Release Date: August 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tarsons Products Ltd (BOM:543399, Financial) reported a 3.6% increase in stand-alone revenues for Q1 FY25, reaching INR64.9 crores compared to INR62.6 crores in Q1 FY24.
- The company has seen signs of recovery in the plastic labware industry with increased order inquiries in both domestic and international markets.
- Tarsons Products Ltd (BOM:543399) has been actively participating in large RFQs and overseas tenders, which have shown encouraging initial inquiries from new prospects.
- The new Panchla facility is expected to commence operations by H2 of this financial year, which will enhance production capacity and introduce new product categories.
- The acquisition of Nerbe plus, a Germany-based plastic labware distribution company, is expected to deepen Tarsons' presence in key European geographies and bring new customers, revenue growth, and increased profitability.
Negative Points
- Despite the revenue growth, the stand-alone adjusted EBITDA for Q1 FY25 stood at INR20 crores, down from INR24.1 crores in Q1 FY24.
- Reported EBITDA margins in Q1 FY25 were impacted by a change in product mix, increased employee expenses, and a provision of INR3 crores for machinery damaged during transit.
- The consolidated profit after tax for Q1 FY25 was INR4 crores with a PAT margin of 4.7%, indicating a decline compared to previous periods.
- The commissioning of the new Panchla facility has been delayed due to machinery damage during transit, affecting the timeline for capacity utilization.
- The inclusion of Nerbe plus, which has lower margins compared to Tarsons' India manufacturing business, may result in lower consolidated margins going forward.
Q & A Highlights
Q: How is the domestic diagnostic industry performing, and do you see any benefits for Tarsons?
A: The domestic diagnostic industry has stabilized post-COVID. Our business with this sector has returned to pre-COVID levels, indicating a stable and ongoing relationship.
Q: Can you provide an update on the CapEx program and its timeline?
A: The CapEx program has faced delays due to machinery damage during transit. The next block of machines is expected to start in H2 FY25, with full commissioning taking additional time due to insurance claims and replacements.
Q: How does Tarsons compare to larger global life sciences labware companies in terms of revenue trends?
A: Unlike larger companies where plastic labware is a smaller part of their revenue, Tarsons has performed better in the like-for-like business. Our focus remains on maintaining and growing our market share.
Q: What is the strategy to improve margins for the Nerbe acquisition?
A: The focus is on leveraging Nerbe's platform to grow our European footprint. While Nerbe's margins are lower, the goal is to maintain profitability and drive revenue growth through synergies.
Q: Can you provide details on the capacity utilization and timeline for the Panchla facility?
A: Most of the CapEx for Panchla has been executed, with 70% dedicated to new products. Full machinery installation is expected within the next 10 months, with significant contributions to the topline following that.
Q: How is the international business performing, particularly with RFQs and global tenders?
A: We are actively participating in RFQs and tenders, with expected wins in Q3 and Q4 FY25. This is crucial for scaling our international business and utilizing new capacities.
Q: What is the current debt level and average cost of debt?
A: The current debt is around INR270 crores with an average interest rate of approximately 8.25%. The peak debt is not expected to exceed INR300 crores.
Q: How has the gross margin been affected, and are there any pricing pressures?
A: The gross margin decline is due to a competitive market, change in product mix, and introductory costs for new products. There is no significant pricing pressure, but market conditions remain competitive.
Q: What are the expectations for the domestic business growth in FY25?
A: Despite a slight decline, the domestic business is expected to grow in line with the industry average of 12%. The decline is attributed to maintaining market share and taking share from competitors.
Q: How is the integration of Nerbe progressing post-acquisition?
A: Nerbe is being run independently with no major changes. The focus is on leveraging their customer base and product mix to grow our European business.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
