Dishman Carbogen Amcis Limited (DCAL) Earnings Call Transcript & Summary

Dear shareholders, good afternoon. I welcome all the members to the 16th Annual General Meeting of the company, which is being held through video conferencing as per [ MCN sector ]. Hope all of you are safe and in good health. On dice with me, Mr. Arpit Vyas, Global Managing Director; Mr. Pascal, CEO of Carbogen Amcis and Mr. Harshil Dalal, Global CEO of the company are present; our Chairman, Shri Janmejay R Vyas; our whole time Director, Mr. Deohooti J Vyas; and other independent directors, Mr. Ashok C Gandhi; Mr. Subir Kumar Das; Mr. Rajendra S Shah, Ms. Maitri Mehta and Sanjay S Majmudar, Chairman of Audit Committee and our Senior Stakeholders Committee have joined through video conference from their respective locations. Our secretary writers, internal auditors and secretary auditors have also joined from the respective locations. With the kind permission of the chair, Shri J Vyas, I start the initial proceedings of the meeting. Now I will take you through certain points regarding the participation and voting at this meeting. All the members who have joined this meeting are by default place on mute to avoid any disturbance from background noise and ensure smooth and seamless conduct of the meeting. Once the question-answer session announced, the members who have registered themselves as speaker shareholders as per Note 18 of the notice of the AGM will be unmuted by the moderator. Members can ensure that there are proper internet connection from their side. If there is any connectivity problem at speaker side to join, the Chairman will announce the name of another speaker name. Members who have not registered themselves as speakers, and who has any questions, can -- they can send it through mail at [ divyansh ]@imdcal.com. The question may be responded appropriately. Members who have not voted through remote voting can cast their e-vote through e-voting facility available during the AGM. Members are present through video conferencing are counted for the purpose of quorum for this meeting. As acquisite quorum of members is present, with the consent of the Chairman, I declare the meeting to be in order. Also with the consent of Chairman, I declare that the company has taken feasible steps to enable the members to participate and vote at the AGM through video conferencing. As the AGM is conducted though VC, the facility for appointment of proxy by the members is not applicable. Now I request Arpit Vyas, our Global Managing Director of the company to apprise the shareholder about the business performance of the company. Sir, please.

Dear shareholders, it is my great pleasure to welcome you all to the 16th Annual General Meeting of your company. I hope you have all the opportunity to have review our annual report for the 2023 fiscal. I'm happy to report that even in the challenging uncertain business environment, we were able to report strong financial performance. That is accounted on the significant progress that we have made in various development and project pipelines and other commercial products. We have in -- from India, we have completed in the past month an audit from the Japanese authorities along with the most awaited European authority, the report of which is awaited to be received. From our perspective, we seem to have done well. But nothing is confirmed and certain until the report arrives. Also, we have innovated a new facility in France, which is -- which has been commissioned earlier this year and now almost fully qualified to start the first commercial batch for the customer. During the year, we have also managed in Switzerland to procure real estate around the existing facility to expand in -- for a customer for the ADC business. And currently, we are totally focused on the digital transformation where we have taken up a memic task of choosing SAP as our ERP system and to the transformation from the existing old [ EXACTA System. ] We are very excited for this transformation. We are seeing that this should result in increased productivity from our people and for the business as well as the automations -- as well as new systems for analytics, which promote automations and again, seem to enhance productivity as well as maintaining the quality standards along with the regulatory requirements. Our financial and operational highlights during the year, covering Amcis increased the business by 14%. It is absolutely unprecedented in our experience of working together, and it is truly -- especially in the tough environment as such, it is really a tremendous achievement. The vitamin D analogues, the revenue declined by 12%, which is a product that got impacted the most due to the difficult environments that we are having globally, but that is also seen to resume shortly. India Intermediates revenue increased by 53%, primarily due to the increase of commercial supplies for CRAMS molecules. The quats and the generics business revenue increased by 7% and all revenue is on the account of our site in Naroda, which is operating at near full capacity. Consolidated revenue increased by 13% to INR 2,413 crores and EBITDA adjusted for ForEx loss stood at INR 414 crores compared to the INR 390 crores versus [ previous ] year. Transient EBITDA margin of 17.2% as against to 18.2% in the previous year. The CapEx plans are going according to the time frame that we had in mind. The $69 million for -- that has been spent in FY '23 are -- that they do both for the growth as well as the maintenance. The business pipeline looks strong, and it is seen to get stronger. However, the uncertainty of the global economic situation does pose a threat of the fund flow in the pharmaceutical world. Although we have yet to experience it yet, but it is still there, and we must acknowledge it. The new product pipeline for us stood at almost CHF 120 million as of 31st of March 2023. With that, I would like to give a few details -- I would like, our CEO from Carbogen Amcis, Mr. Pascal Villemagne to give you few details.

Thank you very much, Arpit. And good afternoon, dear shareholders. As Arpit was describing the results of Carbogen Amcis this year went to a new record, achieving above the target in terms of the budget. As Arpit Vyas mentioned, it was done despite of the difficult environment, especially in Europe, where we are facing a number of challenges around high inflation rates on the raw materials and energy, for instance. As he mentioned, our collateral business has been impacted a lot with the increase of the main raw materials with challenges increase of specific raw materials that we are using for that manufacturing. Despite of that, we are almost at the target of our productivity, and I take complete defense to Carbogen team and Carbogen teams' management, who has done a tremendous work to achieve those extraordinary results. On top of that, last year, we were working in France to finish and quantify the large investments we have made in the drug product area. That project comes to an end, and now we are starting operations over there with the objective to start as Arpit has mentioned, our first clinical batch manufacturing in early December. Pipeline for that new facility looks very attractive, and we carry on welcoming new customer on site to look at the future. And we are very confident that medium and long term, it would be a company's success. As Arpit was mentioning, we have enhanced with Carbogen Amcis large number of development projects in purchase order in our pipeline, which give us a lot of confidence for the medium and long term. However, as mentioned, the global environment -- the global economic environment is a bit alarming, and we obviously take a look to this. And we have already taken some measures to maintain our profitability as well as our top level revenues. Besides that, last year, we also launched this large digital transformation at Carbogen with the implementations of SAP that is ongoing with the objectives to be finalized by first quarter of the fiscal earnings year, so '24, '25. It's a large project involving all the affiliates at Carbogen Amcis with the exception of France who has implemented a new system in this [ week], which we'll be able to start. We hope and we work on the global digital transformation, including also new tools with the objective to improve our productivity for the future. I'd like to specifically also emphasize the work that has been done in France for the implementation of the new facility, which was done also over coming time. And despite of all those difficulties, we were almost in time for some of the activities. So that was a great achievement, which was celebrated February 3 this year with the grand opening ceremony where local authorities and management of Carbogen Amcis and Dishman Carbogen Amcis were there. I will be able to answer other questions if there's one and I leave the word to Harshil Dalal, our Global CFO.

Thank you very much, Pascal. Hello, everybody. A very good afternoon to all of you. As far as the financial results are concerned, Mr. Arpit Vyas already touched upon some of the key points in the financial statements. However, I'd just like to highlight a few points. One, in the challenging environment that we have seen in the last financial year, largely on account of the -- of the Russia-Ukraine war. Still, we were able to manage a good amount of growth in the top line, which is close to about 13% as compared to the previous financial year. And this also translated into our healthy operating EBITDA, which amounted to about INR 414 crores after adjusting for certain sort of one-off items such as the SaaS cost, the ForEx loss as well as the provision for onerous contracts, which was to the tune of about INR 42 crores in the last financial year. We also had a one-off item as part of the exceptional items, which is an impairment of certain design costs, which we had incurred at Carbogen Amcis. So we had taken the hedge of about INR 48 crores in the last financial year, which is again a onetime item, and that is, again, one of the major reasons why you see a negative profit before tax and profit after tax. But overall, it was a satisfying year in terms of the performance of all of the entities. The revenue growth drivers were largely Carbogen Amcis as Pascal and Mr. Arpit Vyas emphasized where the growth was about 14%. And also India, where because of the lower base effect because of the EDQM consequences, the revenues increased in the last financial year by about 50% as far as the plants business is concerned. So overall, the trajectory looks pretty good as far as revenues are concerned. And that also should translate into a healthy profitability as we saw in the last financial year. And we expect that moving forward as well, provided all of the conditions remain the same. The major impact of the Russia-Ukraine war that we saw was on the annuity prices, which across Europe has gone up significantly. And the major impact for us was in our Dutch facility where the power cost went up by almost 4.5 to 5x. And that is the reason why the margins at our Dutch facility drop as compared to the previous financial year. And the revenue drop in the Dutch business was largely on account of a higher base effect because of the COVID years, the revenues of as for vitamin D analogues have increased substantially. So this was some of the key highlights. As far as the CapEx is concerned, the CapEx of about USD 69 million in the last financial year was incurred for making sure that we are able to operationalize our facility in France. That's the major CapEx that we had on the angle over the last 2.5 years. And in March of 20 -- sorry, in February of 2023 was when we leave the operation of the particular facility. And we are on course to generate revenues out of that facility in the current financial year. The second was the ADC expansion in Switzerland, which also got completed during Q1 of this year, and we should be able to start generating revenues out of that expansion in the current financial year as well. And lastly, the major part of the CapEx was incurred in India, especially in our Bavla side where we set up a new warehouse, a new QC lab, new ETP facility as well as stability chambers. So this was all in terms of operation of the Bavla side, not just from an EDQM or a regulatory perspective, but to make sure that whatever changes are done, those outdo well for the company for the next 10, 15 years. So these were the 3 major pockets of CapEx where the money was spend, and this should help in the future growth of the company. I think with that, I would like to hand over to [indiscernible], and we'll be happy to answer any questions that you may have later on. Thank you.

Thank you, Harshil bhai. As notice of annual general meeting and data's report is already circulated to all the members. And auditors who not contain any qualification, thereof, I consider as being [ deal ]. In terms of Section 108 of the company that deal with the company's management act administrations rules 2014 and regulation 44 of SEBI LODR recognition 2015. The company has provided e-voting facility through CDSL to the members holding shares in physical and dematerialized mode to expedite their right to what by electronic means. The cutoff date of -- for remote voting was 20th September 2023, and e-voting window remain opened from 24th September 2023, 9 a.m. to 26 September 2023, 5 p.m. for the remote voting. As for the MCN, senior sector of the company has also provided e-voting facility during the AGM. The company has appointed Mr. Ashok P. Pathak, Practicing Company's Secretary, Ahmedabad as a scrutineer to conduct the e-voting process and voting process in fair and transparent manner.

Now in the permission of Chairman, I start the question-answer session. In this regard 3 shareholders, register [ dentures ] speaker. Now I request monitor to unmute Mr. [indiscernible] Gupta.

[Foreign Language].

Thank you, [indiscernible]. I request Harshil to give the answer regarding the margin and shareholder status in the next fiscal.

Yes. So thank you, Gupta [Foreign Language]. So as far as the margins are concerned, [Foreign Language] with the regulatory approval that we're expecting, so that'll have a positive impact on the overall consolidated level as well. Carbogen Amcis [Foreign Language] margins consistently, they have maintained between 18% to 20%. So we expect that those kind of margins should be sustained in the current year, all of the conditions remaining the same, but global macro environment obviously, that is not in anybody's control. But [Foreign Language] we are trying to mitigate those risks in the best manner possible to the extent possible. But otherwise, we don't see a reason why the margins that we had last year should not be sustained in the current year. And as far as the shareholder returns are concerned, so [Foreign Language] since we are in a massive growth phase, [Foreign Language] we are trying to drop back into the company in order to make sure [Foreign Language] and also to make sure [Foreign Language] at least we have the cash to withstand those kind of situations. [Foreign Language] right now, the strategy is that we drop back all of the profits in the company or future [Foreign Language] the situation is back on track, at that time, we will definitely consider returning your faith in the company by providing healthy returns. So I hope that satisfies your question.

[Foreign Language].

Now I request monitor to unmute Mr. [indiscernible].

I think he has not joined or have some technical problem.

Okay. In the permission of the chair, let's move to the next speaker. Now I request monitor to unmute Mr. [indiscernible]. I think he has joined. Monitor?

No, please.

He has also not joined the meeting. So move to the proceedings. As to inform brilliant members who have not registered themselves as speaker and who has any questions, they can send it through mail at [ jivyansh ]@imdcal.com. Members present at the meeting through video conferencing and have not casted their vote on agenda [indiscernible] Of the notice of 16th General Annual meeting through remote e-voting, I request you work on the street agenda by following the state mentioned at Page #87 of the notice of 16th AGM under the given instruction for e-voting. The e-voting, remote voting will be disabled after 30 minutes from the conclusion of this meeting. Result for remote e-voting and e-voting during the AGM will be placed on the website of the company. It will be also submitted to the stock exchanges as per the relevant provision of the Company's Act and existing regulations. The same result will also be available on the CDSL portal. On behalf of all the members, I convey my heartly thanks to the Chairman of the meeting, Shri J.R. Vyas, and other learned and esteem board members. Also on behalf of Dishman, I extend my sincere thanks to the members and all our other stakeholders for their consistent faith and support. Thank you. The meeting is concluded with thanks to the chair. Thank you.

Thank you.

Thank you.