GLANDNSEQ2FY23November 02, 2022

Gland Pharma Limited

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113turns

12analyst exchanges

3executives

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Management on call

Srinivas Sadu

MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER

Ravi Shekhar Mitra

CHIEF FINANCIAL OFFICER

Sumanta Bajpayee

VICE PRESIDENT, CORPORATE FINANCE & INVESTOR RELATIONS

Key numbers — 40 extracted

rs,

our Earnings Call for the second quarter of Fiscal 2023. My festive wishes to all our shareholders, analysts and their families. Last quarter saw heightened economic uncertainty globally. After a to

Rs.10,444 million

ur teams across all our sites for any regulatory audit. We closed this Q2 FY'23 with a revenue of Rs.10,444 million as against Rs.10,805 million in Q2 FY'22 and our PAT stood at Rs.2,412 million for the quarter ag

Rs.10,805 million

for any regulatory audit. We closed this Q2 FY'23 with a revenue of Rs.10,444 million as against Rs.10,805 million in Q2 FY'22 and our PAT stood at Rs.2,412 million for the quarter against Rs.3,021 million in Q2

Rs.2,412 million

with a revenue of Rs.10,444 million as against Rs.10,805 million in Q2 FY'22 and our PAT stood at Rs.2,412 million for the quarter against Rs.3,021 million in Q2 FY'22. We have generated Rs.627 million of cash fl

Rs.3,021 million

ainst Rs.10,805 million in Q2 FY'22 and our PAT stood at Rs.2,412 million for the quarter against Rs.3,021 million in Q2 FY'22. We have generated Rs.627 million of cash flow from operations in Q2 FY'23. The del

Rs.627 million

stood at Rs.2,412 million for the quarter against Rs.3,021 million in Q2 FY'22. We have generated Rs.627 million of cash flow from operations in Q2 FY'23. The delay in material supplies impacted volumes for cer

3.8%

xt year. During Q2 FY'23, upon excluding capital R&D expenditure, the R&D expenditure stands at 3.8% of our revenue for the period in line with our historical trend. As on 30th September 2022, we al

21%

summarize our performance across various geographies: Our Rest Of the World markets accounted for 21% of our Q2 FY'23 revenue similar to the contribution in Q2 FY'22. The material supply timelines ha

72%

LATAM and APAC. Our core markets namely US, Canada, Europe and Australia accounted for 72% of our revenue during Q2 FY'23 as against 67% during Q2 FY'22. We continue to focus on building

67%

mely US, Canada, Europe and Australia accounted for 72% of our revenue during Q2 FY'23 as against 67% during Q2 FY'22. We continue to focus on building a niche portfolio in our core markets. Although

of a launch pipeline that will ensure sustainable growth in the market. India market accounts for 7% of Q2 FY'23 revenue, We have restarted Insulin dispatches during the second half of the quarter.

23. Revenue from operations for the second quarter FY'23 stood at Rs.10,444 million, reduction of 3% on year-on-year basis. We have seen revenues from core markets and RoW markets has come back to n

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Guidance — 20 items

Sumanta Bajpayee

opening

“The transcript of the call will be submitted to the stock exchanges and will be uploaded in our website.”

Srinivas Sadu

opening

“This expansion is aimed at strengthening existing customer relationships, forming new partnerships in target markets to drive growth, while aligning our internal product pipeline strategy with our customers feedback and also help us in mitigating some of the supply chain disruptions in the future.”

Srinivas Sadu

opening

“It should help us increase our pace of China filings as well over the next year.”

Srinivas Sadu

opening

“On the geographic growth, China remains a key geographic focus and we expect to start receiving approvals during the current year.”

Srinivas Sadu

opening

“On the portfolio front, we expect another two complex filings during the current fiscal and have completed installation of manufacturing lines for suspensions and hormones.”

Srinivas Sadu

opening

“We signed up for fill finished clinical batch project and are discussing on the DS project commercials as well.”

Ravi Shekhar Mitra

opening

“With normalization of inventory of certain critical items, we expect freight to come down with more sea shipments going forward.”

Ravi Shekhar Mitra

opening

“As on September 2022, we had total of Rs.38,200 million of cash and bank balances, which we intend to utilize for the CAPEX plan and to fund our inorganic growth strategies.”

Srinivas Sadu

“There is a plan to launch 11 product SKUs next quarter as well.”

Ravi Shekhar Mitra

“But this time also based on the discussion we were having with the several customers on our Drug Substance project, we have taken a one- time inventory write-off of about Rs.7- 8 crores in our biologic CDMO facility basis of the feedback we got and what would be required going for the different contracts we're working on.”

Risks & concerns — 14 flagged

So, could you give us some color on what's the pricing pressure that we are seeing there and how should we look at growth in this business as we go forward?

— Neha Manpuria

From the pricing pressure perspective, if we look at our gross margin level still they are intact.

— Srinivas Sadu

Most of it, we have airlifted last few quarters, and that is putting pressure on our margins and also the ability to compete.

— Srinivas Sadu

So, unless that stabilizes, and we evaluate the market, difficult to comment.

— Srinivas Sadu

So, still I think there's an impact of the supplies just contributed to this.

— Srinivas Sadu

So, is that related to competitive pressure?

— Dheeresh

Is that because of US pricing pressure because if you see absolute revenue in terms of what we did like Rs.750 crores in regulated markets, Rs.230 crores in rest of the world which is similar year-over-year, but there is still some compression, is it because of lower profit share you've had this quarter or is it to do with some markets having more competitive pricing pressure?

— Dheeresh

So, we don't give a guidance because still the market is volatile.

— Srinivas Sadu

But moving forward, while we're focusing on growth and filing products and launching products, being the market is so volatile and the supplies are not yet 100% in line with our plan, it's very difficult to estimate the near term growth and difficult to comment on future growth or business guidance for short tenure.

— Srinivas Sadu

And of course, the concern which you raise and came out is at shareholder level.

— Ravi Shekhar Mitra

So, difficult to comment from our standpoint.

— Ravi Shekhar Mitra

It was a bit volatile and you mentioned some of the reasons.

— Saion Mukherjee

This high inventory we explained earlier also, because of the volatile situation, we would like to have the inventory in hand.

— Ravi Shekhar Mitra

Is there a risk of prolonged price erosion due to pricing competition just like we have been seeing in generic or Oral solid dosage over the past few years?

— Anand Venugopal

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Q&A — 12 exchanges

My first question is on the US numbers that we have reported in this quarter. It seems that overall the sales were pretty much flat. You mentioned in your opening remarks that we have seen competition in some of the recent launches. So, could you give us some color on what's the pricing pressure that we are seeing there and how should we look at growth in this business as we go forward?

Srinivas Sadu

Good evening, Neha. If you compare to last year, I think it remains flat, I mean, we also need to consider in last year there were sales which are COVID-related, that's kind of gone down. From the pricing pressure perspective, if we look at our gross margin level still they are intact. So, I think the EBITDA margin impact is most on the cost side, which has impacted the bottom line. So, from a growth perspective, we have launched seven product SKUs last quarter. There is a plan to launch 11 product SKUs next quarter as well. I think it's depending on the size of the molecules, which quarter ge

What is the profit share number for the quarter?

Ravi Shekhar Mitra

7%. For the quarter, revenue from new launches? About 3%. On India sales, I think last quarter… I don't remember correctly, but I was under the impression that you had guided for a Rs.100 crores run rate. It is slightly lower. Any particular reason? On India business, I think a few factors like I said, the import costs have not helped us, so the margins are pretty low, so we're not able to compete in the domestic market, it's a combination of the dollar going up, adding up to the cost for us, and also the importing costs have gone up. That's one reason. The other is the insulin line which cont

Just a couple of points I wanted to check from our discussion in the previous Q1 concall. If my memory is right, if my notes are right, then you had mentioned that for the balance nine months, that you would grow 18% to 20% on a top line. This quarter, you're more or less flat, up 3%. Second, I think you'd guided on the margins as well, that you would maintain Q1 operating margin, which was 31.5% and you have come this quarter at 28.5%, so down 300 basis points. So, if you can just clarify on these two fronts?

Srinivas Sadu

One is on the estimated revenues what we thought for the large oncology didn't happen because of the competition. Second, as I mentioned to the previous question, some disruption of a couple of our manufacturing lines because of the supply issues. So, that didn't help grow the business. From a margin perspective, like Mr. Ravi said, they're like one-off items, which has impacted the margin about close to 1% on write-off of one-time materials and also the M&A cost, that's totally about 1.5% to 1.8%. If you add that it will be like close to 30% or 30.5%. I mean the numbers still don't total up,

Can you give your outlook on the margin? I think last quarter, you spoke about some 31%, 32% margin excluding other income. So, is that intact, even you explain partly this quarter, margin has been impacted due to one-offs, or even that that needs to be downgraded?

Srinivas Sadu

If you remove the other income, it's around 28.5% EBITDA. And if you add the one-time expenses of whether the write-off of materials, it should come down to 30.5%, close to 31%. So, like we have guided should be around in that range, at least on a quarter-on-quarter basis. But if there's any change, we let you know. And on the supply disruptions particularly for stoppers, has your visibility improved, I mean, you're confident of things coming by November, December end or that has deteriorated further or any uncertainty still there? The two things we are doing, right, not just stoppers, but oth

The first question is largely relating to more of a clarification. In your presentation, you have talked about things are getting normalized specially for RoW and qualification of alternate suppliers are in the process. So, it is going to take one, two more quarters to normalize or we are done with it and from next quarter we will start seeing the growth on RoW?

Srinivas Sadu

RoW now has come back to normalcy in terms of at least prefilled syringe products. Now, it's more to do with the costs we have been incurring on that and our ability to compete in the market, so it should come back now. In terms of supplies, we don't have an issue, we also have alternate suppliers for that and we have already started supplying with alternates. So, these are qualified alternate suppliers, which is other than BD, is what should we understand like that or because in the last call it will take a couple of quarters to get qualifications, so are we done that qualification yet? Yes,

I have a book-keeping question. Can you guys tell us what is the expense attributed to the CDMO business on the OPEX side, it would include the staff, R&D batch, etc., very specifically if you could just tell us for this quarter only for the non-revenue generating CDMO business?

Ravi Shekhar Mitra

At EBITDA level, it's Rs.15 crores for the quarter without including the depreciation. If you would add the depreciation also, Ravi, is it possible to quantify that? Depreciation is another Rs.6- 7 crores for the quarter. You've spoken somewhere in the call and shared in the presentation also that you're closer to commercial negotiation. So, I am assuming everything has been charged to P&L as of now including the write-offs which you earlier spoke about. I'm not asking for a date or for the contract tenure, etc., Is it fair to assume that in calendar year '23, your revenue stream may start, as

I just wanted to have your comments on yesterday's Moody's downgrade. How should we think about this entire scenario given the lineup of assets which, of course, we didn't intend to offload, how does that impact the vertical generally and are there any thoughts on India business as well?

Ravi Shekhar Mitra

To start with the issues which you mentioned is at Fosun International level, our promoter is Fosun Pharma, which is again a listed company. There is no balance sheet linkage or any dependency with them today. We have business relationship with Fosun Pharma like, for example, we sell to their subsidiary in US in other area. Last year, we did about Rs.170- 180 crores, this half year we did about Rs.100 crores. And purchase is also from some of the subsidiaries in China, which is about again last year of Rs.100 crores. So, I think other than that there is no impact in business per-se. And of cou

You mentioned profit share of 7%. What is the number for the first half and also for FY'22?

Srinivas Sadu

For six months FY'22 is 8% and even FY'23 it's a same range, 8%. The service income has been very high last FY'22. Has that come off in the first half compared to what it was in the previous year? Milestone revenue is almost same, 7% last year, in fact, this year is 8%. Next question I have is on China. How many products you have filed? You mentioned I think you will be stepping up your filings. If you can give a sense of how large these products are, any unique opportunities in terms of being driven in the first place, etc., any color, and how should we think about ramping up of this revenue

Just a few clarifications from my side. Could you explain with the number of launches for this year or next year in the US market?

Srinivas Sadu

In the first six months, we have launched about 20 SKU in the US and next two quarters we have about 25 SKU launches planned. For FY'24 and FY'25, any visibility? So, this quarter, we have about nine SKU launches happening and next quarter is about 16 SKU launches. I was looking for FY'24 guidance. For FY'24, I don't have it on hand, but normally it's between 25 and 30 launches. The next one is on the inventory level quite high. So, do you see them remaining at current levels or should we build a more normalize or it might go on a downward trend in the coming quarters? If you see from March le

If you could describe the state of the US injectable industry at the moment. Is there a risk of prolonged price erosion due to pricing competition just like we have been seeing in generic or Oral solid dosage over the past few years?

Srinivas Sadu

The competition is intense for sure. So, all the new launches, we kind of cutting down on the forecast, especially with last few quarters. But otherwise, if you see our from our pipeline perspective, our margins are intact, I mean, I've been saying, our gross margins are still at around 52%, historically, that's been the case. But whatever new launches were happening, earlier, it used to be higher in the first year, it was like 65%, 70% and even some products, it used to be like 75%, 80%, and then it used to settle down around 40%, 50% after three years. So, that scenario, we're not seeing fro

I just had one follow up question on growth going forward. Beside the near-term volatility, could you give us some sense of whether this is still structurally 20%-plus growth business that we have seen in the past or do you think given where we are in terms of base, it will be slightly lower than that, some sense on that would be helpful?

Srinivas Sadu

Yes, from growth levels perspective, there are a lot of opportunities out still there, right. I mean, whether if you look at long-acting injectable space, the ophthalmic suspension space, pen auto injector space where we have invested recently, we are investing into bags now in a big way. And also from Geography perspective, just entering some of these markets, we never grown earlier. So, the opportunities are there, it's just that I would say the consolidation phase we are going through, we also need to streamline the supply, thinking from long term perspective having several alternative sour

Thank you, everyone for joining us today. We appreciate your participation during the call. If any questions still remain unanswered, please reach out to me or our investor relations team. Thanks, again. We would like to reconnect again in our next earnings call. Good night.

Management

Speaking time

Srinivas Sadu

Moderator

Ravi Shekhar Mitra

Dheeresh

Prakash Agarwal

Neha Manpuria

Saion Mukherjee

Tarun Shetty

Kartik Mehta

Rakesh Naidu

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Opening remarks

Sumanta Bajpayee

Thank you, Faizan. Good evening, and warm welcome to Gland Pharma's Earning Conference Call for Second Quarter of Financial Year '23. I have with me Mr. Srinivas Sadu – M.D. and CEO; Mr. Ravi Shekhar Mitra -- CFO to discuss business performance and to answer queries during the call. We will begin the call with business highlights and overview by Mr. Sadu, followed by financial overview by Mr. Mitra. After opening remarks from the management, operator will open the bridge for Q&A session. Before we proceed with the call, please note, some of the statements made in today's discussion may be forward-looking and based on management estimates. And this must be viewed in conjunction with the risks and uncertainties involved in our business. The Safe Harbor language contain in our press release also pertains to this conference call. This call is being recorded and the playback of the call shall be made available in our website shortly after the call. The transcript of the call will be submitt

Srinivas Sadu

Thank you, Sumanta. Good evening, everyone. Thank you for joining our Earnings Call for the second quarter of Fiscal 2023. My festive wishes to all our shareholders, analysts and their families. Last quarter saw heightened economic uncertainty globally. After a tough start to the year, while we continue to see some supply chain disruptions, and long lead times for several processing and primary materials, we saw improvement in supplies in the second half of this quarter, and have much better visibility on our key material supplies. Our efforts on easing the supply chain by qualifying additional vendors and additional lines for manufacturing are also starting to show results. Commercial production of Insulin restarted during the second half of the quarter. I'm pleased to announce that our new offices at USA and Singapore are now operational. This expansion is aimed at strengthening existing customer relationships, forming new partnerships in target markets to drive growth, while alignin

Ravi Shekhar Mitra

Thank you Mr. Sadu. Good evening, everyone. Thank you very much for attending our second quarter earnings call. Our earnings presentation has been submitted to the stock exchanges and is also available on our website. Let me begin with sharing the financial performance of second quarter and first half of financial year '22-23. Revenue from operations for the second quarter FY'23 stood at Rs.10,444 million, reduction of 3% on year-on-year basis. We have seen revenues from core markets and RoW markets has come back to normalcy and is in line with second quarter of previous year. We have witnessed 22% increase in revenue as compared to previous quarter. Revenue from operations for the first six months of fiscal '23 stood at Rs.19,013 million, a year- on-year decrease of 15% due to various reasons impacting first quarter of current fiscal year. Other income for the second quarter was Rs.656 million, which includes interest and fixed deposit of Rs.468 million and foreign exchange gains on o

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