BALAXINSEQ1 FY23August 18, 2022

BALAXI PHARMACEUTICALS LIMITED

7,427words
160turns
16analyst exchanges
4executives
Management on call
Ashish Maheshwari
Managing Director
Amol Mantri
Chief Financial Officer
Pranav Maheshwari
Sr. VP (Business Development)
Ashish Maheshwari
Managing Director and Mr. Amol Mantri – Chief Financial Officer.
Key numbers — 40 extracted
22%
out India's pharmaceutical cumulative exports this quarter, it has witnessed a whopping growth of 22%r. The exports of Made in India foreign product continue to touch new heights. India currently occ
400 billion
of Pharma exports. In our existing and targeted frontier markets, on an aggregate, the GDP is of $400 billion and Pharma imports are of $6 billion. The Central American countries broadly reported 2.6 billion
6 billion
targeted frontier markets, on an aggregate, the GDP is of $400 billion and Pharma imports are of $6 billion. The Central American countries broadly reported 2.6 billion of pharmaceutical imports. Guatemala
2.6 billion
400 billion and Pharma imports are of $6 billion. The Central American countries broadly reported 2.6 billion of pharmaceutical imports. Guatemala is the biggest pharmaceutical markets in Central America a
8.1%
ports. Guatemala is the biggest pharmaceutical markets in Central America and expected to grow at 8.1% CAGR. Guatemala, El Salvador and Honduras will remain dependent on generic drug imports, which be
INR 83 crore
Pharmaceuticals Limited – August 18, 2022 in this quarter. Our revenue for this quarter stood at INR 83 crore, which has grown by 42% compared to the same period of the previous year. This was mainly driven
42%
18, 2022 in this quarter. Our revenue for this quarter stood at INR 83 crore, which has grown by 42% compared to the same period of the previous year. This was mainly driven on the back of strong
12.9%
in Angola. The gross margins for the quarter posted was a record 42%, which is a giant leap of 12.9%. The gross margins posted are intrinsically higher, especially for the value-added, branded produ
INR 17 crore
ue-added, branded products, which is a clear roadmap for Balaxi. EBITDA for the quarter student INR 17 crore, which has grown by 36% on a year-on-year basis. Profit after tax stood at INR 14 crore, which is
36%
ch is a clear roadmap for Balaxi. EBITDA for the quarter student INR 17 crore, which has grown by 36% on a year-on-year basis. Profit after tax stood at INR 14 crore, which is a 32% increase from the
INR 14 crore
r student INR 17 crore, which has grown by 36% on a year-on-year basis. Profit after tax stood at INR 14 crore, which is a 32% increase from the previous year in the same quarter. However, please note that
32%
hich has grown by 36% on a year-on-year basis. Profit after tax stood at INR 14 crore, which is a 32% increase from the previous year in the same quarter. However, please note that these quarterly
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Guidance — 20 items
Ashish Maheshwari
opening
“Guatemala is the biggest pharmaceutical markets in Central America and expected to grow at 8.1% CAGR.”
Ashish Maheshwari
opening
“Going forward, as business scales up, we expect a positive contribution to margins from revenue growth as well as geographical diversification.”
Ashish Maheshwari
opening
“85 crore will be financed partly from internal accruals and a judicious mix of additional capital.”
Archana Gude
qa
“You did mention that there has been incremental employee cost, but still if you can just take us through line by line item and give us what kind of sustainable EBITDA margin we should expect going forward would be helpful?”
Ashish Maheshwari
qa
“EBITDA margins have seen probably a 1% up or down, but EBITDA margins we will be seeing in this range only, because after the consolidation of Angola as a wholly-owned subsidiary of Balaxi Pharmaceuticals, our expenses of Angola are also being consolidated so all the expenses of Angola also came into our sales and EBITDA margins slightly differ from 1% to 2%, but going forward EBITDA margins are going to remain 19%.”
Archana Gude
qa
“Sir, on slide number 21, you have mentioned that the focus will be on the ideal mix of branded and generic medicines going forward.”
Archana Gude
qa
“So like once our plant will be operational in Hyderabad, how we should look at this mix going forward?”
Archana Gude
qa
“And let's say, as and when this branded percentage goes up, what kind of incremental margin improvement we should expect, let's say, two years or three years down the line?”
Ashish Maheshwari
qa
“We have grown our branded products from around 30% of total sales to 35% in the last financial year, and now our target is to take it slowly to around 47-48% in the next three years.”
Ashish Maheshwari
qa
“So after the EU GMP plant, we expect a higher mix of branded products.”
Risks & concerns — 10 flagged
It is difficult for us to say what is our correct market share supported by data in Angola, but as per our records, as per what we see, and as per our visibility, and as per our market intelligence, we are in the top three in Angola.
— Ashish Maheshwari
Any regulatory risk we see in all these frontier market or emerging market whatever we say?
— Sunny Agarwal
So any risk we see to our business in medium to long term?
— Sunny Agarwal
We don't see any regulatory risk going forward, because we are sourcing from the best WHO GMP certified plants, and we take a lot of care that all our certifications and validation of the plant always remain valid.
— Ashish Maheshwari
And going forward with our own plant which will be EU GMP compliant, we don't see any kind of risk in the regulatory aspects in Latin America or Africa.
— Ashish Maheshwari
Market share in percentage terms, as I earlier said, is a little difficult to find out from data, because the Latin American market as such has various markets within them.
— Ashish Maheshwari
Is there a tough competition or prices are increasing or there's pressure on pricing and volumes, if you can share any regulatory action?
— Yogesh
It does not have pricing pressure, and especially for us, we don't have pricing pressures, because of number of products that we have and the ongoing availability that we have for our products.
— Ashish Maheshwari
So there is not much of pricing pressure like we have in US and other regulated markets?
— Yogesh
Sir, are we not exposed to ROC risk then with manufacturing in-house?
— Keshav
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Q&A — 16 exchanges
Q
I have two, three questions. First is starting with the quarterly numbers. Sir, when there has been impressive growth in terms of gross margin expansion, you know, the EBITDA margins are kind of subdued, let's say, by 100 bps on YOY basis. You did mention that there has been incremental employee cost, but still if you can just take us through line by line item and give us what kind of sustainable EBITDA margin we should expect going forward would be helpful?
Ashish Maheshwari
EBITDA margins have seen probably a 1% up or down, but EBITDA margins we will be seeing in this range only, because after the consolidation of Angola as a wholly-owned subsidiary of Balaxi Pharmaceuticals, our expenses of Angola are also being consolidated so all the expenses of Angola also came into our sales and EBITDA margins slightly differ from 1% to 2%, but going forward EBITDA margins are going to remain 19%. Sir, on slide number 21, you have mentioned that the focus will be on the ideal mix of branded and generic medicines going forward. So like once our plant will be operational in Hy
Q
Sir, basically two questions. What is our market share in the territory in which we are operating? Question number one. And question number two is who are our competitors in all these markets and the new markets which we are trying to enter into?
Ashish Maheshwari
It is difficult for us to say what is our correct market share supported by data in Angola, but as per our records, as per what we see, and as per our visibility, and as per our market intelligence, we are in the top three in Angola. We can be number two or number three. In Dominican Republic, now there are various kinds of markets in Latin America which has a multinational branded market, which is a different market. It has a market, well, for products which are manufactured locally which is a different market, and it has a market for products sourced from geographies like India and China. So
Q
Just had a couple of questions. First is I wanted to know, you know, the revenue has increased significantly by 42%. So can you tell me what has been the volume increase, you know, because this value increase is 42%, but in terms of volume, you know, quantity wise, could you give us some idea, what has been the kind of volume growth? Balaxi Pharmaceuticals Limited – August 18, 2022
Ashish Maheshwari
See this 42% growth as I have already told in my opening remarks is not strictly comparable to the previous quarter, because from 1st January 2022, Angola has been consolidated with Balaxi Pharmaceuticals Limited because it has become a wholly-owned subsidiary. So the sales that you see here are sales added from Angola also. Till now, only what was billed from here to Angola was being shown in the consolidated results. Now the sales in Angola are being shown, which are at a much higher numberso that is why the sales are not strictly comparable. Coming to your second point about volume growth,
Q
Sir, while you did mention to an earlier participant that the volume growth, the YOY, can you also tell us what was the volume growth Q-on-Q, Q4 of last year versus this year?
Ashish Maheshwari
Q4 of last year versus this year, we have not worked it out here, Alisha. We can work it out and let you know. Because the revenue is largely flat, I just wanted to know if there has been a volume growth Q- on-Q. We'll definitely let you know. Also, you were mentioning that the FOREX translation gain in this quarter has been slightly higher. Is it possible for you to quantify that number? So this quarter, the FOREX gain total to around INR 3.28 crore. And this is part of the other income, right? Yes. Balaxi Pharmaceuticals Limited – August 18, 2022 And just one more clarification. The margins
Q
Just I had a question like how will we see the broad market share evolving in the medium to long term periods in percentage terms?
Ashish Maheshwari
Market share in percentage terms, as I earlier said, is a little difficult to find out from data, because the Latin American market as such has various markets within them. There is a market for MNC branded products. There is a market for Latin American-made products. Then there is a market for companies like us, which are getting products manufactured from India and China. So our addressable markets is with this particular products which are being made in India and China. So we don't have specific data on what is being imported, but as per market intelligence Balaxi Pharmaceuticals Limited –
Q
Sir, I had one question. So it's like in Q1 FY23, Angola was about 60%, and Latin America was about approximately 40%. But since you told that you are focusing on the Latin American market, then the new plant will also come. So can we expect Latin America overtaking Angola in the next two or three years?
Ashish Maheshwari
Yes, of course. We are targeting that Latin America must contribute 65%, and Angola must come down to 35%. That's our thing even with the increased volume in sales. And sir, what would be the margin differential between Latin American markets and African markets like Angola? Is the margin higher in Latin America compared to Angola and those? Gross margin is higher in Angola, but having said that, the expenses are also very high in Angola. So the net profits are not as good as Latin America. So at the EBITDA level, Latin American markets are more lucrative than? Yes. And the differential would
Q
Sir, what percentage of our sourcing currently is from China?
Ashish Maheshwari
China, we are sourcing significantly from India right now, around 30% comes from China or a little less than that. Balaxi Pharmaceuticals Limited – August 18, 2022 So the manufacturing facility that we would be putting up, it would be a formulation facility, right? Yeah. It is a formulation facility. Sir, are we not exposed to ROC risk then with manufacturing in-house? No, we are not because we have to keep in mind that from wherever we are buying right now, they have to keep their own margins. They keep their own margins and then sell the product to us. So all those margins will be saving, an
Q
Sir, can you please give me a revenue breakup for Quarter 1 is the INR 83 crore. How much generated from LATAM market and Angola for African market? Is it possible, sir?
Amol Mantri
So Angola market, the total revenue was to the tune of INR 60 crore and remaining INR 22 crore came from LATAM market. Balaxi Pharmaceuticals Limited – August 18, 2022 And sir, how big is this LATAM market as far as opportunity is concerned? Because Latin American market is more lucrative. So going forward, how much incremental revenue we can see in the LATAM market for the next three years as we have filed many dossier products for registration (inaudible 00:31:45)? Minimum, we are going to see 40% to 45% growth in revenue for the next three years. It is from the LATAM market. LATAM market ye
Q
I just wanted to understand when will this plant be functional? You said you will be starting CAPEX soon. When can we expect this plant to come on stream?
Ashish Maheshwari
March 2024. March 2024. And the asset turn that you were talking about in a previous question, six, seven times, how much time in your opinion would that take to be achieved? I understand it's an aspirational, and that is an eventual target that the plant can achieve, but what is your vision there? There we see 24-25 is the first year of the plant, and 25-26 is where we see that happening, if not in the financial year, the last six months of FY26 and the first six months of FY27. And I also want to understand the distribution in Latin American countries. So how would it work? Do you sell to, l
Q
Thank you for follow-up opportunity. Sir, can you give us some more color on our consumer product segment, how it is doing? And what's the growth aspiration going forward in that segment?
Ashish Maheshwari
Consumer products division had taken off well in FY-21, but in FY22, it took sort of a hit because of the very high freight cost which went up by around 300% to 400% ocean freight cost. So it didn't do well in the last six months of the year because it was not very viable to ship it out at those prices. This is a high volume low margin product. But it's again picked up. Activity has picked up again from May this year, and going forward, we hope we will be growing well in this financial year. And after this financial year only, we can comment on how our growth pattern can be as freight rates ha
Q
Just one follow-up question on the future margins. Once we have our manufacturing in place, could you broadly walk us through, you know, how would that impact, again, very broadly, what do you think that would have an impact in terms of gross margin and on EBITDA margin? Just if you can just walk us through that, that's my only question. Balaxi Pharmaceuticals Limited – August 18, 2022
Ashish Maheshwari
So the manufacturing setup that we are doing now in the plant is what is called general oral solid dosages, which is tablets and capsules. What we are doing is a general block. We are not making a penicillin block, which is used for antibiotics, or we are not making the cephalosporin block. We are doing just general part of it, and the liquid injectable block will have only ampoules. Again, we will not have antibiotics, and we will not have cephalosporins. Only these three dosage forms we are putting up and that too for general. The entire basket of products that we have, there are around eigh
Q
Sorry, if my questions are a bit basic, because I am new to the company. Can you talk a little bit about your cost structure for your marketing unit in Latin American markets?
Ashish Maheshwari
The cost structure for Latin America is quite lean compared to Angola. There, as I told you, we are the distributors. So we have a central warehouse, a large, very large central warehouse. We have two of them in Dominican Republic and one of them in Guatemala. And our staffing is around four expats in each country from India to manage everything right from sales to administration to deliveries. And then we had about 10 to 12 locals for the semi-skilled kind of work. So the cost structure is quite low, for the marketing and promotions that we do there. Because right now in Guatemala, we are doi
Q
Sir, my first question, what factors have contributed to your strong performance during Q1 FY23? And second one, what would be incremental revenue from a new project?
Ashish Maheshwari
See the Q1 FY23 performance, as I have said in my opening remarks, there is strong demand from Latin American markets. The strong demand will continue because we have a lot of registration product registrations in the pipeline, and as we receive more and more product registrations, the market penetration will increase. Not only will we get additional revenue from the new products, but revenue from other corners will also increase as we get more wholesalers into our channel as our channel partners, because as the number of products grow, wholesalers get more confidence to buy the company's prod
Q
I would like to get a bit of more idea about your growth plans. So in your existing markets like Angola, what is the kind of growth rates that you guys are seeing?
Management
Q
We are working on Angola where we have with our entire basket of products been there. We are covering the entire country with 17 wholesale depots. So we will not see hyper growth there. We will go in line with the market at around high single digits, you can say 8% to 9% to 10% to 11%. In Latin America, there is a total big head room for growth, hyper growth in the next three to four years which we will witness at more than 40% to 42% per year year-on-year CAGR.
Harsh Peria
Another question of mine is about your EU GMP facility. So does it help us in any way to put up an EU GMP facility when we are not planning to sell in EU? It helps a lot because that will become the key differentiator between our product and our competitors' product, and we have witnessed in Dominican Republic, in Guatemala that EU GMP product is respected both by distributors, wholesalers retailers and even the customers which will be a big differentiator between us and the competition, and will give us longevity in the market. It will also help us in entering the ethical market in Guatemala
Q
Thank you one and all for the time, and I hope the company has been able to answer all the questions for satisfaction of all the queries. Thank you very much. I look forward to speaking to all of you again. Thank you.
Management
Speaking time
Ashish Maheshwari
64
Moderator
18
Harsh Peria
14
Alisha Mahawla
8
Amol Mantri
8
Yogesh
8
Chinmaya Garg
7
Archana Gude
5
Avinash Gorakshakar
5
Keshav
4
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Opening remarks
Ashish Maheshwari
Good evening. A very warm welcome to the Balaxi Pharmaceuticals Limited's Earnings Conference Call for the first quarter ended June 30, 2022. Our investor presentation is already uploaded on stock exchanges and our website for a ready reference. I'll take you through the presentation starting by talking about the economy in general and the business highlights for Q1 FY23 of the company. As we all know, we are seeing a lot of changes in the macroeconomic scenarios over the past quarter domestically and internationally, with a changing landscape. There seems to be some downsides to the growth story presently, but it will not impede scale in the longer term. Talking about India's pharmaceutical cumulative exports this quarter, it has witnessed a whopping growth of 22%r. The exports of Made in India foreign product continue to touch new heights. India currently occupies the fifth position in terms of Pharma exports. In our existing and targeted frontier markets, on an aggregate, the GDP is
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