Alkem Laboratories Limited (ALKEM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Alkem Laboratories Limited Q1 FY '27 Earnings Conference Call hosted by Motilal Oswal Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Tushar Manudhane from Motilal Oswal Financial Services Limited. Thank you, and over to you, sir.

Thanks, Yusuf, and sorry for the delay in the start of the call. Good evening, everyone, and a warm welcome to our first quarter FY '27 Earnings Call of Alkem Laboratories. From management side, we have Mr. Sandeep Singh, Managing Director; Mr. Nitin Agrawal, CFO; and Purvi Shah, Head of Investor Relations. Over to you, Purvi.

Thank you, Tushar. Good evening, everyone. On behalf of Alkem Laboratories, I welcome you all to our Quarter 1 FY '27 Earnings Call. Earlier today, we announced our financial results along with the press release and investor presentation, all of which are filed with the stock exchanges and are also available on our website. We hope you have had an opportunity to review them. Before we begin, I would like to remind everyone that this call is being recorded, and the audio recording and the transcript will be made available on the stock exchanges and our website shortly after the conclusion of the call. Please also note that today's discussion may include certain forward-looking statements, and these statements should be viewed in conjunction with the risks and uncertainties that are associated with our business and the environment in which we operate. With that, I now would like to hand over the call to our MD, Mr. Sandeep Singh, for his insights. Over to you, sir.

Thank you, Purvi. Good evening, everyone. Thank you for joining our call. The period under review has been one of continued execution of our strategy. While the operating environment remains dynamic, we have stayed focused on the fundamentals, strengthening our core business, improving operational efficiency and investing selectively in the areas that can support a sustainable and profitable growth. We are encouraged by the progress we are making across these priorities. At the same time, we remain conscious of external challenges and then maintaining a disciplined approach to capital allocation, cost and risk management. I will briefly walk you through the key developments and our outlook. After which, we will be happy to take questions and engage. The key highlights are that our revenue from operation was INR 3,740 crores, with a year-on-year growth of close to 11%. India sales were INR 2,497 crores and year-on-year growth was 10.3%. International sales was INR 1,222 crores, with year-on-year growth of 16%. EBITDA margin was 20.5%. The growth was 3.7% year-on-year. R&D expenses was 4% of our total revenue. Profit before tax was more or less flattish, technically 1.8% of growth. And the net profit, there was a degrowth of 21.7%. This is purely because of taxation reasons, and I'm sure our CFO will deep dive into this later on. According to IQVIA data, the company registered a growth of 13.2% year-on-year versus the Indian Pharmaceutical Market, which grew by 12.2%. This is a 100 basis point outperformance just as we had guided to you earlier. Acute segment reported a growth of 12.3% versus the IPM, which grew by 10.1%, which is a 220 basis point outperformance. Chronic segment reported a growth of 17.9% versus the IPM, which grew by 15.4%, 250 basis point outperformance. We have outperformed IPM in 7 key focus therapies, anti-infectives grew by 1.1x of the market. Gastro grew by 1.2x of the market. Vitamins and Minerals grew by 1.4x, Pain by 1.8x, Anti-Diabetic 1.4, and Respiratory, 1.6x. And last but not the least, Derma, 1.6x. During the quarter, for the U.S. market, the company received 5 ANDAs approval. One of them was a tentative approval. [indiscernible] Daman facility has received an OAI status. We have already initiated comprehensive corrective and preventive actions and remain fully engaged with the regulators to address the observations. While this represents an important regulatory development, approved product supplies from the facility continue to the U.S. market without any interruption. With this, I open the floor for Q&A. Thank you.

[Operator Instructions] First question is from the line of Saion Mukherjee from Nomura.

Sandeep, you mentioned about growth in India, higher than IQVIA -- market growth as per IQVIA. We have seen some improvement in growth rates, but at 10.3%, it's lower than most of the pharma companies we reported so far. Can you throw some light around the dynamics here? What do you think is impacting the growth rate in India? And is there something that would need to improve growth rates in the quarter?

Yes. So see, I think the India growth rate is kind of dragged down because of the trade generics. Trade generics growth was flattish to a very mild growth, and trade generics now contribute reasonably to our domestic formulation. So that dragged it downside.

And what was the branded growth this quarter, branded generics?

It was 12%.

Okay. And Nitin on -- the costs have gone up. I mean, you had, I think, guided earlier, employee cost and other expenses are on the higher side. So if you can indicate how much of the cost is on account of CDMO medtech, which might not be contributing at this point? Or for that matter, if you can talk about the EBITDA loss from these businesses in this quarter?

So in terms of employee cost, yes, the growth is more than 16% in the quarter. There are 3 reasons. One is definitely the annual increment. The second is we have added around 1,200 [indiscernible] in the last few quarters. So that also impacted the employee cost. And the CDMO business in Enzene became operational from November '25. So that was the third impact on manpower. In terms of other expenses, yes, there were expenses on account of [indiscernible] CDMO business, plus the conversion rate for dollar has increased, which has also benefited us in terms of top line, but the impact is also on other expenses, where all our subsidiaries, foreign subsidiary expenses got converted at a higher rate, it's almost 10% higher than the last year rate. So these are the reasons. Medtech, yes, we have completed the acquisition of Occlutech, that was in mid of July. So our quarter 1 numbers, we are not impacted because of Occlutech. Yes, the Ortho business, which we acquired, but I think small scale at consolidated level, the impact is not that high. But just to share the numbers, yes, there was between, you can say, if we exclude the division's cost and all of Occlutech, the EBITDA loss of around INR 5 crores to INR 7 crores because we are also investing into this business. We are filing our products outside India. So definitely, this business will break even maybe in the next 12 months, but the scale is small, like at yearly level, we'll do around [ INR 50 crores ] of sales from the Ortho business other than [ Occlutech. ]

And the U.S. CDMO operational expense, I mean how much is the drag from there?

U.S. will incur around [ INR 60 crores ] of operational expense. So definitely, it's a new business. So we plan to break even in the next, say, 4 to 5 quarters. But yes, for the quarter, it was around [ INR 60 crores. ]

Next question is from the line of [ Sandeep Kumar S. ] from [indiscernible]

The first question is on what is the current status of [ denosumab ] biosimilar in the U.S.?

Yes. So, denosumab biosimlar approval is a little bit off. So we did not get the approval on the goal date. So that is pushed off by at least a few months.

Okay. So my second question is on the EU region. So on the following approval of Osqay. So are there any specific targets like region markets where the launch is being prioritized? [indiscernible] expected financial benefit?

Okay. No, no. So, sorry, I didn't get you properly. You're asking about denosumab Europe, like plan, right?

Yes, Osqay, Prolia biosimilar.

Of Prolia?

Yes, Prolia.

Okay, okay. Yes, we have -- yes, your usual [indiscernible]. So we have a partnership with a company called Theramex. So they are our partners. We are not doing it directly. And as you know, it's very competitive. So there are many, many players even in Europe, just like U.S. So it's not going to be a very meaningful ramp up for any one of us for some time. So it's not something very significant. Yes.

Okay. So my last question is on [indiscernible]. The reason the opinion on [indiscernible] biosimilar. So when can we expect the launch of [indiscernible] biosimilar in Europe?

We could be like 3 months away.

[Operator Instructions] Next question is from the line of Amlan Jyoti Das from JPMorgan.

So question is regarding the India biosimilar.

Sorry to interrupt, Amlan. There is a background noise coming from your end.

Yes, is it all right now?

Yes, please proceed.

Sir, a question on the India biosimilar front. You had some 6 to 7-odd biosimilars in India launched for the India entity. How has this portfolio done over the -- since launch? And what revenue is contributing to the India revenues per se?

Nitin, do you want to take that?

We have already launched 7 products, as we said, and we do around INR 150 crores of annual sales. So I don't -- I think have done really well. And because of this backward integration, the margins have also improved for these products at consolidated level.

So sir, this revenue is a part of your India revenues, is it?

Yes, yes.

Okay. Then next on Occlutech. So sir, since you have closed the deal in July this year. How do you see the growth for this business as a whole going forward? And how do you see the margins spending up? I remember you guided to some reaching 10% margins in the near term. So does that guidance hold still?

This year, the original plan was to complete the acquisition and start indication sometime in first quarter, but that got delayed. So we just completed the acquisition last -- in mid of July. And we have started the integration. So this year for around 8.5 months, our target for Occlutech is around INR 400 crores of sales with breakeven EBITDA because of delays in -- that happened in case of integration. So yes, it will be a bit of the guidance, which is [indiscernible].

Okay. And sir, how should we see this margin going ahead, say, in the next 2 to 3 years?

So every year, you'll see a gradual improvement in margins. And as we discussed during our investor meet that a lot of integration with India operations will start kicking off from next quarter. But yes, you can see a 7% to 8% improvement in EBITDA year-on-year. And we target to achieve our guidance over 3 to 4 years. Yes. But it will be a very healthy EBITDA business for us within 3 to 4 years.

Okay. And sir, lastly, if I may squeeze in. From this [indiscernible], could you share the percentage of revenues on the [indiscernible] U.S. if it's available?

I think 45% of our U.S. revenue comes from this facility.

And sir, all of these revenues or all of these products are still in supply?

Yes, yes, very much.

Next question is from the line of Kunal Dhamesha from Macquarie.

Can you throw some color on why the trade generic business is not growing? What is -- is it industry dynamics? Is it company-specific dynamics?

I think it's a combination of both. It has got very intensive, the competition, 4, 5 years back, you would remember that not many companies wanted to play in this segment. But now a lot of big guys have entered. And also, it's internal because at a large number, a lot of large numbers kick in. We are maybe the #1 or #2 in this segment. And we also tightened the market practices slightly,that will shift on the number of days outstanding. So effort is leading to this.

If you look at our numbers for Jan to June quarter, Jan to June period, we did well in terms of growth. But yes, from April to June, there were some strategic calls taken on outstanding DSOs and all. And also, we have [ increased ] our prices because of increase in API prices. So I think the inventory levels in markets, they have also gone down. So in coming quarters, the primary sales or the sales from this business should recover and lower growth, which we saw in quarter 1, I think in the upcoming quarters, the growth should be higher than that. So Jan to June, we did well in [indiscernible], if you look at 6-month numbers.

And sir, well means double-digit growth? How to put that into some form of quantification?

So it was high single digit.

High single digit. Okay. And then we are seeing April to June was flat on a year-on-year basis?

Yes.

So Jan to March would have been double digits?

Yes, you can say that.

Okay. Secondly, on the CDMO business drag of INR 60 crores, right? That number looks quite big. And so basically, what is the -- is this annual or quarterly?

This is quarterly.

Yes, this is expense for CDMO.

So let's say, for us to become breakeven in the next 12 months, what kind of revenue we need to generate? And then in terms of the pipeline of projects, do we have the [ availability ] now?

No, good question. So next 12 months, we'll not break even, just to be very clear. For U.S., you will not break even. That's number one. Revenues, what we need to have will be close to [ $20 million ] to breakeven.

Sir, I didn't get your number. Sorry, $12 million?

No, no, I said $30 million. Sorry. Yes, I said $20 million, but it's actually $30 million. So we have the $30 million, we'll breakeven over there.

Per quarter?

No, annualized.

Annualized. Okay. And then for that -- because the CDMO is a pretty big spectrum, right? So which is the path that we are initially targeting from -- yes, that would be helpful.

This is in the [indiscernible] monoclonal antibody. So it's precisely that. We are just into [indiscernible], and we do the development to clinical trial supply and hopefully commercial in the future. But right now, these are most of the time clinical trial batches and development batches.

Sure. So let's say, for the $30 million run rate, would you be -- like how many projects do we need to be working on?

No. So all that we know. So it depends, some projects are pretty large. So it's not the number of projects. I think we've got a decent pipeline. Our CDMO has a sales cycle very different from what we traditionally do as branded pharma. So I think we have to be patient over there. And the cycle time is pretty large and to work with these companies who could be innovators not necessarily large pharma, even small biotech, they take their own time and it's dependent on a lot of things, how well they get funded, how the [indiscernible] track progresses. So I think it's a mix bag where patients would be rewarded. And just like I'm sure you track a lot of CDMO companies, I know that. So we cannot measure it with the same tape, which we measure the traditional Alkem or any pharma. But we are positive. Therefore, we have put [indiscernible].

And sir, lastly, let's say, what type of capacities do we have there? Is it currently more R&D related and then eventually would it require for us to put some kind of capital expenditures?

Yes. So we have reasonable capacity. We are not very big. We have small capacity, but our technology is a little different. So if I tell you in [indiscernible], that will not really do justice to what we can produce over there. And second part, at some point of time, it will require CapEx to happen over there as we ramp up because without it, we will not fully get economies of scale, just like any API/CDMO or biotech business. And that will not be this year.

And this facility is GMP compliant like [ U.S. FDA ] approved?