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Vimta Labs Ltd
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Ladies and gentlemen, good day, and welcome to Vimta Labs Limited Quarter 2 FY '25 Conference Call hosted by Systematix Institutional Equities. [Operator Instructions] Please note that this conference call is being recorded.
I now hand the conference over to Mr. Vishal Manchanda from Systematix Institutional Equities. Over to you, sir.
Thank you, Sedan. Good afternoon, everyone. On behalf of Systematix Institutional Equity, I welcome you to the Q2 FY '25 earnings call of Vimta Lab.
We thank the Vimta Lab management for giving us an opportunity to host the call. Today, we have with us the senior management of the company represented by Harita Vasireddi, Managing Director; Mr. Satya Sreenivas Neerukonda, Executive Director; Mr. Narahari Naidu, Chief Financial Officer; and Mr. Sujani Vasireddi, Company Secretary.
I'll now hand over the call to the company management for opening remarks. Over to you.
Thank you, Vishal. Good afternoon, and a very warm welcome to our Q2 FY '25 earnings call.
Our investor presentation and the financial results are available on the company website and on the stock exchanges. Please note that anything said on this call, which reflects our outlook for the future or which could be construed as a forward-looking statement must be reviewed in conjunction with the risks which the company faces. The conference call is being recorded, and the transcript along with the audio of the same, will be made available on the website of the company as well as on the stock exchanges.
Please also note that the audio of the conference call is the corporate material of Vimta Lab Limited and cannot be copied, rebroadcasted or attributed in the press or media with a specific or written consent of the company.
Now I would request our Managing Director; Ms. Harita Vasireddi, to provide you with the updates on the quarter September 2024 financial results.
Thank you. Good afternoon, everyone. Thank you for joining our Q2 and H1 financial year '25 earnings call.
The first half of the financial year 2025 was good according to the market response and the way we have delivered our services. The Indian economy demonstrated positive movement with growth driven by robust domestic demand, infrastructure spending and government-led initiatives. The manufacturing sector saw substantial growth buoyed by increased exports and the success of the PLI scheme. Certain sectors such as IT, financial services and retail also focusing well. However, inflationary pressures and global economic uncertainties pose some risks. Despite these challenges, India's economic fundamentals remain solid, positioning it as one of the fastest-growing economies in the world.
Coming to the TIC, testing, inspection and certification and CRO industries we operate in, based on moderate growth driven by continuing demand for stronger compliance and the quality assurance across various sectors, including manufacturing and health care. However, economic uncertainties and inflationary pressures have tempered the overall expansion. Talking about the quarter and the business highlights. Vimta Labs witnessed very good year-on-year growth of 26.4%. This was primarily led by our pharmaceutical services, which continue to drive our business.
Overall, we saw good traction across all our verticals and would like to highlight that our new life sciences facility will be commercialized from third quarter. The clinical trial services had a positive impact on our revenue. This being one of our growth drivers, we are confident that these services will bring in good performance in the years to come.
Looking at the food testing services, we witnessed a slap in the business due to certain factors, which we feel would stabilize in the coming quarters. On the electronics and electrical testing, there continues to be new products coming in for testing in our lab and these services to have performed well for us.
We are also in the process of expanding the space for electronics testing at our Life Sciences specialty in Hyderabad. We are adding a new [ eMMC ] chamber to further gear up to the market requirements. As per the press release published on August 30, 2024, Vimta Labs has divested the diagnostics services business to Thyrocare technology. This decision allows us to sharpen our focus on our core services and optimize resources for sustained growth, which will result in a significant improvement, as you see in our financials, which our CFO, Mr. Narahari Naidu, will take you through in a bit. Looking ahead, we are optimistic on all the services we offer. And with the growth drivers in place, we are confident that we will achieve our near-term target of INR 500 crores.
With this brief overview, I now hand over the call to Narahari to walk you through the financials. Over to you, Narahari?
Now I would like to walk you through the consolidated financial performance for the quarter ended 30th September 2024. After which, we can open the floor for question and answers.
Before I start discussing the financials, I would like to highlight, the previous period figures for P&L items have been regrouped ensure comparability with the current period. This is the announcement of sale of Diagnostics and Pathological Services business on 30th August 2024.
I'll start with the consolidated financial highlights for the quarter. Total income for quarter 2 FY '25 stood at INR 854 million as compared to INR 676 million in Q2 of FY '24, up by 26.4% Y-o-Y. EBITDA stood at INR 306 million in Q1 FY '25 as compared to INR 194 million in Q2 FY '24, up by about 57% on a Y-o-Y basis. EBITDA margins for the quarter stood at 35.8%. Earlier, the margins were in the range of 23% to 30%, which has now significantly improved. Profit after tax in Q2 FY '25 stood at INR 170 million as compared to INR 81 million in Q1 of FY '24, a growth of more than 100% on a Y-o-Y basis. PAT margins for the quarter stood close to 20%.
Moving on to half year performance. Revenue from operations for H1 of FY '25 stood at INR 1,610 million as compared to INR 1,439 million in H1 of FY '24. This roughly translates to a growth of 12% on Y-o-Y basis. Interest stood at INR 472 million in H1 of FY '25 as compared to INR 572 million in H1 of FY '25 as compared to INR 468 million in H1 of FY '24. This translates to EBITDA margins of 35.5%. Profit after tax in HY FY '25 stood at INR 309 million as compared to INR 226 million of FY '24.
On the balance sheet side, we continue to have net debt-free balance sheet with cash and cash equivalents, including other bank deposits of close to INR 28 crores. Our total debt stands at INR 116 million as on 30 September 2024, with a debt-to-equity ratio of 0.03x. CapEx for the quarter stood at INR 30 crore. We continue to maintain our CapEx guidance of INR 90 crores per FY '24, '25.
With that, we can now open the floor for Q&A. Thank you.
[Operator Instructions] Our first question is from the line of Viraj Mehta from Enigma.
Congratulations for the numbers. Sir, my first question is regarding the divestment of diagnostics. I can see the loss that you have mentioned in the quarterly run rate, but in a sense, is it safe to assume that if you take out diagnostic this very high margin of mid-30 percentage points is more or less sustainable for Vimta. Is it a fair way to think about this?
Yes, as you rightly said, of course, the numbers what you are seeing for Diagnostics business what we had reported, excluding that, the margins are sustainable around 35%.
Okay. And sir, Ma'am mentioned that we are looking at INR 500 crores in near term. And we have already mentioned, we'll be able to do it in FY '26. So are we on track for to do that?
Yes, we are still on track to do that.
So ma'am, we are in FY '25. So, FY '26, you think that we would be at a quarterly run rate of INR 125 crores from INR 80 plus crores this quarter. The only reason I'm asking this is because when we mentioned INR 500 crores, we also had diagnostics in our business. Now that, that is gone, do you take out some money like do you take up INR 30 crores, INR 40 crores from our ambition, or we are still looking at INR 500 crore?
Yes, I think we would have to remove that 9% of the pie that Diagnostics was occupying. But having said that, the I'm pretty confident that we will hit that run rate during the next financial year.
Okay. And as a company, that incremental INR 40 crore revenue if you take a quarterly INR 40 crore incremental revenue that you thought that we will hit by Q3, Q4 of next year. Where you see incrementally a large portion or where are the higher portion of that incremental revenue you think will come from? Which part of the businesses?
The growth will come from all the business units according to the portion of business they currently contribute to. Like for example, pharmaceutical still remains the dominant business for us. So majority of the growth will come from there in terms of absolute numbers. But our other divisions are also gearing up to deliver a very strong growth in the next few years.
Makes sense. And ma'am, my last question is, when we go from INR 85 crore quarterly revenue as in basically INR 27 crore, INR 30 crore monthly revenues to INR 40 crore kind of monthly revenue with such high gross margin business, what kind of operating margin or operating leverage do you think will play out in the business as that revenue can be a company of 30%, 40% margin or even higher?
That is a little tricky to answer in a straightforward manner because when your top line grows, then the economies of scale hit in. But then after a certain time, you would need fresh capacities to be added. So it is kind of go in a slightly wave fashion. So I won't be able to accurately answer that. But the margins that you're seeing now are sustainable.
Yes. I'll just add on to that. The reason why we are not commenting on a higher EBITDA margins is that because we are having addition of capacity, which is going to commence from quarter 3. And it would take a little more time for us to fully occupy it. So until then, we would were very happy to maintain margins around the current levels. And once we reach a critical volume of INR 450 crores around, probably at that point in time, we'll have to relook to have -- if we can have higher margins or not. But as such, the industry we are way above the industry average margins currently.
Sure. And ma'am last, I just wondered you comment on our food initiative for the government. What is the monthly run rate there? I mean we have been much lower than our anticipation when we put it up. So has there been any improvement there? And what is our future for that?
Yes. There is a betterment of revenues there. But I would still say it is significantly lower than what we had anticipated. But it has kind of stabilized where it is for now. So we will -- we don't have any forecasting on that side of revenue.
[Operator Instructions] Our next question is from the line of Ankit Gupta from Bamboo Capital.
Congratulations for a great set of numbers. So my first question was on, if we look at our performance, as you have said in your initial commentary, that food continues to remain a bit sluggish. So that the top line growth, if we remove the diagnostic business performance in last year's performance is primarily driven by pharma is what we can infer because the rest of the segments are pretty small to make much of a dent on our overall numbers.
Yes, but what is the question?
Is the growth that we are seeing or the run rate of around INR 85 crores that we have seen in this quarter, the growth is largely driven by the pharma?
Yes, it is largely driven by pharma, and you're right, the other segments, except for food are too small to have a significant impact on the absolute number. And food also is mostly due to internal reasons. We are shifting from the existing facility to the new facility that we have built in life sciences. So there is inevitably a little slowdown in operations. And since it's the retail kind of business, there is a little impact on that side of the business.
Sure, sure. And sir, if you can talk about this -- the BIOSECURE Act, and how it is going to impact us. Are we seeing increased inquiries over the past few months and increased traction with the existing and new clients?
Yes, there is a positive impact of that regulation in U.S. that we see here, some big corporations, MNCs, have reached out to us. There could be a possible partnership, but these are all still in very early explorative stages. We think that the momentum could pick up in the upcoming quarters or maybe a year or so.
Ma'am, this INR 85 crore run rate has now become -- like normally we are seeing that because of some capacity constraints, we were not -- we were facing some challenges on the growth because there was some slowdown in the U.S. pharma segment. So now given how things are looking at the new additional capacity coming in our life sciences campus INR 85 crores run rate is a new base now from where we can see our growth hopefully over the next few quarters?
Yes.
Next question is from the line of Ankeet Pandya from Ingrid ANC.
Congratulations on great set of numbers. Ma'am, just 2 questions. So firstly, on the top line growth, we have seen top line growth driven by the pharma segment. So can you give more -- can you throw some light on what has worked for us during the quarter? And like just directionally over the next few quarters and like 2 years, how are you looking at the pharma sector. And secondly, you mentioned in the opening call that there's some challenges were faced in the food segment. So if you can highlight what -- if it's possible to highlight what were the challenges that we faced in the food segment?
Sure. In the pharmaceutical services, we have preclinical services, we have clinical research services and also analytical services. So in this quarter, all 3 of them have picked up on the revenue side. Clinical research especially got a boost because of the clinical trials that we started. And on the analytical side also, the investments that we have made on the biopharma side are slowly starting to be -- we are starting to see returns on those investments. And pay clinical also has shown growth during the quarter. So all 3 segments have helped push the pharmaceutical revenues quite well.
And on the food side, I was explaining earlier, it's mostly internal reasons. One of our labs in -- that we had in Pune, we shifted to Nashik. So there was a temporary gap. There still is a little bit of a temporary gap of revenues from that lab location. And here also in the Hyderabad headquarters lab, we are shifting the food testing services from our existing life sciences building to the new building that we have built. So it's in transition phase. So during transition, the equipment have to be shut down, and they have to be installed at the new location, so they have to be validated again. So we are trying to do this very, very slowly, but it does have a little impact on the operational capacities, day-to-day capacity. So therefore, the factors are more internal than external on the food business.
So ma'am, on the food side, will it be right to say that like was there a loss of business that can like transfer to the next quarter or something like on those lines? Will be that right way to look at it?
As of now, I won't say there is a loss. But even if it was there, it could be a temporary transfer because it's like a retail business, we are not available to give the report in 3 days. And then, of course, they will have to look for that testing service somewhere else. So that little chance that little risk is there, but we have good relationships, especially with our large customers. So there shouldn't be a long-term impact of this.
Okay. And on the pharma side, to bring on the clinical no clinical that we have recently started. So again, I think the momentum that will be one of the key sort of like the bulk up in the revenue going forward that we can see on the quarterly basis.
We have actually just begun the first trial. The first trial is going very well. So more projects have to be added and the efforts are on the first few ones may not come one after the other in a very successive manner. There might be some gaps, but it will pick up.
And ma'am 1 last question on the bookkeeping. So in the balance sheet or in the other financial liabilities, there's an increase from INR 24 crores to INR 45 crores. So anything to read in those numbers?
Can you refer to the exact other financial liabilities. So this is because of CapEx expenditure. So there are certain CapEx-related vendors, which were due payment which were not due payment, but which were accrued as a payment liability. So that was the exact reason.
Our next question is from the line of Milan Shah from Urmil Research Consultancy.
Congratulations for great set of numbers. And in opening north [indiscernible] is lockloaded on exchange and was side, but there is no any presentation on this site or BSE exchange. So look in the matter because of inviting through and then after they're going to ask the question. So my request to you.
And second question is what is the export of the business contained in this further results?
Can you please come again with the question?
What is the content of export in current quarter in a half year?
So typically, our export is in the range of 25% to 30%. So this year, there is -- this quarter also, there is no exception to that general percentage.
Okay. And after third quarter or month is on, then it is a chance to increase the export revenue.
It has no direct connection between expansion and export revenue. So the typical trend has been around those numbers. It's a continuous and we were to increase those numbers. Fortunately for us, the India market is also very strong. we are able to drive good growth in both domestically and internationally.
Okay. And electrical and electronic side, we are going through an expansion in big way or this is slowly we are going to add it.
We have created a space to add 1 more EMI/EMC chamber. The chamber also is ordered, but it has a long lead time. So we expect the installation of the new chamber to be done maybe around Q4 or early next year.
Sir, as we speak, I just cross-referred on the investor presentation. It got uploaded. Could you please recheck and have a look at it?
Our next question is from the line of [ Vignesh Iyar ] from Sequent Investments.
Sir, actually, I think in the initial part of the call. So after the understanding, we are targeted to do INR 500 crores next year, is that correct?
Yes. We want to at least reach the run rate of INR 500 crores in next year.
And ma'am in the new facility, should we expect the margins to be in the similar level in the pharma and the food segment at an overall level?
EBITDA margins, yes.
[Operator Instructions] Our next question is from the line of Zaki Nasir, who is an individual investor.
Ma'am, congratulations to you and your team under a phenomenal set of numbers, ma'am. I would want you to throw some light on this electronic testing facility, which 1 year is on, and you have order for the another one. How do you foresee this panning out over the next 2 to 3 years then?
The defense sector, I think, is getting a very good push in our country, and we are sitting in the hub of different component manufacturers. So the variety of systems that are coming to us for testing is actually adding month-on-month. So we are quite upbeat about it. Already, our capacities have been utilized around 80% to 85% so far. So we are just gearing up for additional capacities because these have very long lead times.
The chamber takes a long time to -- once you place an order, it takes a long time for it to be delivered and installed. Therefore, we are proactively creating additional capacities, which should help us continue the growth even in the next years without any pause or slowdown in revenues.
And my bookkeeping question, the current revenues in the current quarter, would that exclude the division you sold to Thyrocare, ma'am.
Yes, sir. So the numbers reported are excluding of our Diagnostics business. So the top line, what we are mentioning are close to INR 85 crore, which doesn't include diagnostics business for the quarter.
[Operator Instructions] Our next question is a follow-up question from the line of Ankit Gupta form Bamboo Capital.
Ma'am, can you talk about how the NFL lab is doing at JNPT and any positive developments there?
Sample loads at NFL have slightly better. And after that, they have stabilized now. So there is no forecast, like I said earlier on whether it could go up further more. So as of now, it is better than what it was a couple of quarters before.
So how much growth will that be, let's say, compared to a couple of quarters that any will be a significant growth that you see?
Yes. That would probably be around 30% to 40% increase in sample volume. And 1 part.
Okay. And let's say, how far are we soon the numbers that we were expecting 2, 3 years back when we started this lab.
As of now, we are probably still 30%, 40% away from what our expectation was.
Okay, okay, okay. And in terms of margins, we are -- we have seen improvement given the volume of things that we have seen there.
Yes.
So the margin is a combination of economies of scale as well as exclusion of Diagnostics business.
I think he was were asking about NFL.
Our next question is from the line of Dhwanil Desai from Turtle Capital.
Congratulations for a very good set of numbers, ma'am. First one question. I think you alluded to some conversations that you are having with some of the MNC players as a fallout of BIOSECURE Act. Now given that if some of these contracts materialize is at and when rectifies, is there a possibility that we may run out of space even after expansion because that expansion, we may have already kind of tied up the capacity for the existing businesses and the growth for that. So how do you look at that? And is this a single conversation that we are having on the multiple conversations across 3 areas on the pharma side that we are having.
So the relationship that I was talking about has already begun. And typically as in any relationship, especially with a global company, the ramp-up is low and steady. So that is what -- that is a phase that we are in. Capacity wise, I'm not concerned, at least for the next couple of years. we should be very comfortable in accommodating any requirements that such partners may have.
And I also want to clarify that there is no direct correlation with the BIOSECURE Act and this partnership. So this is not probably directly because of that.
Understood. Understood. And ma'am, you can give some more color on the preclinical side, the scale up and how we are looking at things, how the pipeline is shaping up, where do we see from here? How can we grow? Some more qualitative insights into that would be helpful.
Pipelines, maybe, I mean, 2 segments that we spoke about for us to grow in the future. One is the pharma segment and the food segment.
I'm asking for 3 clinical part of it within pharma.
The 3 segments that are poised for growth and what we are pursuing the segment, the segment and the and segment. These are the 3 focus areas for us. And these are the 3 areas where there is a traction globally. So coming to Pharma segment, preclinical is a part of the partner segment. And preclinical is mainly driven or major opportunities for preclinical are in the countries where there's a lot of drug innovation going on, which is the vessel world, the European markets and the U.S. markets. So we are equally placed in both these markets.
A lot of efforts have been put over the last 3, 4 years, and we are seeing good returns coming in from there. The clinical business, again, is -- there's a lot of business which flows into India from the Western markets. Europe was a market where we was not very strong, but the first in the last year started yielding, we are making partnerships. We are making progress in these markets. So overall, I think the pipelines are growing and the business outlook for the future is also very positive.
Our next question is from the line of V.P. Rajesh from Banyan Capital.
Congratulations on an excellent set of numbers. Just 2 questions. So 1 is on the partnership that you are talking about. Are you starting to see -- aside from that, are you starting to see any conversations which are pertaining directly to the BIOSECURE Act in the U.S?
So the partnership we have been talking about is with 1 of the major U.S. innovator company. And this partnership is not necessarily as on today direct listing at the BIOSECURITY, but it is mainly on the cost-cutting measures taken by MNCs year-on-year, where we are looking to find markets where offshore or send out some of the work we take for a lot of resources. So in our initial decisions of initial work, which is coming in is directly related to that, and that is going to continue. The BIOSECURITY Act is still -- I think it's still yet to show much of an impact. But I'm pretty sure it's going to gradually ship up that way.
The line for the participants teams seems to have disconnected. [Operator Instructions]
[Technical Difficulty]
The line for the previous participantt has reconnected.
Sorry for that. So what I was trying to understand, and I'm not sure if you already answered that if you put that partnership aside, which you were saying is more related to cost cutting. Are there any other conversations which are our direct result of BIOSECURE Act? That's what I was trying to understand.
As on day, we don't see that in the market where companies are coming through here, but I think eventually it's going to happen. There are decisions of moving those manufacturing facilities out of China. And I think there are some active discussions happening in the country with some of the major players. I think we will have more concrete understanding of that by the first quarter of next year.
Understood. Understood. And my next question is, and I know man doesn't like to talk about this, but directionally, can we assume that 70% of the revenue in this quarter was from pharma?
Yes, close to that, yes.
Okay. Great. And then lastly, on the guidance for next year. I heard 2 numbers. I heard INR 450 crores because you are taking the diagnostic out. And I also heard you say the run rate of INR 125 crores in a quarter. So should I conclude that maybe in Q3, Q4 next year, you are targeting to hit INR 125 crores of the run rate revenue. Is that the way to understand your comments.
Our next question is from the line of Vishal Manchanda from Systematix Institutional Equities.
I have a question on the Biosimilar business that you're trying to build. So would you be able to provide any color whether you have been able to win any contract there in terms of executing the trial or maybe the basic bioanalytical test on -- in that line of the business?
Yes, we have been doing pretty well in this segment of Biosimilars and some of the other big molecule, large molecule areas. This is an ongoing work. We have been doing it for quite some time on the preclinical space, but now in the analytical and clinical space also, we have contracts and we are executing.
So you mean you would be doing a tie for a client on the Biosimilar front. You have a contract for that?
We today have -- I won't go into much specifics, but yes, we are part of such contracts, clinical type programs, yes.
Okay. And just 1 more final question on the pharma analytics side. Just wanted to understand the driver of growth for the business. So is it primarily the filings that companies do for their products in the U.S. to support this filing, they need analytical test and it supports these companies on those analytical test. Is that a driver or there are other drivers as well for the Pharma analytics business?
That is essentially the basic driver for any of the CROs, the outsourcing work to support these files. But the other part of that same well driver is the complex products. So general products and all, there are a number of labs available. But for complex and more R&D support kind of work, they rely on CROs of experience or CRO, which have been with complex solutions -- sorry, solutions for the complex problems like [indiscernible], that is the second part, which is also fueling the growth.
You've started to get more complex work related to complex generics now.
Yes. We are supporting a lot of those complex generic studies.
And are these primarily Indian clients, European, North America, Southeast asians or the global clients. How do you...
We both have Indian clients, European, North America and Southeast Asia. But the common factor between all these companies are, they are filing in regulated markets, which could be now [indiscernible] Europe, Japan and [indiscernible].
Next is a follow-up question from the line of V.P. Rajesh from Banyan Capital.
I wanted to just inquire about the transition that we were doing from the facility that you guys showed us during the Investor Day. And obviously, the capacity was very tight at that point in time. So if you could just comment about that, how is the transition going into the new place, et cetera, is going on? And what is sort of the deadline as to when that will get done.
The new facility is created to house food testing services and also to house preclinical services. So food has almost 90%. We have moved food from the existing facility to the new facility. Food also has multiple labs. We have the nutrition testing laboratory. We have the microbial laboratory, and we have the residue sales analysis leverage. So nutrition lab is fully migrated. The trade analysis lab is also almost migrated. The last one will be microbiology that we will be moving in this month or maybe until mid of next month. Preclinical, we are late to start shifting so that also we will initiate in the month of November, and that will also be very gradual. And the reason we are doing it very gradually because we do not want to impact our service to the customers.
Got it. And I think you had also talked about putting up a second chamber for the electronics business. So any update on that?
Yes. So we have placed an order for the chamber. The delivery is expected late Q4 or early Q1.
Okay. Okay. And then lastly, on the CapEx side, if you can just update as to what's the plan for this year? And what are you planning for the following year?
So if we have to divide between the infrastructure addition as well other than infrastructure. So infrastructure, we may incur close to INR 70 core in totality, which we expect it to be capitalized during quarter 3, out of which majority was spent last year. And this year also, we are spending out of the overall budgeted allocation of INR 70 core. Other than that, we can expect an incurrence between somewhere around INR 50 crore -- INR 50 crore to INR 60 crore, and we already incurred close to that in the H1.
Our next question is from the line of Milan Shah from Urmil Research Consultancy.
I want to know that we are going to indeed [indiscernible] a plan to fatter fundraising planning for this year or next year?
As of now, we don't have any thought in that direction.
As there are no further questions on the participants. I now hand the conference over to the management for closing comments.
Thank you, Sedan. I want to thank all the participants for joining us in the call today and also for all the good wishes that we shared with us. I wish to thank even Vishal and Systematix for hosting this call today. Thank you all. Bye-bye. Good day.
Thank you. On behalf of Systematix Institutional Equities, that concludes this conference. We thank you for joining us, and you may now disconnect your lines.