Hester Biosciences Ltd

NSE:HESTERBIO

Earnings Call Analysis

Hester Biosciences Reports Strong Growth and Optimistic Future Prospects

In Q2 FY '25, Hester Biosciences saw a 27% increase in divisional product sales year-over-year, driven by strong demand in its Animal Healthcare division, which grew 20% in the first half. New product introductions in pain relief and a focus on the dairy sector bolstered sales. The Poultry Healthcare division also maintained steady growth. The company expects to continue expanding its product portfolio, particularly in the Petcare division, viewed as a future revenue driver, aiming to launch its first pet vaccine within a year. The overall outlook remains positive with a focus on operational efficiency and cash flow improvement.

Steady Growth Amid Challenges

In the second quarter of FY '25, Hester Biosciences showcased its resilience by achieving a 27% increase in divisional products sales compared to the previous year. The growth was evident across all divisions, particularly in Animal Healthcare and Poultry Healthcare. The company continues to implement an expansion strategy in its product portfolio while enhancing operational efficiency, which has allowed it to navigate a challenging market landscape effectively.

Positive Performance in Animal Healthcare

The Animal Healthcare division experienced a 4% growth in Q2, resulting in a 20% rise for the first half of FY '25. This growth was driven by strong demand within the dairy sector due to increased consumption of milk and related products. Introduction of new products, particularly pain relief solutions for cattle, contributed positively to sales. Looking ahead, Hester is optimistic about further growth as it aims to meet the evolving needs of the dairy market while capitalizing on government tender requirements.

Strong Gains in Poultry Healthcare

Hester's Poultry Healthcare division delivered remarkable results, with a staggering 20% growth in Q2 and 27% in the first half of the fiscal year. The division's success was fueled by a remarkable 59% increase in exports of poultry vaccines, highlighting robust demand both locally and internationally. The introduction of new disinfecting products has further bolstered the health products segment, aligning with the rising global demand for poultry products.

Emerging Opportunities in Petcare

The Petcare division also marked its territory by registering a 12% growth in Q2 and a commendable 20% growth for the first half of FY '25. The launch of 'Diet Fortify', a prescription-based pet food aimed at lifestyle-related pet issues, has received positive responses. The management believes the pet healthcare market holds substantial potential for future expansion, with plans for introducing at least one pet vaccine in the coming year to further strengthen this division.

Financial Health and Margins

Hester's financial performance reflects its strategic focus, with gross profit margins remaining stable and a 6% improvement in margins for the first half of FY '25. Increased product sales have facilitated a 4% rise in EBITDA margins, while net profit after tax (PAT) surged by 38%, indicating enhanced operational efficiency. The steady rise in profitability metrics underscores the company’s commitment to high-margin products.

Strong International Performance

Subsidiaries also contributed positively to the fiscal performance, with Hester Nepal achieving a noteworthy revenue of INR 2.13 crores, showing growth from the previous year. Moreover, Hester Africa also registered impressive growth, with revenue rising significantly from INR 1.96 crores to INR 9.2 crores in Q2. The overall downtrend in losses and improvements in EBITDA reflect the subsidiaries' positive trajectory.

Future Focus and Management Outlook

Looking ahead, Hester aims to introduce new products to enhance its diverse portfolio and improve operational efficiencies across all divisions. The management remains optimistic about maintaining an upward trajectory in both top line revenue and bottom line earnings while further strengthening its cash flow. The commitment to expanding the Petcare division and maintaining its foothold in Animal Healthcare and Poultry Healthcare signifies Hester's strategic vision for sustainable growth.

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Hester Biosciences Q2 H1 FY '25 Earnings Conference Call, hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Ms. Priya Gandhi from ICICI Securities Limited. Thank you, and over to you, ma'am.

[Unknown Executive]

Nisha, you can start.

[Unknown Analyst]

Yes. Thank you, Palla. Good afternoon, everyone. On behalf of ICICI Securities, I welcome you all on Q2 FY '25 Earnings Conference Call of Hester Biosciences. And I thank the Hester Biosciences management team for giving us this opportunity to host this call.

Today on this call, we have with us Mr. Rajiv Gandhi, CEO and Managing Director; Ms. Priya Gandhi, Executive Director; Mr. Nikhil Jhanwar, CFO.

I will now hand over the call to the Hester management team for their opening remarks. Thank you. Over to you, sir.

[Priya Gandhi, executive]

Yes. Thank you. Good afternoon, everyone. This is Priya Gandhi, Executive Director at Hester Biosciences. And thank you for joining us today as we present our performance for the second quarter and the first half of FY '25.

Building on the foundation set in Q1, we continued to achieve a steady growth in Q2 across all divisions. Our strategy of expanding our product portfolio and focusing on operational efficiency has delivered promising results despite a challenging market environment in certain areas.

On a consolidated basis, divisional products sales have increased by 27% for the first half of FY '25 compared to the last year. We are seeing good traction across both domestic and international markets, with contributions from our core division, which is Animal Healthcare, Poultry Healthcare, as well as Petcare.

If you see our revenue from operations in the press form that got circulated a while ago, you will see a flat performance in the first half, which is purely because of the onetime sales which have happened in Q1 last year. So that's the reason you see that. But however, our divisional product sales and divisional-wise performance have gone up on a stand-alone as well as the consolidated basis in Q2 and H1.

Talking of the Animal Healthcare division. In Q2 FY '25, our Animal Healthcare division registered a 4% growth, bringing H1 FY '25 growth to 20%. This growth was largely driven by sustained demand in the dairy sector with higher consumption of milk and milk products fueling our sales.

Our mineral supplements intramammary products have maintained the momentum that it has gained in Q1. Additionally, we have also introduced new products in the category of pain relief solutions, one of the line extensions of one of our key brands, called ProtinC, for cattle, has also contributed positively to the sales in this division in the last quarter.

Looking ahead, we are optimistic about the continuing growth in the dairy sector, and we will keep expanding our offerings to meet the evolving needs of this market. We remain focused on capitalizing on both trade demand as well as government tender requirements, particularly with our goat pox and PPR vaccines, which continue to support the national immunization program.

Coming to the Poultry Healthcare division. Our Poultry Healthcare division delivered a strong 20% growth in Q2 and 27% for the first half of the year. Vaccine sales continued to perform well, strengthened by a 59% increase in exports of poultry vaccines.

To further improve disease control measures in poultry farms, we've introduced a disinfecting during the quarter, which has also contributed to the growth of the health products segment within the poultry division. With increasing global demand for poultry products and our consistent effort, we are confident in maintaining this growth trajectory.

Coming to our Petcare division. Petcare division has been a key focus area for us as we cater to the growing market of pet owners, making science-backed driven products. In Q2 FY '25, the Petcare division achieved a 12% growth and 20% in H1 FY '25.

One of our key launches this quarter was Diet Fortify, which is a prescription-based pet food diet, which is aimed at addressing the lifestyle-related issues in pets. This product is already receiving positive feedback, and we are seeing encouraging growth from veterinary prescriptions.

Coming to our financial performance. We are pleased to report that gross profit margins remained broadly consistent in Q2 FY '25. Overall, for the first half of the year, our GP margins improved by 6%, primarily due to having the right product mix.

Increased revenue from product sales have also allowed for better absorption of fixed costs, which have led to 4% improvement in the EBITDA margin. Our overall PAT saw a significant increase of 38%, with PAT ratio improving by 3%, reflecting our improved operational efficiency and focus on high-margin products.

Coming to our subsidiaries, our international subsidiaries have also continued to perform well and contribute to the consolidated results. Hester Nepal has achieved a turnover of INR 2.13 crores in Q2, showing growth from Q2 FY '24. Export orders and domestic vaccine needs have been fulfilled, leading to an improved cash flow. Hester Nepal is now also debt-free.

Speaking of Hester Africa, Hester Africa has also registered an impressive growth with a top line of INR 9.2 crores in Q2, compared to INR 1.96 crores in the corresponding quarter. While we continue to work reducing our losses, the overall trend is positive with the EBITDA showing a substantial improvement.

Looking forward, our focus for the upcoming quarters will remain on introducing new products to further diversify our portfolio, increase operational efficiency, and driving growth across all 3 divisions. We are committed to strengthening our position as a holistic animal health company providing innovative solutions for the well-being of animals.

Thank you for your continued support and confidence in Hester. We look forward to the exciting opportunities ahead and remain dedicated to delivering sustainable growth and value to all our stakeholders. We now welcome your questions and look forward to the discussion.

[Operator]

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]

[Rajiv Gandhi, executive]

This is Rajiv Gandhi here, CEO, Managing Director. I think, as there are no questions, I would just like to make a few comments. One is that I think the explanation given would have been well so that that would have taken out all the queries from everybody: point number one.

Point number two is that we are on an upward trajectory in terms of top line and bottom line. We are very clear on our focus on the bottom line. The next upcoming focus areas are to further strengthen the Animal Healthcare division and also to improve our company's cash flow overall.

One comment which I would like to make on the Petcare division is that we see this division as a very promising upcoming division. This is going to be the future big division within our organization. And if you see worldwide, the pet business of all the big companies, animal health companies worldwide, is more than what it is of the animal healthcare or the poultry healthcare division. Of course, it would take a little time in India for it to reach those levels. But we definitely see the pet division as a star division in days to come.

In terms of Poultry Healthcare, we have been growing steadily, and we are trying to maintain the growth rate. And now our focus in the Animal Healthcare and Poultry, besides vaccines, it would also be healthcare products. We started in 1997 as a vaccine company and we continue to be more known as a vaccine company. But over the period of time we have evolved ourselves from vaccines to health products. And this is something which we are going to continue in a very strong manner.

Of course, it does not dilute our focus on vaccines. We have a few vaccines in the pipeline. In the R&D, a few technologies that we have acquired from the Indian Veterinary Research Institute and other government institutes. So that pursuit goes on. But this is in addition that we will push the health products segment as well.

And last but not the least, on the pet side, we do not have any vaccines. It is our endeavor that in a year's time, we launch at least 1 pet vaccine. And so that that division also opens its account with the vaccine, which actually we have started our business.

That's all from my side. Thank you for being patient listeners.

[Operator]

[Operator Instructions]

[Priya Gandhi, executive]

So I think with this, we can end the call for today. And we thank everyone for joining and for everyone's continued support for us. Thank you.

[Operator]

Thank you. On behalf of ICICI Securities, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.