Eris Lifesciences Limited (ERIS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Eris Lifesciences Q2 and H1 FY 2021 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Bakshi from -- Chairman and Managing Director of the company. Thank you, and over to you, sir.

Thank you. Thank you. Thanks, everybody, for attending the call. A very good evening. Let me start by saying how things moved from quarter 1 to quarter 2. At the macro level, we are almost back at around 90% of work. The footfall [ in the doctors' clinics ] have also more or less come to the normal levels. So I would presume they are at around 90%. The initial thought which we had when we opened the quarter 1 call, I remembered that, there could be a structural change going forward. Though we didn't have the numbers at that point of time to really speak for it. But we were quite hopeful that going forward, there might be a structural shift in the way our team has operated. As we are moving forward, we have seen that becoming more clear. The trend more or less continues. The biggest emerging trend, which we expected was the growth in V&M. If you remember the quarter 1 growth for the market was minus 6%, but we were quite hopeful that the way things are shaping up, V&M will be a big jump. We can further tell you that we feel that [ immunity ] would be a target [indiscernible] in itself maybe in the coming years. So we see a continued growth on that side month-over-month. Even the quarter 3 was in good healthy teams. So that's one change. Cardiovascular, diabetes continues to be very robust. Cardiology, we had seen the growth in double digit -- strong double-digit growth. Even in diabetes, we are seeing a strong double-digit growth. But because of some value erosion, it is not there to be seen on the value side. Other than this, we also feel that COVID has actually, while the number in a diabetes chamber, doctors' chamber, are almost coming back to where they were, but surprisingly, we see more new patients coming in. So maybe we always hear that 50% of patients don't get detected. This could be -- this could prove to be a shock, everybody went ahead and tried to diagnose themselves. So we are seeing a great, significant jump in the new diabetes patients who are reporting to the doctors' clinics. The same is true for hypertension also. So there is an increased awareness, what we were talking in the quarter 1. Plus things are getting normalized because also it's been quite long. We also talked about the digital trends. So digital trend did pick up. It has still to pick up. But we are back to a very large level of physical meetings. So we consider that digital is now a following part of the overall patient consultation. But it is not as overwhelming as we had thought over the last quarter. As for our performance, we have the PowerPoint presentation is there for everybody to see. I'd just like to highlight the performance has been quite robust. And it has not only come from one direction, almost all the engines have started firing. So that's it from my side. I'm happy to take your questions now.

[Operator Instructions] The first question is from the line of [ Sarwanjit Betai ] from SMC Global.

Sir, I want to ask you three questions. First of all, in the FY '20 annual report, which I was looking for -- of your company, your traveling and conveyance allowance is close to INR 80 crores, which constitutes a 7.44% of the revenue. Can you explain this from where this high number is coming and why this -- are we doing something different on it? When I see your peers, they are having close to 1% or 2% or might be 3% of the traveling expenses. So this looks quite big number. So can you explain on that part first?

Will you please complete your questions. I'll answer you one for all.

Okay. Yes, sure. And sir, second question is -- second is your sundry receivables in FY '20 was close to INR 156 crores, which was a jump of close to INR 48 crores from the past 4 years to INR 156 crores. And look, right now, in the 6 months, it is close to -- in the FY '21, it is close to INR 195 crore. Can you kindly elaborate on this part also? And sir, third, like in FY '21 -- in the Q1 of FY '21, you have stated that Zomelis will start contributing close to INR 40 crores for the full year of FY '21. Can you give some guidance on that part also?

Yes. Sure. As far as FY '20, I don't know about the other companies, how they present their numbers. But the large piece of this cost is basically the traveling allowance, which our people claim. And we are roughly all together around 3,200, 3,400 people in the field, around 3,400 representatives. So that's where it comes from. It's a completely normal expenditure, which is a part of everyday traveling allowance. As far as the debtors, yes, you're right. Our debtors have gone up. So one explanation is that with growing sales, debtors do go up over a period of time. The major change which you are asking is, one, we have already explained that we were at 14, 21-day cycle, which we moved to 21, 21-day cycles. So when I say 21-day cycle, it is not from the date of billing. It is basically when the good is received. So then there is a lag of around 8, 10 days. In the COVID era, that lag actually got a little more. But having said that, if you look at the OCF, now you see in the second quarter, we are closing at around 80%, 85%. And we -- by the end of the year, we should be at the same level of around 85%. That's what it looks to us. I think the debtors are going to decrease from here. I will not give you a number. But our target for the next year first quarter is that we come down to around 40 days kind of number. So depending upon the sales, we can then be able to calculate. The last question was about Zomelis. Yes, we are right there. We will be very near to INR 40 crores or exceeding INR 40 crores. We remain confident and the numbers are also on the same line.

[Operator Instructions] The next question is from the line of Abdul Puranwala from Anand Rathi.

My first question is related to gross margins. So gross margins for the second consecutive quarter was slightly low if we have to compare with the first half. So would this be a function of the vitamins and the OTX contribution being a little higher in the quarter and that's why we see some impact on gross margins?

Yes. So look, the health care business is very different from our core business. So there's -- so let us talk about standalone. So stand-alone numbers, we have always been in the same range. If you look, our range has been 17.5% to 18.5%, more or less here and there. So we continue in the same range.

Sure, sir. And in your opening remarks, you mentioned that nearly 90% of the promotional activity is back to pre-COVID level. But if we again see the other expenses portion, where your -- large part of your promotional expenditure would be sitting, I think we are -- in terms of the absolute spending, we may not be -- in the Q2 may not be at a par level as compared to last year. So do we see this cost increasing going ahead?

Yes. Look, costs could be looked in 2 manners. One is if you look at comparison the last year, if you compare it from the percentage of things, from a percent -- because when sales grow, the cost also grows together. So when you look at our percentage point, we are 2 percentage less this quarter. But there is no way we can tell you that there is going to any cost reduction. The costs are going to remain normal. This is what I spoke in the first quarter also.

Okay. And sir, any new launches are we targeting for the second half? Or how should we see FY '22 if you have to see the growth? I mean basically, if we have divided between price, volume and new product launches, how should our growth look like maybe for FY '22 or for the second half? If you can provide some light, that would be helpful.

Yes. Just give me a moment.

[indiscernible]

Okay.

[indiscernible]

Okay. So I was just sorry. I just wanted to confirm certain numbers. Look, we are having some very interesting launches, starting from December this year, extending to June of the next year. The pipeline is very rich. We haven't seen this kind of pipeline in the last 10 years. And this is something which we've been talking about in the last couple of years that between '21 to '23, we will see large opportunities in terms of products coming in. So we remain positive. And that is the reason we typically mentioned in the presentation that we have visibility of launching several seven products, which are a mix of in-license as well as out of patent and some formulation development, R&D, which we think will do good. So that is the outlook for the new launches. Now from a sales point of view, gentlemen, look, this structure is very beneficial to our portfolio. And if we feel that this structure is here to remain from a -- I'm talking about the therapy mix, which we are talking about. Look, what has happened, number one, growth therapy, number two, growth therapy and number three is growth therapy. All -- and these are all large therapies. I'm not talking about small therapies, the largest and the top 3 growth contribute 85% -- 80% to our portfolio. So we remain positive for the coming years also.

Sure, sir. And just on the growth breakout, if you could provide, that would be helpful.

Yes. I'll just get that number and I'll get back to you. Before the call ends, I'll [indiscernible].

[Operator Instructions] The next question is from the line of Prakash Agarwal from Axis Capital.

And congrats on good numbers. Question on -- so you had a good Q2. But how are you seeing the remaining second half? And what are the initial pillars in October? Are you seeing continued demand for chronic? You were also mentioning about some rebound in acute. If you could give some color how October had been so far.

So Prakash, we got the report -- the AIOCD report came in, in the morning. They announced they have started giving AIOCD reports. So the report, which came in the morning, indicates 7% growth for the ICM for the entire month and Eris, 20% growth for October. So as I've said to the last caller that this is a structural change, which is of great benefit to the portfolio which we have. So this portfolio should keep on performing better and better in the [ Q4 ]. Now regarding the acute, yes, acute, we have written in the presentation that we have arrested the degrowth. So we have -- our degrowth is lesser than the market. It has happened after a long period of time. It is not that -- we have done some great job, it has bottomed down actually. And we have seen some green shoots. So we are positive of beating the market even in that segment in the coming quarters.

Okay. And secondly, if you see the generics business, I mean, if you look at the consol minus standalone, so is -- this run rate is about INR 100 crores annualized. So is that what you are looking at for the year? And what is the outlook for next year?

Next year, Prakash, I haven't -- we haven't done the exercise until now. So next year number, I will not be able to comment. But yes, the -- this business is now catching up. We had certain issues with one of the category of the products. So that -- and we've been able to do it away with more of [indiscernible] even in the generic OTC business. So I am not sure about INR 100 crores. INR 80 crores to INR 100 crores is the number which I will put. The other -- I think, Prakash, there is [indiscernible] also which is sitting in the tree. When you mine the consol from this, there is [indiscernible] also sitting there. And I think on the seventh slide, we have a breakout also.

Understood. And lastly, on cash, so since you said that you'll maintain 85%-plus kind of cash conversion, so is there any plan to use the cash? Or you did first quarter for dividends. But is there any plan for the remaining year, you're scouting out for more assets, brands? What is the thought there?

So Prakash, there are 2 things which are running parallelly. One is that our pipeline is quite robust. And out of these 7 products, at least 4 of them have a real big scope. So I personally feel that we would rather be busy in the next year, at least for the first 2 quarters in trying to settle down this new product. So I -- from where I'm sit today, I really don't see something happening at least in the first half of the next year. Beyond that, we have to wait and watch. And in case we've allowed that we will do at least a 20% kind of a dividend. In case we don't see opportunity to invest cash, then we will have a rethink on that.

[Operator Instructions] The next question is from the line of [indiscernible], individual investor.

First of all, congratulations to the Eris Lifesciences for the good set of numbers in this challenging time. I would like to know the management's view on the 2 aspects. The number one is since incorporation in 2007, the company has been serving Indian domestic market quite effective and efficiently. And of course, there are still a huge opportunity available in the Indian domestic market, be it future patent expiry, consolidation, in-licensing opportunities...

Excuse me, just there's a little bit echoing in your voice. It is not clear. Can you be a little a closer, away, whatever you do, you're not very clear.

Yes. Is it clear now?

Yes. Now it started getting.

Yes. So I would just like to know the management's view on 2 aspects. The first is since incorporation in 2007. The company has been selling to the Indian domestic market quite effective and efficiently. And of course, there are still opportunities, which is available in the Indian domestic market, be it future patent expiry, consolidation, in-licensing opportunity, strategic acquisition. But for [indiscernible] to grow the value creation, are you looking at expanding to the new geography out India in mid- to long term? And number two is, is there any guidance on the CAGR growth in the top line and the bottom line over the next 3 to 5 years?

Okay. I'm sorry. But I'm very clear that I've got your question. So look, thank you for all the good words about the growth in the company. But having said that, we are still 1%, 1.2% of the market share. So that gives us a huge opportunity in the Indian market. We are very positive about the Indian story because we still see it in the product territory, our -- the coverage of medicine is still 50% of what it used be. And that's the secular story, which has been unfolding from the last 2 decades now. So we remain completely focused on the Indian business. We have no plan of moving outside. As far as the guidance is concerned, we have -- we do not give guidance as a policy. But at a broad level, we had maintained that we would like to grow 20% to 30% ahead of the market. And we continue to list that for a couple of years. We are trying to make it up -- make up for the volume losses. And in the 4 to 5 years, you'll see us growing at that level.

[Operator Instructions] The next question is from the line of Gagan Thareja from Kotak.

Am I audible?

Yes, you are.

Yes. I have three questions from my side. First one is around your brand amortization policy. I think you have an amortization period of 50 years for your entire unit? So why -- I mean what is the rationale behind choosing such a long time frame for amortization?

Can you put up all your questions, so that we can answer one-by-one?

Okay. So that's the first one. The second one is if I look at the AIOCD data for your brand, which over the last 5 years, almost half -- I mean, if I knock out the top 20 brands that you report, the balanced brands have not grown at all in the last 5 years. They have stagnated over the last 5 years. And they, even as of today, comprise 45% of your sales or more, which essentially means that unless you pick up on that tail, it's going to drag your sales growth down in the next 4, 5 years because it's still a very, very chunk of your total sales. So what are you planning to do about that? That is the second one. And the third one is around your tax rate and your CapEx, if you could -- because you are at almost full utilization at your Guwahati plant and your tax rates are fairly low. If you could give us some idea over a 3- to 5-year time how should we build around these 2 numbers? And lastly, you've got numerous private entities in the group. What could be the reason behind that? So these are my questions.

I missed the last one, please.

So you have fairly numerous private entities within the group. What could be the reason for that?

Sorry, I'm so sorry, there's a problem in the line. It's getting a little bottled up. Can you please say the last one?

Never mind, if you could just answer these questions, and I'll get back in the queue and come back for more if I do have.