Alivus Life Sciences Limited (ALIVUS) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to the Alivus Life Sciences Limited Q1 FY '27 Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I will now hand the conference over to Ms. Soumi Rao, Senior General Manager of Alivus Life Sciences Limited for opening remarks. Thank you, and over to you.

Good morning, everyone. I welcome you all to the earnings call of Alivus Life Sciences Limited for the quarter ended June 30, 2026. From Alivus Life Sciences Limited, we have with us Dr. Yasir Rawjee, our MD and CEO; and Mr. Tushar Mistry, our CFO. Our Board has approved the results for the quarter ended June 30, 2026. We have released it to the stock exchanges and updated it on the website. Please note that the recording and transcript of this call will be available on the website of the company. Now I'd like to draw your attention to the fact that some of the information shared as part of this call, especially information with respect to our plans and strategies may contain certain forward-looking statements that involve risks and uncertainties. These statements are based on current expectations, forecasts and assumptions that are subject to risks and which could cause actual results to differ materially from these statements depending upon the economic conditions, government policies and other incidental sectors. Such statements should not be regarded by recipients as a substitute of their own judgment. The company undertakes no obligation to update or revise any forward-looking statements. Our actual results may differ materially from those expressed in or implied by these forward-looking statements. With that, I invite Dr. Yasir Rawjee to say a few words. Thank you, and over to you, Dr. Rawjee.

Thank you, Soumi. Good morning, everyone, and welcome to our Q1 FY '27 earnings call. We are pleased to begin in the first quarter on a positive note marked by healthy revenue growth, improving profitability and continuing momentum across our markets. So we reported revenues of INR 640 crores, which is a 6.4% year-on-year growth during the quarter. Our performance this quarter was particularly encouraging as it delivered despite a significant decline in the GPL business, reflecting the growing strength of our broader portfolio and the resilience of our business model. Our non-GPL business delivered strong growth of 26.5% year-on-year, driven by successful new product launches and strong demand across all geographies. So the momentum we have built in recent quarters continues to strengthen with recently launched products continuing to gain scale across markets. So this has provided greater diversification to our revenue base and created a platform for sustainable growth going forward, giving us confidence in the sustainability of this momentum. GPL has been muted as a result of inventory rationalization. And so if you recall, Q4 was pretty strong, and we saw a dip in Q1, a decline of 52.6% year-on-year. However, the strong execution across the non-GPL portfolio helped us to offset this impact, underscoring the benefits of a broader and increasingly diversified growth engine. While growth in the GPL business is expected to remain flattish in FY '27, the business has been historically weighted towards the second half of the year and we expect a similar trend to play out this year, resulting in a stronger H2 performance. At the same time, we expect the healthy growth momentum in the non-GPL business to continue, supported by a robust product pipeline, recent launches and sustained demand across all markets. This provides us confidence in our ability to deliver growth despite the near-term weakness in the GPL business. Overall, the underlying strength of the API business remains intact. Geographically, we saw broad-based growth across all markets during the quarter, highlighting the strength of the diversified business. On the profitability front, a favorable product mix and newer launches helped improve gross margins to 60.2%, an increase in 510 basis points year-on-year. Enhanced operational efficiencies and ForEx gains also supported 650 basis points Y-o-Y improvement in EBITDA margins to 36.6%. These margins reflect the quality of our growth and disciplined execution. Our CDMO business recorded 3.8% Y-o-Y growth during the first quarter. Given the inherently lumpy nature of the CDMO business, the performance does vary from quarter-to-quarter. We've seen that before. However, we can expect the segment to gain momentum in the second half of the year, supported by contributions from newly added projects. On the CapEx front, Solapur continues to progress as planned. There's a little bit of a delay, but it's going to be operational in early Q3 of FY '27. So construction at Taloja, the R&D center has begun in earnest, and it is -- it will happen on schedule. The pipeline remains robust. With 615 -- 617 -- I'm sorry, DMF and CEP filings globally as on June 30. Our high-potent API portfolio continues to advance with 29 products in the active grid, representing a total addressable market of $82 billion. Of these 13 products have been validated, 7 are in advanced stages of development and the remaining 9 products are progressing through lab development stages. So while we remain watchful of the evolving geopolitical and demand environment, the strength of our business fundamentals gives us confidence in our growth outlook. We are guiding for revenue growth of 10% to 12% in FY '27 with growth skewed towards H2 FY '27. We also remain confident of sustaining EBITDA margins in the 30% to 32% range. So with this, I now turn the floor to our CFO, Mr. Tushar Mistry, who will walk you through our financial performance for the quarter in depth.

Thank you, Dr. Yasir. Good morning, everyone. Welcome to our Q1 FY '27 earnings call. I would like to highlight the key performance updates for the quarter ended 30th June 2026. For Q1 FY '27, revenue from operations stood at INR 640 crores, a growth of 6.4% year-on-year. Gross profit for the quarter was INR 385 crores, up 16.3% year-on-year. Gross margins for the quarter stood at 60.2,%, up 510 basis points year-on-year, driven by new launches, product mix and operational efficiency. EBITDA for the quarter was at INR 234 crores, up 29.1% year-on-year. EBITDA margin for the quarter was at 36.6%, up 650 basis points year-on-year. PAT for the quarter stood at INR 160 crores with PAT margins at 25%. Turning to the therapeutic mix. CVS and CNS continued to anchor growth during the quarter, together contributing 58% to the top line. Overall, chronic therapies accounted for 74% of top line in Q1 FY '27. R&D expenditure for Q1 FY '27 was INR 24 crores, which was 3.7% of our sales. On the balance sheet and cash flow moment, our CapEx for the quarter stood INR 85 crores. We expect to incur a CapEx of approximately INR 540 crores in FY '27. We generated a strong free cash flow of INR 90 crores, leading to cash and cash equivalents including short-term investments of INR 880 crores as of 30th June 2026. We continue to remain a debt-free company. Overall, we believe the business is well positioned to deliver steady growth over the coming quarters while maintaining strong profitability supported by improving demand trends and continued operational discipline. With that, let us open the floor for Q&A.

[Operator Instructions]. We take the first question from the line of Ahmed from Unifi Capital.

Dr. Rawjee, congratulations on the great set of numbers, especially for the non-GPL business. My first question is to understand the gross margins a little better. If you look at last 3 quarters, obviously, the gross margins have improved materially. You have spoken about a lot of process improvements, yield improvements and so on and so forth. If one has to try to understand the delta which has come in, how much is due to the process improvements you have made? And how much is because certain products, new launches have done well in the initial life cycle and that may sort of normalize as we move ahead? How should we look at it? And the point I'm trying to understand is whether 60% is a more sustainable gross margin? Or as things move ahead, it may normalize a little bit?

So the 2 main reasons are launches and operational efficiency. Launches will not -- I mean, the margins from launches will not just drop off. I mean, the word you used is normalize, right? Because we are always ready with the second-gen process, okay? So we expect and the sort of launches have not fully fructified. There are still markets opening up for the new molecules that we recently launched. So that growth along with the margin stability will continue. And we've had a significant improvement on the operational efficiency side, which also is incremental and will continue to deliver.

Sure. Then in that case, if you assume gross margins should be more sustainable. Obviously, there will be a quarter or two here or there. Then the EBITDA margin guidance, which you have is then -- it implies it's fairly conservative.

Yes. We can guide to a better margin, frankly. I mean, even up to 34%. The issue is this war situation, right? And what it's doing to raw material prices. So we need to be a little bit cautious. There's no point giving you a higher guidance and then not delivering. So much rather, I mean, as a company, we've been always conservative. We tell you what we can do. And if there's an upside, there's an upside. But basically, it's the war situation that has made us a little more cautious in giving a higher guidance.

Sure. And secondly, I mean, on the war situation itself, how do you see -- I mean, raw material prices, have they corrected meaningfully from the peak for you as a basket? Have you been able to pass on the pricing? Has there been price hikes in your end products and that helps you mitigate part of the raw material hikes?

So there has been an increase in raw material prices. It's not been very steep, okay? And we have managed to pass on a part of it to our customers. But we'll have to see how to -- I mean, manage that. I mean there's a steep increase. Obviously, customers do understand. And I mean, we've had positive feedback from customers that, yes, we know the situation and they are okay to support. But then you can't do that across the board. So we need to understand that too.

Is it fair to assume in the near term, the 60% margin broadly should hold? Or it's just way to be...

Yes. Like you said, a quarter here, a quarter there, but yes, I think we can hold.

Yes. On the GPL part of the business, obviously, this was steep degrowth you have alluded to full year numbers being flat. Does that confidence come from the conversations in terms of what order pipeline, what product pipeline do you want to deliver them over the next 3 quarters because there is a certain hesitance among investors, at least. That part of the business is that degrows materially, then the entire efforts on the non-GPL business is sort of offsetted. So how should one look at it as a whole for the full year? Yes, I understand Q1 was -- I mean, inventory escalation, those things happen. But full year, if you can give a little more color in what gives us confidence to achieve whatever INR 700 crores, INR 750 crores range, which we have been delivering for last 3 years in GPL business?

That's exactly right. I mean what you said is that it's that they are an old customer, okay, and a very big customer and spread it out. There are more than 50 commercial products that we supply them. So there's -- Q1 is not an indicator of how the year will go. And we are pretty confident that in the sort of worst case, it will be a flattish growth.

On the new launches and HP API pipeline, I mean, I'm assuming there will be gradual progress happening every quarter in terms of where we reach in terms of commercializing those for '28, '29 products we have as of now. Is there anything coming by end of this fiscal year? Or it is more tilted towards FY '28, '29 and beyond? Are there any new launches we can expect to happen in FY '27 and or so on?

Yes. So the sort of -- it starts off in the end of calendar '27 with the patent expiries, but then we have a good run for the next 4 to 5 years with the pipeline on HP API, okay? So end of calendar '27, so that's more like FY '28. Of course, starts off a little earlier, okay? Because they have to buy launch quantities, customers have to prepare for launch. So we could -- something, okay? But our projections are more FY '28.

Sure. That helps. And lastly...

Ahmed, I do apologize to interrupt you, could you please join back the queue for follow-up questions. [Operator Instructions]. We take the next question from the line of Yog Rajani from Omega Portfolio Advisors.

My first question was regarding the margin improvement. So since our GPL business has come down, would it be a fair assumption that the non-GPL business is more margin accretive than the GPL business?

Yes, we can say that.

Okay. Great. My second question is, if you could give us some more clarity into how we are better positioned with regards to the entire global conflict. So as I understand, we are very good at solvent recovery compared to, say, a lot of our peers. So does that put us in a significant competitive advantage in the current situation?

So net consumption, I mean, is favorable for us on our processes, but there's still a requirement, and we have a pretty wide product basket. So even the range of solvents that we use is much, much bigger than we typically would if we had a sort of lesser portfolio. So solvents are -- and you've seen oil prices, right, the way they are going. So solvents do have an impact. And we're trying to get better. Recently, I mean, we introduced a membrane-based technology apart from just regular distillation, okay? And that is proving to be pretty effective. So we might scale that up. But again, we might improve by about 5% to 10% there on recovery. It's not going to be like -- we can't recover everything, okay?

[Operator Instructions]. We take the next question from the line of Costa from Paul Asset.

You previously highlighted that you're expecting to close 2 brand new CDMO contracts in early H2 FY '27. So is that still on track? Or are there any changes?

It's on track.

It's on track, right? So as I understand the non-GPL business is more margin accretive, right? So will the EBITDA margins blend lower as GPL revenues improve in H2 FY '27?

Well, we factor that in to the...

And that's the reason why we are giving slightly, I mean 32% while we are saying and Doctor mentioned, that it can go to 34%. But given the current quarter is 36.6%, if GPL comes in, it can come down to around 34% in a steady-state scenario.

[Operator Instructions]. We take the next question from the line of Sucrit D Patil from Eyesight Fintrade Private Limited.

I have 2 questions. The first question to Mr. Yasir. Beyond the regular outlook, what are the top 2 to 3 execution priorities you are focusing on in the next few quarters. And alongside that, what do you see as the biggest risk in client adoption, regulatory shifts or compliance pressure? And how are you preparing to manage them while you strengthening Alivus position in the API and Life Sciences solutions? That's my first question. I'll ask my second question after this.

That's a big question. You talked about compliance pressure and what else, Sucrit?

CapEx regulatory approval or the diversification along those lines.

Okay. So see, Solapur will be up and running by Diwali, okay? And we are going to trigger an inspection within a year from some major regulatory agencies, okay? So we've lined up those products, okay? So I would say that if we are able to achieve that within a year of getting Solapur up and running, then that's a big milestone that we would be -- we would have achieved because then we get a good run rate for the next 3 to 4 years for servicing the business with Solapur, okay? That's one big thing. As far as compliance pressure goes, I think we've had a pretty decent track record. Things have been going well. And because we got the FDA, we got a VAI in Ankleshwar and NAI in Dahej. A lot of agencies are actually not coming anymore, okay? So this year has been relatively light in terms of the audit scenario from major agencies. Of course, we continue to have customer audits. And those are fine. Those are happening. So I don't see any major compliance pressure issues, okay? You also asked about scaling up the business -- execution priorities, yes. So look, I mean, we've got to get the launches right, okay? So far so good. If you've seen in the last 3 quarters, launches have been contributing significantly and I explain to one question, I think, Ahmed before that the launch momentum is pretty strong, okay, because market -- because patents don't expire at the same time in all markets. And so as patents are expiring, we -- our newer products are having a significant volume growth. So we need to execute and ensure that we service across markets.

Can I ask my second question?

Yes, yes, go ahead, no.