Fredun Pharmaceuticals Limited (539730) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Fredun Pharmaceuticals Limited Q2 and H1 FY '26 Results Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantee of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Ms. Manali from Kirin Advisors. Thank you, and over to you.

Thank you. On behalf of Kirin Advisors, I welcome you all to the conference call of Fredun Pharmaceuticals Limited. From the management team, we have Mr. Fredun Medhora, Managing Director and Chief Financial Officer; and we also have Mr. Rakesh, and Mr. Kunjan from management team. Now I hand over the call to Mr. Kunjan for his opening remarks. Over to you, sir.

Thank you for Fredun Pharmaceuticals Limited Q2 and H1 FY '26. [Technical Difficulty]. Let me start by briefly introducing our company. Fredun Pharmaceuticals Limited is a diversified health care company with a strong presence across India and 52 international markets. [Technical Difficulty]. Over the years, we have transited from an OEM manufacturer into a holistic healthcare company with offering across branded generics, nutraceuticals, cosmeceuticals, animal healthcare, and mobility aids. We have 1,200 products under registration domestically and internationally and 697 products already approved globally. [Technical Difficulty]. Our manufacturing base in Palghar, supported by a contract manufacturing at 37 additional locations across India. We have built a large and scalable product portfolio and are continuing to expand across the key therapies such as antidiabetics, antiinfectives and cardiac care with a growing footprint across Africa, Southeast Asia, CIS countries, and Latin America. [Technical Difficulty].

I am sorry sir, but your voice is breaking.

We have commenced expansion of our state-of-the-art manufacturing facility at Palghar to enhance the capacity, improve operational efficiency and support the growing demand across both domestic and international markets. We also hold India's only patent for bone graft, underscoring our focus on innovation and differentiated health care solutions. Q2 FY '26 was another strong quarter. Total income stood at INR 145.29 crores, growing by 35% year-on-year, while EBITDA grew by 60% to INR 22.34 crores with margin improving to 15.37%. Net profit grew by 128% to INR 9.73 crores. For H1 FY '26, total income stood at INR 265.15 crores, grew by 42%. EBITDA grew by 61% to INR 39.33 crores, and PAT grew by 96% to INR 16.50 crores. We witnessed the healthy momentum across all our new age verticals with a strong contribution from nutraceutical, pet wellness and health care. Operating cash flows also turned positive, underscoring steady improvement in efficiency and profitability. Through the acquisition of One Pet Stop Private Limited, a tech-enabled pet grooming and wellness platform serving over 4,000 recurring pet parents, we entered the organized Pet Care service market. The platform offering at-home grooming service and a digital interface complement our Freossi brand, enabling us to integrate products and services to reach a broader consumer base. We also acquired Wagr.ai, a pioneering pet tech platform that introduced GPS tracking, health monitoring and veterinary consultation service in India. With over 140,000 pet parents patented technology, a strong veterinary network, Wagr.ai enhance our vision of building connected technology-led pet wellness ecosystem. As a part of our strategy to expand the animal health care vertical, we launched Snacky Jain India's first pure Jain functional food for pets under the Freossi brand. Developed through in-house R&D, Snacky Jain is 100% vegetarian functional pet snack enriched with calcium and essential nutrients to promote bone strength, digestion and immunity with 12 tonnes already [Technical Difficulty] sold through preorders, the product is being rolled out across 6 major cities through veterinary clinics, online platforms and retail partners. The response reflects the [India's] growing shift towards ethical plant-based and functional pet nutrition. As one of our early movers in India organized Pet Care industry, we continue to build leadership through innovation, integration and consumer trust. Under the Freossi brand, we are developing a holistic ecosystem that connects products, services and technology to address every aspect of pet wellness. The Indian Pet Care industry is witnessing strong growth, and it's projected to reach USD 6 billion by 2030, driven by rising adoption, urbanization and growing awareness of preventive health care. This positions Fredun Pharmaceuticals as a key player in this evolving market backed by our expanding Freossi portfolio and technology-driven initiatives. Looking ahead, we have outlined a clear strategic road map. By FY '29, our revenue will be fully driven by pet tech generics and by FY '32, over 51% will come from our U.S. business. Our long-term vision is that by 2032, no pet in India should be born or die without using Freossi products, reflecting our mission to build India's most trusted and comprehensive pet wellness ecosystem. We believe the progress achieved in the first half of FY '26 has built a strong foundation for sustainable growth. With continued focus on innovation, operational excellence and disciplined execution, Fredun Pharmaceutical is well positioned to deliver long-term growth. Thank you. [Break]

Can we go ahead with the question and answer session now?

Yes sure

[Operator Instructions] Our first question comes from the line of Pal Malhar from [Indiscernible] Asset Managers.

I wanted to ask you about the mix between in-house manufacturing and outsourced production and how this mix influence your cost efficiency.

Nice question. So, we ourselves make around 1,700 products. We have a portfolio of all 1,700 products. Most of the products we can manufacture at our end. We have a cluster of 3 plants and a unique mix where we have a block for Ayurvedic, we have a block for FSSAI. We have a block for cosmetics. We have a block for allopathic formulations, and we have a separate block for nutraceuticals. So, a lot of our, and also a separate block for veterinary and Pet Care. So, in a cluster of 3 plants, we can make a huge number of products. However, considering the product portfolio that we need to add for our future, we have added 37 locations across India in the last 24 months, where we ourselves will manufacture products, which we cannot manufacture in our own facilities due to licensing constraints due to other MOQs and stuff like that. Considering that, right now, the outsourced products are hardly about 5% to 7%. And this will increase to about 15% to 20% in the coming years as we ourselves are also increasing the capacity of our manufacturing as I'm sure you must have heard that we have started an expansion. So hopefully, within the next 2 years, we should be one of the largest plants for a single location in the country. So, our in-house capacities are also increasing. But because of the product portfolio, we will be adding more locations where we ourselves are contract manufacturing because apart from Pet Care, we are also doing mobility, we are also doing [Technical Difficulty], so many of the products which we cannot make at manufacturing. So, it would not have a great effect on our margins. In fact, the reason why some products we outsource is because we get a better price because the company is manufacturing more of that particular kind of product. So we get better economies of scale manufacturing it somewhere else. So overall, it will not have any great ramification. In fact, it might actually improve our margins to the right kind of product mix at the right kind of manufacturing.

Thank you for the detailed answer. I wanted to ask you that you have done, recently done the fundraising. So, could you please share how these funds are being allocated across the current and upcoming CapEx project, and what kind of impact you expect on revenue growth and profitability over the next 2 to 3 years?

Yes. I mentioned that in my previous calls, so I'll explain again. The funds that is going to be used for new product development, team building, marketing, distribution, we are going to have some CapEx and we are going to have some reserves. The money that we have raised is going to be used as growth capital to expedite our journey towards 2029, 2030 to have sustainable growth in the new age businesses that we have gained. Our idea is to focus more on our new age businesses because the vintage business is going to grow for the next 7 to 9 years at around 15% CAGR because of the registrations and the existing channels in place. So, this will help as a catalyst and give a small impetus some boost to the same. And also, it will help us have some reserves and a lot will go towards the working capital as well because launching new products means a lot of SKUs. Those SKUs require working capital is sustainable in the long run, in the short term. But in the long run, we have good margins that will help us grow further.

Our next question comes from the line of Krishna [Vidwan], an individual investor.

Congratulations on the numbers. It's great to see how the business has been playing out over these years. I just wanted to ask about the mobility business, nutraceuticals and cosmeceuticals, how you plan to scale those up? Because I can see Fredun Gx and the Pet Care division pretty clearly. I wanted to get a sense on how you're looking at the other 3 divisions.

Sure. I'll start with the mobility. So, the training mobility has the same kind of products as Bisco and [Timenor], if you know those brands. We started through MMRDA and then we went on to a couple of states. It's doing phenomenally well. We have, in fact, exceeded our sales expectations for most of our SKUs in mobility. There is less competition for good products. And for us, it is the same distribution channel. The GX line, which sells pharmaceutical products and allopathic form of products are the same lines which, because most of the chemist shops, most of the pharmacies, most of the distributors who do allopathic form also do mobility because it goes side-by-side as a complementary product. Because we are already in that line because we have already distribution for us, getting inroads, getting our products added and getting the sales for our mobility products is far easier than a new company who is planning to set up mobility by itself because they would not have the distribution lines and channels already carved out like we do, into mobility because it has a considerably lower distribution and penetration cost for us as preexisting in the same channels as for someone else, and we use that to our advantage to, in fact, grow. That is why the mobility is growing double digits. We anticipate a 25% to 30% growth year-on-year on the numbers, and there will be a sharp increase once we add more geographies in the latter half of next year. So plus, we have also launched this last month, we are launched [Mobilitics], which is our physiotherapist targeted product division because a lot of the products, which are specialty products in the mobility range are used by the physiotherapists as well. And that is generally a very gray untapped market right now, but a very potential one and a high-growth one for our country, considering the population, considering the growth in the treatments required and also in terms of the age, we are one of the youngest populations in the country. So, the stickability of certain brands will last for a prolonged period of time, especially in mobility where people would require some of the other products as time goes by in their lives. For nutraceutical products, as I've said before, we are one of the only companies to have double-blinded clinical trials for nutraceutical products as well, which even much bigger companies don't have. We are giving complementary products to the allopathic formulations where the doctors understand the requirements for the same and ensure that such complementary nutraceutical products are part of the lifestyle. For example, someone is having cholesterol or someone is having diabetes. Most probably once someone has diabetes, they have diabetes for the rest of their lives. So, they are on some kind of medication in terms of allopathic formulations. And we have especially curated products which go complementary along with those lifestyle products. So, if the nutraceutical becomes chronic, it is well research-based. So, the doctors stand by it. And we have added a few more geographies last year, and we are adding more. The way we are growing the nutraceuticals is going city by city and going in those hubs and metros and targeting the consumers there. For cosmeceuticals, we, cosmeceuticals is divided into 2 ranges. One is Beauty Fred, which is a mass market cosmetic and one is dermaceutics under Bird and Beauty. The mass market cosmetics, again, are distribution, good quality cosmetics are not available at a reasonable price. We have launched innovative products even in the cosmetic range. For example, our sunscreen SPF 100 is not there in India. And we have launched the first time an SPF 100 in a single-use sachet form. So such small changes, small innovations make us as instantly clicked in the market. For example, our wet wipes. We are the cheapest wet wipe in the country in terms of the cost to the distributors and the PTS we are selling about 350,000, 400,000 pieces only in the MMRDA and the Maharashtra region almost every month. So we have got good inroads, and we are doing quite well in terms of cosmetics as well. Our reach for Beauty Fred will increase in the next 24 to 36 months, but we want to reach the Tier 2, Tier 3 markets before we go to the Tier 1 markets with our mass market cosmetics.

I think that clarifies it pretty well. All the best, and I hope to see things only get better and better for you and for the company from here.

Our next question comes from the line of Keshav Toshniwal from [Kanakala] Capital.

Firstly, congratulations to the company and you for producing such excellent set of numbers. Company has been growing quarter-on-quarter, year-on-year. So, I've got a couple of questions. First is with respect to the Wagr.ai deal we have recently done, right? If you could elaborate a bit about the founders and how you're going to like scale this.

Yes. Yes, sure. See, we have to understand why the company has taken over this platform in the first place. I want people to reflect that in India right now, there is no neutral space for Pet Care. HUFT and Just Dogs and a couple of other companies are selling most of their products and pushing every time a good product sells, they brand the products themselves and push it. There are so many consumers, I mean, so many manufacturers who have good quality products, but have no avenue to sell them. So we will be India's first neutral space where a good quality product can also come and it will be completely neutral. There will be no one, even Freossi products will not be pushed before other products on the platform. Another reason for Wagr.ai is right now, there is a vast void in terms of clarity and knowledge in terms of first-time pet parents. They have no idea where to go. They have, the breeders are disorganized, the dog groomers, the dog trainers, the dog walkers, completely disorganized sector. And there is no way to authenticate who is good, who is not. Every trainer you ask right now in the market will say I'm the best in the market. And there is no way to verify it. So, and generally, pet parents, as India people say it's a growing pet market. So in a growing pet market, there will be more first-time pet parents than repeat pet parents, so they would want to definitely have these other services also, but there is no way to go. So we want to have a central platform, a lifestyle kind of product for pet parents where right from the manufacturers who have good quality products, but no revenue to sell them, Amazon charges 25%, 30% markup, 40% markup on products, sometimes don't even get listing. And there are so many good small manufacturers who give excellent products, no avenues to sell them. We want to be a platform where they can onboard, and luckily for us, we are not an e-commerce company, but we have the e-commerce platform and the [science] platform. So we can actually verify the products scientifically before they get uploaded on the website so that parents are sure that a company who is in this industry for almost 3 decades have vetted the product before it is sold. Right now, there are so many products are sold on other e-commerce platform. There's no way, the platform does not take any guarantee of the products. We would not be taking guarantees of the products, but we would be 100% sure as this product is good for the pet, only then we would onboard it on our platform. It also has some patents like live tracking and diagnostics, just like how humans wear smart watches we would have devices which a pet parent can buy and a certain live tracking of their pet can happen. That way, pet parents are more secure in terms of their child's health. So as a company, I feel that Wagr.ai is a very important acquisition that we have done. And it would only grow the pet space in the country, and it will give a small impetus for the industry ahead, not only for us as a company, but for the whole Pet Care market as such.

Right, right. That was quite a detailed answer. Secondly, right, the path, the way in which the company is pivoting, right, the role of investing into high-quality teams become really paramount. And given the bandwidth the company has got because of the prep and the extra funds you've got, so like how you're seeing to build like a high-quality team over a period of 8 to 12 months?

Yes. So, our team for Wagr.ai is already being built. They are one of the top people in the country in terms of the e-commerce space. They've already onboarded. They are starting their own teams. Hopefully, by mid-Jan or by first week of Feb, we should have the teams launch for Wagr.ai and our online platforms for the teams, which we are hired for new product development. Luckily, we are very strong for a company our size in terms of F&D because of the background of my parents, both my parents or research scientists. So we have 40 people in the plant, which is very rare for a company our size. So we are going to add more people there. And definitely, even right now, the heads of all the brands, each brand works like a separate, like a company itself, it works like a separate unit. Every brand has a separate head. Every brand has an operations team. Every brand has a supply chain and finance team. So there will be more what you say, building a more robust human infrastructure in each of those brands in each of those verticals, it is mandatory. Without good people, you cannot grow a company. So, and one person can't do ship. So it is almost mandatory and imperative that hiring is on a continuous basis. There will be filtrations. There will be new people hiring and new blood joining. Hopefully, within the next 24 to 36 months, the world will be able to see the effects of the new team coming in and interact with the team as well.

Right, right. And finally, your plan to reduce the percentage of interest cost.

I'm sorry to interrupt you, sir, but you can rejoin the queue for more questions.

Yes. That was my final question.

Yes, definitely. That is in the charts and the plan. So it is part of the growth strategy.

Our next question comes from the line of Khushi Jain from Share India Securities Limited.

Congrats on the good set of number. A couple of question on [Indiscernible] so are we primarily focusing on Pet Care as a segment or a [vertical].

So, our company is existing for 36 years. Pet Care is something which we started 5 years ago in terms, but we have already those products aligned for the last 15 to 24 years. And we have developed products for large animals also. We have developed products for pets also. We want to be a company which is not just a pet company because we have the prowess to manufacture nutraceuticals, and we have a power to manufacture mobility. And I think mobility can be a very big division for us in the future. Nutraceuticals will be a very profitable division for us in the future. And dermaceutics will be, we are pioneers in dermaceutics in terms of certain products, we are the first ones in the products. So, we are using our experience for the last 3.5 decades. And now as we have the bandwidth infrastructurally, financially, operational-wise, we are going to use that to grow each of the verticals sustainably and have a founded growth rather than a hockey stick kind of approach. So yes, Pet is our focus. We have one of the best range of products in the country for Pet Care. But are we only a Pet Care company? Absolutely not. We have other almost 1,600 products, which are doing phenomenally well even in the allopathic range and even in the GX range. So, I think that should answer your question.