nirma takeover?
A: We are focusing on greenfield expansions and new technology platforms. Nirma's support allows us to make these investments and expand our R&D capabilities.
Q: Is there room to reduce working capital to improve cash flow?
A: Working capital may inch up due to increased credit terms with Nirma Pharma, but we will control it as much as possible.
Q: How is the shipping scenario affecting your business?
A: The Red Sea issue impacted airfreight availability, but we have improved planning to address this. Some backlog from the previous quarter is reflected in this quarter's revenue.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
