ALKEMNSEQ4 FY2022May 13, 2022

Alkem Laboratories Limited

8,012words
153turns
14analyst exchanges
6executives
Management on call
Sandeep Singh
MANAGING DIRECTOR, ALKEM LABORATORIES
Rajesh Dubey
CHIEF FINANCIAL OFFICER, ALKEM LABORATORIES
Amit Ghare
PRESIDENT, INTERNATIONAL BUSINESS, ALKEM LABORATORIES
Yogesh Kaushal
PRESIDENT, CHRONIC DIVISION, ALKEM LABORATORIES
Gagan Borana
INVESTOR RELATIONS, ALKEM LABORATORIES
Tushar Manudhane
MOTILAL OSWAL FINANCIAL SERVICES
Key numbers — 40 extracted
13.3%
veryone. Starting with the financial performance for the quarter, revenues from operation grew by 13.3% year-on-year driven by healthy performance in India business which registered a year-on-year grow
16.7%
on-year driven by healthy performance in India business which registered a year-on-year growth of 16.7%. US business was almost flat year-on-year as we tried to offset the significant pricing pressure
35.3%
launches. Other international business did well during the quarter with year-on-year growth of 35.3% with the key markets leading the growth. EBITDA margin for the quarter was 13.6% impacted by high
13.6%
n-year growth of 35.3% with the key markets leading the growth. EBITDA margin for the quarter was 13.6% impacted by higher raw material prices, increase in freight cost and essential manpower as we e
Rs. 15 crore
sential manpower as we expand in new therapies. During the quarter, we had an exceptional item of Rs. 15 crore debit on account of fair value of investment and income tax of earlier years Rs. 91 crores due to
Rs. 91 crore
item of Rs. 15 crore debit on account of fair value of investment and income tax of earlier years Rs. 91 crores due to disallowance of marketing expenses in light of the recent legal pronouncement which suppr
15%
or the quarter. Talking about our India business, it registered a secondary sales growth of about 15% year-on- year during the quarter and about 28% for the full year. This was about 1.5x the IPM grow
28%
ss, it registered a secondary sales growth of about 15% year-on- year during the quarter and about 28% for the full year. This was about 1.5x the IPM growth. This performance was majorly driven by str
1.5x
owth of about 15% year-on- year during the quarter and about 28% for the full year. This was about 1.5x the IPM growth. This performance was majorly driven by strong volume growth, partially held by CO
318 million
ate. Moving on to international business, our US business ended the financial year with sales of $318 million which was down 4% year-on-year. While we had good number of new product launches during the year,
4%
onal business, our US business ended the financial year with sales of $318 million which was down 4% year-on-year. While we had good number of new product launches during the year, some of which had
35%
ialized. Apart from the US, other international markets delivered a robust year-on-year growth of 35% during the year with healthy performance in the markets of Australia and Chile. Talking about E
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Guidance — 20 items
Gagan Borana
opening
“To discuss the business performance and outlook going forward we have on this call the senior management team of Alkem.”
Gagan Borana
opening
“Before I proceed with this call, I would like to remind everyone that this call is being recorded and the call transcript will be made available on our website as well.”
Gagan Borana
opening
“Sandeep Singh to present the key highlights of the quarter and the year gone by and strategy going forward.”
Rajesh Dubey
qa
“Definitely, enhanced cost procurement whatever we have done as I said in my last call also, partially it was consumed earlier in quarter 3, but mainly consumption and sale of those consumed item, it has happened not completely for this quarter also, but definitely for next quarter it is going to be.”
Rajesh Dubey
qa
“So, both these is going to have impact going forward and as we indicated last time also, we have taken so many measures to address this issue because you rightly said it is a substantial increase, but we feel somewhere around 150 basis points to 170 basis point, it will be having impact on our gross margins.”
Rajesh Dubey
qa
“So, whatever consume, this high cost material consume, wherever sale is happening, it will be having impact on gross margin.”
Sandeep Singh
qa
“Dubeyji sorry, so I can say and please, this 150 basis point is the impact compared to last year quarter 1, going forward in the year.”
Saion Mukherjee
qa
“And other question on the international business, especially non-US, we have seen some good traction, if you can throw some light, you mentioned Australia, Chile doing well, so what is it rightly happening, why we are seeing this step jump this year and how should we think about this business going forward?”
Saion Mukherjee
qa
“So, you expect double digit kind of growth to sustain in these markets?”
Prakash Agarwal
qa
“My question is on the India business, so I don’t know if you have already shared, but given that we are heading on a strong base of last year, are we giving any guidance on the India growth, so that we have clarity?”
Risks & concerns — 11 flagged
US business was almost flat year-on-year as we tried to offset the significant pricing pressure through our new product launches.
— Sandeep Singh
While we had good number of new product launches during the year, some of which had limited competition, but significant pricing pressure completely offset the impact of new product launches.
— Sandeep Singh
Sir, one question on the cost pressure that you have mentioned, so raw material as the percentage of sales increased materially, you had talked about it earlier also, it is on a higher side, so how should we think about freight and raw material costs going into the next couple of quarters and what is driving them and any trend that you would like to highlight at this point or things coming down or still are going up from the current levels?
— Saion Mukherjee
I think Rashmi, you are talking for 21-22, so in 21-22 right now, in quarter 4 particularly and early it was impacted by 1.6-1.7% and equivalent was impact of cost also, enhanced material cost.
— Rajesh Dubey
My first question is again on margin, so you mentioned we obviously are seeing impact of high input cost on gross margins and all, so going ahead, how should we look at margins at the EBITDA level for FY23?
— Damayanti Kerai
Yes, I am saying next year obviously, we will have some impact of this higher input cost, but in a steady level, what should be the EBITDA margin we should consider?
— Damayanti Kerai
It is the challenge, but we certainly are, that is the kind of growth that we are estimating.
— Amit Ghare
Sandeep, can you share with us what are some of the volume growth levers in the India market because on the outside it seems that out of your four biggest therapies and big ones, gastro and vitamins, there could be some volume pressure this year because obviously you had a phenomenal FY22, so I am just wondering which other therapies or brands in your view will pick up the slack?
— Kunal Randeria
Otherwise, it is very difficult to have objective of adding to EBITDA margin, even though 50 to 100 basis, but that is a tough task we have taken and we will be working towards it.
— Rajesh Dubey
Sir, 50 to 100 decline coming year and then we would be going up?
— Yash Khanna
If you go and acquire businesses on the whole, it comes at own sets of medical reps and different cultures and all, it will become a challenge Saion, so we will be cautious and I am not sure whether we look large deals over there.
— Sandeep Singh
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Q&A — 14 exchanges
Q
Sir, one question on the cost pressure that you have mentioned, so raw material as the percentage of sales increased materially, you had talked about it earlier also, it is on a higher side, so how should we think about freight and raw material costs going into the next couple of quarters and what is driving them and any trend that you would like to highlight at this point or things coming down or still are going up from the current levels?
Rajesh Dubey
Saion, Rajesh Dubey here. In fact, in our last earnings call also we discussed on this. Definitely, enhanced cost procurement whatever we have done as I said in my last call also, partially it was consumed earlier in quarter 3, but mainly consumption and sale of those consumed item, it has happened not completely for this quarter also, but definitely for next quarter it is going to be. <a> ALKEM So, one good thing now, this material prices, it has started showing softening trend and that good thing happening, but whatever material we have procured, ultimately we are going to consume it and fre
Q
Sir, how many products are you selling currently in the US market and how many of these are yet to reach big potential?
Amit Ghare
We correctly sell about 85 ANDAs, the only ones which haven't reached its full potential will probably be about 15 and the reason for that is some of those we may not be competitive, so we have not reached the levels that we are expected to reach and some of them may be recent launches. So, it takes time couple of quarters at least if not more before we reach the desired market share levels. And sir, given that we had very poor profitability in the US at the PBT level before FY22 as well, in FY22 would it be fair to say that at the PBT level, US is not contributing probably at losses at the PB
Q
My question is on the India business, so I don’t know if you have already shared, but given that we are heading on a strong base of last year, are we giving any guidance on the India growth, so that we have clarity?
Sandeep Singh
Yes, Prakash, I think we maintained what we always said. I think we will have double digit growth this year in spite of coming on a strong base and if you want me to like specific thing, Prakash? Yes, so the growth, you had a very high growth especially in the first half due to the second wave, so acute was very heavy and we have acute heavy portfolio, how do we plan to have double digit growth if you could split, volume, pricing, I understand there will be some pricing gain also, but any other thing you want to highlight? Got it, so before the split of how the growth would come, I would just
Q
Sir, again on the gross margin front, can you break it up like how much impact was just from the high input cost and also from the US price erosion?
Rajesh Dubey
I think Rashmi, you are talking for 21-22, so in 21-22 right now, in quarter 4 particularly and early it was impacted by 1.6-1.7% and equivalent was impact of cost also, enhanced material cost. So, you are saying 1.6 to 1.7% from the high raw mat cost and equivalent to that at least around 1.7% from the price erosion? Yes. And what is the outlook on the US price erosion at the company level, are we seeing any normalization, for full year how much was it and how much are we expecting in FY23? Full year, last year, price erosion in US for our portfolio was lower double digit about 11 to 12%, thi
Q
My first question is again on margin, so you mentioned we obviously are seeing impact of high input cost on gross margins and all, so going ahead, how should we look at margins at the EBITDA level for FY23?
Rajesh Dubey
Whatever hit we are going to have in gross margin level, I think it is still going to pass on to EBITDA also. We estimate somewhere between 150 to 175 basis point for yearly basis, that is our estimate and it to give impact in our EBITDA margin. So, around 150-170 basis point hit on EBITDA level also, but on a steady state, what margin we should be looking at, around 21-22%? EBITDA margin you are referring? Yes, I am saying next year obviously, we will have some impact of this higher input cost, but in a steady level, what should be the EBITDA margin we should consider? This time, we have 19.3
Q
So, on trade generics, I think in the last year alone, we are seeing several companies join this race, some of them are your peers and other large pharma companies, so given that there is now increased competition, how do you see this impacting your market share in rank and related question around, if this likely to open up new markets or it is more likely to cannibalize existing branded generic sales?
Yogesh Koushal
Competitors will enter, but as I remember couple of meeting before our MD answered this, Sandeep Singh very clearly, it is not that simple, generic also has very strong connect and relationship building with supply chain network right from your production unit, till your depos and distribution network, stockist, all that takes time, so I think that over a period of last decade or so, Alkem has built a very strong equity on that front, so while competitor will come and they will find some way to get some share, but Alkem has a very strong business there. Second one was, as you see more players
Q
Sandeep, can you share with us what are some of the volume growth levers in the India market because on the outside it seems that out of your four biggest therapies and big ones, gastro and vitamins, there could be some volume pressure this year because obviously you had a phenomenal FY22, so I am just wondering which other therapies or brands in your view will pick up the slack?
Sandeep Singh
I would add anti-infective to that as well because that also had a high base last year, but we will have the volume growth is around 3 to 4% or 5 at best, so it is not unreachable because we have added people in the last few years and we will be getting market share which we have always got. So, even if we will get a market share of last year, there has been 0.3% increase in the market share if you look at us vis-a-vis IPM, so I think it is just good aggressive manpower addition we have done. We have entered the respiratory therapy which is the new area. There itself, we see some growth and th
Q
My first question is, I wanted to understand more on Alkem's long to medium term strategy on the chronic side of the business, so you have outperformed in the acute side, you have also outperformed in the chronic side, but I wanted to understand more on how do we see a chronic franchise 3 to 5 years down the line since competitive intensity might be a little higher on this side, so how we are planning to execute consistently on the chronic side?
Yogesh Koushal
I think 2-3 areas which are clearly defined by chronic, one is, our productivity is still average, so compared to within companies we had 3 lakhs, which we should be looking at how do we compete within the organization and reach the productivity because the prescriber base is still at average level, so even if I double the prescriber base in next 2 to 3 years, I should be able to increase my productivity. So, first is productivity, second, of course, the main therapies which dominate chronic is cardiac and diabeto, so on a diabeto front, we have a very rich pipeline of new products and these c
Q
Most of my questions have been answered, just a clarification on tax rate if you could give some guidance for FY23 and if not exact at least some directional guidance over next 3 to 5 years how the tax rate is likely to move?
Rajesh Dubey
For next 2 years, as per our estimate, tax is going to be somewhere between 11% to 14% kind of. Going forward, I think since our plants they will come out of 80-IE and then this I am talking for ‘26-27 onwards and that time, we will give fresh guidance. From next two years, we will be in between 11 to 13 or 14% kind of. Sir, if I heard correctly, the facilities are coming out of the exemption, soon that can be fiscal 27 years? Yes, you are right.
Q
Sir, one question on biosimilars, you mentioned Rs. 100 crores investment every year, so this is all operating expenses I would assume, so Enzene currently is contributing negatively to your EBITDA by around Rs. 100 crores?
Sandeep Singh
Yes, round about that much last year. And what are the key milestone, Sandeep we need to watch out for in terms of clinical studies etc., and this number would remain at Rs. 100 crores over the next few years you think or it can go up also? I think it can go up, this is just for the next, let us say couple of years and so yes, its ambition if it goes up and we will obviously update you all, talk to you all that in this number would be going up. So, sorry, what was the question, your first question was? What are the key milestone? I think one of the key milestones is that launching in India, so
Q
My question is regarding the gross margin, I am very confused when I look at the full year gross margin that we discussed so far, more or less they are in line with what we had last year and in last year we mentioned about the input cost sizes are going up and stuff like that, so how exactly is the impact coming on the gross margin, I am still not able to understand, although the gross margin remains the same?
Rajesh Dubey
Nimish, you are very right, in fact, in this year we have a positive of 20 basis point in growth margin, so it is a plus, so let me just give you component and this price deflation mainly in US, it has impacted and on overall basis, on annual basis we don’t have any significant contribution on account of increase in material cost and I am talking raw material cost or tech material. Yes, in quarter 4 if you go, you can see because whatever procurement we give in the month of November and December we consumed partially in quarter 4 and we are going to consume going forward in quarter 1 or quarte
Q
I just wanted one clarification; did I hear it right that your US growth guidance for FY23 is 10 to 12%?
Sandeep Singh
Yes, that is right, revenue. <a> ALKEM So, (Inaudible) 48.35 $320 million in FY22 if I take into account high single digit provision which also you have guided to, the net addition works out to be somewhere around 64 to 65 (Inaudible) 48.45 million to arrive at 10% growth, so I am just trying to understand, there is a bit of cynicism in the which kind of says that this seems a bit stretched this particular guidance, so can you share some key thesis why is this guidance which you can achieve? Sorry, what is the last part, I missed that? I am saying is that just guidance seems to be a bit aggres
Q
Just one clarification, Amit in response to Nikhil's question which you mentioned, growth of 10% in quarter 1, that would put our US revenues at around $90 million, which is almost 70 million higher than what we are in fourth quarter?
Amit Ghare
No, that was compared to FY22, it was not compared to FY21. FY21 was completely different quarter 1, so that is not in relation with that year. No, in the first quarter, this quarter FY23, I thought you mentioned you will deliver 10% growth on first quarter FY22 which was higher, right, it was around $80 odd million, so you should be closer to 90 million in this quarter if you have to grow 10% on Q1 of FY22, that would mean a Q-on-Q growth of almost 17 million which is a big number, at the mid of this quarter, are you having that visibility of sort of getting close to 90 million in Q1 FY23? Sa
Q
Thank you everyone for attending this call. If any of your queries have remained unanswered, please feel free to get in touch with me. Thank you once again.
Management
Speaking time
Sandeep Singh
31
Moderator
16
Saion Mukherjee
14
Rajesh Dubey
13
Amit Ghare
13
Yogesh Koushal
8
Rashmi Sancheti
7
Damayanti Kerai
7
Gagan Borana
6
Prakash Agarwal
6
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Opening remarks
Tushar Manudhane
Welcome to 4Q FY22 Earnings Call of Alkem Laboratories. From the management side, we have Mr. Sandeep Singh - Managing Director; Mr. Rajesh Dubey - Chief Financial Officer; Mr. Amit Ghare - President, International Business; Mr. Yogesh Kaushal - President, Chronic Division and Gagan Borana from Investor Relations. Over to you, Gagan for opening remarks.
Gagan Borana
Thank you, Tushar. Good evening everyone and thank you for joining us today for our Q4 FY22 and Full Year FY22 Earnings Call. Earlier during the day, we have released our financial results and investor presentation and the same are also posted on our website. Hope you have had a chance to look at it. To discuss the business performance and outlook going forward we have on this call the senior management team of Alkem. Before I proceed with this call, I would like to remind everyone that this call is being recorded and the call transcript will be made available on our website as well. I would also like to add that today’s discussion may include forward-looking statements and the same must be viewed in conjunction with the risks that our business faces. After the end of this call if any of your queries remain unanswered please feel free to get in touch with me. With this, I would like to hand over the call to Mr. Sandeep Singh to present the key highlights of the quarter and the year gon
Sandeep Singh
Thank you Gagan. Good afternoon everyone. Starting with the financial performance for the quarter, revenues from operation grew by 13.3% year-on-year driven by healthy performance in India business which registered a year-on-year growth of 16.7%. US business was almost flat year-on-year as we tried to offset the significant pricing pressure through our new product launches. Other international business did well during the quarter with year-on-year growth of 35.3% with the key markets leading the growth. EBITDA margin for the quarter was 13.6% impacted by higher raw material prices, increase in freight cost and essential manpower as we expand in new therapies. During the quarter, we had an exceptional item of Rs. 15 crore debit on account of fair value of investment and income tax of earlier years Rs. 91 crores due to disallowance of marketing expenses in light of the recent legal pronouncement which suppressed our net profit for the quarter. Talking about our India business, it registe
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