Beta Drugs Limited (BETA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to H2 FY '24 Earnings Conference Call of Beta Drugs Limited, hosted by PhillipCapital India PCGS. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Renuka from PhillipCapital India Private Limited. Thank you, and over to you, ma'am.

Thank you, Sri. Good afternoon, everyone. On behalf of PhillipCapital Private Client Group, I welcome all of you to the H2 FY '24 Earnings Conference Call of Beta Drugs Limited. Today from the management, we have Mr. Rahul Batra, Chairman and MD; Mr. Nipun Arora, CFO; and Mr. Ashutosh Shukla, Director of Sales and Marketing. I now hand over the conference to Mr. Rahul ji for his opening remarks, and then we will open the floor for Q&A. Over to you, sir.

Thank you so much. Good afternoon, everyone. Welcome to our earnings call for FY '23-'24. Let me take you through a brief what we did last year. The total sales of the company were at INR 296 crores as compared to INR 227 crores in FY '22-'23. The consolidated EBITDA was at INR 61.5 crores as compared to INR 53.88 crores in FY '22-'23. The net profit also increased from INR 30.7 crores to INR 36.4 crores. Although seen a decline in the EBITDA margins, the financial outcome in terms of EBITDA percentage decline is only due to the fact that there had been high raw material cost of platins, which has accounted to almost 15% to 17% of the total sale. Platins, as we all know, that it is a derivative of platinum and gold price. Also due to the fact that our new cosmetology division has posted a net EBITDA negative of above INR 4 crores last year. The total stand-alone oncology EBITDA, excluding cosmetology loss is at INR 65.4 crores, which is close to 22.8 percentage. Going ahead, with this strategy, we are more focusing on the rest of the products, rather focusing on platins and ensuring to bring back EBITDA margins between 24% to 26% for this financial year '24-'25. I would like to address personally today that our cosmetology division has given a sales of more than INR 1 crore and has ended marginally profitable. The same trend will continue this year, and we will achieve a minimum sales of INR 14 crores to INR 15 crores for FY '24-'25. In this journey, we will be in a position to create new brands what we created in oncology in the coming 4 to 5 years down the line. Now I'll take you through the key highlights for FY '23-'24. This year was a very, very exciting year for us. And recently, we had an audit from Eurasia. Eurasia is an audit, which covers Russia, Armenia, Belarus, Georgia and Kazakhstan. This was one of the toughest audits we faced after INVISA. We are proud to say that we have cleared the audit, and we have got our registration certificate from Eurasia. The second key highlight and the starting point was that we have started our first-ever cytotoxic syrup suspension facility. This is the first ever facility in Asia, Africa and Europe. We have also introduced in this facility, the first suspension that is megestrol acetate suspension in the domestic market. This product has got a increased excitement in terms of doctors, and we have gained our respective market share in megestrol acetate. Not only this, bringing the NDDS to the market has increased the market size for this particular product. In this particular year, we have also filed 6 more approvals in suspension and syrup segment. We hope to launch these products this year, provided we get the approvals in time from DCGI. Going to the export highlights, we have got 53 new registrations last year for which the business will start coming from this year. As you've seen, the growth in the export market is on a higher side. This is only because of the new registrations, which we have received. We've also launched cosmetology Pan India with a field force of more than 100 people catering to almost close to 6,800 doctors. So this was the key highlight. Now coming on to the segment-wise business and way ahead. Let's start with the most important segment, that is the own brand. Last year, we increased our sales by 27% and, where we have -- and this has been -- primarily been focused with the launch of 7 new products mostly out of which 2 or 3 products were in the last quarter. It has substantially increased the sales and will become -- This will further increase the sales and will become a trusted brand in the coming years. We've also focused -- our key focus area was to bridge the gap between orals and injectable business. Earlier, this figure was 61:39. But this year, especially in FY '23-'24, we have bridged the gap between injectable and oral business to 43:57. We've also strengthened our hematologic portfolio by adding 2 more products last year. This will continue building as there is a huge scope lies in the hematology segment. Out of both the segments, if we talk about the solid tumors and the hematology are -- the scope and the future lies in the hematology segment. On the future road map, where we have also identified targeted markets, which will drive our sustainable growth for the coming years. This has already been shared in the presentation, which we have uploaded last evening. Coming on to the international business. As discussed in our last call, there is a huge upside potential lies in the export market. Last year, we further added one more approval that is Eurasia, which was one of the toughest we faced. As discussed earlier, we have got 53 new registrations for which the business has already started coming and will be in a free flow for the next coming year. Going ahead, in the international market, we have already applied 350-plus registrations, which are in pipeline, which might get approvals in coming 2 years down the line. Looking at the future of the export market. There is a huge scope and a huge gap for us to take a particularly regulated and semi-regulated markets. As discussed in our last call for the EU GMP, we have got the confirmation that the audit is going to happen in September, which will further add a lot of sales and international collaborations as we see that there are not many generic players generic regulated approved cytotoxic plants available in the Indian market. India being a generic pharmacy of the world and catering to almost around 70% to 80% of the formulation requirement of the world, so cytotoxic is one of the key cash for all the regulated markets. Coming on to our CDMO business. In the CDMO business, last year, we have shown a big growth as we have added 3 more new clients in our portfolio. There some existing clients have added around 7 to 8 new products, and we have added 3 new clients which have delivered -- which has delivered a huge upside in our CDMO business. Going ahead in the CDMO space, we will continue growing and keep on adding the new products to provide best and the most innovative and qualitative products to our partners. Coming to our third segment, that is our API. The API business last year has grown by 30%. We have also hired one of the best teams in terms of production, quality -- quality assurance, quality control and regulatory. As on today, we have 3 different lines for different capacities as we are in the cytotoxic markets, we all understand the requirement might be for 1kg or 10kg or even in grams. So we have -- as on today, we have 3 separate lines to meet out these different requirements. Last year, particularly, we have been focusing more on the quality aspects in the vision to make API business at par with our formulation business. The key highlights of API, we have developed and launched 7 new products last year. We've also prepared 6 BMS, which we are filing in the drugging market in next month. We have also centered our R&D department by hiring more professionals and more competent people. Also to start with, we have started a very small amount of exports in the API business. Coming on to our -- the most important and all the cosmetology segment. Last year was a bit of learning and hiring year. As you all are aware that a brand can be created if you have the right team and at the right place along with a great direction. Last year, we did exactly the same and as discussed earlier, we are happy to announce that we have achieved INR 1 crore of sales in April, which is the minimum benchmarking for the FY '24-'25. We aim to do plus of INR 14 crores sales this year, which will certainly add a profitability to Beta. Our division name for cosmetology is Inspira, which actually inspire us to put more efforts in creating a brand. FY '23, we have added a respectable number of prescribers and put our reach to more than 6,000 customers Pan India. Slowly and gradually, this will immerse as strong brands and in the coming future as we have already planned to come up with our own manufacturing units by FY 2025, '26. Today, the total number of SKUs are close to 14, we intend to increase the number of SKUs by 30 to 35 by end of this FY '24-'25, with having our own manufacturing facility for Derma and Cosmetology, this will strengthen and create a more market for our current team. I would like to conclude by saying that we have done the best till now, and we have also laid different strategies to make Beta the most profitable company in the coming years. This will definitely be backed by a strong and robust research and development in both API and formulations, which will give us an edge in the market. I would end by saying when we are in a journey, the speed breakers will come. But after speed breakers, there is always a smooth ride. Thank you, and we welcome all the questions.

[Operator Instructions] The first question is from the line of Dipesh Gandhi, an individual investor.

Can you hear me?

Yes, I can hear you, please.

Yes. So first of all, congratulation on delivering a sort of numbers that we are definitely proud of. So I would like to go first with the first question. So, basically, Tata Memorial has initiated a movement where it is going to buy bulk cancer drugs for almost all hospitals. Any idea how it may affect our company sales or forecast going ahead?

Yes. For this question, I'll ask Ashutosh Ji to answer, please.

Can you hear me?

Yes.

Yes. So Tata Memorial Hospital is the biggest hospital in the country. Yes, they are going for the bulk purchases, but it is not going to hamper our trade business. As such, our business as of now in Tata Hospital is zero. And basically, we are very strong in corporate and private hospitals. So that is not going to affect us because not only the Tata, even the state government hospitals, they go for the bulk purchase. And as far as tenders are concerned, we are going to participate. And definitely, if they are going for bulk purchase, definitely we'll participate, and we will also getting the share of it. So ultimately, at the end of the day, it is going to benefit the company. We being the manufacturer definitely will participate very aggressively.

I'm assuming our cost will be at a bare minimum and they'll definitely consider, yes. So second question, if I may ask, what are the capacity utilizations as on date? And what are our plans for getting listed on the Mainboard?

So as on date, for Beta Drugs, it's close to around 60%. For Adley formulation, we have added 1 more injectable line last year. And it's -- currently, it's at 40% to 60%. And again, migrating on to the main board, we have already initiated the process. Maybe next 2 to 3 months, we'll be migrating on to the Mainboard. Before our first quarter ended, we'll try to be on the Mainboard before our first quarter ends.

The next question is from the line of Chirag Jain from Yogya Capital.

I was trying to go through your business. It has multiple complexities, which I couldn't understand. So please, could you give a brief about your business before moving ahead?

See, business, we have 4 verticals and 1 is our own brand, 1 is our CDMO, 1 is our export and 1 is API. So this is the current export verticals or this is the current verticals we have. So we have a dedicated team for our own brands, and we have a dedicated team for exports. We have a dedicated team for API business. We have a dedicated team for our CDMO business. So the CDMO business is being taken care by around a team of 7 people. Our own brand, we have a team of around 67 people. And export, we have a team of around 4 people. And all this is being headed by Mr. Ashutosh, who is our Director Sales and Marketing. Then, API business as particularly on the sales side, it is looked upon by a team of 2 people.

Okay. Understood. Sir, you mentioned that export is currently very low. So what the range would be? Can you give some range?

Export, we did a top line of close to INR 41 crores this year.

INR 41 crores. Okay. Understood. Sir, can you repeat the revenue guidance that you gave for FY '25?

The -- sorry, for FY '24, right? The top line you're asking.

FY '25.

We will keep on growing at the same rate as what we mentioned in our earlier call. That will be 25% to 30%.

Okay. Got that. Also, sir, you mentioned -- the PPT mentions about competitive intensity increasing in the market. So could you highlight something on that?

No. We never mentioned about the competitive increase in the market. We just mentioned about our presence, our focused areas. So the competition is there in the market. It's for every business, right? But since we are the one only focused oncology company, we have certain special advantages. It is not only about the formulations. Since we have rapidly integrated, that gives us an edge. And not only this, we are in certain products, we are the first one to launch in the Indian market. Last year, there was 1 product which became off patent. That was Olaparib. So we have taken a huge market share once we launch that product as we were the first one to launch that. So this is the same strategy, the products, which are becoming off patent, we have a list of -- we already developed that. There are certain products we'll be launching this year also, and we'll be taking that advantage.

Okay. So assuming for that product. Sir, what would be the [indiscernible].

Sorry Mr. Chirag, I would request you to please follow up in the question queue for further questions. The next question is from the line of Bhagwan Chaudhary from Shubh Capital.

Yes, congratulations for a very good set of top line growth for the consistency in the revenue growth and numbers across. Just 2 questions from my side. One is on the cosmetic side, what are the unit dynamics right now, if you can just explain the kind of fixed costs associated with it correctly? And what are our gross margin in this business?

Okay. So the total cost, I'll ask Nipun to push in that because he's having more control on the numbers. Nipun, can you just brief that -- but the margins, I will explain you, the margins, the total gross margins, which we are getting in this division is close to 65%. And Nipun, can you just give a brief about the cost, please?

Yes. So Mr. Bhagwan. As Rahul Ji said, the margins are close to 65% rather 65% to 66%. The other fixed costs associated with this is somewhere around INR 70 lakhs per month.

And this is associated with your employee cost and the marketing cost?

See, I'll just explain you. It's mainly the employee cost because earlier as FY '22-'23, we had a team of only 42 people. But now, as on today, we have a team of more than 100 people. So this is totally in line with the employee cost. And see, if we are in a process to make a brand, first, the most important thing for any pharma company is to avoid attrition. And in the last 4 to 6 months, preferentially, we have avoided attrition and the people are consistently going to the market and representing the same company always to the same doctors. So this has added this -- particularly this cost will remain the same. And once the number will increase, we'll see the profitability coming to this division as well?

Perfect. All right. Secondly, if you can highlight that -- do you have any CapEx plan in the long term, in the next 2 to 3 years, any big CapEx plan?

Okay. So we -- the first and the foremost CapEx plan we have is, that we have to come up with a cosmetology plan and -- which will be initiated by '25-'26. We will come up with the production of that. As you know, that pharma, particularly in cosmetology side, if you go to a doctor or you go to any market, you have to have a number of SKUs in your basket. So we want to -- today, we are operating with only 14 SKUs. So we want to increase this number of SKUs to 40-50. And this can only be -- only happen if we have our own manufacturing unit. As on April, we'll go through the first quarter. So once we are sustainable and we are creating margins out of it, and as we have done in April, going out for the capacity expansion in dermatology side. Then second, we do -- right now, until the sales of INR 500 crores for oncology side, we don't need any further expansions or any other further capacity expansion for this. The only investment we will be doing in acquiring the MAs once we are through with our EU GMP audit. So we'll not be following up the process of registering the product, rather, we'll be buying the MA and launching the same product in a lesser time as we go all out for the dose registration. So these are the 2 CapEx areas. One is acquiring the MAs and the second is acquiring -- coming up with the own manufacturing site for dermatology and cosmetology.

And what can be the size of that CapEx for cosmetology?

For cosmetology, it will be close to around INR 30 crores to INR 35 crores.

The next question is from the line of Santosh from Investment Handle.

Congratulations on delivering the consistent numbers year-over-year. Question is regarding the raw materials. As you mentioned, the margins have gone out a little bit because of the increase in prices of platins. So do you like procure raw materials from other countries like China also or is it like in-house manufacturing is [indiscernible].

So platin, yes. So platin is basically one product line, which we cannot manufacture in-house. Today, 70% of our APIs are being produced by ourselves only, which we have, that would be integrated. But as you know, pharma is for big, even cytotoxics are so big that you cannot manufacture everything in-house. So platins we source from outside. And there are only 2 companies in India right now who are manufacturing this. One is Hector Healthcare, one is [indiscernible]. So we are procuring from them. And see, it's not like we have seen that because if we go for a chemotherapy treatment, carboplatin and cisplatin, it's a basic treatment. And tomorrow, we are joining -- we are becoming a partner with any good CDMO player. So the first product they will ask for is carboplatin only. But last 3 months -- fortunately, last 3 months, we have seen the prices have declined, and we will be more focusing ourselves towards on the other product line, rather on the platin side. Other products, there have been no cost increase. There have been no -- rather, we have negotiated well from RKFM supplier, and the API costs have decreased. So if you go on the consolidated balance, if you go on an individual balance sheet also, [indiscernible] margin has also increased. So this is one turning point. And we, as a company, has laid down a strategy to focus more on the oral side. So that's why on my initial talk, I discussed about shifting our focus from injectable to oral side, because prescription business is always a long-term business.

Okay. Okay. And on the cosmetology side, who are your competitors, sir?

In cosmetology? In cosmology there are a lot of companies in India where Glenmark is there, Mankind is there, and Hegde and Hegde is there, then [indiscernible] is there. And there are a lot of companies. Actually, this is one segment which has been identical to the oncology only because the products are not available and you are not making product available in the chemist. Every cosmetology has their own chemist counters. So it is one segment which has actually been replicated by the oncology side. So that's why we are focused on this segment only.

The next question is from the line of Chirag Fialoke from RatnaTraya Capital.

Congratulation on great set of numbers. Could you just share a usual half yearly numbers for the 4 segments? Top line and the EBIT margins?

Yes. So the top line would be for the second half, you want to know. The [indiscernible] sale would be INR 41.5 crores. CMO business is INR 68 crores. Export business is INR 30 crores. API is INR 11.7 crores. Derma is INR 3.3 crores. So total comes to INR 154.44 crores.

Perfect. Understood. This is super helpful. Just 2 questions on the margin side. The gross margins you explained have largely the decline is big because also purchase of platin. Is that correct? Or could you quantify that a little bit, you said 15% of top line. Could you just help us understand what that impact was for this quarter?

See Chirag, gross margin, if I say, it is witnessing a decline of 4%. The gross margin -- leave the manufacturing expenses aside, so the gross margin earlier was 53%, and now it is 49%. So there is a decline of 4% and as Rahul Ji has said that platins constitute somewhere around 16% to 17% of the total sales of our group. So that has impacted a lot. But if you see the EBITDA margin, if I consider the EBITDA margin with and without Derma, so EBITDA margin is -- I would say that it was 25% in the last year, I mean, FY '23, vis-a-vis 22.6% into '24. So that means a decline of only 2.4% compared to the 4% decline in GP margin. So somewhere we have controlled the below expenses also after the GP thing, somewhere around 1%.

Very clear. Just to follow up on the margins. The other expenses, INR 27 crores in the first half going to INR 33 crores. Is there any -- are there any changes there? Or is this just now or more run rate sort of a number?

Chirag, can you repeat your question.

Other expenses other than employee, after gross profit, that has seen a little bit increase, just trying to clarify, is that?

But that increase percentage-wise is not a much increase, percentage-wise that is declining.

Understood. Perfect. This is one question, Rahul, to your previous response, the INR 25 crores, INR 30 crores of CapEx, could you just outline that in terms of both time line and in terms of what capacity would that entail for the oncology business?

See, the CapEx, which we discussed was for the -- mainly for the cosmetology plant. And the time line is by FY '26, we should start the plan. And regarding the CapEx of around INR 7 crores to INR 8 crores to INR 10 crores, that is the total -- that's an asset purchase, that is called marketing authorization, product-wise marketing authorization. Once we are through with the Europe approval, so we'll be immediately going towards an acquisition of MA approvals. So this is the main CapEx required. It is not in terms of machinery, rather it is in terms of a dossier bought from the market, particularly available in that market so that we can immediately go and start the sales, which is a process of 3 to 4 years for registration.

The next question is from the line of Agam Shah, an Individual Investor.

Sir, just a quick , I think I missed your part saying that. So when are we planning to Mainboard?

In the next 2 months.

In the next 2 months.

Yes. We've already started the process. In the next 2 months, we'll be migrating to the Mainboard.

Okay. And my second question was how much is the CapEx we are doing for each division and combined [indiscernible]?

The total CapEx you are planning is close to around INR 30 crores to INR 35 crores for the next 2 years, but that will be all from the internal cash accruals.

INR 30 crores to INR 35 crores. This will include oncology, dermatology, cosmetics, everything, right?

Yes, yes, yes.

Okay. So we are through to reach a target of INR 450 crores, INR 500 crores, for that, we don't require any funds or anything?

No, no, no. But tomorrow, if we get an opportunity to have some JV with a good biotech facility since today, we have a presence, I'll explain you. Today, there are total 3,000 oncologists, and we are covering around 2,400 oncologies, 2500 oncologists, out of which 1,800 oncologists are prescribers. So we have a huge market presence today. Even some oncologists is prescribing only one product or half a product or giving only 2 prescriptions in numbers, but they are our prescribers. So if we get an opportunity to get into the Biosimilar in a JV with someone where they want to launch the product in India or they -- anyone is developing those or they want some investment on the part of that, so we'll be going ahead with that decision as well.

You said Biosimilar, right?

Yes. Yes.

So are we actively looking at that space now?

See, we are not actively, but it's not passive also. So we have spoken to certain people in case any opportunity comes, so we don't mind considering that opportunity.

So even you'll be more of a CDMO player, CMO player or how is it?