Strides Pharma Science Ltd
NSE:STAR
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
American Express Co
NYSE:AXP
|
Financial Services
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Target Corp
NYSE:TGT
|
Retail
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
479.85
1 643.3
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Estee Lauder Companies Inc
NYSE:EL
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Church & Dwight Co Inc
NYSE:CHD
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
American Express Co
NYSE:AXP
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Target Corp
NYSE:TGT
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
Mueller Industries Inc
NYSE:MLI
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Strides Pharma Science Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to Strides Pharma Science Limited Q3 FY '22 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Singhal. Thank you, and over to you, sir. .
Thank you, Faizan. A very good afternoon, and thank you for joining us today for Strides earnings call for the first quarter and 9 months ended financial year 2022. Today, we have with us Arun, Founder and non-Executive Chairman; Dr. Ananth, Managing Director and CEO; and Badree, Executive Director and Finance and Group CFO, to share the highlights of the business and financials for the quarter. .I hope you've gone through our results release and the quarterly investor presentation, which have been uploaded on our website as well as the stock exchange. The transcript of this call will be available in a week's time on the company's website. Please note that today's discussion may be forward-looking in nature and not be viewed in relation to the risks pertaining to our business. After the end of this call, in case you have any further questions, please feel free to reach out the Investor Relations team. I now hand over the Arun to make the opening comments.
Thank you, Abhishek. Good afternoon everybody. So we have reported our numbers earlier today, and we continue to have a muted performance in our Q3 FY '22. However, we don't see significant green shoots in our business, and we are now more than confident for a full recovery in the next couple of quarters. The gross margin compression in Q3 is mainly due to a portfolio and business mix and also the fact that we had inventory of increased raw material prices which were being adjusted to the lower realizations that we are receiving the front end in some of our markets. Key this year, this quarter has been that after 2 quarters of sequential drop in revenues and gross margins, our regulated businesses are now steady state, and the losses have been arrested in terms of both revenues and gross margins. And we are now seeing very significant upticks with opportunities. In reflection, we believe that some of the products that we let go to intense competition is playing to our favor as we are now seeing several rebids on the products and the contracts that we have lost. And we are seeing green shoots in opportunities and increased businesses. Key to our success for next year is for us to retain and achieve our guidance of the $250 million of revenues, up from about $150 million, $160 million this year in the U.S. with the add-on of the Chestnut Ridge integration, which is now going to plan. We are now very confident that our business will be on track to meet $250 million in FY '23 in the U.S. And we are also not seeing too much of linearity moving towards H2, we'll see fairly significant pickups of our annualized -- I mean, our quarterly run rate starting from Q1.Earlier this week, we completed successfully an FDA inspection of our Chestnut Ridge facility with 2 minor observations, which is great considering that we just completed -- we're just completing a transition and get to our IT systems and our own internal SAP program. So this was not necessarily a planned inspection while we were integrating the business into our system. But nonetheless, we had a good outcome, and we are delighted with the continued compliance status of that facility.We are -- also, we have now got other regulated markets business, as we call it, the ORM to its previous historical peaks, as we have seen a strong rebound in demand in markets which are opened up for business as usual, especially in U.K. and in other parts of the world. Clearly about 3, 4 quarters -- 3 quarters into the last year, we've been very focused on cost control. We're seeing some of that playing through as early as this quarter. And our focus is to drive our margins through cost improvement programs and also reducing our OpEx and CapEx across our global system.Recently, with one small part of the promoters, ex promotor, [indiscernible] requested the declassification of shareholders voted for consequently to ensure that the promoter holding is retained. The family office is committing to invest up to -- close to INR 200 crores in different -- in instruments that will -- for which we'll seek shareholder approvals in the next couple of days. Consequently, we will infuse this cash, which will also augment the growth strategies of Strides.Stelis in its -- after 5 or 6 years of integration finally has achieved its first operational breakeven in Q3 FY '22. None of this was led by any business related to Sputnik. This is all with the CDMO businesses and we had an operating EBITDA for the first time ever, which is very pleasing. We believe that we should be able to ride the upside of the Sputnik opportunity. We have received an NOC to export 50 million doses. We are in the process of getting the product tested as per our regulations, as per our requirements with the Gamaleya institute in Russia. And once we have those test resets, which will come in the next 3 to 4 weeks, we are confident that we would start invoicing Sputnik starting from this quarter. Of course, the COVID opportunity itself is shrinking as we all know, but we believe that the need for vaccines in the undervaccinated countries are significant. And we believe that Sputnik's clinical data supports an opportunity. So we could see the opportunities beyond the 50 million doses of Sputnik Light, while at the same time, Sputnik continues to be a technical challenge like most of us in the industry and solving for that.The Russians have also moved their focus to Sputnik Light and we hope to be a leading player in that -- in their supply chain. Of course, I'll be available for questions later part of this conversation and now I pass the mic on to Ananth for his comments and to also give you a more granular overview of the business.
Thank you, Arun. Good afternoon to all of you. Quarter 3 of FY '22, while we delivered an 8% sequential revenue growth for our business, the operating leverage continues to be subdued. As regards to the regulated markets, we have seen growth coming back in the regulated markets. So our regulated markets reported $78 million of revenues growing up by 9% sequentially. And the regulated market constitutes about 73% of our total revenues. The U.S. revenues for the quarter 3 stood at $38 million, up 13% quarter-on-quarter, representing 36% of our consolidated revenues. The integration of Chestnut Ridge commenced in October 21 and is on track. The site contributed to revenues, however, only for a few days in the quarter. This facility, as Arun mentioned earlier, completed a successful FDA inspection on February 8, with 2 minor operations. We have retained volume market share for key base molecules and the new launches from Chestnut Ridge portfolio will expand product offerings in the coming quarters. We also completed the divestment of our Florida site at the end of this quarter and the growth plan for manufacturing business, including the VA opportunity is now consolidated under the Chestnut Ridge facility.The quarter-on-quarter trend for the generic TRX in the U.S. is showing signs of stability. However, we believe that full recovery is still 2 or 3 quarters away. And Chestnut Ridge portfolio will, therefore, help ramp up new product launches which we have a clear visibility on specific products from quarter 1 of FY '23. We are optimistic to be on track to achieve our growth outlook of USD 250 million in U.S. sales during FY '23. Other regulated markets also continue to be steady and we had growth of 6% quarter-on-quarter. The other regulated markets reached back to the peak sales that we had in FY '21 of USD 40 million. Other related markets, despite the surge in COVID cases due to the Omicron variant, have given a steady growth, and we continue to witness healthy traction across the key trended markets and partnership business in Europe. We do expect overall growth momentum to continue for the other regulated markets in the coming quarters. Outlook for the established business continues to be robust, given the strong order book visibility and product portfolio expansions.Emerging markets revenue for Q3 FY '22 stood at $29 million, up 6% quarter-on-quarter and up 41% year-on-year. The emerging markets business represented about 27% of consolidated revenues for this quarter. The institutional business reported revenue up 20% quarter-on-quarter, led by better uptake from partners. The Africa business, however, reported reduction down by 17% quarter-on-quarter, but up 19% year-on-year. The Africa business during this quarter was impacted with several countries reporting a high COVID case load leading to lower doctor visits and prescription generation.In terms of the operating cost, our operating cost for the current quarter includes the impact of the Chestnut Ridge for the full quarter. While the freight rates continue to stay at elevated levels versus historical levels, a superior supply chain execution has enabled us a shift towards higher sea shipments thereby helping contain our logistics costs quarter-on-quarter. The logistics cost during this quarter was at INR 606 million versus INR 897 million from the previous quarter. Our cost initiatives have started yielding results and will continue to drive operating leverage in the coming quarters.With that, I will hand it over to Badree for his comments on the financial aspects.
Good afternoon. So I have some of the key highlights. Strides' overall revenues grew up by 8%. The first time we're seeing growth across markets -- across all markets. And gross margins for the quarter is up 50% for the year-to-date, it's 51.7%. And all these revenues include some -- few days of revenues of Chestnut and it also absorbs all the cost during the quarter. The revenue has not been done up to the full potential, but all costs have been absorbed.The manpower cost increase is mainly predominantly because of the Chestnut integration. And despite the increase in the operating cost because of Chestnut, we also had the cost management programs, which had also started to play in and started to show the leverage. Depreciation continues to be constant for the base business and the main increase is because of Chestnut facility. Interest is at a similar range. Stelis had a positive EBITDA. And correspondingly, the benefit is also seen the equity pickup. The debt across -- the debt is in line with the previous communication, we said that the debt will be at INR 18 billion in the Q3. The main -- the base business, there is no increase in the debt. The main debt increase is because of the Chestnut to fund its acquisition as well as working capital. The investment cycle is behind us. And with the growth coming back, operating leverage coming back, we'll continue to be focused on the debt reduction. And you would also see in the announcements with respect to the equity infusion. This will also help the balance sheet position and growth going forward. With this I'll hand it over to Abhishek to take it forward.
Faizan, can we open for Q&A, please?
[Operator Instructions]The first question is from the line of [indiscernible], individual investor.
Just wanted to check, as in quarter 1, you said you acquired Endo and that at least will give a revenue of around $70 million in quarter 2 you said, but later on because of pricing pressure, at least it will deliver $48 million to $50 million per annum. So what is the contribution in quarter 3 from Endo portfolio?
Endo consolidation, although we have consolidated starting from Q1, the sales started only -- we have taken only for 2 months, about 6 weeks. So a very small portion, that run rate that we had indicated to you will happen from Q3.
But can we expect at least $12 million to $40 million business per quarter, at least as you acquired this portfolio, you were expecting $48 million to $50 million. That is what you said in quarter 2 commentary.
Correct. So you'll see that in Q4. The deal closed only in the last few weeks of the last quarter.
It means that 20 commercialized products is already on, right? You don't have to introduce again, that is already on. And that business will come in quarter 4.
Exactly.
[Operator Instructions] The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Sir, just on the U.S. business, while the target of $250 million from the current annual rate of [ 40 ]. And also on your comment in the sense that it would be more of starting with 1Q FY '23. We are already like in mid-Feb. So this will be more supported with the launches of already approved products or some new approvals would drive this to start with.
We have over -- between the Endo portfolio and the Strides portfolio, we have a little over 70 odd products that are not launched that approved, okay? Most of it is coming from the Endo portfolio. So we don't have -- this revenue of $250 million is very -- small portion of that is only depending on new product approvals.
And this would be at the similar gross margins as we -- on the existing U.S. business has?
Correct.
[Operator Instructions]. The next question is from the line of Nitin Agarwal from DAM Capital.
Arun, on the -- for the business next year, we've had over the last 2, 3 quarters very choppy gross margins. So what -- given what you see in the market, what is sustainable gross margin for the business? Or normalized gross margin overall business for us going forward?
Well, see, Nitin with the price drops and other things, the gross margins should settle closer to the 55% levels that we had indicated earlier. But we still sit on inventory that is coming to us with a greater cost, right? So that adjustment will take -- was taken this quarter will also be -- will have little impact for the next quarter. But in the next year, you should be able to -- we should be in that business around 55% in the regulated markets, of course, these gross margins come down if the institutional business increases quite significantly.
Okay. So 55% for regulated markets and lower margins, obviously, for the non-reg market businesses.
Yes, but there are no related SG&A costs to that business.
Right. And on the -- Badree, the overhead, we have about INR 210 crores of overheads, including staff cost and expenses this quarter. I think what we -- I understood is that Chestnut cost is completely into these overheads. So this INR 200 crores, INR 210 crores is a number that one can analyze? Or there is a meaningful delta increase on this number in the coming quarters?
Yes, so with -- you're talking about the cost, right? INR 210 crores?
Yes.
So that would be the basis -- from an operating cost standpoint, there's a reduction from Q2 to Q3 to the...
So, Badree, Nitin's question is on people costs, which is currently INR 210 crores.
No.
Okay, OpEx. Okay, sorry, I thought it was -- I thought you were referring to people cost. My bad Badree, please go ahead.
Yes. So from an operating cost standpoint, we have started to see these all programs playing in, in terms of logistics and all other costs. And I think it will be settled down at similar levels.
So, Badree, is it safe to say just adding the staff cost of INR 390 crores, INR 395 crore number that we have for the quarter, that should be an average normalized EBITDA number for next year -- for all of next year?
That's correct. only one thing I just want to add here is that we started consolidating business from October 20, maybe 20 days of additional costs can be [indiscernible] to that number.
That will be marginal.
And on the other end market businesses, we are at about $40 million run rate. But I think we mentioned we achieved the previous levels high -- the previous high -- pre-COVID high. Now I mean, is this business also facing the same sort of challenges the U.S.? What the dynamics are, at least in this part of the business?
Not really. That -- this business was impacted by demand, especially in Europe. It's clearly come back for it to get to its numbers. I think there would be this could be the base going forward, and you'll see improvements from this number going forward.
And sir, lastly, on our institutional business, how should we think about this business? There has been significant pressure on ARV pricing and sales this whole year, in fact, I mean most companies have suffered meaningfully on a Q-o-Q basis. We've done well still. We've grown a bit on a Q-o-Q basis. But how should we look at this business given this has become, I think, apparently lot more competitive than it's been over the last couple of years?
Yes. So it is a competitive business, Nitin, and from our perspective, it supports the manufacturing costs, right? So it's an important business for us. But the volatility is very different on how much business that we win. But the level, if you look at the $25 million, $29 million range has been fairly steady state. That is because that's the minimum quantity of the business that we will normally get even if we are not very aggressive on the pricing. But the gross margins in this business keep shrinking given that in some -- most of us companies are dependent on key intermediates being involved from China. So we do have some challenges there. Yes, it's a hard business to predict growth, and that is why we are more confident in new numbers around the U.S. and the other way.
[Operator Instructions] The next question is from the line of Sarvesh Gupta from Maximal Capital.
So, this new ...
Mr. Gupta, you are not able to hear you, sir, please increase the volume of your device.
Yes. So one thing, which is as per the news items that there is a new law proposed in the U.S. where in U.S. FDA inspections can be done without informing the same about the respective sites. So what is the impact that you foresee for us in terms of the compliance cost or in terms of business because of this proposed law.
Well, I think -- I wish the -- to be in this business, you have to be everyday ready for audits. So those costs already incurred this regulation that they will land up at you get in the morning without informing is not going to change your cost upwards or downwards. You are supposed to be ready every day to be audited.
And we have been doing this and following this in any case.
Yes. Yes. And even in India in the last 1 or 2 years, the FDA has landed up in plants without notice. I think they're just -- is more a press article, but an off-late are seeing the audits are all without any written intimation.
Understood. On your employee expenses, we understand that Chestnut Ridge has been recently acquired, but at the same time, your Florida employee expenses would have gone out, right? So net-net of that, what explains the 50% Y-o-Y increase in your employee cost in such an environment?
Last year, this time, the Florida was not there, and that's clearly the reason.
Also Florida was much smaller in size.
Okay. And on -- in terms of your U.S. business guidance, you are guiding for almost a 50% Y-o-Y increase starting from Q1 itself, and it is supposed to be not attended in H2 of next year. Is that the right understanding?
I am saying that there would be a fair amount of linearity in that 250 million number, and it is not going to be back-ended into H2 and other things because we are not dependent on product approvals, we are dependent on launches which are in our control.
And at the average, FY '23 gross margin level of 55% for the company level, including all of this impact.
In the regulated market, yes.
Okay. And how do you see the growth pan out in other regulated markets for the coming year?
So I think we can now consider the $40 million as a new base, and we will use Q-o-Q growth most quarters, there would be one-off quarters when we will be -- but I think $40 x 4 standard growth is something that you can bake in the model.
Relating to...
Can't hear you, sorry.
First tell us, we have gone into operating breakeven this quarter. Should we expect a PBT level breakeven ex of COVID impact or ex of the COVID vaccine impact next year?
Yes. So see, we are a CDMO. We manufacture Sputnik as a CDMO. We are not selling it. That in India is with Dr. Reddy’s. So as the CDMO, you can make any product. The idea is that Sputnik being a large CDMO contract, it is -- we are calling it out. But yes, we will be dependent on Sputnik phase to commence for us to be [indiscernible], which we hope to be soon.
The next question is from the line of Tushar Bohra from MK Ventures. .
Sir, a couple of line items in notes or elsewhere mentioned in the filings. So one was mentioned that management is in discussion with Arrotex to collect deferred consideration by March '22. And I think the amount mentions INR 534 crores. Could you just help understand this better? What is the status or anything around it? .
That's a deferred consideration from Arrotex for that amount, which is due in this calendar year. okay? So it's due in December. We are in negotiations with them to see if we can bring it forward.
Okay. And management is hopeful that we should be able to do it. That's what you're saying.
Yes. Contractually, it was due in December.
Right. And so the amalgamation of Vivimed Life with Strides, which was essentially approved in October '20, but you're doing it now. Any implications and any reasons why it's being done now?
There are no implications. Because that is already announced that we should be able to do -- in the last 1 year. We have to complete --- the emerging markets business is we are running through separate company called Strides Emerging Markets Limited. So that amalgamation was going on. Now that's complete. Now we have taken [indiscernible]. And these are all 100% [indiscernible] merging into the parent company and there are no implications.
Sure, sir. And for Stelis, so we did INR 61 crores revenue this quarter even other than Sputnik, is -- do we have -- should we be able to analyze that INR 61 crores into 4 or to higher next year? Not including COVID.
You win contracts and then some of them are long term, some of them are short term. That's how our CDMO operates. All we are communicating in fact, the business is now delivering, bringing in customers, we are producing, we're invoicing, we're shipping. It's taken us years to get here, and we thought it was an important milestone for us to explain to our investors the occasion is the best time for investment.
Sure, sir. And one last on teriparatide. So like what is our estimate for the plant inspection. Any kind of visibility we have, sir?
So we had inspection announced on January 10, which got canceled because of Omicron, but I'm pleased to tell you that as of this morning, we got an information of an inspection in March.
Great, sir. And assuming all goes well in the plant, we are looking at what kind of time lines for approval?
Within this calendar year.
The next question is from the line of Nitin Agarwal from DAM Capital.
Again, Arun the vaccine facility in Stelis, as you mentioned, the COVID opportunity is shrinking. So how should we -- and we've spent a fair bit of money in putting that facility together. How do you think about leveraging this facility, a, for Sputnik, I mean to whatever extent can this go to, this option can go to? And what do we do beyond this?
So as a CDMO, we offer multiple capabilities, right, with this viral vector capabilities, mAbs and microbial and we are now full services CDMO. So it's difficult that you build the infrastructure ahead of your customer demand. We are in discussions with various customers. The viral platforms work in cell and gene therapy. So we are in discussions with customers. We have a fairly good funnel of new customers that are auditing facilities remotely or visiting us wherever they can. And the idea is to get enough customers to use most of our capacities. Sputnik gives us a tactical opportunity in terms of capacity utilization. But having said that, considering that we are now at fairly large kiloliter scale of Sputnik, up to 2,000 liters. We believe that we have established good credentials in the CDMO space. And we are onboarding customers in various different types of requirements to mAbs, microbials or vaccines or simple viral platforms, just not vaccines.
And would you have -- be able to -- any guess in terms of by when your second or third meaningful client additions can happen in this business?
We hope to have at least 2 significant customers to be added this year. And that, we believe that we would be on a constant basis without Sputnik profitable.
When you said this year, you mean FY '22 or '23?
Calendar year, I am talking about calendar year.
The next question is from the line of V.P. Rajesh from Banyan Capital.
Most of my questions have been answered. Just on this net debt -- what is the guidance on this. We ended December at INR 18, INR 16 crores. Should we expect it to go further up from here? Or do you think it will start coming down?
Yes. So with the growth coming back and the operating leverage should start coming down, it will be in a range. The intention is that once -- our focus will be on the debt reduction.
The next question is from the line of Aditya [indiscernible].
Hello. Can you hear me?
Yes.
So my question is on the debt reduction front. In FY '23, what kind of reduction we can expect like at what levels it can come down?
Yes. So the -- if you really see from an overall standpoint, we should get the growth and profitability back. Once we are able to demonstrate in the coming quarters, the debt reduction is automatically a consequential thing. So we really see that -- traditionally, you really see that EBITDA -- the debt reduction will be about [indiscernible]. So that's how it works, and that's what we are aiming for.
Okay. My next question is on the IPO for Stelis Biopharma, we heard last year that you will be demerging the business and coming up with a public offering. Is there any plan in FY '23 for the same?
We have already started engaging with bankers as we explained in the last quarter. No changes from that. And they are currently evaluating the best options and timing and what exactly needs to be done. We have committed ourselves for FY '23. There's no change to that commitment.
Okay. And the last question is on the stock pledge perspective. We see that there was a significant increase in pledge by the promoters in the last few quarters. So -- and now the valuations are coming down significantly. Do we see any risk over here or what is the promoters plan to reduce that pledged stock?
There's no absolute increase in the promoter family office debt related to the business, obviously, to do with the fact that the share price corrections resulted in incremental pledges, but it is not leading to increased borrowings. So we think that this is a comfortable situation for us to be in terms of servicing. And we don't see any risk -- we haven't seen this in 15 years. So we don't see this to be a problem. Plus we have, obviously, just announced a commitment to invest more money to the company, and that is coming from sources outside of last and other pledges. So we don't see this to be a concern.
As there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.
Thank you. Thank you all for participating today. And if you have any questions, please feel free to write back to us and we'll be happy to engage. Thank you. Good day.
Thank you. Ladies and gentlemen, on behalf of Strides Pharma Science Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.