APLLTDNSEQ1 FY23August 04, 2022

Alembic Pharmaceuticals Limited

5,368words
94turns
9analyst exchanges
6executives
Management on call
Pranav Amin
MANAGING DIRECTOR
Shaunak Amin
MANAGING DIRECTOR
R. K. Baheti
DIRECTOR - FINANCE & CFO
Mitanshu Shah
HEAD - FINANCE
Jesal Shah
HEAD - STRATEGY
Ajay Kumar Desai
SENIOR VP-FINANCE
Key numbers — 40 extracted
Rs. 1,262 crore
ing business is robust. First of all, financials, during the quarter our total revenues were at Rs. 1,262 crores, EBITDA was Rs. 9 crores and net loss was Rs. 66 crores. Continuing review of our Aleor R&D cost
Rs. 9 crore
st of all, financials, during the quarter our total revenues were at Rs. 1,262 crores, EBITDA was Rs. 9 crores and net loss was Rs. 66 crores. Continuing review of our Aleor R&D cost, which was capitalized
Rs. 66 crore
e quarter our total revenues were at Rs. 1,262 crores, EBITDA was Rs. 9 crores and net loss was Rs. 66 crores. Continuing review of our Aleor R&D cost, which was capitalized earlier and looking at the condi
Rs. 115 crore
eor still is a separate company, though merger process is underway. Aleor has further written-off Rs. 115 crores out of which CWIP, out of capitalized R&D to P&L. We did it in March 2022 also and Rs. 115 crore
Rs. 115 crore
. 115 crores out of which CWIP, out of capitalized R&D to P&L. We did it in March 2022 also and Rs. 115 crores we have written-off in June 2022. The residual intangible assets in Aleor now is just about Rs
Rs. 40 crore
res we have written-off in June 2022. The residual intangible assets in Aleor now is just about Rs. 40 crores. Had Aleor followed the previous practice, APL's consolidated profit before tax would
Rs. 115
the previous practice, APL's consolidated profit before tax would have been higher by Rs. 115 odd crores. EBITDA on a likewise basis would have been Rs. 107 crores. Borrowings: The gross b
Rs. 107 crore
re tax would have been higher by Rs. 115 odd crores. EBITDA on a likewise basis would have been Rs. 107 crores. Borrowings: The gross borrowings at consolidated level is Rs. 515 crores versus Rs. 630 cro
Rs. 515 crore
sis would have been Rs. 107 crores. Borrowings: The gross borrowings at consolidated level is Rs. 515 crores versus Rs. 630 crores in March 2022. The company has Rs. 112 crores of cash on hand. As on Mar
Rs. 630 crore
. 107 crores. Borrowings: The gross borrowings at consolidated level is Rs. 515 crores versus Rs. 630 crores in March 2022. The company has Rs. 112 crores of cash on hand. As on March 2022, it was Rs. 61 c
Rs. 112 crore
ings at consolidated level is Rs. 515 crores versus Rs. 630 crores in March 2022. The company has Rs. 112 crores of cash on hand. As on March 2022, it was Rs. 61 crores. Net borrowing as on 30th June 2022 is R
Rs. 61 crore
30 crores in March 2022. The company has Rs. 112 crores of cash on hand. As on March 2022, it was Rs. 61 crores. Net borrowing as on 30th June 2022 is Rs. 403 crores versus Rs. 569 crores as on March 2022.
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Guidance — 20 items
Pranav Amin
opening
“We are confident on both these verticals moving forward from the next quarter onwards.”
Pranav Amin
opening
“We launched 5 products in the quarter and plan to launch another 5 to 7 products in the next few months as well.”
Pranav Amin
opening
“In terms of investments, we expect these to start playing out in terms of topline numbers going into as early as Q2 and Q3.”
Pranav Amin
opening
“Other than that, core portfolio of the business continues to do well and with a strong onset of monsoon in June-July, in July mainly and continuing into August, we expect the acute portfolio which is a very strong part of our business to continue with more competing growth numbers.”
R. K. Baheti
qa
“You are right, but I look at percentage of turnover as just a consequential number, but in absolute terms, we don’t plan to increase R&D.”
Chirag Dagli
qa
“500 crores worth of sales in the US, so is this understanding right that while the sales may take time to scaleup, but the expenses will immediately hit on a fully loaded basis and will be upfronted?”
Pranav Amin
qa
“In the last quarter Q1, I had said that I anticipate that around 50 million, nearly 55 million depending on the situation would be our base business.”
Pranav Amin
qa
“It depends, see now the erosion also goes and in my opinion will be closer to 50 million, but I am saying a lot more erosion on the market than I saw at the end of the Q4.”
Pranav Amin
qa
“I haven’t looked at it because it is a moving figure so, I don’t keep looking at it, but I anticipate it will be in low double digits.”
Pranav Amin
qa
“We anticipate to launch 5 to 6 in Q2 as well and for the year, we will be anywhere between 15 to 18 kind of launches.”
Risks & concerns — 7 flagged
So, sir your US margins are one of the highest in the industry and I think there is a specific strategy because of which you generate such high US margins at the gross level, isn’t it a big risk for Alembic at 68-69% whatever 70% gross margins, no other Indian company does this, I think it is a big risk going forward actually when the pricing also be so big for the US market?
— Nikhil Mathur
Right, but the past, all credit to the company for what you guys have been able to deliver in the past but if I look at Q3 out, is my expectation right that there can be more risk than tailwinds to your margin profiles?
— Nikhil Mathur
It is very difficult to say because it is very difficult to predict the market particularly the US market and India market as I say is more consistent and more predictable, but US is very difficult to predict, so won’t give any comment, but we hope that sooner than later US also will stabilize at some point of time.
— R. K. Baheti
Margins would stay under some pressure till the realization from US improve while we are doing everything possible under our control or to do some cost rationalization.
— R. K. Baheti
Harith Ahamed: But sir, while we are expecting a recovery in the US in the coming quarters, over the next 3 to 4 quarters, we will also see the additional costs which are getting capitalized now, so that would also mean further pressure on margins from the current level side, so?
— R. K. Baheti
I said once the new facilities become operational and an earlier participant also mentioned, initially the revenue would be lower, the expense would be higher, there will be a pressure of margin, for any growth you need to sustain a higher cost in the transitional period and that is how you grow the business.
— R. K. Baheti
Sir, actually I am failing to understand one thing because this drug is almost like $300 million drug or upward of that as per the IMS and only it is a two generic player market and yet our base numbers in that case ex of this drug might be much lower, so I don’t know what exactly is happening in that front, whether Formoterol is relatively still a sizable chunk for us or not, it is very difficult to get clarity on that?
— Bharat Celly
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Q&A — 9 exchanges
Q
Second part of your statement is right, Rs. 40 crores is what is now residual. The only correction I will make in your first part of the statement in previous quarters that is in March 2022, we charged off Rs. 189 crores. Damayanti Kerai: So, Rs. 189 crores in the fourth quarter, Rs. 115 crores this quarter and then we had just left with the Rs. 40 crores?
R. K. Baheti
Total is about Rs. 350 crores spent over last 3-4 years on R&D. So, sir, anything else like where assessment is ongoing and then we might see similar charge off, which you right now not part of our operating cost or we should be just looking at the Aleor portfolio? As far as Alembic Pharma is concerned, in any case we have been charging off all R&D expenses to P&L since beginning, so we have no accumulation in balance sheet there. And just a question on R&D, so even if we adjust for this Aleor charge, it still remains notable at around 12% of sales, so how should we look at this cost going ahe
Q
Sir, I understand there were some upfronting of revenue in the fourth quarter last year and now that number is low, but if I look at the last 3-4 quarters average, then it seems like the base business is whatever $55 to $60 odd million, so is that the base or you see Q1 $47 million odd that we have reported than the new base?
R. K. Baheti
We said in the previous calls that $50-$55 million for US is the base and we maintain that. Sir, can you help us just broadly understand as we look into the next two years, how would the scaleup of expenses both above EBITDA and below EBITDA just broadly happen? See, there are few expenses Chirag which are beyond our control and there are few expenses where we can have a significant amount of control. From expenses which are under our control, we are doing everything under the sun to contain them, rationalize them, make them more productive, make them more effective, but some of the expenses a
Q
Sir, I have two questions on the International business and then I will come back in the queue for the domestic business, so on the US oral solid part of the business, can you give me an idea like what would be the gross margins in that business? I don’t want EBITDA margins or what ROCE we are making, but this broad range of gross margin in US oral solid business?
R. K. Baheti
We don’t give vertical wise margin breakup, but what is for sure is that the margins have gone down because of the price erosions in US. And in terms of the price erosions that has happened in the US, in US specifically is it like different kind of erosion that we are seeing between chronic and acute products or it is across all the products because in terms of the cases we hear that the price erosion in chronic is less than acute products, is it true? No, actually the US is a generic market, we have seen erosion across the board. There is too much supply and too many people supplying in the m
Q
And on your US business, this quarter we have reported $48 million and you are saying that the base business is around $54- $55 million, so what led to fall of that extra million dollar? Is it because of anything which is one off or this is something which will continue in the subsequent quarters and in fact this will become the new base?
Pranav Amin
In the last quarter Q1, I had said that I anticipate that around 50 million, nearly 55 million depending on the situation would be our base business. Having said that the last quarter, we did about 70 million in the US, that was due to some one-time buy as well as we moved our third-party logistics provider this quarter. That is why the buyer had shopped a lot more. That is why last quarter, the sales were higher which led to slower offtake in the start of the quarter for this quarter. So, you mean to say that from the second quarter, we should come back to our run rate of around $54-$55 milli
Q
I just have one question. The last time, I remember there were some 150 approval that were in place and the company had launched 104-105 products in the US, so the remainder of the products that are yet to be launched, should we assume that there is anything still left or given how the situation there is in the US, there is barely any left in those products?
Pranav Amin
Generally with the market situation as I said we have launched about 15 odd products this year. I think some are awaiting patent expiries, so those we launched as and when the patent expires, those are tentative approvals and the rest we will take some in the process of launching and some we may choose not to launch because we have the technical issues or because of the market situation. And again, on the gross margin front, is it very counterintuitive if I look at sales percentage of India in the overall mix, it has a kind of gone up, should generally come in many other peer companies, the ma
Q
First one is on the F3 facility, you mentioned that the remediation activity is there or underway, so in your assessment, will this facility require a re-inspection before it is cleared by the FDA? And regarding the F2 and F4 facilities, we are having expectations around inspection timelines for these two new facilities?
Pranav Amin
F3 I believe, it would require an inspection, but let us see how it goes in terms of the FDAs, how they accept all the results and we have been updating them on a monthly basis, I believe it will require re-inspection. As regards to F2, the oral solid part is already approved by the FDA, so there is no issue. The injectable bit, we have filed some products, so which should trigger a filing as and when the FDA increases their audits which they already have. We should have them visiting us for an audit as well. F4 also, we have filed, however in the priority list of FDA, this will be a little la
Q
Sir, I just wanted to understand on product called Formoterol, so I believe we have already launched that, so just wanted to know how you are seeing the traction in that product, whether we have seen any adverse pricing anything you can comment on the overall outlook of this drug we have launched?
Pranav Amin
Yes, it is a good product. We have launched it. We have picked up some share as well in that product. It has got a little lesser competition. So, let us wait and see how it goes. It is from a CMO, so we are slowly gradually picking up more shares we get as we have more confidence on the supply chain. And what sort of market share we will be reaching in this product at this point of time? It depends, but we must be at over 15% or so. Sir, we are referring that we will be having around $50 million base in the US market, so that guidance is including this drug? Yes, so what is happening is the ba
Q
My first question was that CWIP is of Rs. 2,200 crore as on 31st March 2022, can you please share what it pertains to and when are the projects scheduled?
R. K. Baheti
We were discussing Akshata, we have these 3 facilities which we have did F3 was for injectable, oral soluble, as well as onco injectable, F4 for new formulation facility. So, all of these are WIP as none of them has gone to commercial production yet. Also, can you please share Aleor’s EBITDA percent and Alembic's EBITDA percent without Aleor? The share in the result itself that we have some it has 10% EBITDA without earlier impact. So, this might be naïve of mine, but could you please share why like in the table of Q4 FY22, it doesn’t show any change in revenue, I understand that Aleor was a s
Q
Thank you everyone for joining this call. It is a pleasure and learning to be interacting with all of you and we look forward to interacting with you again in post Q2 results. Thank you for joining.
Management
Speaking time
R. K. Baheti
26
Pranav Amin
17
Moderator
11
Chirag Dagli
7
Rashmi
7
Bharat Celly
7
Nikhil Mathur
6
D. Kerai
4
Akshata Rein
3
Harith Ahamed
2
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Opening remarks
R. K. Baheti
Good evening everyone. Thank you for joining our first quarter for 2022-2023 quarterly results conference call. I am sure you would have received the results by now. I know the financial numbers are a bit below your expectations, but during this call we will try to explain you the reasons and also the rationale why we think the underlying business is robust. First of all, financials, during the quarter our total revenues were at Rs. 1,262 crores, EBITDA was Rs. 9 crores and net loss was Rs. 66 crores. Continuing review of our Aleor R&D cost, which was capitalized earlier and looking at the conditions in the US generic business, Aleor still is a separate company, though merger process is underway. Aleor has further written-off Rs. 115 crores out of which CWIP, out of capitalized R&D to P&L. We did it in March 2022 also and Rs. 115 crores we have written-off in June 2022. The residual intangible assets in Aleor now is just about Rs. 40 crores. Had Aleor followed the previous practice, AP
Borrowings
The gross borrowings at consolidated level is Rs. 515 crores versus Rs. 630 crores in March 2022. The company has Rs. 112 crores of cash on hand. As on March 2022, it was Rs. 61 crores. Net borrowing as on 30th June 2022 is Rs. 403 crores versus Rs. 569 crores as on March 2022. Net debt equity is very comfortable at 0.08. I will now hand over the discussion to Pranav for his presentation on International business.
Pranav Amin
Thank you Mr. Baheti. It was a challenging quarter for the US business, especially when seen in light of a very good preceding quarter. I had mentioned in the last investor call that we had made a switch to third party logistics vendor. Due to this, we had anticipated some supply disruptions and hence the buyers had pulled in extra inventory to ensure that the quarter was smooth. This led to a slow start and dispatches during quarter and the revenue for the quarter was $ 47 million in the US. We continue to remain focused on the long term of the US business backed by 15 plus launches every year and hopefully consolidated market share in our existing products. The near term will remain challenging, but long term we still remain optimistic about the US business. The Ex-US formulation business as well as the API business have both come off a very high base of last year, hence the growth was muted. We are confident on both these verticals moving forward from the next quarter onwards. Our R
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