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

Good evening, ladies and gentlemen. I'm Akash, moderator for the conference call. Welcome to Dishman Carbogen Amcis Limited Q1 FY '27 Earnings Conference Call. We have with us today, Mr. Stephan Fritschi, Chief Executive Officer, Carbogen Amcis; Mr. Harshil Dalal, Global Chief Financial Officer; Mr. Paolo Armanino, Chief Operating Officer, India; Mr. Angela Ameriks, Chief Commercial Officer; and Mr. [indiscernible]. [Operator Instructions] Please note, this conference is being recorded. I would now like to hand over the floor to Mr. Stephan Fritschi. Thank you, and over to you, sir.

Okay. Thank you very much. Welcome, everybody, to today's investor call to talk about the Q1 '26, '27 Financial results. As you heard, this is Stephan Fritschi speaking and the CEO of Carbogen Amcis. Before we go into the financials, I would like to give some brief operational update about portion answers, followed by Paolo's update on [indiscernible] coatings operations. But let's start with our sales activities, what we have done in the past 3 months. So quite some changes happened in this area. As you know, I mentioned this in the past, I will slowly be close to the market. We closed the customers. And with this slogan in mind, we have hired a new global Commercial Officer, namely Angela Ameriks. And I'm very happy to introduce her and she will address some words to you at the end of this presentation. She brings decades of experience in the CDMO business. She was working for highly recognized CDMOs in the past and principal remarkable network into our organization. New sales leadership team has been hired for India as well. This intensified our focus on our sales activities. We continue to strengthen our sales force remarkably and we've been keeping doing this. All this in mind, we want to be more agile and more active on the market. Some other key notes. Our Sprint initiative, you might remember, the Sprint is our initiative to acquire early phase projects and Carbogen is quite successful if you resulted in positive results and some nice and promising projects could be acquired. Also the package drug substance subproduct is being promoted and continue to be promoted. It's of high interest from our customer side. especially in the field of the bio communication phase. Last one, I'm pleased, close interaction between Dishman Carbogen Amcis and Carbogen Amcis is intensively increased and promote it and show some good successes in the market. Multiple processes are being transferred from Carbogen to Dishman in India. Customers will benefit from lower prices but still get the high quality as usual. Generally spoken, the order income is picking up, also market pressure is still existing. So let's come to our business units, and let me share some words about this. starting with our French subsidiary, the truck product, which is located in San Brazil. We are more recognized in the drug product market, hence more RFPs or pay Also, market shows some challenges, but still, we could increase our corporation rate. Some new projects could be acquired during the last quarter. and some big pharma audits occurred with very positive outcome. So this is very promising, and we are confident that we can get into more business with also these big farmers. Still, in parallel, we keep our cost control rigorously pursued substance, we could successfully transform multiple Phase II projects into late-phase programs. More than 10 late-stage projects, including PPQ campaigns are now in our portfolio, actually, more than 13. Among normal LPIs, also ADC-related molecules with higher priority status that the ad are secured, and this is important for future commercial product supply. Also FDA inspections are scheduled for later this year, more information to be communicated once it happens. Just recently, a new commercial product from the big pharma has been approved by the U.S. FDA, which adds another commercial product to our portfolio. Also the co-investment with our Japanese clients is proceeding nicely, and it's on track. But we're still expecting operational to be in the course of next year. The specialty that our cholesterol and vitamin D and analog business has nicely developed in the first quarter, especially the BBA, the vitamin D and the analog business has increased its sales, but also the margin, so -- which is very good news for us. Also we got new grade sources with more attractive prices, which could be accessed and we are confident that this will continue talking to different suppliers. Still, the cost reduction programs across this business unit are still ongoing and result their first time results, [indiscernible], new markets for cholesterol but also vitamin deal and very fits our access and penetrated, for example, in Vietnam and Africa, South America, et cetera. Last but not least, the collaboration with Dishman Carbogen Amcis is very important and that increased importance Numerous transfer activities have been initiated with the goal to produce the corresponding commercial products in India to the benefit of our customers, but also to guarantee higher margins for our group. So this -- which is what we call active life cycle management of commercial products. That's an ongoing effort. So with this, I would like to hand over to Paolo to give you more information about our Indian operations.

Thank you, Stephan, and good afternoon to all the shareholders. I would like to start mentioning the very recent inspection by the Ministry of Food and Drug Safety from the Republic of South Korea and Naroda site. The MFDS inspection was successfully completed and it underscores once again our unwavering commitment to quality, compliance and operational excellence. This achievement also reflects the dedication and expertise of our team with relentless focus enable us to consistently meet the highest standard ex by global regulatory authority and customers. Just in the last 1 year, Naroda site and successfully completed the MFDS Korea and the U.S. FDA observation. As of today, both B and Naroda all the certification from all the major international he -- from a regulatory standpoint, we keep filing across many countries worldwide, including the APAC and the LatAmregions. And just very recently, Dishman Carbogen Amcis Limited was granted in Europe with 2 CPs for [indiscernible]. Additionally, the new soft drug products were recently approved in Myanmar. In the last quarter, we continued our journey, which is aimed to strengthening the relationship with Carbogen Amcis of legacy products and the CDMO business. The journey is proceeding, as Stephan said, very steadily, showcasing a great interaction between teams with a strong focus on the final common target. I'm glad to inform you that a commercial contract already signed with the U.S. company to tech transfer project from Switzerland to [indiscernible] site. The activity has been already started and the project should be completed within this financial year. I'm also extremely pleased to inform you all that the second major legacy project tech transfer has been approved by a prominent [ Swiss MC ], thanks to the strong contribution of the commercial project management. And also in this case, the project has been already initiated. In addition to what just said, 3 other tech transfer projects from Switzerland to India are in advanced stage of discussion. As already mentioned by Stephan, from June, we are having a single point of contact for what concern Carbogen Amcis additional Carbogen Amcis commercial teams. Ms. Angela Ameriks, Chief Commercial Officer, is now leading the group's sales, marketing and market intelligence teams. We are very excited to work with her to strengthen our strategic business development, and we look forward to meeting her in India just in a few weeks. In Naroda, CDMO business-wise, we are witnessing very interesting development. First of all, we are very proud to have supported with one of our quarterly results of the launch of the microcyclic peptide in the U.S. market just in the last month of July. The U.S. multinational company formally acknowledged the invaluable additional Carbogen Amcis contribution in bringing this breakthrough therapy to the market. [indiscernible] we keep working to some specific CDMO related to semiconductor project for Japan and fine chemical project for the European market. Apart from this, Naroda site also many different inquiries to develop new variants of the old legacy products. For what concern the CDMO business, we see a steep increase of request for proposal and several of them are in the final negotiation phase. Meanwhile, we continue to strengthen our system and keep also exploring new areas for us like providing similar analytical service to customers. Regarding our soft operation, we have seen a significant business grow over the last year, and we are very enthusiastic about the future opportunity to build long-term CDMO partnership and support eventual commercial [indiscernible]. The great interest we are receiving from many different customers and abroad is providing a strong platform to initiate to support the broader objective of establishing solid commercial pipeline. As Stephan mentioned earlier, we are very confident for the future of the organization, and we remain focused on continuous enhancing our capability while delivering reliable and compliant solution worldwide aimed at patient safety and customer success. And after having said that, I hand over the call to our new Chief Commercial Officer, Angela Berks. Angela to you.

Thank you, Paolo. Good afternoon, everybody. My name is Angela Ameriks, and it's nice to meet you all. I'm honored to be here today as the Chief Commercial Officer for Dishman Carbogen Amcis. As Stephan reference, I started my sales career here 21 years ago. And after 6 years, I went on to other top-tier suppliers such as [indiscernible]. I'm very much looking forward to getting our there and being closer to the clients by traveling with the team and interacting with our partners base, particularly as we're about 6 weeks away from CPHI. First and foremost, it's undeniable that we strive for more business. We need to increase our prospecting efforts and work closely with the opportunities that we have to ensure that they close. Also, as previously mentioned, we have added new sales leaders in the past quarter. They each bring me in relevant skills to their respective areas of the business and anticipate that their presence will be in pasta. And not only have we introduced this new stable leadership for the various sales teams we are also actively recruiting for key roles in Europe, such as the U.K. and Central Europe to manage [indiscernible]. We have also recently signed a new hire for the U.S. West Coast. It comes with a couple of decades of experience and will start on September 1. In addition, we will also be adding from inside sales of prospecting roles to specifically needs for our services business. We are also looking to capitalize on our integrated offer to differentiate ourselves, especially by leveraging all the assets to provide a competitive offer, particularly between the [indiscernible] and additions. Further, we're looking to close our first deal with salami as our biologics partner and our bid conduction offering we continue to offer our drug product services at a competitive rate to entice clients to secure work with us on the drug substance offering. And last but not least, I'm viewing as such as I can to leverage my network and stay close to the market and our competitors. With this, I'll turn it back over to Stephan. Thank you.

Thank you very much, Angela. Thank you also for joining our company and especially our sales team. We are looking forward for a great collaboration. Thank you. With this, I would like to hand over to Harshil Dalal, our Chief Financial Officer.

Thank you very much, Stephan. A very good afternoon to all the shareholders. Regarding the financial performance for the quarter ending 30th of June 2026. It was a tough quarter for us from a numbers perspective, but there were certain specific reasons that we will get into. But overall, the outlook looks quite promising for the year and going into the future. The income for operations for the quarter ending 30th June stood at INR 6,776 million as compared to INR 7,080 million in the comparative quarter of last year. This represents a 4% degrowth as far as the revenue is concerned. And the major reason for the degrowth actually, we should have grown, but the major reason for the degrowth is one of order that was postponed in the later half of the financial year as compared to what we were expecting should have gone up in Q1 of the year. And that represent almost INR 10 million of value and a significant amount of operating profit as well. The cost for the quarter stood at INR 1,142 million. The employee expenses at INR 3,891 million, very much in line with what we had in Q4 of the last financial year. Other expenses were also under control at about INR 1,142 million for the quarter. Overall, because of the lower revenue that we were able to opt in Q1 of the financial year that made us stood at INR 600 million as compared to INR 1,460 million in the comparative quarter of the previous financial year. The depreciation and amortization was also remain line with Q4 of the previous financial year. The finance cost showed a positive impact in the sense that the finance cost reduced as compared to the previous quarter, we were at about INR 370 million for the quarter. All of this resulted into a loss before tax of about INR 512 million and a tax expense of about INR [indiscernible] million. We also had a foreign exchange impact on the financials, which is also part of the other expenses, which is to the tune of about INR 117.3 million. And this was really on account of the fluctuation between the U.S. dollar [indiscernible]. As far as the segment-wise breakup is concerned, the CDMO segment posted a revenue of INR 5,343 million for the quarter as compared to INR 6,112 million in the comparative quarter of the last year. The Marketable Molecules segment showed a significant growth. The revenue stood at INR 1,422 million for the quarter as compared to INR 968 million in the previous -- in the Q1 of 2026. As far as the margins are concerned, the CDMO segment because of the deployment of the revenue and the foreign exchange loss posted an EBITDA margin of 6.3% as compared to 17.9% in the comparative quarter of last year. The Marketable Molecules segment rose in Q1 of FY '26. There was a huge amount of sales of analogs and hence, the margin was at 22% for the quarter ending [indiscernible] 2026, this was kind of normally 18.6 million because of higher sales of cholesterol as compared to a loss. The CapEx that was done in Q1 of the financial year stood at about [ CHF ] 4.9 million, and the net debt excluding the lease liabilities stood at 153.6 million. as of 30th of June '26. So this was the financial highlights for the quarter. And with this, we would like to open the floor for any questions that any what you might have.

[Operator Instructions] The first question comes from the line of Mr. Harshit Khadka from Robo Capital.

So what is your revenue target and EBITDA margin target for FY '27?

We do expect single-digit growth as far as the revenues are concerned. And as far as the EBITDA margin is concerned, it should be similar to what we did last year. maybe it could be a little bit higher, but that's more or less the guidance.

Okay. And what is the color for Q2 FY '27? Like what kind of numbers are you expecting?

Well, quarter-over-quarter, it would be difficult to give a guidance what [indiscernible] take is for the full year, Imagine for the next 3 years, but it would be difficult to give at this point of guidance for Q2.

Right, understand. And what are -- what is the aspiration for FY '28 and '29?

So '28, '29, what we expect is that there should be a substantial growth that we're seeing at the India operations as well as the [indiscernible] part of the been out of the spot entity and also out of the French entity, which is our injectable plant, do you expect as double-digit growth in the French entity as well as in the operations. All of this should help us to achieve more than 10% growth in revenue year-over-year. And the EBITDA margin should be closer to the 25%, 26% that we are prior to the issues that we had at the end.

[Operator Instructions] Next question comes from the line of Mr. [ Keshav Goel ] from [ Gray ] Capital.

Is there anything being done to refinance and maybe reduce the debt. I see that about 1/3 of the operating profit are going towards just finance cost of the company? Is there any way to reduce the debt load or maybe refinance or lower cost of capital?

So there is something which is already work in progress. So what we have done is we had announced in the last in the last [indiscernible] as well as subsequently opting the shareholders' approval for raising funds in foreign currency of the cremental entity level and increase those funds in the Indian entity high cost that which is primarily led in India. So that is something which contort upon, and we do expect that to happen in the next couple of months or so.

Just a little follow-up on that. What is the amount expected and what rate of cost is the promoter lending to the company? And what kind of effect can we see on the bottom line for the same?

Sure. So we have mentioned the specifics of that particular loan, which was approved by the shareholders in the explanatory statement that was sent out. But for your benefit, the total amount for which we have taken the approval is up to CHF 200 million. I mean not that the entire CHF 200 million would come in one tranche, but it would be in multiple tranches. And the primary purpose is going to be to prepay the high as well as utilize this way to finance any future CapEx or working capital requirements. The interest cost is going to be at 4%, all inclusive and the overall tenure that we are looking at is 10 years.

[Operator Instructions] The next question comes from the line of [indiscernible].

[Technical Difficulty].

[indiscernible] I believe it has the [indiscernible]. [Operator Instructions] The next question comes from the line of Amish Sanghvi from Anvil Limited.

I would like to know how many Phase III molecules were commercialized during this quarter?

Well, as Stephan mentioned, we had one molecule which was in Phase III, which received approval. It was not in the quarter ending 30 of June, so just 4 days back. So that was from a big pharma, and that is the molecule which has now gone into the commercial stage.

Okay. So there was none in Q1, right?

No. There was none in Q1.

Sure. May I add one on work? Stephan speaking. Okay. We had -- last quarter, we could add 3 late-phase projects, late-phase molecules. Molecules we were handling on early phase Stage 1 and 2 and they got promoted into Phase III. Just as an add-on information.

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

So I probably asked this in the last quarter as well. So we are not getting a sense as to when this company becomes like a stable, profitable every quarter kind of a company. Because after all, you are in the pharma business and you are like now an outlier where you make losses quarter and profit quarter.

So some color on -- So if you see our business completely B2B and many of the shipments when the customer requires the material, many of this is driven by what they demand and how their molecule is performing, what the market needs, et cetera. So yes, there would be lumpiness in the business if you look quarter-over-quarter, and that is something that is kind of inherent in our business, especially because we deal with new chemical entities, and that is something which is very difficult to take out. But -- and that's the reason we say that it's best to look at our business more on a 2- to 3-year perspective or at a minimum on a yearly perspective rather than quarter-over-quarter.

I understand. I'm just pushing back a little bit on this. Normally, mature pharma companies have enough pipeline and also that at least they make a profit I can understand fluctuations -- fluctuate on loss and profit. So is an aspiration at all business is in your segment? I'm just trying to understand.

Yes, because if you add the 10 million of revenue, which could not be accrued in the current quarter, then the numbers would have looked very different because if you see our cost base, most of it is fixed in nature, especially the employee cost, which is like 50% of the P&L, that's like fixed in nature. Even the other expenses, more or less is fixed in nature because a big portion of our revenue comes from the development work that we do in addition to the -- and the rest is the COGS. So as the revenue keeps on increasing, except for the COGS, which are completely variable, the rest of the expenses are more or less fixed in nature. So if you're talking about 10 million of revenue, this could translate into close to 70% addition to the EBITDA. So that's how the mechanics work. So the more we are able to work on the top line, the more it could translate straight away into the EBITDA.

So I'm just understanding what is the bottleneck that we are facing the top line? I'm just comparing normal CDMO company. Usually, they have a very steady kind of -- and they are also B2B. So the B2B logic doesn't apply CDMOs are B2B. I'm just trying to understand what is the bottleneck which we have internally understand in our sales or whatever that we are trying to add?

Well, it depends which companies you are comparing to. But for us, if you see the major cost part lies overseas, especially at our entity. So -- and the major cost over there is the employee cost, which has to be incurred in order to get the molecules that we are developing because at any point in time, we'll be working on 700, 800 programs across different phases of development. And that's our business model. And we start the journey right with the preclinical Phase I stage of the molecule and go through the entire life cycle of development. And then at some point, some of these molecules get into the commercial space. I mean I don't know which other companies you are comparing with, but maybe those companies might have certain large generic molecules as well, which we do not. They might be having other segments of business, including biologics, which we are not into. So from that perspective, for us, yes, there could be swings quarter-over-quarter and that is something that we also saw last year where we had Q3, which was kind of weak for us. And then Q4 historically has been the strongest quarter for us because it becomes like a Q1 for our customers, and that's where they want most of their shipments. So that cycle we have to go through. Also after the pandemic, many of our customers, they had also stocked up a lot of quantities where now we are seeing that many of that destocking is also [indiscernible].

[Operator Instructions] We have a follow-up question from Mr. [indiscernible] from Wealth Investment. .

Sorry, I had some problems. I'm coming back into the queue. My question that I wanted to ask is regarding the fund raise or bringing money into the company, the promoters was expected to get some funds. So could you share some updates on that and how that's going and by what actuate can you expect those funds to come back?

Sure. One of the investor [indiscernible]. I can answer that for [indiscernible]. Yes, that's one. No problem. So the idea -- so that is something which currently is being worked upon. And the idea is to conclude in the next, I would say, 60 to 90 days as far as the fundraise is concerned. We have taken the necessary approvals, which includes the shareholders' approval and since the funds are going to come by way of an external commercial borrowing into the Indian entity, we have also done all of the necessary compliance from that perspective. So it's just about the execution which needs to happen at the overseas entity, and that's when the fund flow should happen.

So the question I have is that for you -- for the funds to come, the promoter entity will be raising that fund on their own name and then bringing the money to the company, right? Is my understanding correct?

That's correct.

Okay. So what is the promoter going to be going to do that? I mean is it like living properties? What is -- because this is a very large sum of money. So what is the promote [indiscernible].

Yes. It's going to be combination, levels going to be largely the postal assets of the promoter as well as guarantees, et cetera, everything like private come entity level.

Okay. And you have -- you must have obviously got those offers from bankers over there and all of those must be in hand, right? Or is it that there is a -- you have to go and find the money and all of that, and that's what you're asking?

No, no. It was only it was only when it was compound that we have gone ahead and taken the approvals for approvals from the Board as well as from the shareholders.

Okay. So then what is the time needed besides why do you need another 90 days? Sorry, just trying to understand.

Because what it involves -- it involves certain condition precedents that need to be complied with certain amount of billing that needs to be done by the banks and one is about the execution of the documents that again there are oils involved from different jurisdictions. So all of that takes time. And again, July, August is usually kind of the holiday period here in Europe. So just accounting for the same, we believe that the next 60 to 90 days will be a fair time.

Okay. One other question I have, Harshil, is that in the past calls, it has been mentioned that there is -- I mean there is a net debt position because there is some cash on the books, which -- and then there is debt, right? And then that net debt reduces by the cash that you have on the balance sheet. My question is, is there a schedule by when that cash would get used to repay the debt? Because last time my discussion was asked, you guys had mentioned that there are some payment clauses or some charges that would hit you guys, if you were to use it now. But there has to be a schedule by when you would be able to start doing it. So is that something you can share with us?

Sure. So basically, that cash -- so there are 2 parts to it. One is the India part and the second one is the Swiss part. So that is that which is sitting at both these locations and bulk of the cash is sitting at the Swiss entity level. So ideally speaking, we would have want to utilize that cash to pay off the debt in India, but that is something which regulatory is not permitted for a subsidiary to the parent, et cetera. So that is the reason the cash which is lying overseas well, we can bring it in the form of dividend, et cetera, but again, there will be tax paid, et cetera. So that cash will be utilized for the purposes overseas at the Swiss entity level where again, the cost of borrowing is quite low. So that is the reason why that is not being paid off and it is kept as deposits in order to get a positive return on the borrowings that are done at the overseas entity. As far as the India debt is concerned, that is what is planned to be paid off by way of raising the funds at the promoter entity level and being done as an external commercial borrowing.

But wouldn't that still be the same thing like the subsidiary paying back the parent?

Promoter can give an ECB since it's the shareholder or the promoter entity, it is permitted to give an ECB to the Indian entity, but the subsidiary is not.

So the promoter entity that will directly give money to the Indian entity is what you're saying?

Absolutely. Yes. It won't be routed via the subsidiary to the past.

[Operator Instructions] We have a follow-up question from Mr. Harshit Khadka from Robo Capital.

So what is going to be our debt level and interest expense for FY '27 and '28?

Well, from a net debt perspective, I think we should be somewhere around 140 million to 150 million as far as -- I mean, this is in Swiss franc, and that would be the right way to look at our debt. This is not taking into account any infusion coming in from the promoter entity level. This is just what is in situation, we expect that the net debt should reduce by roughly about 8 million to 9 million. As far as the interest expense is concerned, I would say it would be similar to what you see right now, somewhere between INR 35 crores to INR 40 crores, again, not taking into account the additional promoter [indiscernible].

Okay. Sir, INR 35 crores to INR 40 crores for the full year?

For the quarter, sorry.