- During the quarter, Revenues stood at ₹81 Cr (12% growth YoY), EBITDA was at ₹12.5 Cr (44% decline YoY) and PAT stood at ₹9.9 Cr (44% decline YoY). Gross margins were at 48% (compared to 60% in Q3 FY21) and EBITDA margins were 15.4% (30.8% in Q3 FY21).
- Continuing rise in input prices (27% YoY in Q3), fuel costs (167% YoY in Q3) and freight costs (43% YoY in Q3) led to margin and profitability contraction during the quarter.
- Segment wise revenues – Veterinary APIs – ₹70.4 Cr (+25% YoY), Finished Dosage Formulations – ₹2.2 Cr (-59% YoY), Human API – ₹5.6 Cr (-7% YoY), Intermediates – ₹3.1 Cr (-41% YoY).
- Region wise revenues – Asia Pacific – ₹28.1 Cr (+36% YoY), Europe – ₹22.4 Cr (-0.6% YoY), India – ₹12.7 Cr (-28.6% YoY), ROW – ₹14.5 Cr (+40.6% YoY), USA – ₹3.6 Cr (+119.1% YoY).
- The demand side of the business still seems to be pretty strong, only the margins have been impacted due to rise in prices of commodity chemicals, power and freight.
- They are seeing a correction in commodity chemical prices and they expect it to normalize in Q1 FY23. They also expect normalization of freight costs in the 2nd half of the next financial year.
- They have completed ₹26 Cr expansion in Macrotech, leading to increased capacity for intermediates. Started validation batches, commercial production expected by Q1 FY23.
- The Greenfield expansion at Tarapur is on track. They started the civil work in December and it is expected to complete in 18 months. This will increase their capacity by 50%.
- They have additional land in Ambernath and will look to expand there only after the Tarapur expansion is complete. They will need to also launch several products to completely utilize the Tarapur capacity. They are
- API prices are kind of inelastic, so the price increases taken on them are not as drastic as the increase in commodity prices. The company’s strategy for now is to not increase prices as much and gain market share. As commodity prices normalize, margins will be back to normal.
- They have 22 products in commercial production as of this quarter. 3 products are in pilot trials and 2 products in R&D. So they have 5 products in the pipeline.
- They currently have 1 product in the companion animal segment but it is also used for production animals. They have 1 product that is exclusively for companion animals which will launch in FY23 and another one is in R&D and expected to launch in FY24.
- Typically their asset turns have been at 2.5 but for the Tarapur facility it is expected to be at around 1.7 or so. This is because the EHS requirements have significantly increased and about 20% of the ₹100 Cr being invested there is going towards EHS compliance.
- Europe sales are slowing down. They do not expect much growth to come out of there in the short run. The market is expected to start moving there post Q2 of FY23. India sales were affected by Omicron.
- They had started the outsourcing activity in Feb 2021 and are on track to increase outsourcing to 15% of revenues in the next 2 years. They signed 5 new vendors and are looking to sign about 5 more in the coming year.
- Commodity prices are normalizing. Some commodity prices have gone up 3X in the last year and are coming back to 2X. Some commodities there has been no price normalization.
- Freight costs had gone up 8-9X in the past year but are coming down to 5X level. The new contracts that they are signing will pass on freight costs.
- Top 5 products grew by 21%, Top 10 products grew by 26% and the remaining products grew by 18%. Products ranked 5-10 contributed highest to growth. Smaller products are doubling every year because of low base.
- Up until now, Macrotech has been used entirely for captive consumption. But now with the new capacities, they are exploring the possibility of sales of intermediates.
- They expect to reach ₹100-105 Cr of quarterly revenues before the Tarapur facility comes online.
- Their customer base is growing and they are also able to sell more products to existing customers as they can offer a wider variety of products now. Currently, Top 5 customers contribute to 21.5% of revenues and Top 10 customers contribute to 1/3rd of revenues.
- They only take products that have multi-step synthesis (5-7 steps at least). So these molecules are not very easy to synthesize which acts as an entry barrier.
- They were holding high inventory in the first half of the year (June-Sep) but have now reduced inventory to take advantage as prices of commodities start coming down.
- They are supplying APIs to 5 out of the Top 10 Animal Health companies in the world.
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