Akums Drugs and Pharmaceuticals Limited (AKUMS) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Welcome to the Akums Drugs and Pharmaceuticals Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Umesh Laddha. Thank you, and over to you, sir.

Good afternoon, everyone. And on behalf of AMBIT Capital, I thank the management of Akums Drugs and Pharmaceuticals for the opportunity to host their Q1 FY '27 Earnings Conference Call. Joining from the management today, we have Mr. Sanjeev Jain, Managing Director; Mr. Sandeep Jain, Managing Director; Mr. Sumeet Sood, CFO; and Mr. Sahil Maheshwari, Head Strategy. We now begin with opening remarks from the management, post which the forum will be open for question-and-answer session. Thank you, and over to you, Ankit, sir.

Thank you, Umesh, for the introduction. Good afternoon, everyone, and welcome to Akums' Q1 FY '27 Earnings Call. I am Ankit Jain, and I head Investor Relations at Akums Drugs and Pharmaceuticals Limited. I will commence with a standard disclaimer that any discussion on today's call might include certain forward-looking statements, which are predictions or projections of future events. Our business faces several risks and uncertainties that could cause our results to differ materially from what is expressed or implied in such statements. At AS, we do not undertake any obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. I hope you would have had the opportunity to go through our financial reviews and reviewed our investor presentation that was shared on Saturday. I would now like to hand over to our Managing Director, Mr. Sandeep Jain, to discuss our performance. Thank you.

Nameste, everyone, and thank you for joining us today for our Q1 FY '27 earnings call. With Q1 FY '27, we have begun FY '27 on a strong and encouraging note. We registered a healthy revenue growth of over 13% with EBITDA increasing by more than 13%. The growth was primarily led by CDMO segment characterized by double-digit volume growth along with improvement in API prices. The consistent performance of CDMO showcases healthy demand environment as well as our clients. Trust in Akums as the preferred manufacturing partners. Marketing segments, domestic as well as exports saw muted quarterly performances with multiple initiatives underway. We are confident of these segments returning to growth path in coming quarters. Our API and Trade Generics segments performed in line with prior guidance with Zambia order to likely reflect during current financial year. Akums is well placed to deliver a robust operating performance during FY '27. On 23rd of July, we announced the acquisition of Oriflame India's Manufacturing business. The transaction covers two manufacturing facilities, one at Roorkee, Uttarakhand and other one at Noida, Uttar Pradesh, along with a leased warehouse situated at Noida, Uttar Pradesh. With the acquisition, we expand our manufacturing footprint in skin care, cosmetics and wellness products. Manufacturing, this is in line with our strategy of tapping into niche formulations to improve our positions among existing as well as prospective clients and augment our margins. Coming to operating performances for our quarter. CDMO once again delivered a healthy top line growth of over 18%, aided by both volume growth and improvement in API prices. API segment continued on its journey towards becoming EBITDA positive as higher share of non-cepha products led to better gross margin. The trade generics segment remained EBITDA positive during the quarter. Akumentis, our domestic branded Formulation segment restarted its growth journey with a healthy 7% revenue growth during the quarter. Margins were impacted due to increase in employee spend. We expected improved performance from the segment from quarter 3 onwards. Our international branded formulation business had a muted quarter, but is expected to return to growth as we remain confident on the structural attractiveness of our chosen geographies. I shall now request our CFO, Mr. Sumeet Sood, to take you through the detailed financials for the quarter. Over to you, Mr. Sumeet.

Thank you, sir. Thank you, Sandeep ji. Good afternoon, everyone. I would now take you through the financial highlights for the quarter ended 30th June 2026. Our operating revenue stood at INR 1,167 crores, an increase of 13.9% year-on-year. Quarter 1 FY '26, the revenue was INR 1,024 crores and increasing 0.8% quarter-on-quarter. Quarter 4 FY '26, our revenue was INR 1,158 crores. The operating EBITDA for the quarter was INR 175 crores, an increase of 35.4% year-on-year. Quarter 1 FY '26, our EBITDA was INR 129 crores and 15.1% quarter-on-quarter. Q4 FY '26, our EBITDA was INR 152 crores. Margins were robust at 15%, improving 230 basis points year-on-year. Quarter 1 FY '26, we were at 12.6%, and 187 basis points quarter-on-quarter Q4 FY '26, we were at 13.1%. The EBITDA including other income stood at INR 205 crores, increasing 31.7% year-on-year. Quarter 1 FY '26, we were at INR 156 crores, and increasing 9.6% quarter-on-quarter. Quarter 4 FY '26, we were at INR 187 crores. EBITDA margins stood at 17.1%, increasing 231 basis points. Year-on-year, Q1 FY '26, we were at 14.8% and quarter-on-quarter Q4 '26, we were at 15.7% The PAT of the company stood at INR 101 crores, an increase of 56.1% year-on-year. We were at '26 -- INR 65 crores in quarter 1 FY '26, and increasing 24.1% quarter-on-quarter. Q4 '26, we stood at INR 81 crores. If we were to look at the various segments and their performance, if we start with the CDMO, the revenue stood at INR 964 crores, increase of 18.6% year-on-year. We were at INR 813 crores Q1 FY '26, an increase of 1.3% quarter-on-quarter. Q4 FY '26, we were at INR 952 crores. The revenue growth was driven by healthy volume growth and rebound in API prices. In Q2 as well, API prices seem to be on an increasing trend. EBITDA for the quarter stood at INR 163 crores, an increase of 36.8% year-on-year. Quarter 1 FY '26, it stood at INR crores INR 119 crores, an increase of 19% quarter-on-quarter. FY '26, it was INR 137 crores. The margins were further aided by improved capacity utilization. Domestic branded formulation stood at INR 115 crores, an increase of 7.3% year-on-year and an increase of 12.9% quarter-on-quarter. EBITDA for the quarter was INR 12 crores, a decline of 25.4% year-on-year and a decrease of 46.5% quarter-on-quarter. For the international branded formulation business, the revenue stood at INR 35 crores, a decline of 1.5%. At Q1 of '26, we were at INR 35 crores and a decline of 3.6% quarter-on-quarter. Q4 FY '26, the revenue stood at INR 36 crores. EBITDA for the quarter stood at INR 6.9 crores, a decline of 14.4% year-on-year and a decline of 31% quarter-on-quarter. API revenue stood at INR 32 crores, a decline of 29.7% year-on-year. Q1 FY '26, it was INR 45 crores and a decline of 2.3% quarter-on-quarter. Q4 '26, the revenue stood at INR 41 crores. EBITDA for the quarter was at minus INR 4 crores. The losses were lower than Q1 FY '26, which stood at minus INR 6 crores as well as Q4 FY '26, which stood at minus INR 12 crores. Driven -- this was largely driven by an increase of non-cepha products in our overall portfolio. Trade generic business stood at INR 21 crores, a decrease of 9.5% year-on-year and a decrease of 23.4% quarter-on-quarter. EBITDA continued to remain at breakeven for the second quarter in a row. It was -- it is generally higher than the breakeven of INR 0.1 crores compared to minus INR 5 crores quarter 1 FY '26 and INR 1.1 crores in quarter 4 FY '26. Our balance sheet continues to remain very healthy with a cash surplus of INR 1,616 crores. The operating cash flow for the company for the quarter 1 stood at INR 65 crores. This concludes the financial highlights for the quarter. I would request the moderator to open the forum for the question-and-answer session. Thank you, everyone.

[Operator Instructions] The first question is from the line of Vivek Agrawal from Citigroup.

Congrats on the set of numbers. First, on the CDMO segment, is it possible if you can highlight how to think overall growth in terms of volume and value this year as well as the next year? And second, if you can also give some color as far as the margins are concerned.

Hello, everyone. This is Sahil. So Vivek, -- look at the volumes for Q2, right? So the volumes also look healthy in high teens, at least for this quarter as well. As the momentum continues, we can update how the rest of the year also goes. But whatever visibility we have today, Q2 also looks extremely encouraging PA prices, they are volatile, right? But at this point in time, they are volatile moving upwards. So practically, if you look at it, Q2 also looks steady, and we expect to end this year as well on a good note.

Understood. Any color on the margin trajectory?

Margins are expected to remain in similar levels, right? So we have always guided for a 14% to 15% margin. And obviously, quarter -- as you've always discussed, it's difficult to rate the business quarterly. But overall, at an annual level, we expect that the margins should remain in the 14% to 15%. And given Q1 has been strong, we can incline towards the upper bracket of it.

Understood. Q1 margins are a bit higher side and this is kind of...

So as I said, the prices of the API were also high. And if you remember, Q4, we also had built some inventory to protect ourselves, right? So these are strategic calls we took, which helped us secure our margins.

Understood. And lastly, if you can help us understand, Sahil, what are the initiatives that you are taking in the branded and really the domestic and international formulation and how to look at the growth trajectory in these markets as well?

Sure. So quickly, I'll tap both of these segments. So first is domestic branded Akumentis. So as was mentioned in the initial note, we have added almost 200 people in our field force to tap through adjacent headquarters, which are of importance where we can cap some growth, right? So the focus here remains how do we expand our presence into prescription business. The focus still remains on our key performing therapies, which is gynecology, cardiology as well as pediatrics. And we also have presence in orthopedia and derma, which follow, right? So that remains a focus within the Akumentis business, and we are very positive that over the next 2, 3 years, this will be a key segment for the company, both in terms of top line as well as the profitability. On Unosource, again, while this quarter was muted, we see good growth orders in our coming quarters, right? So there is a strategy which we are taking are twofold. One is while we say we are present in 60-plus geographies, which are our star focus, whatever you call them, these markets which we have to trail down, right? So there are a few set of markets which we have discussed that these are focused markets where most of our time and energy resources will go. And secondly, the product portfolio as well. So we are filing niche first to launch products in various markets, which will help us build sticky, high-margin businesses.

Understood. And what exactly has impacted growth of these segments in this quarter?

So Akumentis, if you look at top line growth was there, but bottom line was not there given most of it the additional EBITDA drain that we had in Q1 was largely on account of almost 200 field force, right? So that's almost 15% increase in our field force, right? So in the initial quarters, as you rightly understand, you don't generate PCM out of, right? So that was a drain on our EBITDA. On Unosource, that was one quarter where we saw limited but Q2, Q3 onwards, we'll have the growth back on track.

So next question we have from [ Pooja ].

Sir, I wanted to ask that with the IPM growth accelerating, what is your outlook on the volume growth for FY '27?

So thanks for the question. So if you recollect quarter 3 of last year, quarter 4 of last year and quarter 1 of this year, we have seen almost high teens of volume growth, right? Q2 also looks strong at high teens, right? While the volume growth in the IPM has been in the range of 2%, 3% or something plus the new launches, right? So for us, this has always been the key driver for our business and particularly over the last 1 year, this has been the key lever for our growth. While this could be a period where we have sizable volume growth, but we remain confident that our volume growth will at least be double digits in the coming quarters.

Next question from Aanchal Maheshwari.

[Technical Difficulty]

Sorry to interrupt. Your voice is breaking.

So I think there is some challenge with...

Current participant. So the next question is from the line of Aanchal Maheshwari from Naredi Investment.

I just had one question on your domestic growth side. Sir, can you give us a mix of how much was the volume growth and how much is the value growth mix? And also, are we planning any price increases for our domestic business this year?

So the growth has been driven by a mix of new product launches, price growth as well as volume, right? So given the growth is only 7-odd percent, right? So all 3 have contributed a bit to this top line growth. And as far as price growth is concerned, we have already taken price growth, and this will also be reflected as we move on this quarter.

Sir, is it possible to quantify the numbers?

No.

The next question is from the line of Sangeeta from Cogito.

This is Sangeeta's partner, Andre. First of all, congratulations for a great set of numbers. My first question was on API. This is a question I keep asking. Is there a time frame within which we will evaluate whether we want to continue with this business? That's my first question.

So the management is fully confident, right? So this is a business we have been investing for over 3, 4 years now. The fruits of which are very visible as we speak, right? So the quarterly losses have been gradually coming down. So as far as we speak as of now, we are fully into this business. Our cepha business, we have been able to come out of the low-margin products and as well as increase our basket of non-cepha products, including lenazolid, Monte Lucas and so on, which are helping us improve our margins, right? So I think at this point in time, it's not a question of whether we make a U-turn from here or not. It is how do we improve the profitability and then scale this business into a profitable venture.

Okay. And just I'd like to give some feedback as a minority shareholder that as a minority shareholder, we would be delighted if you actually got rid of You have an absolutely outstanding CDMO business and you have a lot of traction in the exports business as well. If you were to focus on that, it would delight us. Just a comment that I wanted to.

For -- I think we work in the best interest of the shareholders in the company, right? Being a minority or a majority, we take decisions which are best for the company in terms of capital allocation as well as management bandwidth.

Right. As far as the Europe and Zambia business is concerned, I think you had given a guidance of 15% to 17% EBITDA margins on Zambia. Now do you have any actual numbers to share with us in terms of the EBITDA margins? And is there any updated margin guidance that you can give us on the European business?

So rightly on both the Zambia as well as Europe, so these will be margins which are similar, maybe that higher than in the higher teens compared to our current CDMO business, right? So that's what we can speak as of now. Zambia is something we expect in the H2 that we deliver for this fiscal, the $25 million, which will roughly translate to almost INR 240-odd crores in our revenue. And similar in the next financial year as well. And within the next financial year, we will kickstart our European business as well, which will -- so both of these businesses will uplift the corporate margins.

Okay. And as far as the capacity utilization strategy is concerned, you've always invested in a lot of capacity and you believe in having a lot of spare capacity. Having said that, your utilization has gone up in the previous quarter. So going forward, what is your strategy going to be like? Can we look forward to better capacity utilization? Or are you going to continue with your strategy of having a lot of spare capacity because that gives you a competitive edge?

So our style has always remained to be prepared for market opportunities, right? If you really look at Q2 was a weak volume quarter last year. And then Q3, we suddenly had almost a high teens, 20% odd volume growth, which was again seen in quarter 4, again seen in quarter 1, right? So our spare capacity was of a real help, right? And as we've always said, we could move up to 55%, 58%, 60-odd percent as our total peak utilization. We have already -- we are already at 50-odd percent, right? So the strategy remains given there's a continued focus on better quality drugs in the market. There are increasing opportunities of volume growth. We are in process of further expanding our capacities.

Right. And last time we spoke about the need to recruit certain amount of senior talent. So where are we on that front either in terms of actually having people come on board or work in progress in terms of senior talent being onboarded?

So senior talent, I don't know which conversation last time, but senior talent, the company today is very well run by professionals across all domains, right, right, from quality, R&D, business development and so on, right? So there is always a need in an organization to bring in fresh blood. But as of now, given you could see in our financials as well, there is ample leadership and talent which is there. And rightly so, we stem a lot into our homegrown leadership as well. So we are fully ready. You've seen orders across Zambia, across Europe, across domestic volume growth, right? So across all fronts, we have great industry talent, which is still with us.

Last time we spoke about the fact that a lot of your people are about 12 class parts, right? And that there is perhaps a need to attract and more educated and more experienced and more senior talent. So that is the context in which I was making this...

I don't think that it kind of conversation had ever happened. We do have all, PHDs, doctorates and you will find that we are having, best percentage of pharmaceutical graduates and postgraduare it with the rest of the industry. I don't think where the conversation...

This is also a feedback that we've been -- this is shared I think on a one-on-one with someone. And this is some feedback that has also been given to us by some of the ex employees. So that's why I'm taking the liberty of sharing this with you.

Not sure. So you can ask anything, but we do have lot of PHDs and MPharms and MDs, all doctorates are there. And all the heads are from top industries like Dr. Reddy's and like that.

[Operator Instructions] The next question is from the line of Bhavin Chheda from Enam Holdings.

Congrats to the management team for a strong growth numbers. Sir, the Zambia sales were supposed to start from Q2 onwards. So has that started?

So I think we always maintained FY, which is there, right? So it will likely be in Q3 and maybe some parts in Q4. As we speak, we are already in advanced stages where we have agreed upon the volumes and the prices with the government over there of almost 100-plus products that we would be supplying in Zambia. So that is completely on track. And this fiscal, we'll recognize the revenue.

Okay. And on the overall net cash number you mentioned on the call was around INR 1,600 crores or that was the cash [indiscernible] That was net of debt, right, INR 1,600 crores?