Eris Lifesciences Limited (ERIS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '27 Earnings Conference Call of Eris Life Sciences Limited. Today, we have with us on the call Mr. Amit Bakshi, Chairman and Managing Director; Mr. Chirag Mehta, Executive Director; and Mr. Sachin Shah, Chief Financial Officer. [Operator Instructions] Please note, this call is being recorded. I would now like to hand the conference over to Mr. Chiragh Mehta. Thank you, and over to you, sir.

Good afternoon, everyone, and welcome to our quarter 2 FY '27 results call. I trust you had the opportunity to review the investor presentation. Before we begin the question-and-answer session, I would like to take you through some key highlights. On a consolidated level, we delivered a year-on-year growth of 12.6% in quarter 2 of FY '27 and 12.8% in the first half of the year. Our DBF business, domestic branded formulation business grew by 14.1% in Q2 and 14.2% in year-on-year in H1 FY '27. Adjusted for the Zorba business, the branded formulation business growth stood at 16.5% and 14.9% for this -- for the quarterly period. Sunday continued to maintain its leadership position as a number of branded prescriptions and in units. On the profitability, consolidated EBITDA grew by 7.3% year-on-year in Q2 FY '27 and 7.2% in H1, while profit after tax has grown by 39.2% in Q2 and 27.3% year-to-date. For further details are all available in the investor presentation. We can now open the floor for questions.

[Operator Instructions] Niharika Agarwal.

So gross margins have improved approximately 134 bps on Q-o-Q level, right? But on EBITDA margins, we are still seeing some pressure. So I wanted to understand when will gross margin gains translate into EBITDA expansion.

Yes. So Look, we are ahead of our guidance. We guided that in H2, the EBITDA margins will be around 35%, which have moved to 36%, thanks to the earlier improvement of gross margins also. And as stated earlier, H2 will see an improvement in both gross margin and EBITDA forward.

Okay. In terms of Zorbia deal, after we account for lost product sales and the 7% loyalty, approximately how much would be the net incremental EBITDA benefit that we see from out licensing?

Yes. So, at an EBITDA level. So we were -- this business which we outsource was not EBITDA positive for us. It was hardly there. And all this 7% royalty should add up to that.

Okay. Okay. And my last question on the Bhopal facility. Could you help quantify the expected cost savings and the timeline for the 100 bps gross margin benefit?

So 100 bps of gross margin benefit should accrue in the next two quarters. And when we are able to shift the entire business, which is by the -- somewhere in the Q2 next year, then we would see more like a 1.52% reduction in gross margins.

Okay. And. What proportion of the relevant insulin and injectable volumes have already shifted?

Very small, negligible, but it will ramp up very quickly now.

Okay, okay. And what incremental depreciation and fixed costs should be factored in during the transition?

Yes. Yes. So the current depreciation, we expect around INR 200 crores to INR 300 crores to be capitalized. So that's around 15% of the INR 30 more crores on an annual basis is what should be added to the depression.

The next question comes from the line of Mr. Rahul Agrawal.

This is Rahul from Everflow Partners. Amit, my first question is on the Bhopal side. Earlier when we had increase the CapEx there and expanded potential capacity there, you had indicated that there could be potential beyond just fulfilling our internal requirements, be it partnerships or scale up there. Is there any progress on that? And what sort of scale do you expect in the medium term from that side?

Rahul, there is a progress on that side, but nothing concrete as of now to tell you, but the kind of facility which we have built up is quite a bit in demand. We have conducted a couple of audits there. So I think the results of the audit will also come in the next couple of months. So we are still in discussing nothing which I can tell you at this point of time from other than our own insulin manufacturing point of view.

Got it. And when you say audits, you mean for EU or other regulatory certifications?

Yes. Regulatory, yes.

Got it. Got it. And on the GLP-1 side, Amit, how is the ramp-up coming along? What sort of scale do you think that the generic market reach on a run rate basis by the end of the year and where are we today? And how do you expect Eris' position in that?

So Rahul, we are quite excited with the GLP opportunity. We still remain very, very positive on the outcome. As of now, we maintain #1 in units and #1 in prescription because we have a [indiscernible] component also, therefore, we are #2 as in value. But the market is ramping up well, and I feel that the market might double up in the next year from where we started from. So looks like now we are talking about what INR 40 crores, INR 45 crores a month, that's the number. I think that next year, we should be doing around INR 80 crores, INR 90 crores a month.

Got it. This is for the next full year you are saying?

Yes.

Got it. Got it. And one last question, Amit, on the [ Swiss Parenteral ] side. How is the progress on the regulatory, should mediation there? By when do you expect that to progress? And is the original target of CDM will scale up to potentially INR 1,000 crore level over 3, 4 years, still intact? Or is that something that you would have to review once the regulatory process gets over and you review the contracts with the partners?

Yes. Rahul, we are in touch with everybody. As of now, we have already stated in the slide that nothing has moved out. The progress is on. As far as the remediation, we will be taking the close down in the month of November to get everything done. And we expect by the end of the year, sometimes in the end of the year, we would be able to invite the auditors once again. So the remuneration working online, we have spoken to all our CDMO partners. Anyway, we had only one active sales during the current year, rest of them were anyways in the next year, and their development work is going on regularly as we speak. So till this point of time, this is the status.

The next participant is Mr. Harith Ahamed.

So, the first question is on the plant shutdown that you talked about at our Swiss facility. So how should we think about the financial impact for the quarter -- for the December quarter?

Yes. Harith, as of now, we see that there is an opportunity for us to be 5% plus/minus of the last year numbers. I'm talking about the top line. The way we have planned out at this point of time, it is 5% here and there. Chiragh that's the...

Yes.

So that's how we are looking at it. The good thing is we were expecting a little more kind of -- the business has been a little robust than we would have imagined. So we've got the numbers right. So this is our outlook.

At margins similar to Q2 levels?

Sorry, say that again.

At EBITDA margins, similar to Q2 levels? Or will there be drop?

Yes, yes.

And Amit, your comment on the performance of our semaglutide brand. Good to hear the traction there. So if you could give a bit of color on how what the numbers look like in 2Q? You had provided that for 1Q and some color on the breakup between the [indiscernible] presentation and the pen device.

Okay. So [indiscernible] the breakup, I don't have. But I think our numbers represent numbers for the quarter would be around INR 16 crores to INR 18 crores. will be close to that number for a quarter, INR 16 crores to INR 18 crores coming from GLP. But it's ramping up well, Harith. We are also coming up with a very large study, one of its kind, where we are basically being able to demonstrate that it is the [indiscernible] fact, which creates all the problem regarding the risk of [ CAD CKD ]. So it's a very large and very appreciable study. We hope that it will be published in the next two months.

Okay. Just wanted to confirm, did you mention a INR 45 crore run rate that we're tracking now? Or did I hear that correctly?

No, I said for the market -- I said for the market without the oral. Market without the oral was INR 45 crores, INR 50 crores.

Okay. Okay. Got it. And then your comment on comment that we are approaching the end of our CapEx cycle. So will you be able to share the CapEx expectation for FY '27 and how we should think about FY '28?

So FY '27, another INR 50 crores, INR 80 crores this year left -- how much? Still left INR 100 crores -- okay. So around INR 100 crores left in the second half, and then we should move down significantly.

The next question comes from Mr. Kunal Randeria.

First question on the Insulin business. Amit, you have mentioned in the past that there is a good scope for you to ramp up on the government side of business. So just wondering whether that opportunity still stands. Where are you in terms of monetizing it?

Yes, Kunal. So we stand by what we said. And the expansion of the Insulin portfolio as well as the capacity in Bhopal, both will enhance the supply side of the business. So nothing changes on the stance. We still remain positive about.

So you mean to say that demand is intact? Once the supplies ramp up, that is when you should start seeing some revenue traction which should be what, late '28, early '29 then?

No. So look, Kunal, our production from -- if you see the slide, we have put a pack shot, which has been manufactured from our Bhopal facility. So our Bhopal has already started manufacturing, which means the controls are in our hand as of now. So this should ramp up, say, from the first quarter of next year. The ramp-up should start from the first quarter of next year.

Got it. Got it. So you also have a slide where you showed that you have kind of done better in OAD this time around. You have been struggling in OAD for a while now. So is this more of a -- is this what your primary sales also reflect? And should we expect to grow at least in line with the market going forward?

So Kunal, while we were struggling, but 50% of our struggle was because of the discontinuation of a large brand last year. So what happens by July, August, it tapered off. So when it tapered off, we were -- like 4% to 5% was contributed only by that brand. And so otherwise, there was always a basic amount of growth. So what happens when it got tapered off and then we had a couple of new launches which are actually doing quite good. So contrary to what we have been telling you in the past, I remember last time I told we would be 70% of the growth. Maybe we could be ahead of the market in the coming quarters. So that point has kind of -- is behind us. And our new product, which have come from on [indiscernible] R&D, it just took 6, 8 months more than we were expecting, but the ramp-up is quite good.

Got it. Got it, sir. That's useful. And just one more, if I can. This is for Mr. Samit, sir. So can you share what your net debt number is today and your expectations because the cash generation has been pretty strong. So just want to kind of understand your net debt number today and how do you see it at the end of FY '27 and '28?

Yes. So net debt as of today is around [indiscernible]. be precise currently as of 30th September.

And we are aiming for around INR 150 crores to INR 200 crores of fair down this year. We are trying for INR 150 crores to INR 200 crores fair down this year.

Right, right. So in the next, it should be what INR 400, crores, INR 500 crores more?

Should be, should be because there's -- I mean, once the CapEx cycle cools down, I think that's not -- that's a fair number to think about.

The next question comes from the line of Mr. Manish Radi.

My first question is regarding the Bhopal facility, what is the expected full year EBITDA benefit once the Bhopal manufacturing shift this completed? And when should the earnings be visible? And the second question is related to the CapEx cycle. So most of the CapEx cycle is expected to wind down by the end of FY '27. So Eris [indiscernible] expected to contribute more from next year. So what kind of earnings growth are we expecting for the FY '28? Will it be a meaningful acceleration considering the FY '27? What are the key assumptions behind the acceleration?

So you're right, all this investment, which was going from the last couple of years should kind of setout in the next year. So bhopla a clear cut case where the earnings will look up. And once we shift all our products there, and by the time we do it, we will have a gross margin benefit, which will then precipitate into an EBITDA margin benefit. So, that's what I told you earlier that we expect [ 1.5 to 100 basis point ] of gross margin coming down, which will then be reflecting in the EBIT aslo. Simultaneously, there will be tax gains also because as of now, we pay around 37% tax on outsourcing. And Bhopal is a 15 VAB, so we'll come down to 15% of net tax. So that is Bhopal. Levim will largely contribute into getting newer products. And as I mentioned that we are the first company to get a semaglutide recombinant approved for clinical trials and we have a lot more products coming out from Levim level. And each of these products are meaningful from a value consideration once they are launched. So Levim's contribution will not be seen in volume -- in value term. but will be more seen from a product term which will then [indiscernible] into value. And the third major investment had gone in the large block, which we have built in Swiss, which we -- which will also be a good revenue channel for us in the next year. We expect March, April, the PV batches to happen. And we had been a little shot on supplies capacity. So once that comes up, it will be an advantage in this business. So you're right, there are two direct components and then there is one indirect component, which should add to growth and margins.