GLANDNSEQ4FY22May 26, 2022

Gland Pharma Limited

8,177words

112turns

11analyst exchanges

3executives

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Management on call

Srinivas Sadu

MD & CEO

Ravi Shekhar Mitra

CFO

Sumanta Bajpayee

VICE PRESIDENT, CORPORATE FINANCE AND INVESTOR RELATIONS

Key numbers — 40 extracted

rs,

ning our earnings call for fourth quarter and full year FY22. My best wishes to all our shareholders, analysts and their families. The industry continues to face heightened supply chain disruptions, n

Rs. 11,030 million

siness performance continues to remain strong. We closed this quarter Q4 FY22 with the revenue of Rs. 11,030 million that is a year-on-year revenue growth of 24% for the quarter Q4 FY22. Our full year FY22 revenue

24%

s quarter Q4 FY22 with the revenue of Rs. 11,030 million that is a year-on-year revenue growth of 24% for the quarter Q4 FY22. Our full year FY22 revenue stood at Rs. 44,007 million, which is a growt

Rs. 44,007 million

a year-on-year revenue growth of 24% for the quarter Q4 FY22. Our full year FY22 revenue stood at Rs. 44,007 million, which is a growth of 27% over FY21. Our PAT stood at Rs. 2,859 million for the quarter. This is

27%

the quarter Q4 FY22. Our full year FY22 revenue stood at Rs. 44,007 million, which is a growth of 27% over FY21. Our PAT stood at Rs. 2,859 million for the quarter. This is an year-on-year PAT growth

Rs. 2,859 million

ar FY22 revenue stood at Rs. 44,007 million, which is a growth of 27% over FY21. Our PAT stood at Rs. 2,859 million for the quarter. This is an year-on-year PAT growth of 10% for the quarter. Our full year FY22 PA

10%

r FY21. Our PAT stood at Rs. 2,859 million for the quarter. This is an year-on-year PAT growth of 10% for the quarter. Our full year FY22 PAT stood at Rs. 12,117 million, a growth of 22% for the full

Rs. 12,117 million

ter. This is an year-on-year PAT growth of 10% for the quarter. Our full year FY22 PAT stood at Rs. 12,117 million, a growth of 22% for the full year FY22 over FY21.We have generated Rs. 7,908 million of cash flo

22%

AT growth of 10% for the quarter. Our full year FY22 PAT stood at Rs. 12,117 million, a growth of 22% for the full year FY22 over FY21.We have generated Rs. 7,908 million of cash flow from operations

Rs. 7,908 million

T stood at Rs. 12,117 million, a growth of 22% for the full year FY22 over FY21.We have generated Rs. 7,908 million of cash flow from operations in FY22. Our broad portfolio differentiated business model, and stro

1 billion

three hormonal filings and one complex peptide filing during the year, which have market size of $1 billion. We also focused on ensuring timely new launches in the market. To highlight a few, we commercial

4.4%

kets during the year. In FY22, upon excluding capital R&D expenditure, the R&D expenses stands at 4.4% of our revenue for the period in line with our historical trend. As on 31st March 2022, we along

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Guidance — 20 items

Sumanta Bajpayee

opening

“The transcript of the call will be submitted to the stock exchanges and made available on our website as well.”

Ravi Shekhar Mitra

opening

“34,483 million of cash, which we intend to utilize for CAPEX and to fund our organic and inorganic growth strategies.”

Srinivas Sadu

“I would say, I can’t put a number to it yet, but we are catching up I think this quarter, next quarter.”

Srinivas Sadu

“So, this quarter, there will be still shortage of about 3 million to 4 million syringes, but I think by next quarter everything will be on track in terms of the syringes they have promised to deliver.”

Srinivas Sadu

“Now, going forward, I mean are we going to see in an improvement from the current levels, given that fourth quarter was a consortium of several issues, including shortage of syringes and cost escalation.”

Srinivas Sadu

“I mean, can we expect some kind of retrieve in terms of some kind of price increase and some kind of normalization and basically no margins increasing going forward?”

Srinivas Sadu

“At least what we share, right, I mean 50% or 60% depending on our profit share model that also we are sharing, so that is deducted and then the profit share will be shared with us.”

Srinivas Sadu

“Sudarshan Padmanabhan: At this environment, I mean on the sales, you did mention that going, you are looking at 20% to 25% kind of CAGR and I mean, are we looking at any kind of a margin guidance that you would like to give, I mean from FY22 base?”

Srinivas Sadu

“So, I can’t really give a growth guidance yet, but we try to grow, like historically what we have been doing on average, we will try to do that.”

Srinivas Sadu

“So, we have not done any fill finished batch, other than the validation batches, so that will be very small quantities.”

Risks & concerns — 14 flagged

Efforts were made to minimize the impact of these disruptions by qualifying new suppliers as well as optimizing our production planning.

— Srinivas Sadu

US market continues to surprise us with high price pressure on one side and at the same time, encountering several drug shortages.

— Srinivas Sadu

We have managed to curtail the full impact of reduction in gross margin and increase in some of the expenses due to higher operating leverage.

— Ravi Shekhar Mitra

The companies do have the pipeline, but it did impact in terms of export last quarter and indirectly, it is also impacting the cost, because we are airlifting for the syringes to meet the demand and that is one of the reason, why at the gross margin level, there is an impact of that as well because the logistic costs gone up when we are importing this by air.

— Srinivas Sadu

Sudarshan Padmanabhan: And sir what could be the impact of that, I mean if you can quantify it and whether this issue has been solved, because it has been running for the last two quarters?

— Srinivas Sadu

So, the way we look at gross margin should be different for Gland just because of the model we adopt and the margin, there is a pressure because of the logistic cost, which is actually lying for all the US market.

— Srinivas Sadu

Some, it is easier to change the suppliers, but some difficult depending on the technicality of the item what we are using for a particular product.

— Srinivas Sadu

So, the margin pressure is there on that, but at least we should cater to the market and at least capture the demand when it is there and some of these contracts where other companies are not able to meet the demand and those contracts are getting converted to the companies who are supplying.

— Srinivas Sadu

We got a couple of contracts like that as well, so it is an opportunity to do that while the cost pressure is there.

— Srinivas Sadu

From the API perspective, if you see about a year ago, internal APIs were about 24%, 23% was internal, now it has gone to about 33%, 34% of revenue is coming from internal APIs and we continue to invest into that because at least the risk of the suppliers not supplying will go away, so substantial investments are going into that as well.

— Srinivas Sadu

Only geography where you are not looking at is Europe, because of the price pressure there and also the complexity of registering the product, but other than Europe, we are looking at every other country.

— Srinivas Sadu

— Ankush Agrawal

Maybe, there will be some margin pressure in ROW, but that helps to keep your regulated market business going up and having a clean quality record with the authorities.

— Srinivas Sadu

Well, I can’t quantify, but for sure that one is of course eliminate the risk, the other is increasing the gross margins.

— Srinivas Sadu

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Q&A — 11 exchanges

Yes, it did. I did mention last quarter as well, there is a shortage of syringes supplies and if you look at our US sales in last quarter, the growth is lesser compared to the normal run rate. That is primarily because of the syringe shortages, which we couldn’t export because of the shortages. What we did was, we got some alternate source syringes, but we can’t really change for the US market, so we utilized those syringes for our domestic market and other markets and that is one of the reasons you see we have larger third-party sales in the domestic market, where we have utilized syringes fr

Srinivas Sadu

I would say, I can’t put a number to it yet, but we are catching up I think this quarter, next quarter. There is a backlog of orders, what we need to supply. Still, we are not in stage where the pipeline is dry for our partners, so but there is a backlog of orders for us. So, this quarter, there will be still shortage of about 3 million to 4 million syringes, but I think by next quarter everything will be on track in terms of the syringes they have promised to deliver. Sudarshan Padmanabhan: And sir, on the cost front, I mean you talked about the gross cost as well as the cost impacting on the

On the vaccine, you mentioned that there is a repurpose of the facility that is being planned, wanted to ask two questions on this? One, was there any kind of write-off on the vaccine business given that we had some commercial batches?

Srinivas Sadu

So, we have not done any fill finished batch, other than the validation batches, so that will be very small quantities. So, as of now, there is no write-off quantities yet, whatever we bought are in terms of bags and all that, it can be used for the biosimilar production as well. So, as of now, there is no write-off of that. Second question on the vaccine front was on the timeline as well as the cost for repurposing these facilities, does that entail some timeline? Or would that be immediately swappable, just wanted to visualize that? So, when we say repurposing, whatever lines we have install

Just on the part that you mentioned at the start of the call about the shortages, which you see, I am just curious to understand the reasons which are there now in the US, is it supply of raw material, or is it due to the renewed FDA actions across as inspection start? That is the first part of the question and how much percentage of your portfolio now, if you can probably help us is under that list as per the US FDA?

Srinivas Sadu

So, the shortages what I talked was nothing to do with the FDA, mostly, it is the manufacturing sites in the US, there are various reasons, for example, I was talking about components, whether it is vials or stoppers and some of the process materials like tubing, filters. So, most of the supplies were going towards vaccine manufacturing and so, it got diverted to that. That is one of the reason. So, there is a lot of backlog for them to supply to the regular injectable manufacturers. So, the lead times have really gone bad for most of these components. So, that is one of the reason we are quic

So, the first one, we earlier alluded that by the COVID time that product mix shifted towards, COVID products like Enoxaparin, Rocuronium like products which are used in elective surgeries took ahead, so now with COVID normalizing, are we seeing that mix shift coming back to the elective surgery portfolios like Penems and antibiotic?

Srinivas Sadu

So, I would say, now the COVID portfolio has gone away about 2 quarters ago, the demand for products, but otherwise, rest of it is coming back slowly. Some of the products have not caught up like before, but I think the portfolio mix is getting back to the earlier days. And is it fair to assume that those products typically have better margins than the COVID products like Enoxaparin? Well, I think if you see the margin wise, all the new products will give a better margin, so whatever we launches, I think that is the key thing, which will give better margins than the old products coming back, b

First question is related to staff cost, I don’t know whether we have addressed it in the opening remarks, but it has gone sequentially by around Rs. 15 crore odd to Rs. 94 crore-Rs. 95 crores, any reason for this or is it related to the plant expansion we have done or is it the new base if you can explain?

Srinivas Sadu

The staff costs? Yes. It is a combination of both, one is the additional lines coming in, so recruitment has happened in those lines. The other is January is the time where we get the raise, so the increment impact is also there and the incentive quarter, so that is the impact you are seeing. So, we should assume this as a new base, right? Some incentive won’t be there in every quarter, so that will go away. So, the annualized basis if you see, the increment is normal as what we have been seeing and Mr. Sadu said, there is a headcount increase, so yearly basis that can be the rate. The second

So, firstly, on the growth slowdown in the core markets, so you highlighted one of the specific reason around syringes, so any other reason that you want to highlight qualitatively that has affected the performance? And similarly on the margins front as well, so is it safe to assume that the reduction in margin is primarily because of the lower share of developed markets in this quarter and the logistic and syringes that you highlighted?

Srinivas Sadu

So, one is of course Enoxa, other also and if you look at launches on an annualized basis, you should see launches, it might go up and down in a quarter. So, launches were fewer in the last quarter and also some products, we didn’t launch actually because we have inventory for the launch batches, but then the followup batches, we can’t make the market dry, so waiting for the components and they have to come in so that we can supply on a continuous basis, so some of the launches, which we actually plan last quarter will go end of this quarter. And then the margins front, is it because of the ma

So, FY23 seems to be larger LOE year as there are more number of injectable brands losing exclusivity, so is it fair to assume that on a relative basis compared to, let us say FY22, your share of new launch contribution will be higher and therefore profit share will be higher? Is that a fair characterization?

Srinivas Sadu

Yes, at least the second half of FY23 should look like that Nithya. Quick tactical one, by when do you expect the partner volumes in Enoxaparin to entirely shift to you, what timeframe? We are looking from June, July. By June, July all of their market share would have shifted to Gland, right? Yes, correct. And this is a related question to what another gentleman was asking, we have been talking about M&A for the last year, year and a half, if you can just update us on where you are and are we likely to see more traction in the coming months? Yes, hopefully, we should give something, Nithya bec

Sir, post considering these partners volume as well for Enoxaparin overall globally, what would be the market share of Gland for this product?

Srinivas Sadu

Globally I can’t tell, because Europe is a huge market for this. China is a huge market, where we don’t have the presence. So, I think globally, probably 10% because volume wise it is huge in other markets also. So, probably 10% could be my wild guess. I mean you highlighted that Europe is not geography to look for at least for this so China would be key market to look in terms of significant expansion for this product? Yes, China and also other markets, they are still there where, see if you look at the Chinese manufacturers presence, they are big in Europe, they are big in China and they are

So, slightly longer-term question, in the sense, would you ever look at consolidating the ROW product portfolio into a separate facility, because I believe the compliance costs related to US FDA which is much higher vis-a-vis, let us say, ROW market and that way you can improve the margin from the ROW portfolio?

Srinivas Sadu

There was debate always on this, but I think we want to keep the quality standard across the sites similar, we don’t want to dilute that because at a long run that helps because from the corporate quality perspective, we want to have a common quality systems across sites, so there is no confusion and different qualities at different sites. Maybe, there will be some margin pressure in ROW, but that helps to keep your regulated market business going up and having a clean quality record with the authorities. And secondly, as we said that we have increased our backward integration into API from ro

Just one clarity like from last couple of quarters, we have seen our business where in exports to US from India has grown because the Indian partners have grown, so wanted to understand is the profitability on this business similar to if we export to a US partner?

Srinivas Sadu

It is similar, there is no different with that. It is such that the number of products, not what these companies have, they started launching more products and also new partners, we have added Piramal as a new partners. So, some of the partners from India, Sun Pharma is also one of our partners who are selling products, more products now in the US. So, we have more Indian partners who are selling, so the volumes have increased that way. I mean a couple of years, we expect share of Indian partners increasing, is that? Yes, because more products to more players who have front-end in the US, the

Thank you. Thank you everyone for joining us today for our fourth quarter earnings call. If any of the questions still remain unanswered, please feel free to get in touch with us. Thank you, and good night.

Management

Speaking time

Srinivas Sadu

Moderator

Ankush Agrawal

Ravi Shekhar Mitra

Amey Chalke

Kunal Dhamesha

Shrey Jain

Kartik Mehta

Nithya

Tushar Manudhane

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Opening remarks

Sumanta Bajpayee

Thank you. A warm welcome to Gland Pharma’s Earnings Conference Call for fourth quarter and financial year ended 31st March 2022. I have with me, Mr. Srinivas Sadu - Managing Director & CEO; and Mr. Ravi Shekhar Mitra - our CFO, to discuss business performance and to answer queries during the call. We will begin the call with business highlights and overview by Mr. Srinivas Sadu, followed by financial outlook by Mr. Ravi Shekhar Mitra. After opening remarks from the management, Operator will open the bridge for Q&A session. Before we proceed with the call, please note, some of the statements made in today’s discussion may be forward-looking and based on management estimates. This must be viewed in conjunction with the risks and uncertainties involved in our business. The safe harbor language contained in our press release also pertains to this conference call. This call is being recorded and the playback shall be made available in our website shortly after the call. The transcript of t

Srinivas Sadu

Thank you, Sumanta. Good evening, everyone. Thank you for joining our earnings call for fourth quarter and full year FY22. My best wishes to all our shareholders, analysts and their families. The industry continues to face heightened supply chain disruptions, not just delay in API supplies, but also primary packaging components. There was a considerable escalation of freight costs, utility costs and several input material costs. Efforts were made to minimize the impact of these disruptions by qualifying new suppliers as well as optimizing our production planning. We remain committed to maintain our business resilience in these challenging times. Despite the ongoing disruptions, our business performance continues to remain strong. We closed this quarter Q4 FY22 with the revenue of Rs. 11,030 million that is a year-on-year revenue growth of 24% for the quarter Q4 FY22. Our full year FY22 revenue stood at Rs. 44,007 million, which is a growth of 27% over FY21. Our PAT stood at Rs. 2,859 m

Ravi Shekhar Mitra

Thank you, Mr. Sadu. Good evening, ladies and gentlemen. Thank you very much for attending our fourth quarter and financial year ending 2022 earnings call. Our earnings presentation has been uploaded on the website. Let me begin with sharing the financial performance for fourth quarter and financial year 21-22. For the fourth quarter, we have reported revenue of Rs. 11,030 million, which is a 24% growth year-on-year basis. Revenue from operations for the fiscal 2022 stood at Rs. 44,007 million, a year-on-year increase of 27%. The key drivers for this growth were increase in volume of existing portfolio and new product launches. In terms of bifurcation of revenue during the FY22 as per markets, core markets comprising of the US, Europe, Canada and Australia has contributed 67%, followed by ROW markets adding 19% of revenue. India contributed balance 14% of the revenue from operations. Our core markets have seen a growth of 8% during fourth quarter of FY22 as compared to same period of l

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