ALIVUSNSEQ2FY'23October 27, 2022

Alivus Life Sciences Limited

8,620words
87turns
13analyst exchanges
4executives
Management on call
Yasir Rawjee
MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER, GLENMARK LIFE SCIENCES
Tushar P. Mistry
CHIEF FINANCIAL OFFICER,
Soumi Rao
GENERAL MANAGER, CORPORATE COMMUNICATIONS, GLENMARK LIFE SCIENCES
Tushar Mistry
our CFO.
Key numbers — 40 extracted
16%
is that our external business has been doing exceedingly well. So, on a sequential basis, we grew 16% and on a year basis, we have grown about 13% in Quarter 2. So, this growth in external business i
13%
exceedingly well. So, on a sequential basis, we grew 16% and on a year basis, we have grown about 13% in Quarter 2. So, this growth in external business is like I said, being driven by India, LATAM,
41%
was on the group business with Glenmark Pharma slowing down quite significantly. So, we are down 41% on Glenmark Pharma’s business, YoY. And sequentially we are also down 19%. Now you recall that
19%
cantly. So, we are down 41% on Glenmark Pharma’s business, YoY. And sequentially we are also down 19%. Now you recall that in Q2 we did have a COVID impact. So, there this 41% is not entirely on ac
4%
business. So, that coupled with our external business is giving us this, the sequential growth of 4%. And year-on-year, if we take away the COVID base it’s negative (-4%). So, this is how we deconst
2%
of the decline in the GPL business. Now, on a segmental level, the generic business grew around 2%, overall. Chronic business has grown 71%, led by CVS and CNS portfolio. CDMO has jumped 27% compa
71%
w, on a segmental level, the generic business grew around 2%, overall. Chronic business has grown 71%, led by CVS and CNS portfolio. CDMO has jumped 27% compared to last quarter. So, we are seeing a
27%
around 2%, overall. Chronic business has grown 71%, led by CVS and CNS portfolio. CDMO has jumped 27% compared to last quarter. So, we are seeing a pretty good pickup on the CDMO business, which basi
rs,
ad with our customers is going away. And there is also uptick in the overall demand by our customers, within our customers business. On the Science side, we continue to chug along, we have filed four
Rs. 100 crore
the business coming on, the growth. Our spending CAPEX in the first six months was approximately Rs. 100 crores distributed between Dahej and Ankleshwar. Now, before I conclude, I would like to reemphasize
Rs. 509 crore
en we will open the floor for questions and answers. We registered a revenue from operations of Rs. 509 crores for Q2 FY'23, registering a sequential growth of 4%, and a degrowth of 9.3% on a corresponding q
9.3%
erations of Rs. 509 crores for Q2 FY'23, registering a sequential growth of 4%, and a degrowth of 9.3% on a corresponding quarter basis. Gross profit for the quarter was at Rs. 269 crores up 3.2% quar
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Guidance — 20 items
Soumi Rao
opening
“Please note that the recording and transcript of this call will be available on the website of the company.”
Dr. Yasir Rawjee
opening
“And then there are some risks to global growth as well, going forward, I am sure you have seen all that.”
Dr. Yasir Rawjee
opening
“And we expect that the EBITDA margins will continue to hold, in spite of the decline in the GPL business.”
Dr. Yasir Rawjee
opening
“So, there is four APIs here, that will be validated one after another in the new onco facility.”
Dr. Yasir Rawjee
opening
“And we expect that in the second half, it will bounce back not obviously, I mean, we would have to discount the COVID element.”
Tushar Mistry
opening
“We expect the inventory levels to remain at this level for few quarters till the time we see some easing of global scenario.”
Neha Manpuria
qa
“A couple of points here, you mentioned that the parent business that has seen a fair bit of decline should start improving from the next quarter.”
Dr. Yasir Rawjee
qa
“We expect that this will bounce back based on whatever visibility we have.”
Dr. Yasir Rawjee
qa
“So, there will be a pretty good uptick in our ability to service business out of Dahej.”
Dr. Yasir Rawjee
qa
“So, it would be phased, but it would be pretty quick in terms of the phase, I mean, I expect that in about a year's time, or maybe end of this year, we should be utilizing that capacity at 50% to 60%.”
Risks & concerns — 11 flagged
And we expect that the EBITDA margins will continue to hold, in spite of the decline in the GPL business.
— Dr. Yasir Rawjee
A couple of points here, you mentioned that the parent business that has seen a fair bit of decline should start improving from the next quarter.
— Neha Manpuria
So, it should go back up to 32% levels, and at least in the short term, longer term, I believe that it will decline.
— Dr. Yasir Rawjee
But this has been a bit of a blip here, in terms of the decline.
— Dr. Yasir Rawjee
And my second question is on the CDMO business, it's surprising how weak that business has been for us in the last two quarters, with the inventory rationalization.
— Neha Manpuria
So, first of all on the Glenmark business, so just wanted more clarity as in what is leading to, as in I get it that the demand environment was weak, but in the future or the visibility which you gave for Q3, right now we don't have visibility beyond Q3, like, what's the reason for that, if you could elaborate more on that.
— Karan Vora
What kind of indications you are getting from European customers, given the geopolitical situation there, seriously high inflation and energy crisis following what has been a very difficult couple of years for the Eurozone.
— Sajal Kapoor
On the margin side, we will continue to have pressure.
— Dr. Yasir Rawjee
Now that's probably the game that the European companies will continue to play with us, simply because they are also facing huge inflation, inflationary pressure.
— Dr. Yasir Rawjee
And the second point was on Glenmark Pharma sales, that this decline is it any product specific decline or it’s across the portfolio?
— Vikas Sharda
And I mean, why did you not have the kind of visibility of a decline or a blip say by the end of the 1st Quarter or in July, when the conference call was there?
— Vikas Sharda
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Q&A — 13 exchanges
Q
My first question is on the generic API business. A couple of points here, you mentioned that the parent business that has seen a fair bit of decline should start improving from the next quarter. So, what would be a normalized level of supply in your view based on the order book that you have for the Glenmark business? What gives us that visibility? That's number one. And number two, for the Dahej commissioning that is happening, should we see a more phased increase from Dahej or should the improvement in the API business be more material starting from 3rd quarter itself, in terms of the reven
Dr. Yasir Rawjee
So, as far as the business, the group business goals, one was, in the first two quarters, we had the COVID impact and demand was lesser than a typical demand. So, you have seen like it's 26% of our overall revenue. Typically, even after the COVID phase went away, we were seeing around 33% to 34% revenue contribution to the overall business. We expect that this will bounce back based on whatever visibility we have. So, it should go back up to 32% levels, and at least in the short term, longer term, I believe that it will decline. But this has been a bit of a blip here, in terms of the decline.
Q
So, first of all on the Glenmark business, so just wanted more clarity as in what is leading to, as in I get it that the demand environment was weak, but in the future or the visibility which you gave for Q3, right now we don't have visibility beyond Q3, like, what's the reason for that, if you could elaborate more on that. So, I will go ahead with the second one. So, on depreciation front, so now that the plants will start coming online, how should we look at depreciation? And one more I had, was on the Generic API piece. So, on the Generic API, this Rs. 450 crore run rate, which we are doing
Dr. Yasir Rawjee
So, as far as Glenmark Pharma goes, see it's another company and we don't have, I mean, just like our regular external customers, we don't get a very long term visibility, we get a forecast. So, the forecast, like I said earlier, is our Q3 forecast is pretty reasonable, we should get back into the 32% to 33% contribution to our revenue. We are hopeful that Q4 should also, their forecast for Q4 should also look similar, but it remains to be seen. The other element is that we should also be in a position to service both our external as well as group business. I will let Tushar take the depreciat
Q
One clarification, on this working capital, Tushar did you say that your days of working capital remains steady and the increase is purely due to price increases in raw materials and finished products and so on?
Tushar Mistry
It is not because of pricing; it is because of the inventory that we have stocked up strategically for our requirement because of the global uncertainties. We have been building our inventories cautiously. So, that will remain at this levels for some time, till the time we see some, till the time we see this global uncertainties easing off to some extent. And the other thing I wanted to ask is, what are you seeing on shipping costs? I mean, we are seeing a lot of reports that ex-China to U.S., shipping lanes are completely empty and shipping rates have crashed to the floor. What are you seeing
Q
I have a more macro and more of an industry level question for Dr. Rawjee. What kind of indications you are getting from European customers, given the geopolitical situation there, seriously high inflation and energy crisis following what has been a very difficult couple of years for the Eurozone. So, now, even if you can't manufacture these critical life saving drugs locally, let's say in Germany or Italy, which is their traditional base for manufacturing drug substances, the patient pool is still there, the disease pool burden is still there. So, drugs would have to be sourced from somewhere
Dr. Yasir Rawjee
I think you have coined that term. I am hearing it for the first time Europe Plus One. So, no, thank you for that. Basically Mr. Kapoor see, what happens here is that we have got a significant business out of Europe and demand has picked up, I would not get too excited about the pickup and demand compared to many of our other markets, but it's has picked up. However, cost pressures remain because a lot of markets in Europe are tender driven, so Germany, UK, Netherlands, these markets are heavily tender driven. So, the push from our customers is far best cost API. And that's why I mean, we have
Q
On our CDMO business, these three contracts that you are undergoing, what is the peak potential assuming these contracts start delivering for these three businesses, for these contracts for the CDMO business?
Dr. Yasir Rawjee
Nitin, I will have to request you to repeat your question here. I am saying these three contracts that we have for CDMO, what is the peak revenue potential for this business from the three existing contracts right now that we have? Let me tell you, so one contract has kind of reached a plateau. And there, we haven't seen much variation in demand, even in the COVID period. So, that has continued reasonably well. One has dropped quite significantly, went up significantly in the early COVID phase, but then that was clearly an inventory buildup on the part of the customer. And then that has gone d
Q
Just I had a question in regards to, in Q1 FY'23 con-call you had guided for a 12% growth on the top line. As of first half of FY'23 it's like 9% down, is there any reason for misguidance?
Dr. Yasir Rawjee
Yeah, so Anand I explained that our group business which contributed about 35%ish even after COVID, has gone down significantly in this quarter and as a result, it has dragged down the overall number, which is something that we didn't foresee coming. And so, we guided to a higher number, but then we still expect that H2, it should bounce back some. And that should bring us to mid single digit kind of growth overall. But external business continues to do well, and that should be the primary driver for our business.
Q
The first question was current capacity utilization for Q2. And the second was given the new 30% addition into the capacity and demand outlook not looking good from formulation player and the parent, how do you wish to achieve 50% to 60% utilization of additional capacity from Dahej?
Dr. Yasir Rawjee
So, see, currently we are literally up to our neck. We are running at 95% capacity utilization before this Dahej has come in. Now, I am confident on Dahej and that's what I said, in about a year's time, we will get to 50% to 60%, on utilization, because there is a large number of APIs that we filed out of Dahej that we know will become commercial within this one year. And that's why we are confident on that utilization. Now, with respect to the sort of reduced demand from group that is not a phenomenon that's going to play out from now on, right, we believe that it will come back. There is ano
Q
My question was related to your commentary, you mentioned that oncology products are coming in now. So, one, API is validated, three probably more in pipeline. So, wanted to understand the potential here, the revenue potential and timeline and if you could just give a little longer outlook for two, three years, what this project are going to contribute?
Dr. Yasir Rawjee
See on the oncology, we have got 7 APIs currently in development. Four of them, like we said, are ready to get into exhibit match mode. And our customers are ready to take the material and move on. As far as the longer-term outlook, the oncology portfolio is pretty rich, overall, in the small molecule space. So, we will continue to populate our portfolio with new oncology molecules. And we are pretty sure that this is going to be a good driver for the business overall. So, if you could just indicate the market size of products and products for molecules, which are under exhibit batches? I thin
Q
So, I was asking two questions. One, is that this other operating income, what does it consist of? And why has it bounced so much on YoY basis? And the second point was on Glenmark Pharma sales, that this decline is it any product specific decline or it’s across the portfolio? And I mean, why did you not have the kind of visibility of a decline or a blip say by the end of the 1st Quarter or in July, when the conference call was there?
Tushar Mistry
So, Vikas, as I had mentioned in my opening comments, we have been accruing for the PLI income, from 1st Quarter itself. So, that PLI income is a part of our Q1 and Q2 numbers, which was not there last year, that's why you see this bump in the other operating income part. So, to answer your question on the GPL sales, there have been a reduction in demand even on non-COVID side and it's not product specific. So, overall, there is a few products got moved around and see GPL has an option to buy from outside. So, it's not as if they would come to us always and buy from us. So, that also could hav
Q
I have a couple of questions, first one on the capital allocation policy. So, last year, I think when the company came out with the IPO, in the second quarter itself, company announced healthy dividend, while the same has not happened this year. So, just want to understand, what is the capital allocation policy for the company?
Tushar Mistry
So, you have seen that in last year, the dividend was almost Rs. 21 to a share that was distributed. In totality, we distributed about Rs. 250 crores of dividend last year. Current year as you see that, there are CAPEX programs which are going on, we have already given directions on what we are going to spend on CAPEX for the current year. Also, there is investment in the working capital as you saw in the first half. So, from that perspective, we are still positive and in the second half, we will be on track from a cash generation perspective. And we should continue to distribute dividends may
Q
So, my question was regarding what is our strategy as far as to reduce the parent contribution, because, as you will be knowing, the farmer business our parent has already received Form 483 for one of the units, that’s all I wanted to know, that our as far as product selection is concerned, so that our products grow in such a way that the external business grows, it lists the top line, as well as reduces the client concentration.
Dr. Yasir Rawjee
So, see as far as the portfolio buildup is concerned, our entire approach to a portfolio build up is for driving our business. Now, no doubt the group feedback on certain products, just like our other external customers give us feedback on product is pretty similar. So, even if we were to invest in R&D in APIs that the group company wanted, we would still have other customers, right. So, it's not going to change because our focus is completely driven by the value that that particular API will give us going forward. It's not driven at all, I mean, none, there's not a single decision in our port
Q
Just three questions, I have one can you just reiterate given that now Sholapur is going to be a little bit in a calibrated manner. So, how would the CAPEX intensity would look like for next two years, including the current year; maybe for next three years, I would say. And second question with regard to the margin trajectory, I mean, we have been bringing in more complex products in our portfolio. And we are also having the processes improvement, which is also likely to give you a little bit of a better cost structures. And the CDMO, were probably a fourth product or project is going to start
Dr. Yasir Rawjee
So, as far as CAPEX goes, I mean, we are we have three plants. So, we have got Dahej, we have got Ankleshwar, we have got four plants but we are not making investments in two of the smaller plants. So, Dahej Ankleshwar has got room to expand even today, and Sholapur is a Greenfield site. Now, considering that 75% of our business is a regulated market business, we have got to be clear that depending on how the volume growth is shaping up in the regulated markets, we may need to do a little more in the plants that have already been inspected, because then there is no lag time between our taking
Q
So, thanks everyone for joining. Thanks for joining and wish all of you very Happy Diwali. So, thanks again.
Management
Speaking time
Dr. Yasir Rawjee
30
Moderator
15
Tushar Mistry
10
Ashwini Agarwal
5
Nitin Agarwal
5
Neha Manpuria
3
Sajal Kapoor
3
Ranvir Singh
3
Jay Patel
3
Karan Vora
2
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Opening remarks
Soumi Rao
Good evening, everyone. I welcome you all to the Earnings Call of Glenmark Life Sciences Limited for the quarter ended September 30th, 2022. From Glenmark Life Sciences, today we have with us Dr. Yasir Rawjee – our MD & CEO and Mr. Tushar Mistry – our CFO. Our Board has approved the results for the quarter ended September 30th, 2022. And we have released the same to the stock exchanges, as well as updated it on our website. Please note that the recording and transcript of this call will be available on the website of the company. Now, I would like to draw your attention to the fact that some of the information shared as part of this call, especially information with respect to our plans and strategies may contain certain forward-looking statements that involve risks and uncertainties. These statements are based on current expectations, forecasts and assumptions that are subject to risks and uncertainties, which could cause actual outcomes and results to differ materially from these sta
Dr. Yasir Rawjee
Good evening and welcome to everyone. I hope everyone is doing well. So, before getting into the group’s performance, let’s talk a little bit about the trends the macroeconomic trends that are shaping our industry. So, geopolitically the uncertainties continue. There is an energy crisis in Europe, there is inflation across the globe. And then there are some risks to global growth as well, going forward, I am sure you have seen all that. Now with that as a backdrop, the geographies that where we are operating, have done pretty well. So, India, Japan, LATAM, continues to be on track compared to other markets. Europe is seeing a demand recovery, but at a slower pace. The good news is that the softness and demand has not impacted our business significantly, because of the mid volume and high value products that we have to offer. Now, on the supply chain side, there have been disruptions. And that has impacted us some, but fortunately, we built up inventories. So, we should be okay, going f
Tushar Mistry
Hello, and good evening, everyone. Welcome to our Q2 FY'23 Earnings Call. I am happy to update you on financial performance for the quarter. I would like to briefly touch upon the key financial highlights for the quarter ended 30th September 2022 and then we will open the floor for questions and answers. We registered a revenue from operations of Rs. 509 crores for Q2 FY'23, registering a sequential growth of 4%, and a degrowth of 9.3% on a corresponding quarter basis. Gross profit for the quarter was at Rs. 269 crores up 3.2% quarter-on-quarter and down 7.3% year-on-year. Gross margins for the quarter were at 52.9% with 120 basis points up compared to the same quarter last year. The gross margin expansion was mainly driven by a better product mix and PLI scheme incentives as well. Sequentially the margins trended in the similar range. As mentioned on previous calls as well, the margins in the business have remained stable, despite global uncertainties due to three factors: A) Continuo
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