Blue Jet Healthcare Limited (BLUEJET) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Blue Jet Healthcare Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Advait from EY. Thank you. Over to you, sir.

Thank you, Shruthi. Good evening, and warm welcome, everyone, to Q1 FY '27 Earnings Call of Blue Jet Healthcare Limited. Please note the investor presentation and the financial results are available on the company's website and the stock exchanges. Also anything said on this call, which reflects our outlook for the future or which should be constitute as a forward-looking statement must be reviewed in conjunction with the risks that the company face. The conference call is being recorded under transfer along with audio of the team will be made available on the [indiscernible] company as well as on the exchanges. Please note that the audio of the conference call is the corporate material of Blue Jet Healthcare Limited and cannot be copied, rebroadcasted or attributed in press or media without a written consent of the company. From the management, we have with us Mr. Shiven Arora, Managing Director; Mr. V.K. Singh, Chief Operating Officer; Mr. Ganesh Karuppannan, Chief Financial Officer; and Mr. Sanjay Sinha, Deputy Chief Financial Officer. Now I request Mr. Shiven Arora [Technical Difficulty]. Thank you and over to you, sir.

Thank you, Advait. Good evening, everyone, and thank you for joining us today. The first quarter of FY '27 marks an encouraging start to the financial year and reflects improving business momentum across our core business. Over the past 2 years, we have remained focused on strengthening Blue Jet's manufacturing capabilities, expanding our R&D infrastructure and deepening our customer partnerships. FY '26 was a year of building the foundation for the next phase of growth, and we are pleased to see the early benefits of these investments beginning to react in our operating performance. During the quarter, we reported revenue from operations of INR 293 crores and an EBITDA of INR 98 crores, reflecting the sequential improvement. Ganesh will take you through the financial performance in greater detail. The improvement during this quarter was primarily supported by stronger performance in our PI vertical, following the normalization of our customer inventory while the contrast media and high-intensity sweetener businesses continue to provide stability and diversification to our portfolio. Alongside the improvement in business performance, we continue to make meaningful progress on our long-term strategic initiatives. Execution activities at our Visa project have commenced with key statutory approvals in place, engineering activity is progressing as planned. Our Hyderabad R&D center also remains on track, is expected to become operational during the current month. Further strengthening our ability to support customer development and expand our chemistry capabilities. At Unit 3, backward integration project continues to progress well and remains on track with commercial contribution expected during the second half of FY '27. The successful completion of our QIP marks an important milestone in Blue Jet's growth journey. It not only strengthens our balance sheet, but also provides us with the financial flexibility to accelerate the execution of our long-term strategy. Our vision for Vizag extends well beyond capacity expansion. We are building a future-ready manufacturing and innovation platform that will significantly expand our capabilities across GMP intermediates, complex APIs and CDMO manufacturing. The facility is being designed with flexibility to support multiple chemistry platforms, including high potency manufacturing capabilities, enabling us to participate in a broader range of innovator-led development and commercial programs. Together with our Hyderabad R&D Center, Vizag will create an integrated platform from process development and scale up through to commercial manufacturing allowing us to strengthen our partnerships with global pharmaceutical and biotechnology companies. Our long-term ambition is to establish Blue Jet as a globally recognized partner in complex chemistry combining scientific innovation, manufacturing excellence and deep customer collaboration to create sustainable value for our stakeholders. As we look ahead, we remain encouraged by the improving visibility across our businesses. The normalization in our PI Intermediate business, continued momentum in contrast media, execution of our strategic expansion projects and strengthening product pipeline collectively reinforce our confidence in the company's medium and long-term growth trajectory. To conclude, we believe this quarter represents more than an improvement in operating performance. It reflects the early outcome of investments we have been making over the several years. and strengthens our confidence in Blue Jet's long-term growth strategy. Thank you once again for your continued trust and confidence in Blue Jet Healthcare. I now invite Mr. V. K. Singh to take you through the operational and product development updates following with our CFO, Mr. Ganesh, who will discuss the financial performance in greater detail. Thank you.

Thank you, Shiven, and good evening, everyone. As Shiven mentioned at the outset, we have started FY '27 with a very encouraging quarter, reinforcing the momentum that we are building across our product verticals. However, our focus continues to remain well beyond quarterly performance. Our objective is to build a globally competitive innovation-led CDMO platform capable of supporting customers from development through commercial manufacturing cycle. This journey is anchored on 2 strategic pillars: globally competitive manufacturing infrastructure and differentiated R&D capabilities. At Unit 3, as Shiven briefly mentioned, Mahad, we are establishing a globally scaled manufacturing facility for strategically important contrast media intermediates. Once commissioned later this calendar year and here, I must emphasize that earlier, we had guided H2, but I think we are slightly ahead of schedule here. This project will position Blue Jet amongst the most vertically integrated players within the global contrast media value chain. Beyond improving cost competitiveness, this project enhances supply security, quality consistency and strategic independence in the increasingly dynamic load environment. We have invested already about INR 210 crores in this project with a further INR 40 crores committed in the next couple of months to complete this phase. In addition to supporting our internal requirements, we also see opportunities to supply select upstream products to third-party customers, creating additional revenue opportunity over time. Our next major growth platform is Vizag, where we have secured approximately 100 acres for long-term expansion. In Phase 1, we will focus on expanding our contrast media manufacturing footprint, establishing a multipurpose finishing block creating flexible manufacturing capacities for select commercial opportunities, including potential lateral entries, developing capacity for a new high-intensity sweetener currently under pilot validation and establishing a multipurpose internet cluster to support increasing customer demand, customer demand across subside fragments and related chemistry platforms. This phase represents an investment of approximately INR 1,000 crores over the next 3 years. Importantly, we have received the consent to establish and engineering and preconstruction activities are progressing well and in constrained. A significant part of Phase 1 capacity has been planned against identified customer opportunities and business visibility which we believe will help shorten money from commissioning to commercialization. What differentiates this investment is not mainly the creation of additional capacity, but the flexibility of the platform. We are consciously designing Vizag to support multiple chemistry platforms, multiple customers and multiple product life cycles, allowing us to respond efficiently to evolving marketing opportunities in the coming years. Innovation continues to remain central to our long-term strategy and a core driver for value creation. Our upcoming R&D center has been designed to significantly strengthen our CDMO capabilities across future-oriented chemistry platforms, including peptides, GLP-1 intermediates, biocatalysts, continuous manufacturing and flow synthesis and complex synthetic pathways. First phase is expected to become operational during this month itself. And we have already onboarded the critical scientific talent to accomplish what we have set out for Phase I. This investment will significantly enhance our ability to respond faster to customer requirements and expand our portfolio for differentiated products. Over the last few quarters, we have consistently spoken about strengthening our development pipeline. We are now beginning to see tangible conversion of that opportunity funnel into executable programs. During FY '27, we expect to launch 3 candidates within the Contrast Media segment alongside initiating pilot activities for a new high-intensity sweetener. From approximately [indiscernible] high conviction and see opportunities, we have been tracking. We now have visibility for 4 programs with the chronic therapy space which are progressing customer development activities. Collectively, these investments strengthen not only our manufacturing footprint, but also our ability to participate in larger, more complex and longer duration customer brands. Sustainability is a value very close to our heart and integral to how we create value. Approximately 70% of our energy consumption is sourced through renewable energy, including wind and solar. We are also pleased to have received the EcoVadis silver medal, reflecting continued improvement in our sustainability performance in addition to the CIA National Award for Excellence in Energy Management, which we announced in the last call. As we look ahead, our priorities remain unchanged. We will execute with discipline. We will strengthen our technology platforms, deepen customer partnerships and create sustainable long-term value for all our stakeholders. Thank you. And with this, I hand it over to Ganesh to take you through the financial review.

Good evening. I will start with high-level operational performance. During this quarter, we reported a turnover of INR 293 crores, an increase of [indiscernible] over previous quarter. Our reported gross margin at 53% is a reduction of 3% over previous quarter. And reported operating EBITDA is 33.5% compared to 30.4% in the previous quarter, an increase of 3%. Our profit after tax for the quarter is 26.7% against 27.4% in the previous quarter, a reduction of 0.7%. Now getting into details of sales. The growth in turnover was driven by PI and API segment. We have restarted the supply of intermediate, which was impacted by destocking by the customer in the last few quarters. Given the order visibility in this particular molecule, we believe this performance can be sustained for FY '27. Although contrast media picked, we had indicated in the past that revenues from certain customers are recognized only when the product reaches the customer location as per commercial terms. During this third quarter, there were transit delays due to nonavailability of containers and longer transit time due to current geopolitical situation. Due to these factors, we had higher goods in transit during the closing of the quarter compared to previous quarter, resulting in lower recognized sales. To recall, Q4 '26 also was an exceptional quarter for contrast media as customer had strong offtake. Moving on to raw materials. We have seen significant increase in raw material price across board post geopolitical situation to be very precise from March. Raw material price increase has partially impacted Q1 performance as material consumed were more from purchases made in the previous quarters. Given the current geopolitical situation, raw material pricing trend will be uncertain in the period to come, and it will be difficult to forecast the impact in the current scenario. Moving on to gross margin. Reported gross margin at 53% is lowered by 3% compared to previous quarter. This reduction is partially through raw material price increase and due to product mix. Being in the CDMO business, our customers are resilient enough for a pass-through of raw material cost variance with a few quarter. Moving on to operating EBITDA. Our operating EBITDA at 33.5% is an increase of 3% over previous quarter. This expansion of gross EBITDA margin is on account of operating leverage on a higher sale. Profit after tax at 26.17% is lower by 0.7% than the previous quarter. We had higher other income in the previous quarter, driven by exchange gain. Moving on to CapEx, our expected capital expenditure for the next 3 years will be INR 1,000-odd crores, and we expect to spend approximately INR 250 crores in FY '27. With this, we open up the floor for Q&A.

[Operator Instructions] The first question is from the line of Samitinjoy from Kotak Institutional Equities.

My first question is related to our contrast media business. So our revenue declined by around 40% on a sequential basis. Ganesh sir, you highlighted that there was certain recognition of revenues, which were actually postponed to the next quarter. So could you quantify this quantum of revenues, which will be recognized in 2Q? And also in this context, if you could provide the utilization levels for contrast media for us 1Q and in the previous quarters as well.

Maybe I'll just take the first question. Closing cutoff, what you call goods in transit is higher by INR 30-odd crores compared to opening cutoff. But in other words, the goods in transit is higher by INR 30 crores. And in a nutshell, that is the sales we would be recognizing in the next quarter.

Can you give any color on the utilization levels?

Plant utilization level?

Yes.

That we are at 70-odd percent steady. So in terms of production, there is absolutely no change. If you look at from production to dispatches. That is growing at 100%.

Okay. Okay. My second question, so for the [indiscernible] contrast media intermediate, has there been any development towards a supply of commercial batches or our validation batch is still ongoing?

We hope to start the commercial batches very shortly. We would see some positive trend either by end of Q2 or beginning of Q3.

And thirdly, just another bookkeeping question. So the other operating income for us this quarter was INR 16.5 crores. So what was the main reason for this jump? It used to be earlier around INR 23 crores.

I think a couple of things. One is on foreign exchange gain. Second, we also have higher interest income because if you notice our total investment and mutual fund is also going up. But if you compare it with Q4, Q4, we had a much higher ForEx gain and certain insurance claim. So that's why like if you compare it with Q4, the number would be lower by INR 7 crores. But I would actually attribute the predominant part of INR 1,560 crores to with more on ForEx.

No, sir, actually, I was talking about other operating income. So the revenues on that...

So the other operating income is driven by byproduct sales. And this is actually like linked to the product mix, what we have and the byproduct generated. So if the product mix has more of API, to that extent, we'll have higher other income.

Does that mean that we are like the entire incremental INR 14 crores that is pertaining to the CIE segment? Or how do you pursue this?

Sorry, that's what you are referring to is export inside. That will be based on our export commitment, whatever we have.

Do we expect this quarterly run rate to sustain in FY '27.

Basak, it depends on your exports. So just as a percentage on your export where -- so it will be the same range. If you see the percentage to exports that will be the ratio...

[Operator Instructions] The next question is from the line of Sanjesh from ICICI Securities.

First question on the [indiscernible] this quarter, PI API has jumped quite sharply. Can you help us understand what is the visibility for PI, API and unlike last time, will be volatile, lumpy? Or you think the incremental inventory or incremental sale is because it is more linked to how the end market is growing, so it will be more secular. How should we think about PI API revenue?

Sanjesh, that's I think both. So there is clear secular growth at the front end. So the formulation market or the prescriptions of the patients, there is very consistent consumption and a very strong monthly or quarter-on-quarter growth. On our side, we have a strong order book now. And the plant is running very consistently. Production is happening consistently. So at least for the next 3 or 4 quarters, I think we have very good visibility.

Got it. Second, on the price increases, we said that it comes with a lag for the contract. I think that's true for most of the contracts I don't think we would have had any material pricing pass-through in this quarter. On a blended basis of the portfolio, how much price increase are we expecting largely because of the increase in the raw material prices?

We have not -- there is no price -- plause which we have triggered in this quarter. To answer your question, it is a combination of price increase as well as rupee devaluation, okay? So there is a price increase, which is actually getting offset by rupee devaluation. Being a long-term contract, we actually like watch for raw material price to stabilize. As we speak, we are looking at August trend. And we will be actually like on a case by case, we will actually evaluate how this price increase would be actually passed on. You want to add on?

Yes. I think just to add on to that, I think, Sanjay, the situation is a bit dynamic, but being the segments that we operate in, I think the customers are quite flexible in understanding the situation and I think it's a known fact and they've been very supportive so far. I mean, our contractual indicators, but in general also, but across the board, there's a lot of increase in the solvent prices you might be also aware of.

The last question on the Mahad CapEx, now we are spending INR 250 crores. I know a small portion goes into APD CPT, but what else we are planning to use Mahad facility for?

I think the immediate focus would be to validate this production line and scale up these quantities. But this particular CapEx that we have done, I think it helps us to make a few derivatives for contrast media just like APD CPT, there are other derivatives also that we can evaluate. It's a flexible line. And so far, we're just validating the equipments over there. And hopefully, we'll start the production as we VK mentioned.

And just to add on to it, are we registered for the APD CPT because I think that would be one of the requirements from -- because it's a pharma product, right?

Sanjesh, this is very confidential. We cannot really speak on these aspects. So we are tied with very strong CDAs. I mean we -- I think it will be inappropriate on our part to share anything more than what we have.

That's fine. Just one thing. We were also planning to do the new high sweetener -- high-intensity sweetener here, sample batches, we still intend to do that. Does the plant has the capability to do that? Or we need to wait for Vizag plant to commercialize for our new high-intensity sweetener to rollout?

As we mentioned, right now, we are in the pilot stage. So the pilot is happening in our existing facility. And the real scale up will happen from Vizag, you're absolutely right.

But some revenue will start ticking in from the existing facility, right?

Let's see. But yes, that should happen.

And the last one, any new product pipeline, you want to talk about some late stages we have been talking about for the last few quarters. Where are we in the process and any success there, which could [indiscernible] '27 or '28.

We feel that at least 2 of these opportunities, the high conviction opportunities, which are shaping up well, should fractify in the time frame that you have mentioned, how large they would be we should not neither guess nor guide at this moment. But the 2 that we are talking about are interesting and significant opportunities with the innovators.

With the innovator?

Yes.

Got it. One last on the R&D efforts, the new facility at the Hyderabad, what will be the focus area there in that specialty?

So Sanjesh, I think you are very well conversant with the platforms that we are very strong in and the platforms on which the current business is built on. Going forward, we thought that there should be platform diversification not led to be able to increase our addressable market. But because of the CDMO tailwind that we are seeing the inquiries that we started getting were also on many occasions and platforms, which were those which we did not have. So the new R&D setup will have certain new platforms which we [indiscernible] and significant RFPs are coming on that side, and that was the reason that we have very -- on a very, very rapid scale onboarded very good pedigree talent for that R&D.

[Operator Instructions] The next question is from the line of Naveen from Nuvama AMC.

I just wanted to check on the rise in the PI API segment. Is it only to do with our supplies to Europe? Or have we also started to supply to Japan?

So we'll just -- I would say we'll guide you at the appropriate time. At this stage, the businesses that we had, we have extremely good visibility and a very strong order book. But at the right time, we'll specifically guide you on that. All that we can probably say at this point of time is that as suppliers are intermediate, we are globally qualified.

Got it. And when we speak of the visibility being there for the rest of the year, are we also accounting for the 2 or 3 molecules and a couple of lateral entries that we have been seeing off in recent times? Or this is only for the existing portfolio?

So we are accounting for some new opportunities. But since -- as you understand that whenever we get to these new products, which are in different NCE phases, then the first phase is the trial quantities or the validation quantities. So those small quantities are factored in, but the main bulk of what we believe we will do on the PI segment will be from the existing portfolio -- existing commercial portfolio.

The next question is from the line of [indiscernible] from Capital.

So a large [indiscernible] synthesis player, in the latest earnings call commented about signing long-term contracts with 2 customers for iodine-based contrast media. So commercialization for one has already started and they might even enter gadolinium. So should we consider this as a tailwind considering that we can sell them KSMs or intermediates? Or are they backward integrated enough so this could be a headwind for us. So I'd like to...

I don't know if the question is for us, I guess, but difficult to answer it without knowing the company you spoke about?

DB recently mentioned this in their earnings call that they have signed long-term contracts.