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IOL Chemicals and Pharmaceuticals Ltd
Earnings Call Analysis
Summary
Q3-2024
The company is strategically working towards entering regulatory markets to diversify revenue and geographic presence. This move is focused on expanding product margins and seeking regulatory approvals for APIs (Active Pharmaceutical Ingredients), which is expected to benefit investors and shareholders by enhancing value.
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Ladies and gentlemen, good day, and welcome to the Q3 and 9 Months FY '24 Earnings Conference Call of IOL Chemicals and Pharmaceuticals Limited. From the management, we have Mr. Pardeep Khanna, Chief Financial Officer; Mr. Abhay Raj Singh, Senior VP and Company Secretary; and Mr. Rakesh Mahajan, Adviser, Finance and strategic. We also have an Investor Relations team from Adfactors. [Operator Instructions]. Please note that this conference is being recorded.
I now hand the conference over to Mr. Darshan Mankad from Adfactors PR for the opening remarks. Thank you, and over to you, sir.
Thank you, Darwin. Good afternoon, everyone. We welcome you to the third quarter and 9 months ended December 31, 2024 Earnings Call of IOL Chemicals and Pharmaceuticals Limited.
Before we begin the earnings call, I would like to mention that some of the statements made during today's call might be forward-looking in nature, and hence, it may involve risks and uncertainties including those related to the future financial and operating performance. Please bear with us if there is a call drop during the course of the conference call. We would ensure the call is reconnected the soonest. I will now hand over the call to Mr. Abhay Raj Singh Abhi for his opening remarks. We'll then open the forum for Q&A. Over to you, Abhay Sir.
Thank you, Darshan. Good afternoon, everyone. First of all, I would like to thank you very much all of you for joining the third quarter and 9 months ended 31st December 2023 earnings conference call of IOL Chemicals and Pharmaceuticals Limited.
As we connect for the first time in this new year 2024, let me wish all of you a healthy and prosperous 2024. Hope you all have gone through the results and the investor presentation available on the website of the company as well as exchanges.
Before we dive into the financial performance for this quarter, and open up the floor for the Q&A session, we would like to briefly touch upon the economic and industry outlook. According to latest IMF outlook, the global growth is projected at 3.1% in 2024, and 3.2% in 2025, whereas India is expected to be the fastest-growing economy globally and is projected to grow at 6% to 7% in 2024. This strong domestic demand, government is spending on building infrastructure capabilities and higher per capita consumption are major drivers behind the growth projections.
The pharmaceutical sector in India is currently undergoing a significant transformation with a strong emphasis on enhancing local value addition. The government policies aimed at promoting domestic productions of active pharmaceutical ingredients are expected to positively influence the sector's contribution to the global pharmaceutical supply chain. However, industry stakeholders are advocating for uniform tax implications throughout the value chain to further boost domestic manufacturing. We appreciate the government's ongoing commitment to promoting health care innovation, research and technologies as outlined in the recent [indiscernible] announcement.
We also anticipate that bringing the API segment on par with the [indiscernible] will definitely create a level playing field. On the profitability front, we have observed some margin contraction compared to the previous quarter, largely due to lower realizations. The specialty chemical -- [indiscernible] chemical sector as you must be aware, has not recovered as anticipated a couple of quarters ago. There are still signs of weakness in demand and certain volatility. However, on the positive front, the raw material prices are in control, which has helped the industry in lifting the margin contraction.
With China is still contributing majorly to global demand recovery, there is still a concern for higher price realization. During the last quarter, another impediment, we witnessed was the rise in the freight and insurance costs due to Red Sea crisis. With the crisis still on, we expect these costs to remain higher in Q4 as well.
With this, I would like to hand over the call to my colleague, Mr. Pardeep Khanna, who will brief you about our financial performance for the third quarter and 9 months ended 31st December 2023.
Thank you, Abhay. Good afternoon, everyone, and thank you for joining us today for [indiscernible] performance for the quarter and 9 months [indiscernible].
Sorry to interrupt, but you are not audible at the moment, sir. [indiscernible] please come a little closer to the mic [indiscernible] better, sir.
Good afternoon, everyone, and thank you for joining us today to discuss our performance for the third quarter and 9 months ending 31st December '23. I will take through financial highlights for the third quarter and 9 months of financial year 2024.
The total income of the company in the third quarter of financial year [indiscernible] stood at INR 529 crores [indiscernible] quarter of financial year '23 and [indiscernible] in the previous quarter ended September '23.
EBITDA for the quarter was [indiscernible]. With the margin for the quarter margin improved by 60 basis points to 10% [indiscernible] corresponding quarter of financial year '23 and [indiscernible] quarter end of September 2023. The net profit in the third quarter of financial year [indiscernible] in the corresponding quarter of the last year, and INR 38 crores in the previous quarter ended September '23.
With easing of input costs on year-to-year basis, EBIT margin for the pharmaceutical [indiscernible] while other margin for the Specialty Chemicals payment-wise, [indiscernible] in quarter 3.
CapEx for the quarter was [indiscernible] INR 75 crores in the corresponding quarter of financial year '23 and INR 82 crores in the previous quarter ended September '23. The [indiscernible] for quarter 3 grew 27% to INR 180 crores as compared to [indiscernible] in the corresponding end of the last year. [indiscernible] for the 9-month period grew [ 17% ] [indiscernible] as compared to INR 431 crores in the corresponding period of last year.
With this, we open the floor for a question-and-answer session. Thank you very much.
[Operator Instructions] The first question is from the line of [indiscernible].
Sir, my question is, are we seeing any further decline in input cost and improvement in margins ahead in FY '25.
Good afternoon. I think the prices of both input and [indiscernible] prices are now curtailed. And we don't hope any further reduction in the input prices, it's already bottom out.
Okay. Got it, sir. And sir, what will be the EBIT margin trajectory for API segment in FY '25?
It will be improved because we are expecting some regulatory approvals and an increase in our export portion. So -- we hope it will improve from the present level.
Okay, sir. And sir, what are the CapEx plans for the next year and how it will be funded?
Usually, we incurred around INR 150 crores to INR 200 crores every year. And from last 6, 7 years, it is all from [indiscernible].
And on upcoming CapEx, it will be from [indiscernible] primarily.
Okay, sir. So for FY '25, the CapEx would be around INR 100 crores to INR 150 crores?
No, it's around INR 150 crores to INR 200 crores.
INR 150 crores to INR 200 crores. Okay, got it. That's helpful. I'll be back in the queue.
The next question is from the line of Vivek [indiscernible] from JR Investments.
What kind of increase in revenue potential are we expecting from Losartan, which recently got PEP certificate in European market? And do we have plans to sell this product this quarter itself?
We have got the [indiscernible]. But -- as of now, we have not set up any dedicated [indiscernible] being produced in the multi-project facility of our company. And as per [indiscernible] are producing when the demand and the validation of customers -- and customers then upcoming 2 to 3 quarters, then we think about to set up a dedicated or increase the capacity of Losartan.
Okay. And just a follow-up with the Specialty Chemicals segment, [indiscernible] substantially to your top line and very marginally to your bottom line? Apart from backward integrated chemicals for API, how do you see this business go ahead?
First of all, the major portion of revenue in chemicals from [indiscernible], which is not actively consumed. It is totally for [indiscernible] sale and other chemical like isobutyl benzene, acetic anhydride, [indiscernible] they continued around 80% to 90% to our actively consumption. And we are not focusing on the revenue of these [indiscernible]. But these are mostly dependent on most for the self-reliance of our production activities.
Okay. And just last one. We are seeing sharp reduction in gross margin on a Q-o-Q basis. Could you give some color on that, please?
On the prices, the major cause of reduction in revenue and bottom line is primarily due to the reduction [indiscernible], especially of paracetamol. And we think if the prices of paracetamol now is maybe bottom out and still although the prices of -- input prices are also decreased in that ratio also. So we hope that it will be bottomed. And now all of these products will likely to improve from the next quarter.
The next question is from the line of Neelam Punjabi from Perpetuity Ventures.
Sir, my first question is on the other API business. the revenues have been [indiscernible] this quarter. And we had initially guided for the full year, delivering INR 500 crores of revenue. So are we sticking to this guidance because this would imply INR 165 crores of revenue in the fourth quarter. So if you can just give some comments around that.
No, no. Neelam, you are absolutely right that initially, we guided for achieving around INR 500 crores from [indiscernible]. And perhaps we could have achieved the same or maybe a little more than that. But you see there is a substantial fall into the prices of our non-Ibu products majorly in the paracetamol. We are not sure for now that we will be clocking the [ 500 ]and more than that, but we will be achieving something around [ 440 to 450 ] for sure.
Although the quantity of these products are growing, but the major affected factor is price realization.
Understood. So sir, if you can just give some guidance to us as to how are you seeing this business in the next couple of years. You mentioned that you believe that the prices have now bottomed out. So going forward, what's the kind of growth that we can see in our non-Ibuprofen API business?
So the company is targeting as a whole, it is price growth or top line growth of 10% to 12% annually. And as [indiscernible] we are already on the capacity utilization [indiscernible] and we hope that it will maintain our upcoming in this quarter and next quarter? And maybe when the demand comes, we may increase to 95%.
And we are also in connection with this [indiscernible] are also hoping for increase in revenue in our Ibu segment, although this quarter and little part of last quarter was affected due to price erosion. And we are targeting for around 25% of revenue for non-Ibu segment in upcoming 1 to 2 years.
So 25% revenue growth you're talking about, non-Ibuprofen APIs?
As of now, within the norm, if we talk about the , it is around 21%. So as you rightly said that initially, we said that [indiscernible] at around 25% for 2 years, this guidance was for the 2 to 3 years. So we are literally hopeful for achieving the same. Considering -- receiving the CEP, so our export sale must probably be coming into the next quarter or by the third quarter -- that's first to second quarter of the next financial year. So we are confident of achieving the sale.
Okay. Got it. So for exports of our non-Ibuprofen APIs, you're seeing that next financial year, even first and second quarter, we start ramping up our exports business, right?
[indiscernible] we have started adjusting, but there's still the validation of various customers are undergoing. And we hope that will be the [indiscernible] has already started and that we hope that within 2, 3 quarters, we will start getting orders from them.
And once the exports business starts ramping up, are we anticipating some good increase in our gross margins? And if you can just guide us to what kind of levels our gross margin can head towards this increase in export contribution?
There is some increase in prices in net stabilization, and we started exporting [indiscernible] countries in the other countries, [indiscernible] much timing to say. And there will be the difference depending on the product to product. In some products, gaining little bit margin, but some of the product, it is maybe more than 20%, 25% also. So we hope that the gross margin will increase, when we stabilize our [indiscernible] non-Ibu segment.
Okay. And for Ibuprofen, this quarter, capacity utilization was 85%. Is that what you mentioned?
No. Basically, this is on account of the D&P last month, globally, the overseas markets remain slow in the buying side because of the holidays. So that is the main reason, having a little bit lower side of this capacity utilized. But this quarter and the first quarter of the next financial year, usually the Ibu quantity sale is better than the third quarter.
Got it. Okay. And sir, next on the chemicals business. So given we had commercialized our acetic anhydride plant, however, that has not translated into any meaningful top line contribution yet. So if you can just comment around that what's the reason behind it. It hasn't contributed anything to the top line this quarter?
Yes. As you know that we have started around 2 quarters back. But after capital convention, we sell in the market. But in the biggest market for acetic anhydride is agrochemicals. And then agrochemical already on the downside, you must know that the performance of all agrochemical companies are effective from China and we are [indiscernible] you can say, good numbers. So that may be some reason that it may not contribute now, but we are already seeing various customers and approaching various agrochemical and pharmaceutical companies. And we hope that it will be [indiscernible] next 2 to 3 quarters.
And it will be reflected in the top line also.
Understood. Okay. If you can just comment around what was the price realization for ibuprofen, paracetamol and metformin? That will be helpful.
The price realization of paracetamol is drastically down from last -- comparing with the last quarter of FY '23, it is down by 35% to 40%. Although the prices of [indiscernible] have also come down. And as regard to the ibuprofen, it is around $10.
Okay kind of, got it. Okay. And is this $10 similar across our exports and domestic business [indiscernible].
[indiscernible] to the company.
The next question is from the line of Vikas Sharda from NTAsset Management.
Most of the questions have been answered. I just have 1 question that last year in the March quarter, you had a big bump in the margin. So what's the one-off? Or is it a quarterly phenomenon for you?
In March, the demand of the [indiscernible] also increased -- and in chemical, we have got some good numbers in chemicals because of some operational efficiencies and with some good orders from the customers. So we iterative hope that in this [indiscernible] as we have talked in quarter, maybe [indiscernible].
Understand. And just on the previous quarter to this quarter, the decline in the gross margins, you said is mainly because of the other APIs.
Other APIs [indiscernible] to price utilization of [indiscernible].
Understand. Perfect. And what's your expectation of improving the realization there? Or what period will it happen?
The paracetamol [indiscernible] coming clear to the prices at peak [indiscernible], demand is still there, but the prices are drastically down from last year price by 35% to 40%. Although the prices are now, we think that it is a stabilized now and bottom on [indiscernible]. The demand is still there, [indiscernible] maybe the viability for many may not remain there because we are [indiscernible] integrated for paracetamol, maybe have hedged from other competitors. And hope so the price will be increased.
And out of this INR 450 crores or so of other API sales that you're targeting this year, how much of that is paracetamol?
Around you can say- it is not more than 10% as of now.
Not more than 10%.
The next question is from the line of [indiscernible] an Individual Investor.
Sir, my question is regarding, sir, some data I got from Internet regarding export. [indiscernible] year-on-year export and 9.7% growth in quarter-on-quarter. I just want to confirm, it is -- whether it's right or wrong?
Which product?
Overall export data, it is increased by 26.8% year-on-year, 9.7% quarter-on-quarter.
[indiscernible] export growth for which product?
All product. [indiscernible]
I have not seen the number matters. So I have [indiscernible] that export has been increased as a country as a whole, but I could not comment on it as of now. I don't know the [indiscernible].
My next question is regarding the -- what kind of margin we are expecting -- what kind of revenue and margin you are expanding in the next quarter because last March was super. And this March, and in terms of revenue also, management used to guide to [indiscernible], but I don't see even 5% increment in the revenue because for that, we need INR 700 crores of revenue, and I don't think it is possible. But it is possible for a 1.5% growth which we have achieved last year in FY '23 [indiscernible] is it possible in last quarter?
As of -- keeping the current market scenario and geographical uncertainty, that number will not be achievable for this quarter.
And what kind of EBITDA margin you are expecting from next quarter? And [indiscernible] already for Q4 -- already 1 month and 8 days been over, what kind of improvement you are seeing in terms of EBITDA [indiscernible]?
We understand that we are a little bit improvement [indiscernible] comment on the earlier number, but it will be a little bit improved, we expect that from the last quarter.
Okay, sir. Sir, my next question is [indiscernible] it is coming with the better integration of [indiscernible] it is around already [indiscernible] will be commenced by this year end. How it is going to affect [indiscernible]? And are we going for DCB plant?
No. We are already in the manufacturing of [indiscernible] and all existing capacity totally the equity integrated with 100% [indiscernible] in-house, we are not buying from anything. And like [indiscernible], as of now, all are buying from the China, including [indiscernible] is just -- we understand that they are starting with the private client. And their commercialization production will come in FY '26 for [indiscernible].
Okay. Sir, what is the rate in crisis. Do we see any impact of [indiscernible] on our exports?
[indiscernible] crisis going on, I think?
[indiscernible] our delivery time is also increased by [indiscernible] our export has not with the [indiscernible] but all the industry is facing such problems and even insurance cost and [indiscernible].
So how the shipping costs are being decided [indiscernible] we are passing [indiscernible]
Already contacted [indiscernible] by company. But for upcoming contracts, we are negotiating with our customers for passing on these cost return.
The next question is from the line of Deep [indiscernible] from [indiscernible] Equity Research.
Yes, sir. My follow-up question is, can you, sir, can you tell us the margins of exports and domestic business separately?
[indiscernible] discussed it will depend on the product -- and it depends upon the market also, we sell [indiscernible] some of the project may be [indiscernible] market compared to domestic or on a regulatory market.
Generally, the price utilization is better than domestic by 10% to 20%.
Okay. Got it. Sir, as you mentioned that there are 8 products in the pipeline to be launched. So sir, I wanted to know that when these products will get launched and how much revenue we can expect from the very first year?
We will not launch all the products in 1 year or 2 years, it will take [indiscernible] longer time to set up these plants. And the first, we started with only multiproduct facility, then when we get the good demand then we [indiscernible]. So as of now, we can't comment on revenue from these pipeline products.
The next question is from the line of [indiscernible] Trading.
[indiscernible]. So what is the plan on the paracetamol [indiscernible] expansion you were supposed to update us this quarter?
You're asking paracetamol capacity enhancement?
Yes, yes, yes. Capacity expansion.
So I think we have not given any announcement regarding this. So we will be updating all the stakeholders in an appropriate time. Yes, the management always keeps on consideration -- considering the market responses. But we will announce you or update you regarding this at an appropriate time.
As the reason why I'm asking is because since the last 2 quarters, you have been saying that -- and we have like running on 90% next capacity utilization. Also, we are the fourth leader. Thirdly, sir, we have a huge runway for growth in [indiscernible] itself and also you are back-integrated. So I'm just trying to understand what are the challenges you are facing [indiscernible] and you also have the same customer base for [indiscernible] as well as paracetamol. So where exactly the social challenges that is why it's taking so long that.
You are very much correct, Mr. Hemant what you are saying all the strategic thing, and the management is also considering all the things in the same direction you were talking about. But what I'm saying that because we have not decided anything on it so far, -- and this is -- unless it is decided, we are not able to communicate this. So what I'm saying that we will be communicating in an appropriate time.
The next question is from the line of [indiscernible] an Individual Investor.
Sir, [indiscernible] the opportunity again. I just need to ask 1 simple question. What was the intention behind opening and closing of IOL U.K. Limited subsidiary.
So we were...
I mean at the time when we were thinking for opening of the U.K. company, we were thinking to do some business from that company. But because now U.K. is [indiscernible] destination -- this is also not in the EU. So we are thinking something else, and we will let you know at an appropriate time with the different decisions.
This is the last question. What kind of capacity expansion we can expect from the upcoming quarters?
Capacity expansion of what?
Any products we are [indiscernible] product in pipeline.
No, no, we are thinking for -- we'll continue to do the enhancement for various products. But as no decision has been taken so far. So anything, if I say, will be the forward-looking statement and [indiscernible] doesn't allow us to say anything, which is forward-looking statement. But we are exploring [indiscernible] strategy, we keep on evaluating various options and also depending on the market situation as well, so once we decide, we will let you know.
The next question is from the line of Vivek [indiscernible] from JR Investments.
[indiscernible] around revenue in FY '24 from [indiscernible]
The line for you is not clear.
Sorry. I was asking are we on track to achieve around [indiscernible].
So actually, initially, we were targeting about INR 500 crores revenue from non-ibu products this year. But considering the current market situation, it looks tough. We will not be able to perhaps clock the INR 500 crores revenue from non-ibu, but surely, we will be able to drop something around INR 450 crores something near about [indiscernible] .
[Operator Instructions]. The next question is from the line of [indiscernible] Shah, an individual investor.
So my first question is -- could you just give us some breakup of price and volume growth for the current quarter for API as well as the Specialty Chemicals segment.
[indiscernible], the price and volume growth for the quarter and the breakup between API and Specialty Chemical segment.
Thank you for the question. But [indiscernible] has been decreased during this quarter, not increase. There is no growth in prices of APIs. Little bit prices of chemicals, especially [indiscernible] has been [indiscernible] 1% increase. But the prices of APIs are not growing in the -- growth in the last quarter.
But my question is in spite of API segment, they're [indiscernible] higher margin, but the segment in general has [indiscernible] especially on YoY and Q1 to basis [indiscernible] any particular reason in spite of higher margin we are [indiscernible].
It is only the price that decrease in [indiscernible] in the input prices. That is the main reason for degrowing the [indiscernible] segment, and which we hope that it is already bottomed out now. And also, it will be started increasing from in the next 2 quarters.
[Operator Instructions] Ladies and gentlemen, we have no further questions. I would now like to hand the conference over to Mr. Rakesh Mahajan for closing comments. Over to you.
Thank you, everyone, for joining us today and discussing our third quarter and 9 months ended 31st December 2023 performance. The company continues its strategic focus to diversify revenue and geographical base. We are on an intended [indiscernible] of entering regulatory markets. So some of our APIs are -- which we have [indiscernible] the approval from the regulatory regulators. As discussed, this would help us in expanding the margin and [indiscernible] for investors and shareholders like.
Thank you very much again for attending this call. Have a nice day.
Thank you. On behalf of IOL Chemicals and Pharmaceuticals Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.