Anthem Biosciences Limited (ANTHEM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Anthem Biosciences Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Forum Goshar from Adfactors PR. Thank you, and over to you, Ms. Goshar.

Good morning, everyone. I'm Forum Goshar from Adfactors PR, Investor Relations. On behalf of Anthem Biosciences Limited, it is my pleasure to welcome you all to the Q1 FY '27 Earnings Conference Call. Joining us on the call today from the management team are Mr. Ajay Bhardwaj, Managing Director and Chief Executive Officer; and Mr. Gawir Baig, Chief Financial Officer. We will begin today's call with opening remarks from the management, following which we will open the floor for question-and-answer session. Before we begin, I would like to remind everyone that certain statements made during this call may be forward-looking in nature. These statements are based on the management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. Anthem Biosciences Limited undertakes no obligation to publicly update or revise any forward-looking statements based on subsequent events or developments. With that, I would like to now hand over the call to Mr. Ajay Bhardwaj to deliver his opening remarks. Thank you, and over to you, sir.

Yes. Thank you. Good morning, everyone. This is Ajay Bhardwaj. I'm pleased to announce our first quarter results for the financial year FY '27. Our consolidated revenues from operations for the quarter were INR 418 crores, out of which the CRDMO business contributed 81.5% of the revenues, delivering INR 341 crores. Specialty Ingredients contributed 18.5% of our revenues, delivering INR 78 crores. The EBITDA was INR 176 crores, including other income, with EBITDA margin at 39.6%, that is nearly 40%. The EBIT includes other income of INR 25 crores. PBT was INR 145 crores. Our profit before -- after tax for the quarter was INR 120 crores with PAT margins at 27.1%. Net cash position of the company as of June 30, 2026, was INR 1,720 crores. Our first quarter of FY '27 results reflect timing shifts in deliveries to key customers. The underlying demand remains strong with a higher concentration of scheduled deliveries in the latter half of the year. We are positioning to capture that momentum. We remain firmly committed to sustaining revenue growth aligned with our long-term historical performance. On the margins front, we delivered year-on-year improvement across both EBITDA and PAT margins. Our disciplined focus on cost efficiencies, yield optimization and employee productivity continues to reinforce our industry-leading margin profile, positioning us to sustain this performance throughout the year. Thank you very much. And now I get -- I'm open to questions. I have with me my colleague, Mr. Gawir Baig, who is our CFO. So any questions, we'll be happy to answer.

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

Can you update on the capacity utilization at Unit 1, 2 and NeoAnthem as of first quarter? And how should we think about utilization levels in these units change in the course of the next 3 years? And also, any time line with respect to regulatory inspection required for Unit 3 by U.S. FDA or European authorities?

Thanks, Saion. See, with respect to our capacity utilization, last year, when we ended the year, roughly about -- Unit 1 was about 74% utilized. We continue to have the same utilization in our Unit 1 and even this quarter, roughly about 75% -- 78% utilized right now on the custom synthesis side. Unit 2 was about 65% utilized last year for the full year because we had gone through significant expansion over there by adding about 130 kiloliters. This quarter being a slightly softer quarter, our utilization was about 50% for Unit 2 across the expanded capacity on custom synthesis side. Fermentation utilization is about 50% for Unit 2 across that 140 kiloliters that we have in fermentation. Unit 3 has been picking up from a utilization point of view, roughly about 30% to 35% is the utilization for quarter 1 of FY '27. This is a ramp-up from what we had about 15-odd percentage of utilization in FY '26. So there is a ramp-up in Unit 3. What do we expect going forward? We expect all of these units to be completely full. And that's the reason why Unit 4 is what we have -- we are setting up. We are in the midst of construction over there. And I think by end of next year, we'll be able to commission Unit 4, which can add another 365 kiloliters of custom synthesis and 100 kiloliters of fermentation. So in the next 2 years, we would look at ramping it up to almost optimum capacity utilization across all the 3 units.

Yes. Okay. And so just one clarification. So the increased utilization at NeoAnthem is primarily the shifting of some production from the existing units to NeoAnthem. Is that what is happening?

Some of it is that, but most of it is new orders that we are getting because we have a very modern pilot plant there. We have also our peptide synthesis and oncology manufacturing there. So some new projects are being put into that unit now. So it is not just shifting some of it. It is mostly new projects that are coming into Unit 3.

Okay. And just one more question. In the quarter, is there any update on the new contracts, new client traction, large pharma, mid pharma, any development that you would like to share? And some of the initiatives on peptides, et cetera, if you can talk about any traction that you've seen over the last 3 months?

Yes. So in terms of adding customers, we actually have one new big pharma customer, which has been added. And this is -- we expect that to yield significant numbers going forward. One of our large customers, biotech customers also got acquired by a big pharma. So that is something that we still yet to pan out. This happened very recently, maybe a month old. So it all continues to be good. And just to again add to the -- your query when Gawir was answering that 50% utilization of Unit 2 in this quarter. And the subsequent quarters, we are very confident of having much better numbers because our customers have deferred deliveries to the quarter 2 and quarter 3 and 4. So the capacity utilization is only going to go up. So we continue to be very bullish for the year. We have a very high degree of visibility because 60% of what we need to do, we already have order book. So we are sitting on a very strong order book. That gives us the confidence that we'll achieve our growth that we intended to do right at the beginning of the year.

Sir, just one clarification. You mentioned one new big pharma significant contribution possible. Any time line that you have, like in how much time you will see that traction showing up in numbers?

Well, we -- it should happen in the latter quarters of this year. It's -- the agreement hasn't yet been signed, but it's in the works. So sometimes these drag out, but the customer is on board, it's just a matter of now crossing the Ts and dotting the Is, and that's happening.

Okay. So this is like an existing commercial projects that you would be starting to manufacture? Or this is a new molecule?

It's an engagement, which is a multidimensional engagement. There's R&D, there's new projects, some products that they need, which they are sourcing from -- they want to diversify their supply chain, that's going to happen as well.

The next question is from the line of Udit Bokaria from Catamaran.

I just wanted to understand, you had mentioned that we have a visibility of 60%. So usually at the start of the quarter, what is the visibility which we have for next quarter sales? And secondly, if you can just bifurcate what constitutes the remaining 40% across -- or if you can just give what is the visibility which you get in your manufacturing business, what is the visibility which you get in your R&D business? And what is the visibility you get in your specialty ingredients business?

Specialty Ingredients business, let me address that first. That's an ongoing business. That's largely India focused. So that is month-on-month, we get orders. So some of them are, of course, long-term contracts, but this is more of a B2B business within India. When it comes to quarter-on-quarter, see, we get visibility, some of the large customers, they give us orders for the whole year forecast. And then every -- it's a rolling forecast, which is revised and updated every 3 to 6 months. So we have a fair degree of visibility there because these need to be manufactured and there's a lot of raw materials that need to be procured. So we have that window to know that. When it comes to R&D, that is -- again, there's -- whenever we sign a contract, we know that the next quarter, this is what our deliveries are and sometimes it spills into the quarter after that also. So generally, that's an ongoing input we get. But largely for 1 or 2 quarters, there is predictability. So when we are going in at the beginning of the year, when we have something like 50% of next year's order book already in our hand, then we feel confident that the rest of the 50% we will make up in the rest of the year. This year, after 1 quarter, admittedly, it's a muted quarter. We still have 60% of our order book full. So we are very confident about what will happen for the rest of the year.

And usually, the remaining portion is won through like new clients, which we are onboarding or it could be even for your existing products, which you supply customers increase the volumes, like what is...

Yes, it's usually a mix of both. We still have 3 more quarters to go this year, and that's a long time. And we will onboard some new customers. So that's an unknown. That will contribute at least some percentage of sales. However, some of the existing customers, like very recently, one of our customers came back and said, can you supply us extra material this year? And we said, yes, we could. And so that PO became -- got factored in. Additionally, there is also in terms of sometimes the projects in the biotech customers that we have get very healthy clinical outcomes. And suddenly, there's a new order that they need because they need to do the next phase. So it's a mix of both. There's no one suit that fits all, not one size that fits all. But yes, all of them is happening at the same time.

Udit, just to clarify over here, the order book that we are talking is largely for the CRDMO business because Specialty Ingredients is a normal day-to-day month-on-month business, which needs to be delivered. So there is -- the order book concept is largely because for CRDMO business, we need to procure the raw materials and manufacture it. So there's a lead time in terms of manufacturing it and also procuring the raw materials, and hence, we get orders in advance. So when we started off the year, we were with about 60% of the order book for the full year delivery. And now even after quarter 1, we are -- so we have replenished the order book. So even right now also, we stand with about 60% of the order book still being there.

Understood. And this 60% visibility, which you mentioned is only for the CRDMO segment or this -- when we say this is for the whole business, like how should one look at...

So when I talked about 60% as a number as a fraction, that's for the whole business.

Understood. And my second question, sir, we had highlighted that we are -- like last year also, we had onboarded 2 new big pharma as clients. And current year also, as you mentioned, we have onboarded another big pharma as a client. So I just wanted to understand where are we currently in terms of discussion for some of lateral projects or already commercialized molecules? And what stage like have they already audited and have we already signed contracts? And when can we see those translating into orders?

Yes. So when we onboard a new customer, there are 2 ways it's done. One is they acquire an existing asset that we've been working on. So largely, they leave the team untouched for a year or 2 years because it's something that -- it's a new acquisition for them. So it remains business as usual for some time. Then the lateral entry, we get -- we are now in -- only early this month, we got some new inquiries of existing products for a big pharma customer with whom we are doing fairly good business. Now that's something we still have to win. But the fact that they are sending us these inquiries itself means that we've established more than just a toehold in these companies. Also, we are -- as I said, for one of the customers we onboarded last quarter, they are giving us advanced -- the registered starting materials and some advanced materials -- advanced intermediate inquiries. So again, those are -- some of those numbers have already kicked in, but it's just the beginning. See, these relationships are -- they span -- they have a time frame of maturing over 3 or 4 years. So just on a quarter basis, it can be just a start and it's like warming up the car, but it's going to -- we have miles to go, and that will happen in the subsequent quarter and subsequent years. Every time we enroll a customer, these relationships are for years, and that's been our experience. And so every time we bring on board a new customer, it gives us a lot of hope that this is now going to span over many years of contribution.

Sir, just one last question. I just wanted to understand. So a lot of biologic drugs are going off patent. So do we plan to be a drug substance supplier for -- as these products go off patent and to any of the companies which are looking to commercialize it?

Well, we do have some of those, absolutely. But this is not our strategy that we look at the products which are going off patent and we start working on them. See, generally, that becomes part of the generics business, though it's a biosimilar generics, but we are -- we stayed away. But there are customers who approach us, see, for ADCs, they need already established mAbs, which have gone off patent or something like that. Those projects we work on or something which is a client will interest -- come to us and say, we need this biosimilar, would you develop it for us and manufacture it? Those interest us a lot. We have -- as of now, I mean, and I'm not saying it's never going to happen. peptides is another area. These are also large molecules. There, we work with customers, and we also have our own strategy there. But generally speaking, we don't follow the patent expiry list.

[Operator Instructions] The next question is from the line of Mehul Sheth from HDFC Securities.

Sir, first question is around like on your pipeline in liquid molecules. So as of now, we have something like 800-plus kind of active projects plus 10 molecules are in late phase. So can you give some highlight that how many of these projects are into like a space of, we can say, GLP or ADC kind of segment? And any near-term visibility in terms of commercialization?

Thanks, Mehul. Yes, right now, we have about 100-plus programs, which are in early-stage development and 10 on the late phase side. Path to commercialization will still be some time away, closer to about 18 to 24 months. Last year, we have commercialized 4 -- customers have commercialized 4 new molecules. So we hope that some of these 10 which are in the late phase would get commercial soon, and that will add on to the commercial molecule kitty of us. In terms of the modalities in which we are working, see, we have a couple of molecules which are on the ADC side, which are in late phase as peptide molecules are mostly on the early stage side.

Okay. And one last question. Sir, you already mentioned that there has been some timing-related shift in terms of customer ordering and that will be placed in the later part of the year. And given Q1 is down almost like a 25% on a Y-o-Y basis. So how do you see the full year as a growth number for the CRDMO as a business segment?

See, on a -- see, historically, and if you look at our long-term historical growth, we have been delivering numbers consistently. And the consistent -- it's a double-digit growth we have delivered. So what we are saying is for this year also, our growth prospects remains intact. We have our order book full. So we will make up for the lost sales, whatever we have -- decline you have seen in quarter 1 numbers in terms of a quarter 2 upswing as well as the quarter 3 upswing. So you will see the numbers coming back as a recovery in Q2, Q3 and Q4. Our growth prospects for the full year remains intact. It will be in line with our historical growth performance, and our margins also remains mostly intact. This is the nature of a business where you will see that there will be some element of upswing in some quarters and some downswing in some quarters because end of the day, the CRDMO business is dependent upon the deliveries schedule of customers and hence, there is a lumpiness in terms of the business on the CRDMO business side. So don't worry about quarter-on-quarter deliveries being lower or higher. Business is intact, and we will continue to deliver on our growth numbers for FY '27.

Yes. I also want to sensitize all of you that sometimes this year, we'll again have a bumper quarter. And please don't make that as the benchmark because then the subsequent quarter, we may not be able to match up to it. So there will be soft quarters, and there will be some very, very nice quarters. As Gawir just explained, it depends on when our customers want delivery. Sometimes they all come together. But as you saw when we explained our capacities, we have the capacities to deliver. The next quarter, our capacity utilizations are definitely higher, and we just will have this lumpiness in our business. It's the nature of our business.

Keep looking at our business more on a year-on-year front.

Yes. Holistically, if you look at it, it's a year-on-year. That's how we have always looked at it. I know we are new to the markets and markets are used to quarter-to-quarter performance, but this is a different type of business.

That's helpful. Sir, last question on your Unit 4. So can you provide some like current status, where we have reached, how much CapEx we have already incurred into Unit 4? And what are our CapEx outlay for the next 2 years for Unit 4 as well as the time line of commissioning this Unit 4?

We have articulated this, roughly about INR 1,200 crores is the CapEx outlay for Unit 4. And this is Phase 1 of Unit 4. Unit 4 is a large-scale addition for us, roughly about a 30-acre property. And Phase 1 we'll be using half of the -- half of the area available for expansion. So in Phase I itself, we'll be adding about 365 kiloliters of custom synthesis, 100 kiloliters of fermentation. We are also adding a food and a nutra plant over there. So this will take about 2 years' time for us to build. We broke ground last year. By end of this FY '28, we will be ready with our Unit 4. The INR 1,200 crores, what we are talking about roughly could be a 50-50 split across both the years, FY '27 and FY '28. Civil work -- civil work is almost getting done over there in Unit 4. We will start putting in orders for equipment to come in now. So it will take time. But by end of FY '28 is when we will be ready with our Unit 4 expansion.

[Operator Instructions] the next question is from the line of Bino Pathiparampil from Elara Capital.

Just following up on the previous question. What will be the total CapEx for this year, FY '27?

FY '27 targeted CapEx for this year will be close to about INR 700 crores.

Okay. So -- and it will remain elevated next year also because of Unit 4 and then it should come down from there. Is that understanding correct?

Sorry, come again, please, on this?

Because of Unit 4, it will remain elevated next year, FY '28 as well. After that, the CapEx will come down from those levels. Is my understanding correct?

That's correct.

Okay. And again, following up on the growth. Obviously, there are quarterly fluctuations. But for the full year, do you still maintain your targeted growth rate of 20% for this year?

See, our growth is intact. We are not giving a guidance of any particular percentage. But historically, if you look at our last 10 years' growth, we have delivered quite -- we have delivered quite healthy growth rate, and we'll continue to do that in this year as well.

Understood. And for the quarter, I see a very low tax rate. For the full year, do you -- would the tax rate normalize to around 25%?

It should normalize to about 25%. If you look at last year, our tax rate was high because we had losses in our Unit 3 subsidiary, NeoAnthem, which we have hopefully, NeoAnthem will be something which will turn breakeven this year and maybe profitable as well in the full year basis. So we will have a much more marginalized tax rate of about 25%, 25.5% for this full year.

The next question is from the line of Bansi Desai from JPMorgan.

So my first question is on semaglutide API. If you could share, have we started our commercial supply on this product to domestic players? And secondly, in light of the fact that one of your peers is facing scaling up issues on the API manufacturing front, are we seeing more inbound queries from domestic players who are seeking alternative source?

Yes. Thanks, Bansi. We -- certainly, we have not started supplying. That's something that is still in the works. We are awaiting approvals from CDSCO. We've done all the work. We're ready to scale up as well. We've done enough trials and enough scale-up activities to know that our product, once we have permission, we'll be able to supply people. And as we've said earlier, that's the -- we are -- we have sampled almost all the big players, and many of them are waiting for us to have the approval from CDSCO and then they're ready to go. So that's something that we are -- is waiting to happen, and it will happen sometime this year for sure. So it's -- none of this is because somebody else is not doing -- and not been able to scale up again, should that opportunity arise, we will -- we are ready to service that. But GLP-1 still hasn't come in and hasn't kicked in, in terms of sales for us, but it's something which is in the works and should happen soon.

All right. That's clear. And my second question is, Ajay, in the past, when you've guided for growth both on top line and PAT, it appears that clearly, we are expecting our margins to maintain at these levels. Now these are obviously industry high margins. So one is what gives us confidence that we'll be able to maintain these margins? And second is, do we expect these margins to sustain if one has to take slightly longer-term view, say, over the next 3 to 5 years?

What gives us the thing that we'll sustain the margin this year, as we said earlier, our order book is 60% already in the bag. We know what our costs are. We know what our margins are there. So I don't see any challenge with margins this year. Going forward, it's very hard to predict the future. But at the same time, we've always been driving our business through technology, through innovation. And there are -- we have some things up our sleeve, which will allow us to maintain these margins, we believe, because we use new technologies like Flow, we are bringing in biocatalysis, things that normally people are not doing, which are quite revolutionary in cutting down cost of goods. So that allows us to, a, engage with the customer at a very different level because you talk to them a language which they really, really appreciate that you're not just a pair of hands, you're actually contributing to innovation and technology development. The second part is that also we are allowing our customers to have better cost of goods, but at the same time, it helps us retain our margins. So going forward in the next 2 or 3 years, let's look at the historical perspective, we've always had very good margins. However, when we -- our new units kick in, yes, there is some depression in the PAT because we have made some large investments. But the margins overall are -- see, we -- even in this quarter, we have increased our material margin. Even though the top line has not been so great, our material margin has increased. So we are in a position to, I believe, defend these margins.

Understood. That's clear. And just one clarificatory question here. Gawir, if you could just help us quantify what is the ESOP cost? And what is it going to be for the full year for fiscal '27?