Eris Lifesciences Limited (ERIS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Eris Lifesciences Q3 FY 2021 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. V Krishnakumar, Chief Operating Officer and Executive Director of the company. Thank you, and over to you, sir.

Good afternoon, everyone. Am I audible?

Yes, sir. You are clear and audible.

Great. I'm Krishnakumar, and a hearty welcome to our Q3 conference call. I'm happy to share this quarter's highlights with you. To begin with, I'm happy to report that the domestic pharmaceutical industry, which we refer to as the IPM, it has returned to more normalcy in terms of operations, and the market has registered a growth of 6.4% in Q3. This is in comparison to 1.1% growth last quarter and a negative 5.2% growth in Q1. The growth for the month of December has been 8.5%. This growth has been led by chronic and subchronic therapies, which has grown at 9.4% and 7.9% in quarter 3, respectively. For the quarter ended December 2020, Eris ranked as the fastest-growing among the top 25 companies in the Indian pharma market, excluding the COVID molecule, remdesivir and Favipiravir. For the 9-month period ended December 2020, Eris ranked among the top 5 pharma companies in terms of growth. Our growth rate in Q3 was 15.6%, and our growth rate for the 9-month period was 7.8%. We continue to outperform the market in our core Cardiometabolic and VMN segments, which together account for 78% of our sales on the back of relentless execution. Our Cardiometabolic segment has grown by 13.6% compared to the covered market growth of 12.2%, and our VMS segment has grown by 39% compared to the covered market growth of 16% during Q3. I'm also happy to share that our acute segment has now course corrected and has grown at 15.4% in Q3 compared to the covered market growth of negative 1.2% during the same period. This is a significant improvement over the 3% growth shown by our acute segment last quarter. 7 of our top 15 medicines have gained market share during Q3, and the quarter has been also an important one for us in terms of new product launches. We launched Gluxit, which is our brand of dapagliflozin, and this marks are entry to SGLT2 inhibitors, which is an important segment as we continue building our oral antidiabetes franchise. We also launched Rivaldo, which is our brand of rivaroxaban in the anticoagulant segment in cardiac care. We have further enhanced our offering in the cardiac space through the launch of [indiscernible] , which is our brand of [ tricipital ] plus losartan combinations, which is a very important product indicated for the management of heart failure. During the quarter, we also strengthened our senior management team and expanded our goal to include 3 additional directors, 1 executive and 2 independents. Now I will move on to the summary of the headline financials for the quarter. Our consolidated revenue from operations has grown to INR 310 crores in Q3, which indicates a growth of 16.5% over Q3 last year; and consolidated revenue of INR 933 crores for the 9-month period, which indicates a growth of 13.1% compared to the same period last year. Our consolidated EBITDA has grown to INR 336 crores for the 9-month period, which represents a growth of 15.4% for the corresponding period last year. This has come about as we start seeing benefits of the investments in people and products that we had made in the previous year. Our consolidated profit after tax for the 9-month period has grown to INR 287 crores, which is a growth of 19.4%, as we continue to do more business out of our tax-efficient Gujarati plant. Our consolidated operating cash flow for the 9-month period was INR 234 crores, which represents 70% of our consolidated EBITDA. In terms of better days, we are well on our way to achieve our guidance, as shared on the last call. As we look to the next 12 to 18 months, there are 3 initiatives that will be very critical for us from an execution standpoint. Number one, we have an interesting pipeline of new product launches lined up for the coming year. Number two, expansion of our doctor reach. So we are making a significant thrust on expanding our doctor reach, especially with consulting physicians. So that's going to be an important initiative for us to execute on. And last but not the least, continue to improve on MR productivity in YPM pursuant to all the people investments we have made last year. So this was a summary of our operations this quarter. Now we are open to take questions.

[Operator Instructions] The first question is from the line of Tausif from Prabhudas Lilladher.

So a couple of questions, sir. So can you just give us a highlight in what's going on your new derma segment? Have you launched some product and what's going on there? Because I think last year, you added something like 450 business executives over there. So first, can you give some light over that?

So I'd request [ Thomas ] to take this question on the derma segment.

Tausif, we don't need -- we don't have a team in cosmetology as of now In cosmetology, our team is very small, which is in single digits. But -- and we didn't expand in this year because of the ongoing conditions. We, however, will think about this in the next financial year. So as far as today is concerned, our people allocation in dermatology, cosmetology is in single digits, and neither the contribution to sale is significant.

So does it mean you're going to hire new MR for this segment going ahead?

So as I've been telling this in the last call also that for the first 2 quarters, at least, we have our plates full. As I believe Krishnakumar has just mentioning, a very exciting pipeline for new products. So anything like this will now be -- we'll be able to take the stock only after the first 2 quarters of next year.

Okay. And sir, what's the current capacity utilization in the Gujarati plant now?

The current capacity utilization within is around 40%, 40%, 45%.

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

Yes. So sir, first question is on the launches, what you have done in this quarter. So any guidance you'd like to provide as to how big these brands could be? Can this be somewhere around like a INR 50 to INR 75 crore opportunity of each brands, what you announced? And the ones with -- you are planning to launch in the later part of this year?

So I can give you a broad answer, right? I don't think it makes sense to go into product-wise. But whenever we launch a new product and whenever we put resources and efforts behind it, it is with this strategic [indiscernible] we're now making INR 100 crore brand in a 3- to 4-year time frame. That is the base intent. Right now, how it will exactly pan out, I think that time will tell. We need to wait and watch.

Sure, sir. And sir, if we have to break the current quarter growth into volume, drive new launches, so how would that breakup look like?

So we have not done that analysis. So that is something that we can do offline and Kruti can get back to you.

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

I got disconnected, sorry. So I missed the comment if you've only made that, like you talked about 6 key new launches, of which 3 are already done. So what are the next 3 that you are talking about very broadly?

Sure. I can name a couple, Prakash. So one is there is a [indiscernible] combination that is coming up. Then we have already shared that we are launching a product in the anti-epilepsy segment called Brivaracetam, which is a significant improvement over levetiracetam, which is the prevalent treatment in that area at this point in time. Those are the 2 names that we can share with you.

Okay. And the 2 which are -- 3 which are already launched, one is the [indiscernible] and the Rivaldo, right?

Yes. And we have also launched [ Tayo ].

Also launched?

[ Tayo ]

Got it. Okay. So that was one. Secondly, clearly, very strong and good growth, given the market conditions, just in terms of understanding the consistency, if there is any guidance you would like to give whether this kind of growth pass early teens is achievable Q4 next year, that would be very helpful. And what will drive the growth? Would it be the cardio [indiscernible] combo and a couple of equipments? Or if you could just give a little broad level outlook, that would be helpful.

Yes. So there are 2 levels to that, Prakash. I think one is how will FY '21 end up. So I think there, it would be fair to assume that 9 months are already over. And you've seen that the overall headline, financial growth is 13% operating revenue, 15-odd percent of EBITDA growth and 19-odd percent of profit after tax growth. So it would be fair to assume that FY '21 will end up on a similar trajectory, right? So that's point one. Point 2, I think the next 12 to 18 months, as I mentioned, we have a lot of exciting things happening from an organic execution front. It's about adding new products. It's about adding new customers. It's about improving the IPM. So I think net aggregator for all of this, I would say [indiscernible] expect 15% growth in the next financial year.

This is EBITDA or top line also?

Across the board, headline financials.

Okay. Okay. That is helpful. And one more question I had was on the operating cash flow. I think in the past, you have shared a number. So what has been the operating cash flow for the quarter and operating cash flow for the quarter and the 9 months?

Yes. So operating cash flow, quarter 3 was 93% of EBITDA. And for the 9-month period, it was 70% of EBITDA. So basically, quarter 3 was 93%, quarter 2 was 83%, and quarter 1 was 40% for reasons we all know.

Okay. And you have mentioned that our working capital is moving towards normalcy. Could you highlight from what number of days to what number of days you have achieved and what is the target by margin?

So end of Q2 our standalone data was 51 days. So we have brought it down to a 43-, 44-day kind of target already. So we expect to make a meaningful improvement on it by the end of March quarter.

[Operator Instructions] The next question is from the line of Vikrant Kashyap from Kedia Securities.

Congrats on a good set of number. My question is related to your margins we have yet seen significant improvement in our EBITDA margin. So are they sustainable? And do you expect further expansion on margins going forward?

Yes. So I think it is important to assume for the -- it is important to understand for the quarter about the expansion in EBITDA, the growth in the EBITDA that you're seeing. So same time last year, we had made significant improvements in people and also in terms of the new product launches as well, right? So for Q3 and Q4 of last year was pressed to that extent because of all these investments. And these have just started it's a target paying off, which is why you see this EBITDA growth in this quarter, which is nothing, but basically, the operating leverage that we have in our business that is paying off. So as I said, the right number to look at is the 9-month number. So Q3, the financials are before you. So from a 9-month perspective, we have shown a 15%, 16% growth in EBITDA and 19-plus percent growth in profit after tax. And we expect that we will end the year with a similar kind of growth numbers on the profit front.

The next question is from the line of Anubhav Aggarwal from Crédit Suisse.

Yes. Just one -- first question is on when I look at your standard numbers, and if I just exclude Zomelis from there just to see how the rest of the portfolio is doing, just the assumption of Zomelis like something, INR 12 crore, INR 13 crores a quarter. I see that then our growth is no different from the market. Market, as per ASC number has grown at 6%, 7%, and our portfolio seems to be growing at 10% as well. Would you say based on problem on the calculation? Or what is the reason that despite the heavy kind of portfolio being less in the market, we are still growing at market growth, sir?

So in quarter 3, we had driven the launches the last year also. So quarter 3 numbers, which you are seeing, is more or less line to line.

We were not including it. We started including it from quarter 1 on, right?

No.

We had the agreement with the innovator, right? That was...

We didn't tell you the numbers. Yes, Kruti, please?

Anubhav, the agreement was that Abbott couldn't sell after April. But until then, both of us are allowed to sell. So even Eris has sales in Q3.

So then the purpose in the like-for-like number, if I just want to compare was amounting to 37%?

So you can simply assume that quarter 3 is more or less a reflection of -- is a clear-cut reaction where [indiscernible] even now. Because, Anubhav, we believe in the first time, not just the building quantities are generally larger.

Okay. So even last year, you would have had a low double-digit government of sales?

Yes, it is right.

And then what is the reason that when you show in the presentation, you had certain fantastic quarter on the vitamin side, where we show almost like 40% kind of growth there. So is that ASD error or there was something special which happened in the quarter?

Okay. So look, Eris, there are a little bit of Eris across the board, even cardio diabetes is a bit on an aggregate level, it is not okay. The reason for the growth on the vitamin side is because we launched a protocol Zac D in the month of September. And I'm happy to tell you that, Zac D was ranked as #7 overall multivitamin in the prescription data. So we've seen some good traction there. And this is otherwise a kind of product, which gives all the important immunity-building nutraceuticals at the optimum dose. So the major jump coming is from Zac D.

Okay. So that would have explained so much. Okay. And sir, how would the number of reps there used to disclose this number, and that is very helpful to calculate your IPM. Either you disclosed IPM or one of the things that will be very helpful. So all other companies in the India business, even they don't -- so everybody reports their -- the IPM number, at least on the call, that would be healthy. Then we can track how you are improving.

Sure, sure. So Anubhav, we have closed on 1 business, which is the ART business. That is the hormone business in gynecology. So there has been a reduction of around 90 people at a top line level. Kruti, correct me but I think our buy-in's 4.4, like, for the quarter.

4.4, like, for the control business. For the standalone business, it was 4.6, which was 3.8 in Q3 last year.

Okay. That's helpful. And yes, sir, lastly, just one question on the receivables side. You mentioned that number, and that was a very helpful reduction. Can you just talk about a little bit just what's happening so I can understand that it was a challenging time and the numbers would have gone up. What is driving the reduction down to the normal level? So we were doing 30 days until fiscal '19 and then we went to 50. And we are guiding to come back to 40 and 40 will be -- remain a new level. That's what I have understood so far. So can you just talk about what has happened as a background there when you're talking about higher receivable levels to continue for that, sir?

Yes. So Anubhav, just to answer that, you're absolutely right that we were at 30, and I continue to believe that 40 is the right level to target. Because 21 days, everybody is on that period now. And then the 21-day count. Actually, that's not from date of invoicing, but it actually starts now from the date of invoicing, but it actually starts on the status from the data that's [indiscernible] which is usually 3 to 5 days, right? So I think 27, 28 days or rounding it up to 30 days, that area is the target. Now the problem that happened was during the COVID period, transit days of 3 to 5 days has really been unpredictable. So there was no point in trying to characterize it at different number of days or different parts of the country and so on and so forth. However, so it was necessary for us to accommodate that during that period, and that is what has primarily led to the looming of the record days. And now that situation is starting to get corrected because, obviously, the payment for the -- based on the past month has all come. And whatever receivables that we see are building up in the latest quarter are to do with the sales of its -- maximum is about the sales of the last month. But as this stranded time, keep going back towards normally, a level of 3 to 5 days, then our receivables will also be going down. So 40 days, I picked up 40 days at 9 points because that is what we had guided on the last call that, that is what we will get to in the near term. But our target, effectively, remains 40 days. So we will continue driving towards that. I hope that answers your question.

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

On the promotion and marketing activities. So I mean, in the first half, we have seen a considerable cost savings as compared to first half . Where are we currently are in Q3? And where do we see this cost trending to -- going ahead in Q4?

Yes. So if you see our consolidated financials, then I think this promotional marketing expenses are contained in other expenses. And there is obviously a reduction in that compared to Q3 of last year, in the Q3 of this year, which is an important thing that has led to the expansion in our EBITDA margin and also there on. So I think it is fair to assume that Q4 will be very similar to Q3, which is why I had mentioned earlier that at a margin -- at a profit growth level, we'll be similar at the end of FY '21, at a similar level, as you know, what we had for the 9 months EBIT numbers. Does that answer your question?

Yes, that's helpful. And my second question is on the EHPR business. So considering that we are in this market for the last 6 to 9 months, how do we see this business shaping for us in the next year or maybe from year 2, 3 years of horizon perspective?

Yes, Amit will answer that question.

Yes, actually, I will answer this question in the next quarter call. By that time we will finish our meeting, then I'll be able to give you a color on that.

[Operator Instructions] The next question is from the line of Aniket Khanolkar from Trivikram Consultants.

Sir, I have a question on Zomelis. What was the revenue for Zomelis for this quarter? And in earlier call, you have guided for a INR 40 crores revenue guidance for Zomelis. So like, can you comment on that guidance, like how -- what are we expecting in the next quarter?

So we are on track to meet our guidance for this financial year as far as Zomelis is concerned. And I'll invite Amit to give some more color on it if he wishes to. Yes, I think that is simple as genius. So we are hitting our INR 40 crore mark by the end of the year, and the quarterly numbers are also in the same line. We have been reporting for the last 2 quarters. It doesn't change as much. It will be the same line, almost INR 10 crores, close to INR 10 crores for the quarter. INR 12 crores. Yes.

INR 12 crores.

INR 12 crores for this quarter.

The next question is from the line of [ Ranjan Jain from Normal Bank ].

And congratulation to the management for this different campaign. Sir, just finally, one clarification and to think about, like, your guidance of 16% in headline you mentioned, that it [indiscernible] depends on. So we are not expecting any EBITDA margins improvement for the next year, and it's not buying all because we do have a good interesting pipeline for next year, too, don't we?

So I gather that your question is that why are we talking about a 15% growth across parameters and why are we not talking about a higher growth on EBITDA. Is that your question?

Yes, sir. Yes. So I think this is the best visibility of what we see for the next financial year coming up. It is possible that margins might expand faster. But this is the base case of what we see is happening. And so this is basically what we believe we can communicate to you at this point. And if there are any updates to this, then we'll come back to.

[Operator Instructions] The next question is from the line of Kunal Dhamesha from Emkay Global.

So I think it's continuation of one of the previous participant's question that sales and promotion expense, you have provided some color on the quarter 3. But what is your view in terms of how sales and promotion expenses would move in FY '22? Would it be at a similar level to what we have seen in FY '20? Or so basically like normalize to that level? Or do you see that there will be something which would continue in FY '22 and then the normalization will happen in FY '23?

Yes. So in terms of absolute expense, my sentiment on promotion expenses will go up because we are launching new products. We are launching 2 more products in the next couple of months. And then we have an interesting pipeline of new launches lined up for the next financial year as well, right? So on an absolute basis, the numbers are going to go up, but then so are our sales. So at the end of the day, we expect that we will continue to get good operating leverage in terms of the spending that we make on sales, marketing and promotion. Yes. So I think the percentage to sales is not something that we are expecting to change dramatically.

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

Just wanted to understand, like you spoke about 15% growth for next year. I understand the base for this year itself is quite low across companies. So what is the industry level growth you are projecting or thinking when you are pegging it at 15% for yourself?

Prakash, we expect the industry to be between 10% to 12% for the next year.

Okay. And we plan to grow at 15% plus?

Yes, that's the best case scenario.

Okay, great. And secondly, on the cash position. So since you spoke about a decent amount of strong operating cash flow, what is the cash position today as on December? And what is the plan for the usage?

Yes. For treasury, at the end of -- on 31st December was INR 261 crores. And as of today, it was INR 286 crores. So I think in terms of the use of cash, one thing I think that has also been discussed in our last call is our which we expect to maintain a 20% kind of an EPR, for sure, I think. Insofar as any other use is concerned, one question that always comes to us is about acquisitions. I think as we all have seen in the past, we are open to it. But what I have to say is the next 12 to 18 months or so is rigorous for us in terms of organic execution that we have limited bandwidth to pursue anything else. But having said that, we are always open to the right opportunities for investments. So time will tell. We have to watch as we go along.

The next question is a follow-up from the line of Anupam Agarwal from Lucky Investment.

My question pertains to your CapEx outlay. I mean I understand that rough estimate 40%, 45% utilization. Any plans for putting up new CapEx in the coming 2 years?

No, Lucky. So this time, we don't see any CapEx because we are done with that. The soft gel and the food, particularly, that we wanted to have in Gujarati. So we don't see anything this year. There will be some maintenance CapEx to the tune of INR 15 crores, INR 20 crores. That's what we see. I which happens every year. That's it.

Okay. Okay. So just a follow-up on this. I mean on the current block of assets that we have, gross block, what is the sales potential that we have on the company?

Can you please repeat the question?

From the current gross block that we have put in the company on a consolidated level, what is the sales that can be done?

We need to -- I take that question, I think it's an interesting question. We haven't thought about it that way because we are not a fixed asset in fixed asset-heavy kind of a business. So fixed asset turnover ratio is not a parameter that we particularly track. But since you asked the question, let's work it out and get back to you.

[Operator Instructions] The next question is from the line of [ Bhagwan Chowdhry from Sunidhi Securities ].

So can you please say your general business number? What was it in 9 months? [indiscernible] last year?

Sorry, your voice was not very clear. I'm sorry, could you repeat your question, please?

What was your 9-month generic business number? What is it 9-month last year?

It was INR 55 crores.

What was in the current month, sir? And what was the last year 9 months, last year numbers?

Last year was not there. So there is no base to it.

And in the current quarter and last year, current same quarter?

That is health care, as the business, started in March last year. March was the first billing. So we don't have a 9-month equivalent comparison. So whatever sales you see this year is all pertaining to this year itself.

Okay. So what was in the current quarter?

Current is INR 11 crores.

11 crores in the current quarter.

[Operator Instructions] The next question is from the line of Vikram Kashyap from Kedia Securities.

Sir, in your presentation, you have mentioned that large high-growth molecules to go off-patent in near futures in diabetes and cardiac. So could you please throw some light on that? How big this opportunity is? And how much benefit we can take out of that?

Yes. So Vikram, it's a very interesting question. Unfortunately, these are very -- as I already mentioned, they are interesting molecules. So we are not at liberty to talk about specific names. But I think it's fair to assume that given our whole position in cardiometabolic, we will get our fair share of the market share as and when these products get launched. So that is what we have assumed in our base assumptions. And I think it would be appropriate to leave it at that.

Okay. Got it. And also in this quarter or in the last quarter, we see -- and it had been an acute segment, and we have outperformed the market by a large margin. So how do you see this continue going forward?

I would request Amit to respond to that.

So you've seen the numbers, where total contribution to -- of acute has actually shrink quite a bit. Even if we do very well, does it play for large difference to the overall number, the answer is no. So that statement is saying that whatever little part we have in pain and also it will come out and do [ all that ].

The next question is from the line of Anshul Saigal from Kotak PMS.

I just have a bookkeeping question. On your depreciation and amortization, that number has come off from the same quarter of last year. Could you just give some clarity on why that has happened?

Can you please repeat? It has reduced from the last year.

That's right. Same quarter last year, it used to be about INR 11-odd crores this quarter, it's about INR 9 crores.

Yes. So basically, it's on a WDV basis. So if we don't add any effect in the last 12 months in TTM basis, it will come down. We have not added to it anything. Yes.

[Operator Instructions] The next question is from the line of [ M.S. Rajashekar ], an individual investor.

Yes, yes. Due to COVID strides portfolios for about INR 500 crore BP, how far has it been integrated with the company? That's what I'd like to know.

Yes. So the portfolio and the business has been completely integrated into the company. And there are a couple of assets of the integration that I would like to talk about. So when this business was acquired, all the products were being manufactured by third-party providers. And because of that, the COGs of the business was pretty high, it was 35%. And suffice to say that we have brought in most of the portfolio into our Gujarati facility, including one of the large products to come into us, a renal project, for which we set up the shop's capability in Gujarati. And there are very few products from that portfolio that are manufactured outside now. So the cost of goods sold has improved from 35% to more or less in line with our corporate average of 18% to 19%. So that is one aspect of integration I would like to highlight. The second aspect is when this portfolio was acquired, there were nearly 1,100 representatives who are promoting this portfolio. And that number is close to 600 now. So we have found a way to accommodate the portfolio in nearly half the number of reps and who are clearly operating at a higher efficiency level. So these are the 2 significant ways in which we have been able to integrate it.

Okay. But I think if you look at you taking our strides as well as with your own launches, your growth number should be much higher than what you were anticipating. Can you please give a light on that?

Yes. So I think how much has the price portfolio contributed to our growth versus how much has the other products contributed. I think that data is very near really. And that is free for anybody to see. If you require, then I'm sure that we can work it out and get back to you. But I think given stride is so completely integrated into the system, we don't track strides and other products separately anymore. In our internal tracking, it's all one business. And when we project growth for this base of year on going forward, we refer to it as organic growth.

That's right. But you are already growing by about -- you said it right. You are already growing at about 10%. So next year with your new launches, should your growth not be higher?

Yes. That is, I think, for us to wait and watch and for time to tell. At this point, as I have mentioned before, 15% is what we are what we believe is appropriate to give out at this point, given the visibility that we have. And I hope that you're right, and it turns out to be much higher.

[Operator Instructions] As there are no further questions, I now hand the conference over to Mr. Krishnakumar for closing comments.

Yes. Thank you, everybody, for your time. So in terms of summarizing it, I would like to reiterate the following key highlights. One of that, for the quarter, we have been among the fastest-growing companies in the non-COVID market. Our superior positioning with strong brands and the chronic and subchronic therapies positions us well for growth going forward. And all key levers of our system, which is cardiometabolic, VMN and acute, are now firing together. Our fundamental metrics remain intact. It's about our operating margin, net margin, cash flow generation, return on equity and so on. We have made significant strides in strengthening our corporate governance in this quarter. We expect to end FY '21 with strong growth in all headline financial parameters as in line with our 9-month results. And our key themes for FY '22 and beyond would be number one, new product launches; number two, expanding doctor reach, especially with consulting physicians; and number three, continue to improve our MR productivity and YPM. Thank you for your time.

Thank you. Ladies and gentlemen, on behalf of Eris Lifesciences, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.