MARKSANSNSEQ4FY22June 01, 2022

Marksans Pharma Limited

5,581words

78turns

10analyst exchanges

4executives

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Management on call

M Mark Saldanha

FOUNDER, MANAGING ANAGING IRECTOR &CEO, MARKSANS PHARMA HARMA LIMITED

R Rohan John

ICICI SECURITIES L LIMITED

Mark Saldanha

Founder, Chairman & Managing Director and Mr. Jitendra Sharma - Chief

Mark Saldanha

Founder,

Key numbers — 40 extracted

100%

t global presence is quite unique. Our business module has evolved over the period of time from 100% CRAMs driven to 100% own IP driven forward integrated business. We have emerged as prime manufact

Rs. 418 crore

sir. Let me start with the financial highlights for Q4 followed by FY22. Operating revenue was at Rs. 418 crores, increase of 26.6% compared with Rs. 330 crores last year. Gross profit was at Rs. 206 crores in

26.6%

inancial highlights for Q4 followed by FY22. Operating revenue was at Rs. 418 crores, increase of 26.6% compared with Rs. 330 crores last year. Gross profit was at Rs. 206 crores in Q4 FY22 increasing

Rs. 330 crore

for Q4 followed by FY22. Operating revenue was at Rs. 418 crores, increase of 26.6% compared with Rs. 330 crores last year. Gross profit was at Rs. 206 crores in Q4 FY22 increasing by 1.5% year-on-year. Gross

Rs. 206 crore

at Rs. 418 crores, increase of 26.6% compared with Rs. 330 crores last year. Gross profit was at Rs. 206 crores in Q4 FY22 increasing by 1.5% year-on-year. Gross margin stood at 49.4% in Q4 FY22. EBITDA was R

1.5%

mpared with Rs. 330 crores last year. Gross profit was at Rs. 206 crores in Q4 FY22 increasing by 1.5% year-on-year. Gross margin stood at 49.4% in Q4 FY22. EBITDA was Rs. 63.6 crores, EBITDA decline

49.4%

ss profit was at Rs. 206 crores in Q4 FY22 increasing by 1.5% year-on-year. Gross margin stood at 49.4% in Q4 FY22. EBITDA was Rs. 63.6 crores, EBITDA decline was due to continued input cost headwinds

Rs. 63.6 crore

es in Q4 FY22 increasing by 1.5% year-on-year. Gross margin stood at 49.4% in Q4 FY22. EBITDA was Rs. 63.6 crores, EBITDA decline was due to continued input cost headwinds and elevated freight and packaging mat

Rs. 12 crore

ave created a lease liability and write-off use ofassets providing for additional depreciation of Rs. 12 crores in Q4 FY22 with the total depreciation charge of Rs. 21 crores in the Q4. Our profit before tax

Rs. 21 crore

g for additional depreciation of Rs. 12 crores in Q4 FY22 with the total depreciation charge of Rs. 21 crores in the Q4. Our profit before tax was at Rs. 52.6 crores, the profit after tax was Rs. 29.7 crore

Rs. 52.6 crore

FY22 with the total depreciation charge of Rs. 21 crores in the Q4. Our profit before tax was at Rs. 52.6 crores, the profit after tax was Rs. 29.7 crores for the quarter. There The consolidated tax provision

Rs. 29.7 crore

f Rs. 21 crores in the Q4. Our profit before tax was at Rs. 52.6 crores, the profit after tax was Rs. 29.7 crores for the quarter. There The consolidated tax provision included a deferred tax provision of Rs. 7

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Guidance — 20 items

Mark Saldanha

opening

“We plan to launchseveral new products in the next 2 years.”

Jitendra Sharma

opening

“30.2 crores that is around 2% of the sales and we expect R&D spend to increase to 4% to 5% of sales over the next few years.”

Rajeev Rupani

“So, even if the share price is below the conversion rate, the warrants will be converted into share, am I correct, my reading is correct?”

Rajeev Rupani

“2,000 crores revenue target in the next few years, so how much time, is it 1 year, 2 year, 3 year, 4 years, 5 years,by when do you reach the target?”

Mark Saldanha

“2,000 crores and we are pretty much on target.”

Rajeev Rupani

“And next question is, earlier you had guided for EBITDA margins of 23% to 25% and in Q4 our EBITDA margin was 15%, so going forward, in the next year, due to the challenges, will our EBITDA margin be 15-17% only?”

Jitendra Sharma

“So, we believe that this year the EBITDA margin pressure will continue and we are expecting the EBITDA in the range of 17% to 20%, the FY22 overall EBITDA was 17.4% and we expect the EBITDA to remain between 17%and 20% in this year.”

Rajeev Rupani

“46 crores, is it for APIs and the balance amount will be for your own APIs and then by when do you propose to do this?”

Rajeev Rupani

“And last question, we will be debt free going forward for the next 2, 3, 4 years?”

Jitendra Sharma

“We don’t plan to raise debt in the short term, but in longer term we may have some debt in the book, but again like we basically don’t plan to go say beyond one EBITDA at any given point of time, but there are no short-term plans for raising that.”

Risks & concerns — 11 flagged

We witnessed continuous impact fromgeopolitical crisis, supply chains, and inflationary headwinds across our key markets, COVID resurgence in China, input cost pressure and increased freight cost didn’tmake it any easier.

— Mark Saldanha

The pricing pressure in US continued in the high single digits during the year impacting our generic US business.

— Mark Saldanha

63.6 crores, EBITDA decline was due to continued input cost headwinds and elevated freight and packaging material costs.

— Jitendra Sharma

We have seen continued increase in input cost pressure during the last year.

— Jitendra Sharma

Given the current uncertain macro-outlook, we remain a bit cautious, however, we are positive about the business prospects over the medium to long term.

— Jitendra Sharma

Definitely there is pricing pressure that one has to take into account, but that said in 2022 has been a challenging year for different reasons than 2021, but all said and done, we have kept our market share, we are growing in terms of sales and in terms of our revenue.

— Mark Saldanha

There has been pricing pressure on the bottomline, but we are still holding strong in certain other areas.

— Mark Saldanha

See, for the current year, looking at the existing scenario, definitely the margins are under pressure, the input costs have not started coming down as yet, though they have stabilized a bit, but still they are on a higher side.

— Jitendra Sharma

So, we believe that this year the EBITDA margin pressure will continue and we are expecting the EBITDA in the range of 17% to 20%, the FY22 overall EBITDA was 17.4% and we expect the EBITDA to remain between 17%and 20% in this year.

— Jitendra Sharma

2020, obviously API companies had crazy evaluations, so consummating or finding out the right partner was a bit difficult.

— Mark Saldanha

And lastly on the product launches, so as we know that there has been this pricing pressure in the US, so one of the strategy would be to launch products, so if I take around high single digit of 8-9% price erosion in FY23, so what would be the target product launches in US which can offset with this price erosion so that US market can grow in FY23 for our company?

— Yogesh

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Q&A — 10 exchanges

Congratulations for the figures in spite of a lot of challenges, but what I would like to know is what were the challenges which had affected the cost and which of the cost increase have been passed on to the consumers, such as logistics, the raw material price increase and the effect of the China lockdown?

Mark Saldanha

This is Mark Saldanha, so the challenges like we have explained are multifold, one is obviously the China lockdown which has cash cutting impact on all input cost of raw materials, excipients or chemicals that go into manufacturing of products. With the war in Ukraine and all these embargos happening on Russia, obviously the oil prices are not getting any cheaper, so this basically had an impact on freight cost which has gone up tremendously and obviously any items which are derived more from oil derivatives have also increased, a lot of our packaging cost has increased, so overall input on to

My question was on the warrant issue, so OrbiMed and to you, Mr. Mark, so the amount to be raised was Rs. 93 crores and it was on 20th July 2021, so almost a year has passed, so when do you propose to pay the full amount and convert the warrants into shares?

JitendraSharma

At the time of warrant issuance, the 25% money we have received upfront, now warrant is convertible anytime in next 18 months time. So, in terms of the fund requirements like we have completed one acquisition in Dubai, we are looking at few more opportunities and we do have a CAPEX plan also.So, exactly in terms of the timeline we are looking at somewhere in this year, the conversion will happen and the balance money will come in. So, even if the share price is below the conversion rate, the warrants will be converted into share, am I correct, my reading is correct? Yes, that is correct. My ne

Congratulations on the wonderful performance, I just wanted some clarification on the trade receivable, the trade receivables are constantly increasing, any specific reasons for that?

Jitendra Sharma

The receivables have increased during the year, basically which is in line with increase in the sales and we have also in certain geographies, few customers, we have increased the credit period due to the current market situation out there, but the overall average receivable levels are around 90 days which are in line with the overall industry standards and we are regularly monitoring the levels. We don’t see this to further increase.

Congratulations to the team. My first question is, recently in paper, it appeared that Marksans had acquired some land in Madhya Pradesh for setting up a factory, is that true? And second, what about the API because after the 2020 results,I remember Mark saying that we will be setting up the API within 2 years at the max or within 18 months, so if you look from 2020 March it is now almost 2 years?

Mark Saldanha

Just to answer your first question of Madhya Pradesh, yes, we have applied for allocation of land out there in Madhya Pradesh, that is true, that is again a Greenfield project that we are exploring. With regards to API, we have started working on R&D and our own DMFs in terms of multiple products, nearly 6 or 7 of them are actually working. Our aim was to do inorganic strategy in API, but identifying companies and just working on valuations of those targeted companies was taking a bit longer. 2020, obviously API companies had crazy evaluations, so consummating or finding out the right partner

I have two questions, one is, the Access Healthcare that you are in the process of acquiring, if you can slightly elaborate on what is the plan with that organization? The second one is APIs you are planning for core molecules; how many you consider as core molecules based on the current business?

Mark Saldanha

So, the acquisition in Dubai, basically it is a virtual company marketing formulations basically in UAE, we are looking at Dubai as a port of entry into Middle East, so we have few geographies that we will be expanding from this base and moving on. Again, this is a very niche trajectory, but we do see a lot of value addition coming there into such arenas wherever they are niche. Dubai basically for us is a platform for distribution in the Middle East.

Mark, I remember one more thing you had said that in 2023 or 2024, Marksans will have a unique product which may be second in India to international markets?

Mark Saldanha

Could you repeat that unique product or product? Yes, the unique product for either US or UK market which will be the second company in India to offer that? I don’t recap that statement per se, but. It might be the Loratadine soft gels, we have couple of products wherein like we are. We have couple of products where we are first to file uniquely positioned in terms of being the only generic item in the US, but these are pretty niche molecules, but it gives us a space and identity to be created. We are working on one more molecule which again hopefully in 2024 should see the light, but again we

My first question is on depreciation if I would have missed it in the earlier call, so it is like, depreciation and amortization has increased by about more than 100% at Rs. 21 crores for the quarter, so just wanted to understand that and would this be the run rate going forward quarterly?

Jitendra Sharma

This is Jitendra here. No, as I mentioned in my opening remark, actually we have adopted Ind AS 116 while consolidating the US and UK balance sheets into the Indian parent company balance sheet, so we have taken warehouses in these geographies wherein we have provided for lease liability and corresponding write-off used assets. So, in Q4, we basically provided for the depreciation for the whole year on these assets. So, basically there is an increase of Rs. 12 crores in depreciation figure. Now, in the current year, it will basically come as a quarterly charge of Rs. 3 crore every year, so def

I have two questions, one, given how strong OrbiMed as an investor is in the healthcare space, as having them as an investor in Marksans helped you in anyway in understanding the markets or looking at opportunities or both organic as well as inorganic and what sort of expertise they have provided to help you? That is one question, the second is, without getting into specifics, without divulging anything non-public, would you be able to give us an idea of what the KPIs wherewhen they came in as an investor where you have gone off track and what sort of corrective actions you are taking to set b

Mark Saldanha

I couldn’t get your second question, could you repeat your second question? The second question is, when you are soliciting investment from Orbimed you would have made CAPEX to them and you would have given them some kind of an understanding of where the business is going and on the basis of which we would have made the investment decision, now where have you gone right, where have you gone wrong or where are you off track to what you promise them and if you are off track, then what corrective actions you are taking and if you are on the right track then what are the things that are going righ

The company that we acquired in Dubai, so what was the acquisition cost, one and how much will it add to our topline, let us say, in the next 3 to 4 years?

Jitendra Sharma

We have acquired this company for a cash consideration of13 million AED, in terms of rupee it will come to somewhere around Rs. 27-Rs. 28 crores. The existing revenue of the company is around 14 million dirhams, so we have acquired them at almost one-time sales. In terms of where it can go in next 3 to 4 years, of course we are very excited with the prospects of this company, this business coming into Marksans fold, we do see lot of potential of growth here and we are very confident that we will take this company to double the revenue overall say next 2 years’ time once we take over the charge

Thank you everyone for taking your time off and getting onto our call. The management is always committed as always and I hope we have met with your expectation and please be safe and be well. Thank you very much.

Management

Speaking time

Jitendra Sharma

Mark Saldanha

Moderator

Rajeev Rupani

Yogesh

Manoj Mathew Jacob

Venkatesh Sethuraman

Rohan John

Vijay Nahar

JitendraSharma

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Opening remarks

Rohan John

Thanks Faizan. Good evening everyone and welcome to Marksans Pharma Limited fourth quarter and FY22 Earnings Conference Call. We have the senior management, Mr. Mark Saldanha - Founder, Chairman & Managing Director and Mr. Jitendra Sharma - Chief Financial Officer participating in this call. I thank the management for giving ICICI Securities an opportunity to host this call. Over to you, Jitendra sir.

Jitendra Sharma

Thank you Rohan and very good evening to everyone and thank you for joining us for Q4 FY22 Earnings Call of Marksans Pharma. On the call today, we will discuss our operational and financial highlights for the quarter and year ended March 31st, 2022. On this call, our discussion will include certain forward-looking statements. These estimates reflect management's current expectations of the future performance of the company. Please note that these estimates involve several risks and uncertainties, we do not undertake any obligation to publicly update any forward-looking statement whether as a result of new confirmation, future events, or otherwise.Moving on, we have Mr. Mark Saldanha – Founder, Chairman and Managing Director from our Management Team. To start the call, I will request Mark sir for his comments.

Mark Saldanha

Thank you Jitendra. Good evening everyone. Hope you and your families are safe and doing well. It is my pleasure to welcome you to the Q4 FY22 Earning Call. Let me try and keep the remark short, so we have more time to take your questions. FY22 was a challenging year for the industry. We witnessed continuous impact fromgeopolitical crisis, supply chains, and inflationary headwinds across our key markets, COVID resurgence in China, input cost pressure and increased freight cost didn’tmake it any easier. The pricing pressure in US continued in the high single digits during the year impacting our generic US business. These developments impacted our gross and EBITDA margins, however, despite these challenges we had a decent revenue growth in the year led by North America and Australian market. We have also started passing the pricing increases to certain of our customers. The development of our Goa factory which included the addition of our new manufacturing line is on schedule and expecte

Jitendra Sharma

Thank you sir. Let me start with the financial highlights for Q4 followed by FY22. Operating revenue was at Rs. 418 crores, increase of 26.6% compared with Rs. 330 crores last year. Gross profit was at Rs. 206 crores in Q4 FY22 increasing by 1.5% year-on-year. Gross margin stood at 49.4% in Q4 FY22. EBITDA was Rs. 63.6 crores, EBITDA decline was due to continued input cost headwinds and elevated freight and packaging material costs. Our depreciation increased on Ind AS 116 lease accounting. We have taken few large warehouses in US and UK on lease and have created a lease liability and write-off use ofassets providing for additional depreciation of Rs. 12 crores in Q4 FY22 with the total depreciation charge of Rs. 21 crores in the Q4. Our profit before tax was at Rs. 52.6 crores, the profit after tax was Rs. 29.7 crores for the quarter. There The consolidated tax provision included a deferred tax provision of Rs. 7.8 crores on account of capital leases, property and equipment. Summarizi

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