Eris Lifesciences Limited (ERIS) Earnings Call Transcript & Summary

Good day, and welcome to the Q2 and H1 FY '26 Earnings Conference Call of Eris Lifesciences Limited. Today, we have with us on the call Mr. Amit Bakshi, Chairman and Managing Director; Mr. V. Krishnakumar, Chief Operating Officer and Executive Director; Mr. Sachin Shah, Chief Financial Officer; and Ms. Kruti Raval, VP, M&A and Investor Relations. [Operator Instructions] Please note, this call is being recorded. I would now like to hand over the conference to Mr. Krishnakumar, Chief Operating Officer and Executive Director of the company. Thank you, and over to you, sir.

Good afternoon, everybody. Welcome to our quarter 2 investor presentation. We've structured it in 3 parts. We'll first talk about the Domestic Branded Formulations business. So business highlights for the quarter. We saw revenue growth of 10% year-on-year, which is a 30% over IPM growth of 7.7%, H1 growth of 11%, which is a 42% over IPM growth. A couple of key misses in delivering 50% growth over market. One was a delay in gSaxenda approval, which resulted in our decision to cancel the product. And we also took a delayed price increase in H1, which kind of gives us a tailwind for H2 because the full impact of the price increases will come in and the RHI cart opportunity, which we expect to see starting December. In terms of EBITDA, we saw 11% growth in Q2 and a 13% growth in H1 with margin expansion all across. Q2 also saw an EBITDA hit of INR 5-odd crores on the account of generics. Continued good news on the Biocon front, Q2 margin of 32%, up from 30% in Q1 and 19% at acquisition, and in-house manufacturing will lead to further expansion. In terms of key numbers, revenue INR 708 crores for the quarter, INR 1,410 crores for the first half. EBITDA, INR 266 crores for the quarter, INR 527 crores for the first half. And basis H1 run rate, we have a visibility of 12% revenue growth for this year, which will be 50% over the expected market growth. And we expect EBITDA growth to be in the range 15%. And any upside from the RHI cartridges opportunity in the second half will be over and above these numbers. [Technical Difficulty] We are well positioned for success in this market. So we are talking about this in two parts, size of the opportunity and our capability to leverage the opportunity. So we've outlined the various segments of the market. It's a INR 3,700 crore market, which has traditionally been dominated by the innovators and now opening up for Indian companies. And in terms of our capability to leverage the opportunity, our vial production is already operational and stable. So we went live in August and we've [Technical Difficulty] since then. And post commissioning of cart manufacturing, we would be one of the very few insulin products, probably only one, with fully interchangeable products as well as domestic backward integration. And we see the RHI vial business has something that offers the potential for quick scalability as there is significant inpatient usage in institutional setup for shorter durations. So this gives us a better ability to switch from competition. And as far as margin is concerned, given the interchangeability rights and the current growth momentum, we will double our market share in the next few years. We're also adding Aspart to the Biocon insulin partnership, talking more about that. So we are expanding this partnership on three fronts. One is, we are adding Aspart to the scope of the collaboration. This was recently approved by the USFDA as the first and only interchangeable biosimilar. Secondly, Biocon is assigning select RoW markets to Eris for direct marketing of RHI, glargine and Aspart by leveraging the global distribution of Swiss Parenterals. And thirdly, Biocon seeks to expand its own RoW footprint in select markets by leveraging the insulin capacity at our Bhopal facility, which we had acquired in November last year and upgraded at a CapEx of INR 80 crores. So with these developments, the installed insulin capacity at Bhopal will be fully utilized. So we've greenlighted a project to double the insulin capacity both in vials and carts. The expected CapEx is INR 150 crores. And we see an EBITDA potential of at least INR 50 crores per annum from this opportunity. GLP continues to be an exciting market opportunity. So it's kind of good to see our early hypothesis being validated now of a large and fast-emerging GLP market, close to 100,000 active users today. And once the cheaper generic alternatives become available, we see exponential growth in the segment. We are highly optimistic about the market opportunity as well as our GLP business opportunity [Technical Difficulty]. Our insulin market share has grown from 10% to 15% in the last 18 months. And we're confident that as a dominant insulin company, we have a [Technical Difficulty]

I am very sorry to interrupt you, sir, your voice is a bit muffled, sir.

Is it clear now? Hello?

Yes, it's better now.

Is it clear now?

No, sir. It's still going on and off, sir.

Okay. I'm bringing the speaker really close. I hope it works. Is it better?

Now it's better, sir.

Okay. Thanks. Our Diabesity product pipeline remains on track, both on the insulin analogs front and on the semaglutide synthetic and recom [Technical Difficulty]. Moving on to the international business. I just wanted to quickly revisit why did we get into Swiss Parenterals. What did we find attractive about the business? So there were four key value drivers that we saw. It was a purely injectables business with very strong regulatory [Technical Difficulty]. It had the widest range of dosage forms and steriles and a very large [Technical Difficulty]. And I think most importantly, Swiss was the only RoW-focused Indian pharma company with this kind of margins and [Technical Difficulty] strong reputation for quality. It was a predominantly [Technical Difficulty], but well diversified across more than 80 markets. I think most importantly for us, we saw this as a viable platform for moving up the pyramid in the international markets, which we've spoken to you before. So in the last 18 months, we have been taking focused action to expand capabilities on the technology front, on the manufacturing front and on the go-to-market side. So on the tech side, we onboarded a couple of R&D [Technical Difficulty] we expanded the R&D team. And most importantly, we developed centers of excellence in key segments because this is something that every company aspires to be known for certain products or certain technologies. So these are emerging signals for us. On the manufacturing side, we reinforced the regulatory approvals, got the Brazilian approval for the first time and now Swiss is among the very few [Technical Difficulty] strengthen the quality. On the go-to-market side, our efforts were focused on expanding [Technical Difficulty] markets. So Europe, Canada, LatAm South Africa, we went gungho across all these markets. We see significant impact and revenue feasibility from these actions [Technical Difficulty] injectable CDMO project. We are happy to share that Swiss will exclusively manufacture for the innovator brand of [Technical Difficulty] and the first leg of this project covers only 6 countries in Europe. And based on this, we have a revenue visibility of INR 125 crores to INR 150 crores in the next financial year, with EBITDA margins similar to the business average. And we have discussions underway to expand the scope to 17 countries. In addition, we have discussions underway with a handful of marquee companies in some of our COEs, both for the innovator brand and loss of exclusivity opportunities, which would imply that [Technical Difficulty] to the market. And the total book of business in EU CDMO has expanded significantly which we'll talk about. But we've been talking to you for a while that this business will see significant inflection starting FY '27. So happy to share that we have the visibility now. In terms of overall business transformation, the EU CDMO book stood at INR 100 crores at the end of Q1. And now we are at INR 700 crores to INR 800 crores at the end of Q2. In terms of what it does to the quality of the business and the stickiness of the revenue in FY '27, we expect that percentage of revenue from direct markets will be close to 30%, up from [Technical Difficulty]. The private market component of the business will go up to 50% is what we expect, starting with 30% now. And starting from a business, which was only doing 100% generics, now we will start to have a reasonable exposure in the R&D piece also. As previously updated [Technical Difficulty] general injectables all across, and we are targeting commercial production from financial year '28. In terms of financial highlights, we clocked INR 83 crores of revenue in the commercial piece in Q2 [Technical Difficulty] H1. We saw a shortfall in Q1 and Q2 compared to last year because there is dry powder capacity, which is being occupied for validation process of new CDMO projects. Notwithstanding that H2 is [Technical Difficulty] compared to H1, and we have good visibility on [Technical Difficulty] Ahmedabad unit, which got ANVISA approval for 1 block in August is again planning to host ANVISA team in January for the reminder of the facility. Moving on to the consolidated business. Consolidated revenue for the quarter was INR 792 crores and for the half year was INR 1,565 crores. EBITDA for the quarter was INR 288 crores and EBITDA for the first half was INR 565 crores. EPS acceleration continues as guided. So Q2 PAT, INR 134 crores, up 39% and, H1 PAT of INR 260 crores with a growth of 40%. Net debt stood at INR 2,278 crores at the end of quarter 2. So just putting all of this together, there are lucrative market opportunities, which are driving the front-loading of CapEx plans. So we had guided you to a CapEx of INR 750 crores to INR 800 crores over a 3-year period. There is no change in this guidance. There is a change in the timing because there is a Bhopal Phase 2 expansion of INR 150 crores. There is a Unit 3 for Swiss, which is at INR 130 crores. And our Diabesity pipeline in DS manufacturing at Levim also requires a second round of investment. So we see the CapEx outlay over the next 3 quarters to be at around INR 380 crores to INR 400 crores. Consequently, the debt-to-EBITDA guidance that we had given gets pushed out slightly. So just to recap, in the last 18 months, the net debt-to-EBITDA ratio is reduced from 4x to 2x and without any change in our total CapEx guidance, now we expect to get to the net debt-to-EBITDA ratio of less than 1.5x by December 2026. Highlights of the consolidated financials. We had a CapEx of INR 50 crores in Q2 largely towards insulin and general injectables, bringing up H1 CapEx to INR 117 crores. We had a book tax rate of 22% in Q2. OCF to EBITDA ratio stood at 47% in Q2. It was predominantly because of an increase in GST receivables, which took about 25% points. EPS For the quarter stood at INR 10 and cash EPS at INR 13. This brings us to the end of the presentation, and we can open up for Q&A.

[Operator Instructions] We have the first question from the line of Devang Shah.

Devang Shah, and my firm name is DD Enterprise. I only have one question to the management regarding like what are the key triggers to look into the company for next 3, 4 quarters? Like it's going to come from the Biocon JV what we did it or it's from the semaglutide or like from which product line or from which of the things we can consider like the next 3, 4 quarters can be looked at?

So clearly, Devang we dividend this into three things. So the DBF is the largest business as of now and also has the largest opportunity. Within DBF, insulins and GLP, GLP will start hopefully by the end of this fiscal year. And insulins, we are seeing traction because of the withdrawal of the innovator. So clearly, insulins and GLPs in the DBF when I -- I'm talking about the frontrunners. And the second trigger is going to come from the plant which is the Biocon plant. So two ways. Trigger one is decreasing the cost of our production substantially. So you saw that Biocon now is at 32%. Within this Biocon, insulin would be significantly higher. And when it goes and sits inside manufacturing -- our own manufacturing unit, we see a very substantial reduction there. So that is number one. The international business, which you see is in a point of [Technical Difficulty]. Now we have a good visibility of the exchange we have done [Technical Difficulty] that is INR 700 crores, INR 800 crore books, which we are talking over a period of time, say over the next 3 to 4 years. So as and when it comes together [Technical Difficulty]. So these are typical 3, 4 opportunities, which we look at.

Okay. So now like there would be no -- raising of the debt would be there in next 2, 3 years, like by acquisitions or something like. Is there any plan to do some acquisition also?

No Devang Bhai. No, we don't have a plan and as such. But look, we will -- what I can tell you, we will be mindful about the debt-to-EBITDA ratio. So having said that, we don't have any plan as of now. But if there is an opportunity, which is a good opportunity, but also doesn't really takes off from our EBITDA debt ratio, then we might do it. But if you are asking me a straight question today, the answer is no.

The next question comes from the line of Harith Ahamed.

So my first question is on the insulin aspart product, which you mentioned is a targeted launch for the second half of FY '26. So trying to understand the status of this product from a regulatory standpoint has been filed, when are we expecting the approval? And is this an exclusive arrangement that Biocon will have with Eris for the Indian market?

[Technical Difficulty] It is an exclusive arrangement. The work has just started. [Technical Difficulty] So as per the guidelines, this should move fast, which keeps us -- I mean, which gives us the kind of visibility on second half of this year. But Harith know regulatory [Technical Difficulty] so I would not like to put a finger on that, but that's where we stand today.

Okay. And the cartridge capacity expansion at mobile, what are the status there? And what are the time lines that we are looking at now?

You are asking all the difficult questions. [Technical Difficulty] per device has started. We are just reviewing the slides. We already have 20 million, we have not pushed it into market yet because we're going through the stability once again. So the vials have started. My first round of cartridge now shifts to, say, April, May next year, right? But there could be something here and there. So right now, the visibility is more like April, May. The first line -- the new line will be for vials. The new line of vials will have a fat of July. So think about September, October next year. So cart will go towards -- to [Technical Difficulty] FY '27 first quarter or somewhere in that range.

And how does this impact? There's a bit of a delay there. How does this impact our preparedness to capture this opportunity when Novo's exit becomes...

That is something we have secured already from a production point of view because as you know, I mis-anticipated this thinking that it should be more like August. And it is now in this month of November that we are starting to see the real thing happening on the ground. So the disadvantages got shifted as estimate got wrong. The advantages, we were able to put a lot of stocks until that point of time [Technical Difficulty]. So whatever we are expecting out of that market to be captured, our own numbers month-wise that [Technical Difficulty] at this point in time. So if our capacity starts in April-May, then you know it will be -- further it will be reduced.

Okay. Last one. This INR 100 crore investment in Levim. So what will be our stake in this entity after this additional investment? Will it become an entity that's controlled by the Eris?

Harith, shall we talk about this next time, please? We don't have any clarity at this point.

Right now we are 49%, but how does it work is something we'll tell.

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

Am I audible?

Yes.

Sir, I just wanted to know, in our Domestic Branded business, what is our base business growth, excluding the Biocon insulin products? And also, if you could just bifurcate the growth in volume, price and maybe new launches?

Okay. So I'll do the second one. The first one we will not do because now we are completely integrated. So the second piece is, we had a very small price revision in the first half. We missed the price revision kind of thing. And generally, it is heavier in the second half. So we are expecting a large part of price revision to happen in the second half. And as for the volume growth, Kruti, what does the AWACS number say?

[Technical Difficulty]

4.1%?

Sorry, it's 2.1%, right, if I heard it?

Yes.

Okay. And the rest 5% is majorly because of new launches? Or how should I look at it?

So you look at it, it's more like 2%, 2.5% from price and rest from the new launches.

Okay. And also, sir, are we having a few products in the pipeline for the Domestic Branded business to be launched in second half, like excluding the insulin ones?

Yes, yes. We have a couple of big products. So those are due in launch, I think in the third quarter or early fourth quarter.

Okay. Got it, sir. And also, sir, coming to our insulin opportunity like Novo is exiting. So do we have enough supply -- sorry, I missed that part. So do we have enough supplies promised from Biocon to suffice this demand?

Yes. So we have looked at the number. We have done our own numbers, right depending about our current market share and an estimated market share, which we have and which we might get. And when we do that numbers, we are good for the year. And as I explained in the last call that this delay, I had kind of estimated this to happen little early in this year. So it's kind of a little delayed, but it gives us the opportunity to build up the inventory. So right now, the numbers which we have for ourselves, the target number for that number, our stocks are sufficient.

Got it, sir. And sir, just a last one on the EBITDA guidance. So it's at the consol level or only for the Domestic Branded business, 36 percentage for this year?

So we've guided to 37% plus for the domestic base and [Technical Difficulty] settled down 34% [Technical Difficulty].

[Operator Instructions] The next question comes from Karan Surana. [Operator Instructions] There seems to be no response. The next question comes from the line of Kunal Randeria. [Operator Instructions]

Sir, I understand you're not giving that Biocon business growth and all, but would it be kind of fair to assume that the incident business growth would be slightly lower than the 10% growth that you did in the overall DBF business?

No, it's the other way around.

Okay. All right. Sir, but the market is not growing -- I mean, from a volume perspective, the market growth is actually very muted. So I just want to understand how you are growing faster.

So this is all shift which is happening. Please don't look at the volume growth indicated by some mild wave of [Technical Difficulty], we might have a different view also. My view is don't look at the data from either of the agencies. This is more of a shift which is happening from one brand to the other brand. And this shift, we see the whole game coming from shift, not from the expansion of the market. And any which ways now just back on that point, we feel that the human insulin reflection is going more into -- the consumption is going more into hospitals, right? Hospitals, nursing homes, and that is where the data will always [Technical Difficulty].

I'm very sorry to interrupt you. Your voice is not clear, sir?

So I made 2 points, Kunal. One was that the growth which you see for people like us would be from the shift rather from the expansion of the market. Number two is, the expansion of the market will not be very visible in the data set. This is my view because more and more human insulin is being shifting to short-term usages also, so institution, hospitals. That has always been a little bit challenged to pick up from a data point of view.

Right. And Amit, sir, is this the institutional opportunities that KK earlier spoke of that you wish to tap in future? And how big would this potentially be?

There's a slide on the institutional market [Technical Difficulty].

Kunal, are you able to hear me?

Yes, I can. I can hear you now.