GRANULESNSEfinancial year 2022-23October 27, 2022

Granules India Limited

6,085words
103turns
13analyst exchanges
6executives
Management on call
Krishna Prasad Chigurupati
CHAIRMAN &
Kvs Ram Rao
JOINT MANAGING DIRECTOR &
Priyanka Chigurupati
EXECUTIVE DIRECTOR, GPI
Sandip Neogi
CHIEF FINANCIAL OFFICER - GRANULES INDIA LIMITED
Irfan Raeen
ORIENT CAPITAL
Priyanka Madam
Executive Director, GPI; and Mr. Sandip Neogi -
Key numbers — 40 extracted
Rs. 218 Crore
ost important and satisfying parameter is the cash position. We had generated operational cash of Rs. 218 Crores as compared to Rs.181 Crores during Q1 2023. After accounting for capex, we generated a free cas
Rs.181 Crore
arameter is the cash position. We had generated operational cash of Rs. 218 Crores as compared to Rs.181 Crores during Q1 2023. After accounting for capex, we generated a free cash of Rs.124 Crores compared t
Rs.124 Crore
compared to Rs.181 Crores during Q1 2023. After accounting for capex, we generated a free cash of Rs.124 Crores compared to Rs.98 Crores in Q1. As explained in our last call our focus continues to be free cas
Rs.98 Crore
during Q1 2023. After accounting for capex, we generated a free cash of Rs.124 Crores compared to Rs.98 Crores in Q1. As explained in our last call our focus continues to be free cash and we will continue to
Rs.310 Crore
tinue to focus on this. As of today, we have completed the buyback and had incurred an outflow of Rs.310 Crores including taxes and other expenses. We are confident that after taking this amount and future ca
rs,
increased focus on operational efficiencies. This had been an ongoing issue for the past many years, but Granules had been able to successfully manage this. On the positive side the slow downward tre
Rs.1,151 Crore
me now take you through the top financial parameters now. Revenue: The second quarter revenue was Rs.1,151 Crores as compared to Rs.888 Crores in Q2 FY2022 growth of around 30%. This growth is mainly attributed
Rs.888 Crore
financial parameters now. Revenue: The second quarter revenue was Rs.1,151 Crores as compared to Rs.888 Crores in Q2 FY2022 growth of around 30%. This growth is mainly attributed to increased business in the
30%
nd quarter revenue was Rs.1,151 Crores as compared to Rs.888 Crores in Q2 FY2022 growth of around 30%. This growth is mainly attributed to increased business in the US especially in the API segment.
16%
business in the US especially in the API segment. The revenue share of noncore molecules stood at 16% which is higher mainly because of the increased core sales in the current quarter. Even though in
1.1%
asically sales minus cost of material consumed. Value addition percentage in Q2 has contracted by 1.1% mainly due to segment mix as in this quarter API sales was more. EBITDA and
Rs.243 Crore
er API sales was more. EBITDA and EBITDA margin: EBITDA for the quarter was Rs.243 Crores when compared to Rs.151 Crores in the previous year same quarter an increase of 61% over the pre
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Guidance — 20 items
K P Chigurupati
opening
“Work on the DCDA project is proceeding smoothly and we expect to see results in less than two years.”
Sandip Neogi
opening
“It is expected that R&D spending will be in the range of Rs.40 to Rs.45 Crores in each quarter going forward.”
Rahul Veera
qa
“Was there any one-off in this Paracetamol sales in this quarter or we are seeing this kind of traction going forward as well?”
K P Chigurupati
qa
“Now the supply of PAP has stabilized we see this going forward.”
K P Chigurupati
qa
“No, we have some marquee customers in the US and also we are trying to convert most of them from API to finished dosages and also our European launch of Paracetamol formulation is happening now in this quarter Q3 so there will be increases in both segments but I think US will be higher share for Paracetamol.”
Rahul Veera
qa
“What will be the capacity utilization of our plant for Paracetamol as of now?”
Sandip Neogi
qa
“We do not see that the SOFR is coming drastically; if the SOFR continues at that level we can only ensure you that the spread will not go up, so obviously it will be the same range.”
K P Chigurupati
qa
“I always said we will be slowly creeping from our 20% so we crept a bit and year-on-year we will definitely creep up and our target is to get to 25% and when it comes to value add the situation is it is the product mix that always dictates so we are going towards high margin products but all these things will be visible only after two years onwards.”
Rashmi Sancheti
qa
“Outside of those two products we will be launching a few products in Q4 of this fiscal and Q1 of next year.”
Rashmi Sancheti
qa
“Priyanka Chigurupati: We did about three launches in the first half and going forward in the second half we will be doing about one to two more launches and we have not reached our target market share for these three products yet so we will be aggressively bidding on these products as well.”
Risks & concerns — 3 flagged
First of all let me say like you said 21 and 22 both are aberrations, 21 is a positive aberration and 22 is a negative aberration and 23 it start off returning to normalcy but due to uncertainties today in the world I am not able to say how much improvement we will make, so I do not see any possibility of deterioration, any normal possibility but in this uncertain world we do not know where we will go.
— K P Chigurupati
We also have Indian manufacturers and other international manufacturers who have come up so there is lot of mitigation that has happened, and we do not see a very great challenge on this product.
— K P Chigurupati
It is mainly going to be working capital management Ashwini and it is working with our customers where quicker payments and reducing the receivable days and also we are working with our suppliers to increase the payable days and inventory is a very cautious approach we are taking because if you do not have enough inventory in the US you could end up with failure to supplies, penalties which could be disastrous, we need to really study this but we are very cautious on that.
— K P Chigurupati
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Q&A — 13 exchanges
Q
Sir just wanted to understand that is the gross margin on Paracetamol lower than other products because sequentially when the sales have gone up in Paracetamol specifically the gross margin is not up to the mark?
K P Chigurupati
You are right Rahul. Gross margin on Paracetamol is lesser than other products. Was there any one-off in this Paracetamol sales in this quarter or we are seeing this kind of traction going forward as well? There is no one-off Rahul. Actually, basically the whole thing came from availability of raw material. Now the supply of PAP has stabilized we see this going forward. Market was not a problem for us we had marquee customers and they continue to be with us. If given the incremental sales from Paracetamol and from US the percentage of sales has increased sharply but we were targeting to more m
Q
Thank you for taking my question. I just had a question to clarify in the finance cost given that the debt has come down could you explain what contributed to increasing the finance cost for the quarter and what the blended cost of borrowing was?
Sandip Neogi
So, finance cost has increased. Actually, for everybody because the SOFR rate has increased so when we started the year and where we are seeing the SOFR now there is a 3.5% to 4% increase in the SOFR that has resulted. The spread has not increased for any of us, but SOFR rate increase has actually resulted in a kind of cost borrowing being higher. How do you view the finance cost over the next few quarters as you now when debt comes down how do you view the mix changing? We do not see that the SOFR is coming drastically; if the SOFR continues at that level we can only ensure you that the sprea
Q
What I am saying was I am trying to figure out the way forward last two years have been very challenging for the company because first we saw excessive one-off gains because of COVID- related shortages especially in Metformin and excessive demand for Paracetamol and then we saw product shortages and shipping cost coming down, now at least on the raw material shortages and shipping cost things are normalizing the FD contribution to overall revenues have also gone up and we are kind of right sizing the sales across various geographies so if I look at the long-term history value addition has been
K P Chigurupati
First of all let me say like you said 21 and 22 both are aberrations, 21 is a positive aberration and 22 is a negative aberration and 23 it start off returning to normalcy but due to uncertainties today in the world I am not able to say how much improvement we will make, so I do not see any possibility of deterioration, any normal possibility but in this uncertain world we do not know where we will go. I always said we will be slowly creeping from our 20% so we crept a bit and year-on-year we will definitely creep up and our target is to get to 25% and when it comes to value add the situation
Q
Hi good evening management and thanks for the opportunity. First I want to know about US related to the price erosion in the first quarter you all mentioned that Granules is facing high double digit price erosion so what are the current status over there whether it has really come down or not and how many new launches have we done in first half and if we can quantify out of the new launches how many new MUPS technology launches we have done from Gagillapur? Priyanka Chigurupati: To answer your first question in terms of price erosion, there is still slight a bit of price erosion that we are ha
Rashmi Sancheti
How many would be total new launches which include MUPS & other products in first half? Priyanka Chigurupati: We did about three launches in the first half and going forward in the second half we will be doing about one to two more launches and we have not reached our target market share for these three products yet so we will be aggressively bidding on these products as well. What about Metoprolol succinate approval we had some query on it have you responded to the USFDA or what is the current status over there? Rashmi you seem to be knowing more than us about what is happening. Priyanka Chig
Q
So, a couple of questions first what percentage of the finance cost in this quarter is attributable to factoring of receivables and the second question is of the cash-to-cash cycle what percentage or what kind of raw materials inventory are we keeping on hand?
Sandip Neogi
Factoring cost is around 40% of the total finance cost for this quarter and regarding the inventory cost you may want to. I do not have just the raw material number with me it is the total inventory which includes inventory here on the sea and also in the US. Last quarter we had 179 days as compared to 182 days in the previous quarter and receivable days have come down it was 74 from 83 and payable days also have come down from 121 to 112 so overall the net effect is three days on cash-to-cash cycle. Again, let me just clarify a bit Varun when Sandip said 40% is the cost of factoring if not fa
Q
My first question is that what is our market share in Paracetamol domestically and globally if we have the number?
K P Chigurupati
I do not think we can give out that information Maitri it is a little sensitive with competition and we prefer not to discuss this is in open forum. The second question is that what is the revenue concentration of the top five customers? I think it should be around 30% to 40% Maitri a little more than 30% I would guess. I do not have the number offhand with me, but I can definitely tell you top 20 customers will not be more than 60%. The third question that I have is that is the raw material that we import so what is the percentage of total raw material that we import and from which countries
Q
Thanks for the opportunity and congratulations to the management for excellent set of numbers. Sir couple of things (A)- I wanted to understand about some of the new initiatives so details around the hypo and onco plant and also the biologic asset that we acquired if there is clarity on the strategy regarding biologics as a whole going forward as well as some of the other work that we are doing under Granules 2.0 if you could sort of explain in more detail?
KVS Ram Rao
As I mentioned in my speech. We are focused on high potential oncology block and hypo block. I think earlier also we indicated that we are going to focus on the oncology formulations and as discussed and the progress is in the right direction. We are able to see good traction with the customers in terms of business development teams and also how we can use the capacity utilization there, so I think it is going in the right direction as far as the hypo block is concerned. Coming to your second point on the entire enzyme fermentation and what R&D assets and capabilities that we have got we are a
Q
Sir, I just wanted to know on the PAP side do we buy PAP from India?
K P Chigurupati
We do Kaushik. Can I know the supplier; is it from Sadhana Nitro Chem or something like that? Not from Sadhana Nitro Chem that I can tell you. What are the Indian prices that we buy Sir? Prices are almost the same competitive everywhere today, there is a surplus product, and it is almost the same. It is as equivalent as the China? A little bit here and there, they vary but more or less. What is the strategy for Paracetamol in Europe, how are we go there in Europe? We sell a lot of Paracetamol, API and PFI in Europe and we also do some contract manufacturing of Paracetamol tablets for certain c
Q
Good evening, Sir. Our sales have grown on the API side and mainly from the Paracetamol side, so just wanted to know that is it because of increase in realization of that product or is it increase in volume of that product?
K P Chigurupati
It is actually volume; I do not know if you are here in the call right from beginning, we mentioned that we have availability of more raw materials and that has led to increased production and increased sale. Sorry I would have missed that. Thanks a lot.
Q
Good evening, Sir. What is our dividend policy Sir?
K P Chigurupati
You know the amount of buyback with it, we will give it back in the form of dividend or buyback whichever way, our priority is to make sure the investors are benefitted and if you calculate the amount of money that was given you can understand what we are planning to do.
Q
Just a followup question from me. I am referring to your opening remarks where you said that notwithstanding buyback and the client capex you still expect to generate free operating cash flow, which will be used to reduce debt and considering that the value addition margins and EBITDA margins are likely to be steady that kind of hints at very strong second half in revenue growth and I just wanted to understand what driving that contract?
K P Chigurupati
It is mainly going to be working capital management Ashwini and it is working with our customers where quicker payments and reducing the receivable days and also we are working with our suppliers to increase the payable days and inventory is a very cautious approach we are taking because if you do not have enough inventory in the US you could end up with failure to supplies, penalties which could be disastrous, we need to really study this but we are very cautious on that. So, to answer your question once again to summit up it is mainly reduction of receivable days and increase of payable days
Q
Just one question on the overall investments into onco, hypo and biologic assets till date and how much do you intend to invest maybe in FY2023 and 2024? Sandip Neogi and K P Chigurupati: Onco investment is Rs.90 Crores and for this biotech company we have only invested Rs.13 Crores. We have given guidance for this year and next year is going to be Rs.300 Crores each. We do not expect to invest anything in the onco plant, but on the biologic side we will definitely be investing and after this the investments could be higher after this year, next year, we will see how it turns out, but this yea
Tushar Manudhane
Fair enough. Thank you.
Q
Ladies and gentlemen once again thank you very much for joining us today and I would like to reiterate that we are working hard to continue the run up just like we had in Q2 and we will try our best to make sure that we continue to grow profitably, so thank you very much.
Management
Speaking time
K P Chigurupati
32
Moderator
15
Ashwini Agarwal
8
Kaushik Mohan
8
Rahul Veera
7
Rashmi Sancheti
6
Maitri Parikh
5
Sandip Neogi
4
Krish Mehta
3
Tushar Bohra
3
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Opening remarks
Irfan Raeen
Thank you Yashashri. Good evening, everyone, myself Irfan Raeen from Orient Capital. We are an Investor Relation Advisor to the company. I hope that all of you and your families are safe and healthy. On behalf of Granules India, I extend a warm welcome to all participants on Q2 and HI FY2023 financial discussion call. Today on the call I am joined by Dr. Krishna Prasad, Chairman & Managing Director; Dr. KVS Ram Rao - Joint Managing Director and Chief Executive Officer; Ms. Priyanka Madam - Executive Director, GPI; and Mr. Sandip Neogi - Chief Financial Officer. I hope everyone had an opportunity to go through our investor deck and press release that we have uploaded today on exchanges and on company’s website. Before beginning with the call, I would like to give a short disclaimer. This call may contain some of the forward-looking statements which are completely based upon our beliefs, opinions and expectation as of today. These statements are not a guarantee of our future performance
K P Chigurupati
Thank you Irfan. A very good evening to all of you ladies and gentlemen and thank you very much for joining us today. I am sure all our investors had received the proceeds from the buyback by now and are happy that the company has interest of the investors as a priority. All of you would have gone through our numbers and Sandip will also take you through them. Let us only dwell on some key indicators. During the current quarter we continued and improved on our performance on all fronts compared to Q2 of FY2022 and Q1 of FY2023. While net profit has grown the most important and satisfying parameter is the cash position. We had generated operational cash of Rs. 218 Crores as compared to Rs.181 Crores during Q1 2023. After accounting for capex, we generated a free cash of Rs.124 Crores compared to Rs.98 Crores in Q1. As explained in our last call our focus continues to be free cash and we will continue to focus on this. As of today, we have completed the buyback and had incurred an outflo
KVS Ram Rao
Thank you Mr. Chairman. Good evening, everyone on the call. I echo the views of the Chairman on a very satisfying second quarter performance of the company. In my last quarter remarks, I spoke about Granules’ long-term strategy on science, technology and innovation. I am very happy to confirm that our strategy relating to this is on track. We made decent progress on the enzyme and fermentation technology driven product development and completed proof of concepts for a couple of projects. We are also making good progress on the continuous process development effort and DCDA and as pointed out by the Chairman we should see the commercialization of this product in the next couple of years. The R&D and portfolio management strategies are much more robust now and are based on the initiatives of science and technology and we have also made a very good progress in institutionalizing ESG as a way of doing business for us. All these science technology related initiatives are going to increase t
Sandip Neogi
Thank you Sir. Let me now take you through the top financial parameters now. Revenue: The second quarter revenue was Rs.1,151 Crores as compared to Rs.888 Crores in Q2 FY2022 growth of around 30%. This growth is mainly attributed to increased business in the US especially in the API segment. The revenue share of noncore molecules stood at 16% which is higher mainly because of the increased core sales in the current quarter. Even though in percentage terms the others have decreased but in absolute numbers showed a marginal growth. The sales breakup as per business verticals and details are presented in our investor presentation which is available on the website. Value addition which is basically sales minus cost of material consumed. Value addition percentage in Q2 has contracted by 1.1% mainly due to segment mix as in this quarter API sales was more. EBITDA and EBITDA margin: EBITDA for the quarter was Rs.243 Crores when compared to Rs.151 Crores in the previous year same quarter an in
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