The financial performance is not exactly comparable especially in terms of realizations and margins because of elevated API prices driven by COVID related issues last year.- The company posted robust growth in revenues and margins on a sequential basis despite high freight costs, elevated coal prices and high RM prices.
- Standalone Q3 revenue stood at ₹594.8 Cr (24.9% growth YoY). The standalone business contributed ~91% to the consolidated revenue for the quarter. 59% of the revenues came from the domestic market and 41% from the exports market for Q3FY22.
- API volumes grew by 12% YoY led by secular growth across acute as well as chronic therapies. The antibiotic segment contributed 46%, anti-protozoal contributed 16%, anti-inflammatory around 10%, anti-diabetic around 14%, anti-fungal around 10% and the rest contributed to 5% of revenues.
- Revenue for formulations stood at ₹54.9 Cr. Approximately 30% of revenues came from exports during the quarter. Future growth will come from growing penetration in LATAM and selective African markets, new product registrations and government tenders. The company is strategically using foreign subsidiaries to capitalize on these opportunities.
- Revenue for specialty chemicals and intermediates stood at ₹66.6 Cr (74% growth YoY). Management believes this segment is at an inflection point and unique value proposition. Niche product profile and upcoming capacities in chloro-sulfonation products are expected to bolster the growth momentum further.
- The company has shown considerable improvement in margins despite multiple headwinds in terms of high RM prices, high freight costs and high coal prices. MArgin expansion is primarily driven by proactive price hikes, API volume growth across therapies and strict cost control.
- Volume growth is expected to accelerate further in the next financial year due to recently commissioned anti-diabetic capacity and upcoming antibiotic chloro-sulfonation capacities.
- Capex is expected to to be in the range of ₹150-200 Cr for the entire year which will be funded through a mix of internal accrual and debt. The pace of capex was affected due to incessant rains in Maharashtra and Gujarat in the first half of FY22.
- They are expecting to double their capacities in specialty chemicals post capex. They have also planned greenfield capex for specialty chemicals which is yet to start. They can double their revenues from specialty chemicals over the next 2 years.
- They are currently doing greenfield expansions at 2 locations – Maharashtra is expected to come online by December 2022 and Gujarat facility should come online by Feb-March 2023. So both the capacities will be online in 12 months.
- When they order RM locally, it is delivered in 1 month. When the RM is being imported, it takes 2-3 months to be delivered. So the material costs look higher. RM prices have started to come down which will be reflected in Q4 FY22 and Q1 FY23.
- Their capacities in specialty chemicals are still very small when compared to the global demand in specialty chemicals. Their costs will also be lower due to better processes. So they don’t see any problem in being able to capture market share.
- Domestic API demand usually increases in Q4 every year because domestic formulation companies increase their production volume.
- They are expecting a growth range of 25% annually for the next 2-3 years.
- They are expecting growth in the formulation segment due to capacity enhancement in the existing facility. They are also launching a greenfield project into oral oncology.
- They are going to be launching 10-12 oral oncology products in the regulated markets. They are targeting products with patent expiry from 2024 to 2027. So oncology would start contributing to revenues from FY25.
- In the API segment, they are mainly expanding in anti-diabetic, dermatology, antibiotic, antifungal. They are also doing a brownfield expansion of a cardiovascular product.
- In specialty chemicals, they are investing in chloro-sulfonation. They are also doing backward integration for a few of the intermediates, which they also intend to sell outside. They also have a contract manufacturing agreement with a MNC for one of the products.
- Since 2018, it seems like China is moving more towards greener technologies and are focusing less on manufacturing of specialty chemicals and intermediates. They will continue to focus in areas where they have natural resources but they are trying not to focus on these segments. That demand will come to India.
- They are expanding in the gliptins space in stages. They have already set up a gliptin multi purpose facility. If the products grow, they have space to put up another block as well. If that happens, they will be aiming to get more than 50% market share of those products.
- Under the PLI scheme, they had to invest ₹70-80 Cr to set up a facility. But they found a better process by which they were able to set up the facility in about ₹25 Cr. So they decided to save about ₹50 Cr upfront instead of applying for ₹8-10 Cr PLI per annum.
- Top 10 APIs contribute to 75% of revenues, Top 15 is contributing to mid 80s. In 13 of these molecules they are the largest manufacturer in India and also globally in some. They are the largest manufacturers in these molecules because they are backward integrated to a larger extent than their competitors. So more than 80% of their revenues are backward integrated.
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