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Marksans Pharma Ltd
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Ladies and gentlemen, good day, and welcome to Marksans Pharma Q2 FY '25 Conference Call hosted by Elara Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kashish Thakur from Elara Security India Private Limited. Thank you, and over to you, sir.
Thank you, Aditya. Good evening, everyone. A very warm welcome to Marksans Pharma Q2 FY '25 Earnings Call hosted by Elara Elara Securities India Private Limited. On the call today, we are representing ms Pharma Management; Mr. Mark Saldanha, Founder Chairman and Managing Director; Mr. Jitendra Sharma, Chief Financial Officer. Before I hand over the call to the management, please note the disclaimer. So again, statements made by the management in today's call may be forward-looking statements.
These forward-looking statements reflect management's best judgment and analysis as of today. The actual results may differ materially from the current expectations based on number of factors affecting the business. I will now hand over the call to Mark sir to meet the opening comments, and then we will open the floor for questions. Thank you, and over to you, sir.
Thank you. Welcome, everyone, and thank you for joining us in our Q2 H1 FY '25 Earnings Conference Call. We appreciate your continuous interest and support for the company. I'm delighted to share that we have another strong quarter marked by a broad-based growth across all our markets. Our revenue grew by 20.8% year-on-year in the Q2 FY '25, led by a very strong performance in the U.S., followed by Australia and New Zealand. The U.S. market grew and remains our strategic focus for growth. U.K. and Europe witnessed a relatively soft quarter due to seasonality, and we expect to bounce back in the second half on the onset of the winter season.
Australia, New Zealand business also came in very strong this quarter with an improved growth trajectory. The continued focus on our product mix has enabled us to deliver a significant expansion in our gross margin and also achieved an all-time high quarterly EBITDA of INR 135.7 crores. The manufacturing facility acquired from Teva Pharma is ramping up well and maintains on track to scale up operations. We expect this facility to supplement our growth further in the coming quarters. Our strategy of expanding our present business, new product launches and enhancing supply from our new facility will help us to achieve our next milestone, which we've always maintained at INR 3,000 crores in revenue within the next 2 years. With this, I'd like to turn it over to Jitendra to update on our financials.
Thank you, sir. For Q2 FY '25, our operating revenue stood at INR 641.9 crores, an increase of 20.8% year-on-year compared with INR 531.2 crores in the same quarter last year.
Revenue from the U.S. and North America market stood at INR 304.2 crores, an increase of 36.8% on a year-on-year basis, driven by new product launches and increased market share. U.K. and EU formulary business grew by 5.7% year-on-year to INR 246.7 crores. We witnessed mixed demand trends in this category. Australia and New Zealand market recorded revenue of INR 63.6 crores, up by 31.3% year-on-year. The rest of the world recorded revenue of INR 27.5 crores in Q2 of FY '25. Gross profit was at INR 383.5 crores, up 37.7% year-on-year. Gross margin expanded by 732 basis points from 52.4% to 59.7% in Q2 of FY '25. This was driven by a better product mix and continued softness in raw material prices. We recorded an all time high EBITDA of INR 135.7 crores in Q2 of FY '25, an increase of 19.1% year-on-year. The EBITDA margin for the quarter stood at 21.1%, primarily due to addition of new employees at the Teva facility and increase in the freight costs. Profit after tax was at INR 97.8 crores compared to INR 83.9 crores in Q2 of FY '24, an increase of 15.6% year-on-year.
EPS for the quarter was INR 2.1. R&D expense for Q2 came in at INR 10.7 crores. That is 1.7% of the consolidated revenue. Now talking about half yearly performance, in H1 of FY '25, our operating dividend stood at INR 1,232.5 crores, an increase of 19.5% compared with INR 131.3 crores in the same period last year. The U.S. and North America market recorded revenue of INR 555 crores, up 33.5% year-on-year basis and contributing 45% of the total revenue. The U.K. and EU market grew by 8.5% year-on-year to INR 498.1 crores, contributing 40.4% to the development. Australia and New Zealand market recorded revenue of INR 129.2 crores, an increase of 20.7% on a year-on-year basis. The rest of the world recorded revenue of INR 50.2 crores. Contribution from these 2 markets stood at 10.5% and 4.1%, respectively. Gross profit was at INR 712.4 crores, up 33% year-on-year. Gross margin increased by 584 basis points from 52% to 57.8% in H1 of FY '25. EBITDA for the period was at INR 264.1 crores, an increase of 22.3% year-on-year. EBITDA margin stood at 21.4%, an improvement of 49 basis points over H1 of FY '24. Profit after tax was at INR 186.8 crores compared to INR 154.3 crores in H1 of FY '24, a growth of 21.1%.
EPS for the H1 of FY '25 was INR 4.1. In H1 of FY '25, the cash from operations came in at INR [ 77.1 ] crores. The CapEx investments during the period were INR 76 crores, which is in line with our plan to scale up the acquired facility from Teva Pharma. We spent INR 22.7 crores in R&D in H1, which amounted to 1.8% of the sales. We continue to remain debt free and cash balance stood at INR 657 crores as of 30th September 2024. With this, I would like to open the floor for questions and answers. Thank you very much.
[Operator Instructions]
Our first question is from the line of Ishita Jain from Ashika Group.
Congratulations on a good quarter. My first question is, so in this quarter, what is the revenue share from the Teva facility and the capacity utilization on it?
So we have presently -- our capacity utilization is around 40%.
Okay. And the revenue share this quarter from Teva.
Approximately INR 100 crores.
Yes, approximately [indiscernible].
My second question, can you...
our current run rate is we are ranging around INR 440 crores. I mean our current run rate is about INR 440 crores a year.
Understood. And -- so my second question is, can you give some color on which were the new product launches in the U.S., which contributed in part for the growth in the top line from the U.S. geography?
Well, it's in all 3 segments that we are in to pay in coffee coal and digestive. So from that angle, we have quite a few products that have contributed. And this, again, constitutes mainly from market share that we have taken a bit of market share, more market penetration and a few product launches that happened during that time.
Do you want to highlight any product or any specific therapy area?
Yes. That's what I said, right? The therapy is in pain in digested. You can put these 2 as a category areas.
Got it. Understood. And given how our gross margin is also inching up, could you comment on how the product mix is changing? I mean is there any meaningful change in Rx versus OTC split or any other way that the product mix is changing?
No. Right now, it is it is pretty trending as to what we historically were doing. So there is no product -- I mean, there is no mix change per se. But obviously, the gross margin has gone up because of a bit of a transition from a high cost material to now loading of raw material pricing, which has upgraded a bit of a contributing factor to improve our gross margin right now.
Got it. And raw material prices are at similar levels even in quarter 3 of current quarter? Or is there a trend altering?
No, I think it is flattening, but it has obviously improved from historic highs. There's no 2 ways about it. And so when we were -- when we had -- like I said, it's a transition and when you have a raw material because we hold the inventory at a higher cost and then you have a mix of low cost material coming into play. That's a bit of the transition that helped in the gross margin.
[Operator Instructions]
Our next question is from the line of [indiscernible] from Ari Investments.
Congratulations on the great number. I wanted to know if there's any stability with the freight prices?
So it has improved. We have seen some dramatic improvement in the last, you could say, 30-odd days or maybe -- yes, 30-odd days -- sorry, our days, that probably in the last month [indiscernible]. So we have we have seen a softening and it has improved from what we saw in the last quarter.
Okay. Like, could you give any ballpark go? Because I think last quarter, it was roughly around $6,000.
Yes, it was around $6,000, $6,500 now we are seeing our prices as low as $3,700, $3,600.
All right. And do we expect it to go any lower since I think an average to be around $2,000 back like roughly 3, 4 months back.
Well, we always hope for the best, and we hope that it [indiscernible]...
And any update with any of the merger and acquisition?
No. Presently, nothing on the table right now.
Our next question is from the line of [indiscernible], an Individual Investor.
Sir, as we observed in the revenues from the U.S. has been increasing a lot. Did we have any extra focus on the U.S. over the U.K.?
Well, the focus is on both geographies, but we expected our order book status was strong in the U.S., and that's what we are executing. And the U.K., basically the Q2 is always a softer quarter because it's somehow out there. So it's a very seasonal trend that normally happens. It normally picks up in the third quarter and fourth quarter onwards. So we do expect U.K. to be there. But from a growth point of view, U.S. will be the growth drivers followed by U.K., tonally potential market for us.
And can you give me an outlook for the FY '25.
This is the FY '25 -- you're talking about the...
Q3, Q4..
The Q3 -- we expect a stronger quarter than what we have done now because, obviously, we do believe U.K. numbers will be a little better.
Our next question is from the line of Adit Tapal from SK Capital Partners.
Great set of results, congratulations to the team. Just wanted to ask again what would be the stages of investing in new capacity because Teva Pharma cap out at INR 800-odd crores.
Sorry, did you say INR 300-odd crores?
INR 800 crores.
Yes. Yes. So obviously, then we have to look at expansion in terms of either new facilities or new blocks or new CapEx. So -- but we do believe that we will -- we are looking at touching INR 800-plus crores, you are right and that -- and then we are working on a next step of projects in terms of capacity enhancement or greenfield or M&A.
So because we have [ 650 ]-odd net cash sitting on the balance sheet and for the last few quarters, we are not I would say, last few years, we are not getting any new targets as well, even though we are putting our best efforts. So I was just thinking that if we could start investing in capacities in India, would that make sense?
Believe me, we have tried. It's not as easy. You don't every day come across [ Teva ]. So obviously, some of the facilities available, the valuations are crazy. So we try to shy away from those deals. And we always look for value accretive M&As where we believe that because we know that we need to invest a lot after acquiring like we did for Teva. So we try to get it at the price that we wanted to. So we are looking at it. We likely said what's next beyond Teva and that is very well on our minds and our team is working on that.
Perfect. Another question was our gross margin expanded quite well this quarter, both quarter-on-quarter as well as year-on-year. If you were to do -- if you were to attribute the increase, how much would have come from our efforts of getting a raw materials contract manufactured and how much would be raw materials because of raw materials of them?
So basically, I would say, 99.9% is raw material softening. I don't expect these numbers to the gross margin to sustain. This is just a concession of what you will see out there. But definitely, we should be around 53% to 55% gross margin level.
Perfect. If I can squeeze one more. I wanted to know more on the Europe and U.K. definitely has become a very large segment for us. And we have become the top 5 player and trying to become the top 3. And we are also launching new products in U.K. this year. If you can give some commentary on U.K. for the next 2-odd quarters?
So I can't -- so basically, I can give you a much longer outlook than quarter outlook because there's always a seasonality effect in U.K. But I do believe in the next coming years, U.K. will grow. And we have a business model to see for the next 5 years to ensure that U.K. achieved new milestones. So it is a very important part of our business model. It is a very important geography in our company. So we do see that being up very instrumental role moving forward. But again, the market size, we have promising it's not like U.S., but we will be among the top -- we're hoping that we should be among the top 3 companies out there in the U.K. within the next 2 to 3 years.
Our next question is from the line of Kashish Thakur.
Sir, 2 questions from my end. Just wanted to understand the market scenario in Australia and New Zealand. So how long is the tender we get in the region, first. And second is like how big is the OTC market over there? What are the growth opportunities? And are we looking what are we planning to execute over there?
That is the first question. Second question is the R&D spend. So what will be our R&D spend for FY '25 and '26 going ahead? And how will we bifurcated in our division? So can you just help us out will be very helpful.
Yes. So Australian market is a bit conservative market. In terms of the OTC portfolio, we can literally double our revenue from where we are over time. It's not going to happen overnight or in 1, 2 years. We always like to believe that it has -- it will get us to [ $100 ] million mark, eventually, but we have to work through that. This year, we are -- we are hoping to be close to AUD 42 million, and we are working towards that once we cross a first milestone of $50 million. Our business model, business strategy is there to see it grow. In terms of R&D spend, we are spending slightly below 2% right now. And I would see it being stable at 2% around.
And it is not for one geography. It is for all our geographies that we are catering to, mainly the U.S., Europe, U.K. and Australia. So these are the geographies where most of our R&D spend is going on right now. In U.K., we are definitely investing a lot in terms of R&D because we are looking at a huge amount of filings and revenue potential with new product launches happening.
Our next question is from the line of [indiscernible] from Manya Finance.
My question was regarding the U.S. market. After the change of government and with all the nose of Trump coming, how do you see the business -- I mean do you see any potential risks or any particular changes which we need to do as a company to mitigate it?
See, Ritesh, honestly, I don't have a crystal ball. If I had a crystal ball, I would not define who the next president will be in the U.S. But nevertheless, it is difficult to know what stands the next coming takes the next president takes. And whatever policies and changes they too will have literally an advantage or an impact for everyone. It's -- I don't think even U.S. companies or U.S. factories will be insulated from tariffs or anything of that store will basically all be passed on to the consumer, I guess. So -- but again, we can only speculate because like I said, I don't have a crystal ball as to what they are planning next. But we all hope for the best. And we will take calls or we will strategize only once we have a bit of more understanding and clarity on that.
[Operator Instructions]
Our next question is from the line of Rune Kapur from Elara Capital.
I have [indiscernible] question. So can you just give a guidance on FY '26 house looking as of now in terms of revenue and EBITDA? And what was your CapEx guidance also?
So I do believe, like I mentioned in my earlier opening statement and what I mentioned in a couple of quarters back. Our next milestone is to achieve INR 3,000 crores within the next 2 years. And I think we are trending towards that. So we should be very close to hitting that number next year. I think our EBITDA will be in the range of [ 22 ]-odd-percent. -- it's stable. We don't foresee any cuts were that is concerned from an EBITDA point of view.
Okay. And your -- those Teva manufacturing facilities right now at what capacity utilization?
I could say about 40% to 45%. We are trending at very close to INR 440 crores, INR 450-odd crores. I use our trending because we've just started hitting new numbers. So when you look at that, I think we will keep increasing quarter-on-quarter. And hopefully, by next year, we'll be trending at INR 800-odd crores.
Our next question is from the line of Adi Tapal from MSA Capital Partners.
I just had a few follow-up questions. One was, sir, the freight cost is looking -- if you can give me for Q1 and Q2, how much would be the absolute freight cost?
So see, actually, freight cost during Q2, there was a substantial increase. And like in terms of the absolute number, it was in the range of around, say, INR 60 crores as compared to a cost of around INR 40-odd crores in Q1.
Understood. And sir, the -- and if I were to also try to bifurcate expenses for Teva. How much would Teva cost of our total cost of INR 248 crores overhead?
See, Teva plant is like it has broken even last quarter itself, and it is basically contributing to the profit. So overall, like Teva plant is generating positive profits. And it is not a drag on EBITDA. So I can comment that much right now.
Our next question is from the line of [indiscernible] from [indiscernible] Capital Management, Private Limited.
Hope I'm notable. I wanted to check with you a couple of points. One is on the U.S. business side, has there been any change to the business model? Or have you added customers or having one wallet share. So could you just explain how this growth has come about for us?
Well -- I would not say we've added a lot of customers that might have been in the [indiscernible] here and there. But definitely, we have expanded our product portfolios within the same customers. So that has given us, obviously, growth when you -- instead of 3 products, you start selling 5 products or 6 products. So that has definitely helped us to grow from that and from a business model, it's still been very much the sale as it was in the first quarter. The only thing is, like I said, our order book status is strong. And that's where we do believe the revenue generation will continue in the coming quarters and will grow.
Got it. And just to the sense, right, some of the customers that we have are now reconsidering some of the number of stores that they have, they have reduced them, made other changes in terms of their business model of trying to split businesses, et cetera. Do you think any of that will have an impact in terms of our business?
It may. It may to some extent. But again, why we talk about that being a bit of a drag on Southern in a certain way, our product mix, our product growth into those customers have increased or literally doubled. So that basically overshadows any ifs and buts that may arise.
Got it. And to get that sense...
Or the consolidation from the retailers is a positive thing from their point of view because I think they will just get a bit stronger from a profitability and a viability point of view.
Got it. And when we compete in the marketplace, is it the price that we are able to compete on because we have a very low cost of manufacturing? Or are there other aspects which are -- we are sort of much better than competition, which enables us to grab this market share?
I think it's a mix of everything. You can't rule out price. We have economics of scale. But at the same time, with this service, it is product basket, product portfolio that actually also helps in the entire gamut of things. But it is at the end of the day being reliable and be able to service requirements.
Got it. And just to get a sense in terms of the length of these contracts, what is the typical length for any one of these contracts with the customers?
They range between now from 2 to 4 years.
2 to 4 years. And the product basket is something that we can increase within that?
Yes. I mean, again, it depends on opportunities that come across. And every time our contract opens up, then you have an opportunity to either increase or lose -- so what depends.
Got it. And lastly, my question is a bit of a bookkeeping one. The inventory seems to have gone up in terms of the inventory days. So I just wanted to get a sense of like any particular reason why that is happening for the quite some time now.
These are basically new launches, new launches into accounts, new product launches happening in. So we normally have to build up 4 to 5 months of stock before they start taking product and quite a substantial amount of our contracts started off only in the month of October. So we had to stop build up before they literally turn the bottom on.
Got it. So that means that this inventory, which is line with us currently is now getting translated into sales.
Its translated Into sales until new launches come on new product new launches into different retailers come into play, then we have to reinvent the cycle. So we are still -- this year, we are still a way -- we are so far away from hitting our order book status because the product launches happening from now to till March 2025 every month, every 2 months. So we have to ensure those products are launched that we have inventory to ensure that launches happens on day one.
Got it. So what I'm reading from this is that it will stay elevated until March at least?
It will stay -- yes, until March till we hit optimum and trend towards our order book that we planned for the year.
Got it. Anything on the Rx business that you're seeing in terms of growth or any launches, et cetera, that you are excited about?
Well, we have a couple of products that we are talking about. But we have U.K. quite a few Rx items being laucnhed. And we have a huge pipeline coming in maybe in 2025 that we see new product launches happening out there. They're all high end excited. They reach product. So we expect a bit of an improvement in top line and bottom line [indiscernible] -- and U.S., obviously, the pricing pressure in RX as challenging as it always gets.
[Operator Instructions]
Our next question is from the line of Kashish Thakur.
Sir, just one question. Sir, we are doing very well in the [ 3 ] geographies in which we are present. So any plan that we want to diversify and we want to enter in other geographies as well, either in the domestic market or other? If not now, then maybe when can we plan to do that? Can you just guide us with the same.
Yes. So right now, obviously, Europe is our focus region that we are looking at expanding. So that becomes a priority for us to look at M&As, and we've been looking at it for the last year, slightly over a year on that front. So Europe is an interesting market that we like to get into. With regards to the domestic market, we are always open to M&As, but nothing concrete. And the complexity of any domestic concept transaction happening in terms of valuations and sentiments attachments is always a challenging factor. But we have nothing on our plate right now where domestic is concerned. But we would love to -- we always explore -- we explore any M&A based on its merit.
As we just spoke about, we are looking for opportunities in the domestic market. So do we have any planned figure in our mind that we want to explore the opportunity which is within a specific figure be it a small or a big acquisition?
I mean domestic market is more branded than generic. And whichever company will -- if a company comes across to us, we would obviously try to evaluate the brand strength and the continuity of that brand, so -- and the growth of the brand. So it is a bit more different than most of the markets that we are into because globally, we are to a generic market. And out here, it's a bit of a branded market. But like I said, so far, we have not had anything that came across. We have not even seen any potential targets which have come across. If they do, then we will have to evaluate it at that time based on different parameters than we historically look at M&As.
Our next question is from the line of Akash, an individual investor.
So you mentioned that INR 3,000 crores as a revenue number possibly in the next coming years, which is -- which now times well within sight. So maybe what's next? Like what would your long-term vision for the company to be, maybe like for a 7- to 10-year horizon? Or are there any internal milestones that you currently have? And where do you see -- where do you see the business grow?
Just if you could throw some light on that about your vision be helpful.
So Akash, my vision is big, but it's not -- I don't want to sound crazy in terms of giving a number right now because here, we talk -- we have quarterly calls. So you're probably the only investor that is asking us for a 5- to 7-year investment, I mean outlook status. So yes, we do have plans. We do have a 5-year plan actually in place. We can -- we do see visibility of where the company will go, and it will evolve. It will evolve a new company altogether. I mean a different company out of to, let's put it this way. Like we were 2 years back. And if you look at us 4 years back where we were. So we have grown -- and I do believe once we grow with size, then the next milestone will be relatively [ short ] to achieve.
[Operator Instructions]
Our next question is from the line of Aejas Lakhani from Unifi Capital.
Sorry, I joined in late. Mark, could you just call out what is the run rate of the U.S. business today? And what is the order book visibility? Last, I recollect it was closer to about [ INR ] 170 million, [ INR ] 180 million. So has that improved? And what are we doing today?
So basically, our book stands at [ INR ] 200 million now. There is an improvement. And last time that -- it's good. So we obviously -- we keep trying to increase sales, right? So we don't stop at [ 170 ] or [ 180 ], we keep building our order books like us. So our quarter number is it is trending at around [ $40 -- $50-odd ] million right now.
Got it. And you're expecting the acceleration to take place through the next year? From $40 million to $50 million.
For the first half of the year, obviously, most of the contracts started off only in September, October, a substantial amount. So we've literally lost in the first half of the year. And if you see that's where the growth -- the growth will continue. We launched products in some in July, some in August, some in September, a decent amount in October, and then we have something in Jan, Feb, March. So we need a full cycle of 12 months to complete.
Got it. And all of these incrementally will be coming from the Teva facility, right? Hello.
Sorry to interrupt, sir, line from management has been disconnected. I will connect it. Yes, sir, please go ahead, sir.
Yes. I just wanted to check. So basically, the $40 million will start to trend to move towards $50 million by the next year and the incremental capacities will be coming from the Teva facility?
Yes. Basically, it's also coming from our U.S. plant also. So I think we are growing from all the plants.
Got it. Got it. And could you just explain sequential increase in other expenses, I understood that incrementally INR 20 crores came from the freight cost increase, but what explains the balance?
See, it is basically expenses coming out from Teva facility as well in terms of the manufacturing expenses and other expenses.
Got it. And we would be in the process of scaling up that facility. So what would we be operating at today?
We are operating at 40%, 45% right now. And -- but again, like you in terms of the overheads, we believe that we are almost fully committed in terms of our fixed overheads for Teva facility right now. And now incremental revenue will not have a proportionate increase in our other expenses. So I think definitely, we see some operating leverage benefit getting in coming quarters.
[Operator Instructions]
Our next question is from the line of Kashish Thakur.
Sir, just 1 follow-up question on Australia and New Zealand market. [indiscernible] what kind of major category sales over there, the token cold retained what kind of category has a higher sales line or like Q4 will be higher for [indiscernible] -- as it may be -- Q1, sorry, maybe a reverse of what U.S. space [indiscernible]. But apart on that how are the other [indiscernible].
So there, we are still -- we handle pain, we handle cough and cold allergy, and we will digestive. So these are the 3 categories we are following globally. So we have more OTC-oriented out there in Australia market. And sometimes it's just a very conservative market. So it takes a bit longer to grow in terms of what we want to achieve also.
[Operator Instructions]
As there are no further questions from the participants, I now hand the conference over to the management for the closing comments.
I'd like to thank all of you all for spending your precious time on the evening out here. Thank you. Be safe, and take care.
Thank you.
Thank you. On behalf of Elara Securities India Private Limited, that then concludes this conference. Thank you for joining us, and you may now disconnect your lines.