AARTIDRUGSNSEQ4 FY22May 16, 2022

Aarti Drugs Limited

6,423words
115turns
11analyst exchanges
3executives
Management on call
Harit Shah
Whole-Time Director, Aarti Drugs Limited
Adhish Patil
Chief Financial Officer, Aarti Drugs Limited
Vishwa Savla
Managing Director, Pinnacle Life Science Private Limited
Key numbers — 40 extracted
Rs.642.1 crore
rmance: First, we will discuss Standalone Business Performance. Revenues for Q4 FY'22 stored at Rs.642.1 crores as against Rs.452.9 crores, a healthy growth of 42% year-on-year. Standalone business contribute
Rs.452.9 crore
scuss Standalone Business Performance. Revenues for Q4 FY'22 stored at Rs.642.1 crores as against Rs.452.9 crores, a healthy growth of 42% year-on-year. Standalone business contributed approximately 90% to the
42%
. Revenues for Q4 FY'22 stored at Rs.642.1 crores as against Rs.452.9 crores, a healthy growth of 42% year-on-year. Standalone business contributed approximately 90% to the consolidated revenue. Appr
90%
452.9 crores, a healthy growth of 42% year-on-year. Standalone business contributed approximately 90% to the consolidated revenue. Approximately, 61% of the revenue came from the domestic market, whi
61%
ar. Standalone business contributed approximately 90% to the consolidated revenue. Approximately, 61% of the revenue came from the domestic market, while the remaining 39% came from the export mark
39%
ted revenue. Approximately, 61% of the revenue came from the domestic market, while the remaining 39% came from the export market for Q4 FY'22 for a standalone business. Domestic revenue grew approxi
37%
the export market for Q4 FY'22 for a standalone business. Domestic revenue grew approximately by 37% while exports grew by around 50% year-on-year for Q4 FY'22. API volume grew considerably by aro
50%
or a standalone business. Domestic revenue grew approximately by 37% while exports grew by around 50% year-on-year for Q4 FY'22. API volume grew considerably by around 23%, led by healthy growth in c
23%
hile exports grew by around 50% year-on-year for Q4 FY'22. API volume grew considerably by around 23%, led by healthy growth in chronic therapies especially in Anti-Diabetic segment. Within the API s
43%
-Diabetic segment. Within the API segment, the Antibiotic Therapeutic category contributed around 43%, Anti-Diabetic around 17%, Anti-Protozoal around 14%, Anti-Inflammatory around 12%, Anti-fungal a
17%
the API segment, the Antibiotic Therapeutic category contributed around 43%, Anti-Diabetic around 17%, Anti-Protozoal around 14%, Anti-Inflammatory around 12%, Anti-fungal around 9%, and the rest con
14%
otic Therapeutic category contributed around 43%, Anti-Diabetic around 17%, Anti-Protozoal around 14%, Anti-Inflammatory around 12%, Anti-fungal around 9%, and the rest contributed around 4% to the
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Guidance — 20 items
Adhish Patil
opening
“Going forward, the growth in chronic therapy is expected to outpace the growth in acute therapies, mainly driven by recently commissioned anti-diabetic capacity.”
Adhish Patil
opening
“The Company's expectation in the margin is, once the input price is stabilized which we expect by the end of Q2 FY'23.”
Adhish Patil
opening
“The final response will be submitted to the US FDA towards the end of H1 FY'23, most probably by the beginning of August month and the US FDA inspection is expected to be done by the end of this financial year.”
Adhish Patil
opening
“For the Gujarat project, the civil construction activity has picked up the momentum which is expected to operationalize towards the end of current financial year.”
Ankush Mahajan
qa
“Can I get the breakup of this CAPEX in terms of the therapies and what is the another CAPEX that we are looking for next year?”
Adhish Patil
qa
“The main projects which are going on, one already has been started, the Brownfield expansion of a chloro sulfonation facility at Tarapur, we just commenced with that project in the month of May.”
Adhish Patil
qa
“Tarapur Greenfield project is focusing on dermatology-related API.”
Adhish Patil
qa
“So, both these projects will be done mostly by the end of current financial year and that is where the majority of the CAPEX will be going and a very small portion say Rs.40 crores to Rs.50 crores of the CAPEX will be utilized for general Brownfield expansion (Inaudible) GMP enhancement and some bit for the maintenance CAPEX.”
Ankush Mahajan
qa
“How do you see the increase in raw material prices going onwards, I mean to say when we can expect things could get stable?”
Harit P. Shah
qa
“We expect price to come down by another three to four months, but not at the original level, but it will come down.”
Risks & concerns — 7 flagged
The Company's overall product mix, especially in API products improved considerably along with improved operating leverage, which helps the Company to partially offset the impact of higher raw materials.
— Adhish Patil
Very difficult to give any view, but looks like inflation is at top and all the governments are trying to control inflation, so demand may come down overall on commodities cycle.
— Harit P. Shah
With this kind of pressure, can we believe that our operating margin can be sustained at around 12% or you believe that there is a scope of improvement with the Brownfield capacity coming in place with the better product mix?
— Rashmi Sancheti
So, the Q4, I think we reported around 12% operating margin, so I'm asking regarding that is this kind of margin also will be able to sustain because I think you all mentioned that till another two quarters, there is a likelihood of seeing high raw material prices pressure, so are we going to sustain this or there is a scope of improvement in the overall operating margin?
— Rashmi Sancheti
So, there are a lot of those products in European market but because of this import alert cracking that market has been little difficult.
— Adhish Patil
On raw materials, we haven't seen a decline yet –
— Adhish Patil
It's very difficult to give names, but there are at least 200 chemicals we are using at least a month here
— Harit P. Shah
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Q&A — 11 exchanges
Q
Last year, our CAPEX is Rs.145 crores. Can I get the breakup of this CAPEX in terms of the therapies and what is the another CAPEX that we are looking for next year?
Adhish Patil
The main projects which are going on, one already has been started, the Brownfield expansion of a chloro sulfonation facility at Tarapur, we just commenced with that project in the month of May. Then, there are two main Greenfield projects which are going on. One is going on in Gujarat, that is for the backward integration and intermediates space. Tarapur Greenfield project is focusing on dermatology-related API. So, both these projects will be done mostly by the end of current financial year and that is where the majority of the CAPEX will be going and a very small portion say Rs.40 crores to
Q
Adhish, one question again on gross margin front. With this kind of pressure, can we believe that our operating margin can be sustained at around 12% or you believe that there is a scope of improvement with the Brownfield capacity coming in place with the better product mix? So, the Q4, I think we reported around 12% operating margin, so I'm asking regarding that is this kind of margin also will be able to sustain because I think you all mentioned that till another two quarters, there is a likelihood of seeing high raw material prices pressure, so are we going to sustain this or there is a sco
Adhish Patil
For the next two quarters? API standalone EBITDA margins were around 13.2% for March quarter. We believe that at overheads level also, we can easily improve around 0.5% to 1%, but apart from that at a gross margin level definitely, the current commissioning of chloro sulfonation plant, Brownfield expansion, that segment is more profitable for us. So, the product mix would be favorable in terms of the betterment of the gross contribution for the first quarter. Definitely, it will help more in the second quarter, because the production has just started. As far as the price hikes are concerned, s
Q
In last year's presentation, you had said that you have around 1,500 plus employees, in this year presentation, you are saying you have around 1,000 employees, so around 500 employees left, but your employee expenses are higher for the year. So, what is the disconnect?
Adhish Patil
There might be some mistake in it. We will get it corrected. We haven’t reduced the workforce essentially. There is some typo error. We will get it corrected. Thank you for pointing out. Second, on the capacity. So, you have done some around Rs.150 crores of CAPEX but your installed capacity has increased by just about 0.5%, even less than 1%. So, most of this capacity in the cash flow was in capital WIP. That is the reason why the capacity enhancement was not seen to that extent. But now in the month of May, we have come up with a chloro sulfonation capacity and in the last quarter of the fin
Q
My question relates to that US FDA inspection we are awaiting on Tarapur facility. So, if successful, what kind of scope we can expect from this facility?
Adhish Patil
So, there are a couple of indirect benefits as well, other than the fact that a couple of products, our ANDAs are still active, so for those products commercial inaudible) can be started. Definitely, in the beginning it will be slow, but then it can pick up, but apart from that there are a lot of indirect benefits in the terms that (previous word inaudible)facility also has EU GMP approval and CEP approvals for a few of the big products which we manufacture and we are pretty strong in. So, there are a lot of those products in European market but because of this import alert cracking that marke
Q
Could you just repeat this amount you spent for the CAPEX on the PLI?
Adhish Patil
I said much less than Rs.20 crores, means we are not giving out the exact number. The first is could you give a broad gross margin guidance or a range for the APIs for the spec chem and intermediate and for the formulations for Aarti Drugs as a Company? Guidance is for a long term definitely for API, right now we have a composite gross margin for API – Broadly, the API basket, what is the broad gross margins on formulations and spec chem and intermediates? The reason I ask this is so that we get a sense of how your gross margins may move in the future? Spec chem is the maximum, but then again
Q
What sort of volume growth are we targeting or expecting to achieve in FY'23 as well as FY'24 in API segment?
Adhish Patil
Ideally, we should get about 10%, last year also on a year basis around 10% volume growth we were able to achieve in FY'22 and similar kind of volume growth we hope to achieve in the coming years. This Rs.90 crores per quarter is like a base EBITDA and we would be able to grow on that. So, I'm talking not as a margin term, I'm talking as an absolute EBITDA. Is Rs.90 crores per quarter a sustainable number? Yes, Rs.90 crores is very much doable, but we hope that we do more than that. In formulations, what is the prognosis there, would you grow faster in the formulations segment than API segment
Q
Sir, just two questions. One, you have said that you have taken the price hike and most of the price hikes which were probably taken during the March. So, you believe that the gross margins what we have witnessed during this Q4 is kind of bottomed out and we can see quarter-on-quarter improvement on that?
Adhish Patil
One thing I noticed that in the month of March also, when we were negotiating order, that time also the margin was low. For the month of April and May, whatever we are negotiating, the margins have slightly improved for a few of the major products of ours, but then the impact to come, it takes around two months probably I'll exit the first quarter, maybe June month might be better, that is what I have a feeling but the Q1 will definitely be impacted, in fact, it means more or less similar kind of margins. But even what you are saying, have you seen the impact in the raw prices that month-on-mo
Q
I just try to understand this CAPEX of Rs.250 to 350 crores. Can you give a more breakup for this CAPEX this is for which therapies actually we are going to use this CAPEX and what is the timeline for this?
Adhish Patil
The timeline is one year. The thing is if you remove say around Rs.40, 50 crores, then rest of the CAPEX will be equally divided into two portions; one will go in Gujarat Greenfield and other will go in Maharashtra facility equally and I will be covering up with the backward integration and a few other intermediates. So, there will be speciality chemical intermediates kind of a thing and some bit of it we will be using captivity as well, whereas the Tarapur Greenfield would be more of the API and a few derivatives of the APIs. Can you give us names of the therapies? It goes in derma segment in
Q
My question is whether Aarti Drugs is able to get the revenue target of Rs.4,500 crores in FY'26 or '27?
Adhish Patil
That is fairly doable. Actually sir, in last concall that is of Q3 FY'21, you told Rs.4,500 crores revenue target will be achieved in five years and now you are saying this target can be achieved in nearly next five to six years. So, whether this target will be delayed? FY'26 means, that is four years from now considering this year, it should be fairly easy. In your revenue, nearly 43% consists of antibiotics. So, whether these antibiotics are somewhat import substitution from China? Partly yes, many of them. Whether we can believe that the EBITDA margin which we are getting this year that is
Q
I was looking at again on the R&D slide. So, last year you had some 57 M.Sc. graduates and 11 graduates, but this year again it has come down like 27 M.Sc. graduates and 28 graduates. Is there attrition happening like senior people are leaving on the R&D side, gross margins also like you have been saying that backward integration is happening , so gross margin to EBITDA margin flow should not be weaker na, it is getting weaker, your gross margins should expand or the volume should grow up, nothing is happening in that.
Adhish Patil
About the R&D part, I will definitely check all the slides. There is no attrition as such in the R&D. But then the thing is on the shop floor level the ground reality is that we haven't reduced any R&D, in fact, we have put up one more floor in our centralized R&D center at Tarapur. We have expanded the R&D last year in fact by one more floor. There is no cut down in R&D or anything like that. We have put up pilot plants also last year to do R&D of the bigger projects which we are launching right now. Your other question was regarding the gross margins, right. Backward integration projects whi
Q
Thank you everyone for being with us on this call. Please reach out to us or our IR consultant, SGA should you have any further queries. We can now close the call and thank you once again for participating in this call.
Management
Speaking time
Adhish Patil
49
Moderator
13
Aejas Lakhani
13
Ankush Mahajan
8
Ranvir Singh
8
Saravanan
5
Runjhun Jain
5
Ravi Ludha
5
Rahul Jha
3
Harit P. Shah
2
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Opening remarks
Adhish Patil
Good evening, everyone and thank you for joining us today to discuss our financial results for the quarter and financial year ended March 31st, 2022. Before I take you through the performance highlights, let me remind you that as communicated in the earlier earnings call, the financial performance on a year-on-year basis is not exactly comparable especially in terms of realizations and margins because of elevated API margins, driven by sudden supply disruptions due to COVID-19 related lockdown during the financial year 2021. The Company reported resilient set of performance with improved product mix even though the entire globe continue to face unparallel challenges in the business environment. I will now take you through Segment-wise Performance: First, we will discuss Standalone Business Performance. Revenues for Q4 FY'22 stored at Rs.642.1 crores as against Rs.452.9 crores, a healthy growth of 42% year-on-year. Standalone business contributed approximately 90% to the consolidated re
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