IOLCPNSEQ2 FY2319 November 2022

IOL Chemicals and Pharmaceuticals Limited

8,267words
150turns
16analyst exchanges
0executives
Key numbers — 40 extracted
4%
d States, the Central Bank, the Federal Reserve last week approved a fourth straight rate hike to 4%, the highest Fed rate since the 2008 crisis. Hong Kong and Norway have followed the suit raising
4.25%
since the 2008 crisis. Hong Kong and Norway have followed the suit raising the benchmark rates to 4.25% and 2.5%, respectively. This was followed by the Bank of England raising interest rate to 3%, the
2.5%
08 crisis. Hong Kong and Norway have followed the suit raising the benchmark rates to 4.25% and 2.5%, respectively. This was followed by the Bank of England raising interest rate to 3%, the biggest
3%
o 4.25% and 2.5%, respectively. This was followed by the Bank of England raising interest rate to 3%, the biggest rate rise in 3 decades. With Central Bank still chasing inflation, the global growth
3.2%
l growth outlook has weakened with the International Monetary Fund forecasting global growth at 3.2% in 2022 and 2.7% in 2023, down from 6% in 2021 in its latest global economic outlook.
2.7%
k has weakened with the International Monetary Fund forecasting global growth at 3.2% in 2022 and 2.7% in 2023, down from 6% in 2021 in its latest global economic outlook. Apart from infla
6%
International Monetary Fund forecasting global growth at 3.2% in 2022 and 2.7% in 2023, down from 6% in 2021 in its latest global economic outlook. Apart from inflation, the global trade
rs,
ust export inquiries. We believe that this situation is likely to persist over the next few quarters, as Indian players vie for the Chinese share. For the pharmaceutical segment, we continue to de- r
Rs. 546 crore
l year 2023. The total income of the company in the second quarter of financial year '23 stood at Rs. 546 crore as against Rs. 540 crore in the corresponding quarter of financial year '22 and Rs. 570 crore in
Rs. 540 crore
come of the company in the second quarter of financial year '23 stood at Rs. 546 crore as against Rs. 540 crore in the corresponding quarter of financial year '22 and Rs. 570 crore in the previous quarter ende
Rs. 570 crore
at Rs. 546 crore as against Rs. 540 crore in the corresponding quarter of financial year '22 and Rs. 570 crore in the previous quarter ended June 2022. EBITDA for the quarter was Rs. 37 crore as against Rs. 5
Rs. 37 crore
al year '22 and Rs. 570 crore in the previous quarter ended June 2022. EBITDA for the quarter was Rs. 37 crore as against Rs. 54 crore in the corresponding quarter of financial year '22 and Rs. 61 crore in
Guidance — 20 items
Dr. Sanjay Chaturvedi
opening
“By the time the capacities are up and running, we expect the headwinds to subside and therefore give us an edge in terms of operational efficiency and higher margins with increased production.”
Dr. Sanjay Chaturvedi
opening
“Pardeep Khanna, our CFO, who will be sharing financials in detail.”
Dr. Sanjay Chaturvedi
qa
“But on an average, it is reasonable to expect that your EBITDA margins will be maybe in the 6% to 8% range.”
Dr. Sanjay Chaturvedi
qa
“Yes, with our asset utilization going up, we expect these margins to go up as well.”
Venkat
qa
“And how would the growth numbers look sir, from next quarter, next year?”
Venkat
qa
“Earlier, we used to give a 15% growth projection actually.”
Dr. Sanjay Chaturvedi
qa
“This year, we are going to show some muted growth in the single digits, but next year going forward, in the next financial year, we are very confident of double-digit growth in terms of value, not just volume.”
Shaikh Mohammad Ayaz
qa
“Sir, what margins we can expect from the next 2 quarters?”
Dr. Sanjay Chaturvedi
qa
“I think it is reasonable to say that in the next 2 quarters, we will be back into the double-digit margins as far as EBITDA numbers are concerned.”
Shaikh Mohammad Ayaz
qa
“And from the last 2 quarters, you are telling that we will be back to double-digit margins.”
Advertisement
Risks & concerns — 7 flagged
These global challenges have led to broader and sharper-than-expected slowdown alleviating the cost of living crisis as the IMF puts it.
— Dr. Sanjay Chaturvedi
For the pharmaceutical segment, we continue to de- risk and reduce the Ibuprofen business and increase the share of the non-ibuprofen API business and other intermediates.
— Dr. Sanjay Chaturvedi
The challenge for me is not inventory management.
— Dr. Sanjay Chaturvedi
The challenge for me is managing the price at which I sell the end product and the price at which I buy the raw material because that is done a few months in advance.
— Dr. Sanjay Chaturvedi
The challenge with the other things that I am talking about is it's very hard to put a dollar matrix and see what the ROI on Capex will be or what the ROI on R&D will be.
— Dr. Sanjay Chaturvedi
So, the challenge for not only for us but anyone building API business from the ground up is, first you build the manufacturing plant and your first objective is to run that plant to as high asset utilization as possible.
— Dr. Sanjay Chaturvedi
As we discuss, the Indian economy is emerging as a green shoot amidst slowdown globally.
— Dr. Sanjay Chaturvedi
Q&A — 16 exchanges
Q
Sir, for the last several quarters, our margins have been coming down. What is the challenge? Are we not able to pass on the price or what kind of challenges are we facing? Now that the raw material prices also have come down and freight prices have come down substantially, is there some problem in product mix? Or what kind of challenges are we facing if you can throw some light? And also, if you look at the sales numbers also, they are somewhere around Rs. 550 crore. It looks like there is some scalability issue also we are facing.
Dr. Sanjay Chaturvedi
There are 2 questions you have asked. One is on the profitability as it relates to raw materials and the second has got to do with scalability. Let me talk about the second point first. On scalability, there is no issue. If you look at our business, we have 2 divisions - on the chemical side and the pharmaceuticals side. The chemicals business is capped in terms of volume because the capacity expansion that we are doing hasn't come on stream yet. So, the revenue that we get on the chemicals side depends entirely on the price of our key product that, i.e., ethyl acetate. If you look at the pric
Q
Sir, my question is regarding the expansion that we have planned. By when the capacity would be upstream and how much revenue are we going to generate from that capacity expansion?
Dr. Sanjay Chaturvedi
The current capacity expansion that we are doing in our existing site is roughly around 20,000 tonnes a year. And depending on what the price of ethyl acetate would be, if the price of ethyl acetate is Rs. 100 a kilo, that would add Rs. 200 crore, and if it is Rs. 80 a kilo, it would add about Rs. 160 crore. Actually, my question was regarding the expansion which you had planned in the West side of India. That exercise is still ongoing. We have contracted some credible partners to identify the site for us. And I think it would take maybe Q4 before we are able to conclude what we are going to d
Q
Sir, what margins we can expect from the next 2 quarters? EBITDA margins?
Dr. Sanjay Chaturvedi
I think it is reasonable to say that in the next 2 quarters, we will be back into the double-digit margins as far as EBITDA numbers are concerned. Sir, you told that most of the companies’ EBITDA margins have been reduced. But if you see Neuland Laboratories, Granules, Gujarat Themis, and even Solara has reduced their loss. Last quarter, they have made a sequential loss, but now they have reduced their loss. But while comparing to that, we have shown a de-growth in terms of EBITDA margins. I understand it is because of the chemical division only, but due to the reduced cost of raw material and
Q
For this quarter, what is your capacity utilization in Ibuprofen and Isobutylbenzene?
Dr. Sanjay Chaturvedi
I can tell you about the ibuprofen. My current asset utilization is about 75% or so - between 75% and 80%. And in the next few quarters, I will take that to about 85%. And you are adding additional capacities on the chemicals front. When can we expect that to come online? That should come online by the end of this financial year. We will see accruals from that business in the Q1 of next financial year.
Q
I got only one question, sir. In the last call’s closing comments, you had told that IOL has come out with a strong set of numbers and these will only improve here on. This is almost in the middle of the last quarter after 40 days. Now the results have come; EBITDA is 40% down, margins are down 4%, and PAT is down 55%. How should we believe, sir, going forward, what you are guiding, it will be done when? Middle of the quarter, you know your business better. After 40 days have gone in a quarter, you don't have visibility of another 40 days also, how should we believe the management? That's what
Dr. Sanjay Chaturvedi
I understand. It's a valid concern. And I would say, “Look at our business as a deconvolution of 2 different segments. One is on the chemicals side and the other is on the pharmaceuticals side.” Most of the dip in performance has been on accord of actually the chemicals front. That's a business where not only did I lose profitability, I actually went into a loss for the quarter because on account of a huge inventory of the raw material at a much higher price. That has since been corrected. And also the energy costs have gone up since the last quarter. My pharmaceutical business is still delive
Q
Just a couple of questions I have on our imports. What percentage of total consumption is from imports? And what percentage of imports is there from China and the percentage of imports excluding DCDA because any which way we are dependent on DCDA on China?
Dr. Sanjay Chaturvedi
If I look at the chemicals side, roughly 70% is imports. If I look at the pharmaceuticals side and if I take out DCDA, then I would say, maybe between 15% to 20% would be total imports, not including the DCDA. Any dependence on particular suppliers? No. For every product that we import, we have multiple suppliers. Total import percentage of business, including pharma and chemicals, both? Maybe around 40% or so. So, we are 40% dependent on imports? Yes.
Q
My question is regarding ethyl acetate. The prices which were there in quarter 2 and how are they moving now? And also for the acetic acid, how are they in quarter 2 and how are you seeing it in the current scenario?
Dr. Sanjay Chaturvedi
The prices of ethyl acetate in Q2 versus Q3 have been fairly flat. And the prices of acetic acid have shown a marginal dip, but the real change happened between Q1 and Q2 and not between Q2 and Q3. How are you seeing the demand scenario? Because there was some con-call, they said that China is dumping a lot of ethyl acetate in Europe, and that's why the demand is going down. How are you seeing the demand in India currently? I'll break down the demand into 2 geographies. One is domestic and the other is outside India. In the domestic demand, there is not much disruption. We don't have too much
Q
Sir, you mentioned in the first participant's question about high-cost inventory in our chemicals business. Is it possible for you to quantify what percentage of margin we would have lost in that business because of the high-cost inventory?
Dr. Sanjay Chaturvedi
No, that would be unfair for me to give you an exact number of how much margin I would have gained if I did not have that inventory because that is a hypothetical question. Or if maybe on an average basis, if our inventory would have remained at the same level as last year, then how much inventory or how much margin would we have made? It's not just the inventory issue, it is the pricing of that inventory, really, and what is the relationship of the raw material inventory versus the finished product pricing in the market. The challenge for me is not inventory management. The challenge for me i
Q
I have a few questions on ibuprofen. I wanted to know your market share in terms of capacity and in value terms for ibuprofen.
Dr. Sanjay Chaturvedi
I can give you the market share in capacity terms. We have roughly one-third of world market share. That gives us roughly about 33% or so of capacity and market share. Because we are also backward integrated, we are supplying some of these intermediates to some other ibuprofen manufacturers. If I add that in, I think it would be fair to say that through a combination of API and intermediates, we command maybe upwards of 50% market share. Sir, what would be your monthly run rate for ibuprofen currently? Our monthly run rate is, we are running at about 80% of capacity. So, roughly around 800 ton
Q
My first question is, the acetic acid raw material inventory which is corrected right now, for the current month or for the current quarter, our inventory which is on the higher side of what price or is it already the corrected value we have got now?
Dr. Sanjay Chaturvedi
On the high-value inventory that we had for our chemicals business is exhausted, and we are in line to have the right volume of inventory and be profitable in the chemicals business, not only for Q3 but also for Q4. And another one is, as you said the Capex of the 20,000 tonnes a year for ethyl acetate, may I know when it will be completed? Excuse me please if you have already answered it. The Capex for ethyl acetate, the plant should be up and running by the end of this financial year. And finally, the last one, sir. What is the overall revenue growth you are expecting for this financial year
Q
Sir, there is some energy issue in Europe, and our biggest competitor has closed 1 plant which is in Germany while he is running it in Texas. Are we seeing any dynamics in paracetamol where it has reached like $15 or something or the media information is wrong?
Dr. Sanjay Chaturvedi
Your information is right. The difference is that the competition that you are talking about, they do not make ibuprofen in Europe. The ibuprofen is actually made in the US. A plant closure in Europe does not impact that. None of the APIs that we are actually manufacturing has any influence on power issues in Europe. Is my understanding right? Not directly but indirectly they do because the power cost has gone up in India as well. If you look at Q1 versus Q2 margins for all pure-play API players and all API manufacturers require a significant amount of power, what you will see is that margins
Q
You said the ibuprofen capacity utilization is around 75% to 80%. What is the peak capacity utilization you can reach?
Dr. Sanjay Chaturvedi
In principle, we can reach a peak of about 95% or so. Can you give your shares in regulated markets and emerging markets? No. At this point, I can't give you my shares, but what I would like you to understand is the nature of this business is evolving and changing very rapidly. A lot of customers in India are buying regulatory grade products that they are converting into formulations and then exporting into regulated markets. In other words, what I am trying to tell you is even what is called as a domestic sale for me, not all of it is going into the Indian market as formulations. Some of it i
Q
My question is on the patent which has been granted for the sitagliptin process from the Indian patent office. I just wanted some more detail on it? And will we be able to get some share from other domestic players from this patent? How is it going to benefit us?
Dr. Sanjay Chaturvedi
It will benefit us because it's a novel process and a greener process. It will translate into a cost advantage. The cost advantage should translate into higher market share when we launch the product. When are we planning to launch the product? This is still under development and validation. So, I think it would be a few quarters out. You said that our current bottleneck is selling and percolating in regulated markets. How are we planning to do that? Are we very aggressive in filing or how is management pursuing that? It's a slow and steady aggression rather than going all out. And what I mean
Q
Sir, my question is on the intersegment line item. We were about Rs. 25 crores to Rs. 30 crores in FY21, which is now about Rs. 115 crores in H1. What exactly is this line item? And if you could explain how we should look at the trajectory going ahead?
Dr. Sanjay Chaturvedi
The internal line item is related to isobutylbenzene, monochloroacetic acid, and acetyl chloride. This is the business where we make on the chemicals side and then do a transfer pricing to our pharma business. This should be around Rs. 200 crores every year or does it also depend on the pricing? Yes, I think it depends on the pricing. It depends on the volume, but it will be in the Rs. 150 crores plus/minus every year. Sir, just on the REACH certificate. Congratulations to you for getting the certificate. What kind of spends are we making per annum on this REACH certificates for getting approv
Q
Sir, can you take me through your chemicals business? How you have been through to the business till now and what you expect from a long-term horizon point of view, let's say, 3 to 4 years?
Dr. Sanjay Chaturvedi
In the last 3 to 4 years, I would say that my capacity - I am again focused on the primary product which is ethyl acetate that dominates my chemicals business - I do about 100,000 tonnes. If the price of ethyl acetate is Rs. 100, I'll have a Rs. 1,000 crores business. If it is Rs. 80, I’II have Rs. 800 crores top line. That is the range in which the chemicals business will operate. And what I am doing now is I just expanded that capacity by about 20%. So, next financial year, you should expect a 20% higher number in the top line from that business. And what EBITDA margins you expect from here?
Q
Thank you all very much for joining us today and listening to us on the second day of our quarter results season. As we discuss, the Indian economy is emerging as a green shoot amidst slowdown globally. However, the domestic pharma and specialty chemicals have their own challenges. And the companies in both these segments have their own armor to fight these battles. Here at IOLCP, we are dependent on de-risking our business. We are adding more and more APIs to our portfolio and backward integration to really increase market share and build a robust and sustainable growth trajectory. With this,
Management
Advertisement
Speaking time
Dr. Sanjay Chaturvedi
66
Moderator
18
Anupam Agarwal
18
Venkat
14
Niharika
9
Mahesh Vyas
6
Bezad Deboo
5
Shaikh Mohammad Ayaz
3
Gautam Gosar
3
Chaitanya Chinmayi
3
Opening remarks
Dr. Sanjay Chaturvedi
Good afternoon everyone. We welcome you to our Q2 and H1 financial year '23 earnings call. I trust you have all gone through our financials and the investor presentation that is available on exchanges as well as on our website. I would like to share some insights on the global economic growth and the Indian market before we dwell into your company's performance for the second quarter. Then, my colleague, Mr. Pardeep Khanna, our CFO, will take you through our financials, post which we will open up the forum for a Q&A session. The global economy is going through a rollercoaster ride as the Central Banks battle inflation through rate hikes. Though the commodity prices have softened in the last few months, the developed markets are still facing very high inflation and thereby prompting Central Banks to take very stringent steps. In the United States, the Central Bank, the Federal Reserve last week approved a fourth straight rate hike to 4%, the highest Fed rate since the 2008 crisis. Hong
Pardeep Khanna
Good afternoon everyone and thank you for joining us today to discuss our performance for the second quarter ended 30th September 2022. I will take you through the financial highlights for the second quarter and first half of the financial year 2023. The total income of the company in the second quarter of financial year '23 stood at Rs. 546 crore as against Rs. 540 crore in the corresponding quarter of financial year '22 and Rs. 570 crore in the previous quarter ended June 2022. EBITDA for the quarter was Rs. 37 crore as against Rs. 54 crore in the corresponding quarter of financial year '22 and Rs. 61 crore in quarter 1 of financial year '23. EBITDA margin for the quarter was 6.7% as against 10.7% in the previous quarter. Net profit in the second quarter was Rs. 15.70 crore as against Rs. 31 crore in the corresponding quarter of the last year and Rs. 35 crore in the quarter 1 of financial year '23. With this, we open the forum for a question-answer session.
Advertisement
← All transcriptsIOLCP stock page →