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

Good afternoon, I, Dharmesh Desai, GM of Secretarial & Legal. Welcome all the members to the 17th Annual General Meeting of the company which is being held through video conferencing as per MCA [indiscernible] circular. Hope all of you are fine and in good health. Chairman, Mr. Janmejay R. Vyas; our Global Management Director, Mr. Arpit Vyas; Whole Time Director, Mr. Deohooti J Vyas; and Independent Directors, Mr. Subir Kumar Das and Ms. Maitri Mehta; Mr. Rajendra Shah, Chairman of Audit Committee, NRC and SRC Committee, have joined through video conference from their respective locations. Also Mr. Pascal, CEO of Carbogen Amcis Group; our Global CFO, Mr. Harshil Dalal of the company, have joined from their respective locations. Our [indiscernible] auditors, internal auditors and [indiscernible] have also joined through video conference from their respective locations. With kind permission of Mr. Janmejay, our Chairman, I start with 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 placed 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/shareholder as per Note 18 of the notice of the AGM will be unmuted by the moderator. Members can ensure that there is proper internet connection from their side. If there is connectivity problem at speaker side who joined, the Chairman will announce the name of another speaker name. Members who have not registered themselves as speakers, and who has any questions, they can send it through mail at [email protected]. The question will be responded appropriately. Members who have not voted through remote e-voting can cast their vote through e-voting facility available during the AGM. Members present through video conferencing are counted for the purpose of quorum for this meeting. As requisite quorum of the members is present, with the consent of 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 conference. As the AGM is conducted though VC, the facility for appointment of proxy by the members is not applicable. Now I request Mr. Arpit Vyas, Global Managing Director of the company to apprise the shareholders about the business performance of the company. Sir, please.

Thank you, Dharmesh bhai. Thank you, everyone. Thank you all for participating. Dear shareholders, it gives me immense pleasure to welcome you all on behalf of the Board of Directors to the 17th Annual General Meeting of our company. I trust you have taken the time to [indiscernible] into our annual report for the fiscal year ending 2024. This year has certainly been a journey, fueled with significant challenges and remarkable achievements. Inflationary pressure in Europe has been testing our profitability since some time now. The health care industry that was once believed to be inflation-proof faces, as a result of the inflation for the first time in its history, major cuts in expenditure. But this time around, refusing to make it out, we have transformed this challenge into an opportunity. To become lean, looking at each and every opportunity, big or small in matching detail, crafted a detailed global level 3-phase plan that is aimed at considerably expanding the market reach, reinforcing the growth of the top line and not only safeguarding but significantly enhancing the bottom line. The Phase 1 has already been set in motion, soon to see completion by the end of this calendar year. Added to that, this year, we have also concluded some significant milestones at our India location. Successful completion of all 3 major regulatory authorities starting with the Japanese Regulatory, PMDA, followed by the European regulatory via the Italian representatives IFA and finally, the American regulatory, the U.S. FDA. These signify us to be fully compliant and also a global outlier, opening new avenues and collaborations for significant future growth. These accomplishments rejuvenate the CRAMS business in India, positioning us for continued success. Our unwavering commitment to regulatory excellence paves way for future alliances. We have invested significantly in key strategic projects and advanced injectable facility in France, expansion of our Switzerland facility and such efforts reflect our dedication to innovation and preparing for the future. At our France location, challenges arose with machine failures initially, yet we resolved them successfully through, though operational phase delays, progress now moves steadily with first GMP batch scheduled for production. And encouragingly, we have secured a robust customer pipeline, including interest from the U.S. market. We expect the French facility to soon break even. Our digital transformation journey advances and SAP is being one of them is planned to go live before the beginning of the next fiscal year. This enhances our operation control and efficiency, positioning us for a sustained growth in the years ahead. We will continue leveraging our digital technologies to drive innovation, optimize our processes to deliver superior value to our stakeholders. Our financial operation highlights this year. As a result of our consolidated revenue, growth has risen by 8.4%, reaching to INR 2,616 crores from INR 2,413 crores. The Carbogen Amcis CRAMS business showed a strong growth of 15% driven by increased development activities in Switzerland and higher commercial revenues. However, DCAL India, the new molecule entity -- the new chemical entity business and API and intermediates revenue declined by 12% as most orders were serviced in the second half of the FY '24, leading to a significant revenue drop in the first half. And increased supplies from the Bavla site in the second half. The Carbogen Amcis cholesterol and vitamin D analogues business is surged by 23%, primarily due to increased demand. Meanwhile India Quats and Generics business declined by 41%, attributable to the slowdown in the agrochemical sector. The EBITDA adjusted for ForEx loss and the service cost and the nonrecurring expenses stood at around INR 409 crores, slightly down from INR 414 crores last year. This resulted in an EBITDA margin of 15.6% compared to the 17.2% previously. The decline stems from ForEx losses and service expenses and also nonrecurring expenses. The net debt increased marginally to CHF 152 million as of March 31, '24, from CHF 159.2 million. Capital expenditure, we have made substantial capital investment enhancing and expanding our capabilities, setting new standards of excellence. These initiatives strengthen our R&D, resulting in robust pipeline of new products, enhancing efficiency, delivering outstanding service to our clients. Major projects include investments in France, establishing new project lines, co-investment projects in Switzerland. Our Bavla and Noida facilities in India underwent expansion and upgrades, having a CapEx of almost CHF 31 million. For growth and maintenance, looking ahead to fiscal year 2025, we expect a substantial decrease in CapEx as major projects are near completion. Implementing digital tools, including SAP remains a strategic priority, enhancing operational efficiency and decision-making capabilities. As CapEx declines, we continue investing in routine maintenance and digital transformation initiatives, allowing debt to stabilize. Business pipeline of our company continuous to demonstrate a strong commitment in innovation, customer-centric solutions and R&D excellence. The strategic focus strengthens our position as partner for global innovators and biotech companies in developing the commercializing novel molecules. As of March 2024, we have a robust pipeline of around 16 APIs in late Phase III development and our substantial investment in R&D is evident of the new product development pipeline which stands at close to CHF 150 million. Looking forward despite a dynamic and challenging external environment, we remain optimistic about our growth trajectory. Our steadfast commitment to innovation, customer-centric and customer-focused R&D excellence fortifies our product pipeline. We continue to strengthen the partnership with global innovators. And with that, as we move ahead, we will continue investing in our people, processes and technologies to drive further improvements, maintaining our leadership position in the pharmaceutical and contract research and manufacturing sector. We are confident that our strategic initiatives will pave the way for sustained success, creating value for our stakeholders. We extend our sincere gratitude to the Board, our employees, shareholders and customers for their valuable contributions and unwavering support. Their dedication has been instrumental to our achievements. Thank you. With that, I would like to pass the call to ask Pascal Villemagne, our CEO, Carbogen Amcis, to say a few words.

Thank you very much Arpit for your kind words. You well summarized the situation, especially on the market today. Although [indiscernible] market, pharma market, agro market, cosmetic market become a bit more challenging due to different external events like the global geopolitical situation or high inflation rate in Europe pushing a bit of consciousness into private investments into, especially the pharma and cosmetic business. Our numbers are solid for the first 6 months. The last year results demonstrate that, although we are going through those challenges, we can deliver. And with all the initiatives we have taken, as you mentioned correctly, around the utilization or the close collaborations with our customer partners and with the co-investments we are currently doing in Switzerland, for instance, is leading us to a nice future in the coming months. We're extremely confident and especially also with our new facility in France that we are going to fulfill and come to a breakeven point extremely soon. We have a lot of customer visits, a lot of positive feedback and our pipeline of orders is starting to pile up. So not as fast as we had imagined before the crisis, but the pace is extremely interesting and lead us to a very high confidence that we can reach this important point in [indiscernible]. So globally, as you mentioned, the challenging external [indiscernible], challenging markets. But with the work of all our teams around the world, we are extremely confident that we can deliver the numbers and also in the near future, even going beyond that. Thank you very much for your attention, dear shareholders. And I pass the word to our Global CFO, Harshil Dalal.

Thank you very much, Pascal. And thank you [indiscernible] for the introduction. The last financial year was a very significant year for us as all of you know, and [indiscernible] also explained some of the significant milestones achieved in terms of the regulatory clearances that we had for the Bavla site. So it was after almost 4 years of hard work that was put in by all the employees of the company that we were able to successfully pass through the regulatory audits, especially from the [indiscernible]. In the last financial year, we did have an increase in the revenue as Arpit already explained, which was to -- I mean, we basically went to INR 2,616 crores, which is about 8.4% increase over the previous year. As far as the operating profits were concerned after the one-off that we had in the last financial year, the major one was on account of the delay in the operations of the French facility, mainly because of the technical issues related to one of the manufacturing lines, all of which was expensed out to the P&L. After adjusting for all of the one-offs, we stood at about INR 408 crores as compared to INR 414 crores in the previous financial year. The most important number for us to track was obviously the cash flow from operations, which was quite strong in the last financial year. We generated INR 403 crores of cash from operations after working capital changes. And this meant that the net debt remained in check. So we ended the year with about CHF 163 million of net debt as compared to CHF 159 million in the previous financial year. As you already know, we were in the process of [indiscernible] capital expenditure. We completed the French facility successfully in the last financial year. We also completed the ADC expansion that we were doing in Switzerland as well as a certain amount of capital expenditure that we were doing in India, not just to clear the regulatory issues, but also to take into account the next 5, 10, 15 years of growth for the organization. So most of the capital expenditure has now been completed and what we expect going forward is that we should be generating free cash flow in the coming years, which would help us from a cash perspective and also from a net debt perspective. We also expect that going forward with now the regulatory clearances having been received for the India facility, there would be better integration between the Swiss sites and the India sites where we would look forward to transferring business, trying to see how we could collaborate within the organization in order to reap the benefits of the synergies that we are able to bring in as an organization because we are quite uniquely positioned currently as we speak in order to leverage upon the synergies. That is something that we would be working on in the current financial year and also going forward and trying to see how we could move towards a centralized support function which could help the entire organization. So there are various initiatives that we are working on currently, which will augur well for the organization, both in terms of revenues as well as profitability. So with that, Dharmesh bhai, if there are any questions, we would be happy to answer.

Okay, thank you Harshil bhai. As notice of Annual General Meeting and directors report is already circulated to all the members, and auditor's report does not contain any qualification thereof, I consider as being read. In terms of Section 108 of the Companies Act deals with company's Management and Administration rules 2014 and Regulation 44 of SEBI LODR, the company has provided e-voting facility through CDSL to the members holding shares in physical form as well as in Demat form, to exercise their right to vote by electronic means. The cutoff date for remote e-voting was 28th September 2024, and e-voting window was remain open from 24th September 2024, 9 a.m. to 26th September 2024 5 p.m. for remote e-voting. As for MCA and [indiscernible] secular, the company has also provided e-voting facility during the AGM. The company has appointed Mr. Ashok P. Pathak, practicing Company Secretary [indiscernible] as scrutinizer to conduct voting process in fair and transparent manner. Now with the permission of Chairman, I start the question-and-answer session. In this regard, one shareholder registered himself as speaker. So I now request moderator to unmute Mr. Jaideep Bakshi. Can you check? Sorry? Okay. He's not joined the meeting. Okay, since he has not joined, with the permission of chair, I proceed further with the meeting. As informed earlier, members who have not registered themselves as speaker and who has any questions, they can send it through mail at [email protected]. Members present at the meeting through video conferencing and have not casted their vote on the agenda item #1, #2, #3 of notice [indiscernible] through remote e-voting are requested to vote [indiscernible] agenda by following the steps mentioned at page #92 of the annual report under the head instruction for e-voting. The e-voting [indiscernible] will be disabled after 30 minutes from the conclusion of this meeting. Result of remote e-voting and e-voting during the AGM will be placed on the website of the company. It will also be submitted to the stock exchanges as per the relevant provision of the Companies Act and SEBI LODR. The same result will also be available on the CDSL website. Now on behalf of all the members, I convey my heartly thanks to the Chairman of the meeting, Sri. Janmejay Vyas, and other learned and esteemed Board members. Also on behalf of Dishman, I extend my since thanks to all the shareholders and all stakeholders for their consistent faith and support. Thank you. The meeting is concluded with a lot of thanks to the Chair. Thank you.