Gufic Biosciences Limited (509079) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Gufic Biosciences Limited Investor Call for Q1 '25. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Ami Shah. Thank you, and over to you, ma'am.

Thank you so much. Good afternoon, everyone. I'm Ms. Ami Shah, Company Secretary. Welcome you all to Gufic Biosciences Limited Earnings Conference Call for the first quarter of FY '25-'26. We have with us today for the call Mr. Pranav Choksi, CEO and Director; Mr. Devkinandan Roonghta, CFO; and Mr. Avik Das from Investor Relations team to give the highlights of the business and financial performance of the company. Before we begin, I would like to say that some of the statements will be forward-looking and today's discussion may include projections or estimates about future events. These estimates reflect management's current expectations about future performance of the company, and these estimates involve a number of risks and uncertainties that could cause our actual results to differ materially from what is expressed or implied. Gufic does not take any obligation to publicly update any forward-looking statements, whether because of new confirmation, future events or otherwise. I hope you all have received the investor presentation that we have posted on the stock exchange website and on the company's website. I'll now hand over the call to Mr. Avik for sharing the business highlights. Thank you.

Thank you, Ami, and good afternoon, everyone. Thank you very much for joining our call. As always, I'll start with a quick overview of all our business units and divisions. And even before that, I'll bring you all to speed of our developments at Indore. So over the past year, a significant portion of our efforts has been invested in bringing the Indore facility from build to -- which is a benchmark facility today. This facility is one of our most advanced in terms of lyophilized injectable capability. It's been designed to meet WHO GMP, EU, ANVISA, MHRA as well as the U.S. FDA standards. Since October 2024, our focus has been on a deliberate stepwise qualification process, starting with equipment qualifications and subsequently, even our utilities qualification, performance qualifications, which we've done it with multiple container formats and then we've done a full aseptic process simulation across all 4 lines. These stages were critical to ensure stability validation and long-term compliance readiness. On the product side, we have secured almost 145 state FDA approvals to date with additional products in the pipeline. On the tech transfer from Navsari side, which is well underway, we've already completed 9 lyophilized injectable products, 3 liquid products and 3 ampule products and another 8 are on the process as we speak. This shift is also freeing up capacity at Unit 2 for exports, while Indore, the Indore site takes over our domestic CMO work and begins to build its own commercial momentum. In terms of vendor audits from leading Indian pharma majors, we've completed 15. We have some more lined up in this quarter. And this, of course, will be an ongoing process. We've also explained in a timeline of how we see the Indore plant shaping up in the coming quarters and years. One of the key milestones will be the global regulatory audit, which we hope to receive from the EU side -- EU and U.K. MHRA side by Q1 of FY '27. U.S. FDA, of course, will be triggered by client timelines as Gufic is a pure-play CDMO partner for the U.S. foray. Looking ahead, our road map is very clear. We reached 30% capacity utilization in FY '26, which is the current year, breakeven on EBITDA for Indore in the same year and positioned Indore as a margin-accretive asset from FY '27 onwards. The focus will remain on disciplined scale-up, ensuring every stage of qualification, tech transfer and audit readiness is completed to global standards before accelerating volumes. Now I'll take you through the key updates in our divisions. I'll start with Critical Care division. In Critical Care, our direction remains focused on deepening our position as a trusted hospital partner through scientific engagement and therapy leadership. This quarter, we've used various national scientific platforms, not just for presence, but to shape clinical discussions, especially in invasive fungal diseases, antimicrobial resistance and stewardship and sepsis management. The intent has been to strengthen our reputation in high science, high dependence segments. On the portfolio side, we've begun refreshing the anti-infective baskets with a differentiated combination launch immediately post patent expiry of the innovator. This is -- this particular product is targeting resistant pathogens while also promoting rational antibiotic use. The emphasis is on strategic need-based introductions of new products that add value to clinicians rather than just volume-driven launches. On Sparsh, Sparsh is undergoing a strategic shift under new leadership to drive deeper penetration in hospital accounts and widen the breadth of science offerings. While near-term growth will come from proven products like dual chamber bags, the medium-term strategy is anchored around entering new hospital categories such as contrast media and come up with next-gen Critical Care injectables like albumin. We are going through the development and regulatory approval process for these and testing for these products. The division is also investing in building a stronger corporate positioning with larger hospital groups by bringing certain changes in our distribution methodology. This will shorten sales cycles and improve customer retention. On the entire Ferticare Cluster, under strengthened leadership and with an upgraded portfolio, Ferticare is now focusing on sharper scientific positioning, improving field productivity and very selectively introducing differentiated therapies in reproductive medicine. A key highlight this quarter was the launch and scale-up of our immune therapy for recurrent implantation failure. This is the first such therapy in India addressing a highly specific and challenging patient segment in IVF. On our core brands, which are progressing well, Puregraf, which is our flagship gonadotropin offering is on track towards INR 25 crore annual run rate. Cetrocare is moving into the top 3 in its category. Supergraf, which is positioned directly against an innovative product, is targeting INR 15 crores within 2 years of its launch. Guficin Alpha is on course for INR 10 crores annually. And our legacy brands like Dydrofic, Lomocare continue to post steady growth. Over the coming quarters, our focus will remain on deepening our relationships with IVF specialists, scaling first-to-market therapy offerings and expanding the portfolio to capture a greater share of clinician spend. Now I come on our toxin segment. I'll start with Aesthaderm. We are building on our strong base in the therapeutic and aesthetic botulinum toxin by broadening into more complete aesthetic portfolio, including fillers, skin boosters and biostimulators, which was a key gap in our product portfolio in that segment. This approach expands our clinician reach, engaging practitioners who may not currently use toxin and creating a progression pathway towards adoption of toxin. The result is a larger, more diverse customer base and long-term cross-category growth potential. So we made efforts to accomplish this in the first quarter. We've advanced in-licensing discussions for one of the world's top filler biosimulator brands to accelerate market entry and enhance our portfolio in India. Stunnox continues its sustained growth momentum. We're already #2 in India, only second to the innovator of the product. We are also strengthening our footprint in Tier 1 and Tier 2 aesthetic markets via very targeted clinician network expansion. On the NeuroCare division, NeuroCare continues to focus on expanding the therapeutic botulinum toxin usage beyond just core neurology into neurosurgery, urology, ophthalmology and pain management. The emphasis is on category building, driving adoption through skills training, presence in various scientific initiatives and targeted specialty outreach. The aim is to gradually increase the user base familiar with therapeutic toxin application, leading to, we hope, a very sustained prescription retention. Now coming to our mass market specialties. I'll start with Healthcare division. In Healthcare, our strategy blends brand leadership in established segments with differentiated innovations. Sallaki and its Extensions remain the leader in joint care, positioned as a cure pathway rather than just symptomatic relief. Ridol continues to grow in the antidiarrheal category. The Ayurveda++ approach, which is combining traditional formulations with modern evidence underpins launches like Gufican Oil, Gufispon in very niche markets and strengthens our -- we also have a good wound healing product in this portfolio. Here, we have added vonoprazan as well, and we are seeing good early traction with this molecule as well. And we hope with this entire portfolio, the target market is pretty big and pretty niche, and we hope to gradually make inroads into that. Coming to Zenova, Zenova's focus is on strengthening engagement at the point of care in gynecology and expanding a high-science women's health portfolio. The patient support programs are also designed to build trust and preference at the prescriber-patient interface, which is the clinics. And upcoming differentiated launches in pain management and fertility-related antioxidants will broaden our relevance in reproductive health. The intent is to sustain the kind of growth that we've seen while gradually rebalancing the portfolio mix towards higher-margin segments and which is visible in the Rx-to-injectables ratio now moving favorably towards Rx in this division. Lastly, I'll update on the international business. In our slides, we have presented the current market size of select molecules in which we have complete dossier readiness. These are products, of course, developed and already approved and being sold to some of these markets from Navsari Unit 2. Indore will add its own set of products to this as well in time to come. We are targeting a 3- to 5-year horizon to capture 5% to 10% market share across these high-potential molecules in the identified market as shown in the presentation. The addressable -- total addressable market is about $824 million. Current manufacturing for these molecules is undertaken at our EU GMP-approved Unit 2 at Navsari with subsequent options to manufacture these at Indore facility as well. The Indore plant will not only debottleneck capacity of Unit 2 Navsari, but also expand this basket with additional products, which will add to the addressable market in the future. Export momentum is already visible, supported by opening up of Unit 2 capacity at Navsari through tech transfer to Indore and gradual relocation of domestic CMO business to Indore. Early wins reinforce our execution capability of this strategy. Something that I'll highlight here is the U.K. NHS tender award, which is already being serviced from Unit 2 Navsari in the current financial year. So with that, I wrap up the business updates for Q1. I'll now hand over the call to Mr. Roonghta for an update on the financials.

Thank you, Avik. I will going to highlight the financial performance for Q1 of '25-'26 versus the Q4 of '24-'25. I'm not able to compare the Q1 of '24-'25 versus Q1 of '25-'26 because of the [Audio Gap] Q4 of '24-'25. I'm making a comparison of the financial results of Q1 of '25-'26 versus Q4 of '24-'25. The total revenue from the operation from Q4 of '24-'25 was INR 205 crores, where Q1 of '25-'26 is INR 226.9 crores, which is basically because of the startup of the Indore facility. The EBITDA in Q4 of '24-'25 was INR 27 crores in Q1 of '25-'26 INR 33.2 crores. The EBITDA margin in Q4 of '24-'25 was 13.17%. It has improved in Q1 of '25-'26 to 14.63%. The profit before tax Q4 of '24-'25 was INR 10.8 crores. Q1 of '25-'26 was INR 16.3 crores. The PAT margin in Q4 of '24-'25 was 5.27% in Q1 for '25-'26 is 7.18%. The profit before tax for Q4 of '24-'25 was INR 8 crores, whereas the Q1 of '25-'26 was INR 12.1 crores. The PAT margin in Q4 of '24-'25 was 3.9%, whereas Q1 '25-'26 is 5.33%.

[Operator Instructions] Our first question comes from the line of Bhavya Sonawala from Samaasa Capital.

Just a couple of questions. Is it possible to give kind of a number on what kind of revenues have come in this quarter from the Indore plant?

Yes. So if you see, Bhavya, last time also in the last call, I think Navsari was more or less saturated in the entire year last year in terms of unlocking any revenue there. So whatever increase you see around close to INR 25 crores to INR 26 crores is mostly at the benefit of Indore.

Okay. No, sir, where I was coming from, I just wanted to understand, has there been any -- we have spoken about Critical Care having -- some products having price erosion. Has that continued? Or have we seen some kind of stability there?

Yes. So in Critical Care, the price erosion has stopped. There is no further price erosion happening in Critical Care as of now. Hello? Am I audible?

Hello. Yes, I can hear you.

Yes. So there is no erosion of Critical Care pricing in the last -- this quarter, April to June.

Okay. Understood. And just a last question. The tech transfer that we are seeing from Navsari to Indore, what timelines are we seeing for the whole thing to be completed? And when can we see some revenue starting from those transfers so that I think then the plan is for Navsari to start exports because we are already of existing products. So if you can just throw some light on that?

Yes. So basically, the tech transfer will be an ongoing thing. As Avik must have mentioned, there are more than 15 [Technical Difficulty] which some of them have been completed, some are ongoing, and there will be more and more tech transfers happening of products where we know for a fact the capacity constraints are there. More importantly, the products which we are seeking for tech transfer as of now are 2 things: one, which we know for a fact will have a global impact on a higher batch size. When we export abroad, there is a QT release cost. So when the batch size is around INR 40,000 per batch in Navsari, here in Indore it's getting 100,000 batch size. So those are the candidates which we have taken for a tech transfer in Phase I, followed by also those products which are relevant in the domestic market in terms of CMO as well as the Critical Care and [indiscernible] those products are also being considered for tech transfer. Down the line, once these products are done, there are also tech transfers, which will be done by our -- both the R&Ds of Indore and Navsari also directly to Indore because of their products like daptomycin and propofols and the depo injection. So those also will be continued. So the process of tech transfer will be ongoing, but there will be new and new molecules coming in. Answering your second question -- I mean, answering your fourth question in terms of when do we unlock the exports. So we already have lined up. We already have done the application of EU GMP at 2 different, I would say, geographies. So we are hoping as the slot either at the end of the year or early next year. So once the EU gets approved, hopefully, by Q1 '27, as we have mentioned in the presentation, we'll be immediately starting the exports from that. Apart from EU, of course, other parts like Southeast Asia or even for that matter, Africa countries, ongoing audits are planned in the next 3 to 6 months. So I'm hoping to be full-fledged by December or by early next year, we should see exports also being initiated from Indore.

Our next question comes from the line of Kumar Saurabh from Scientific Investing. I...

Hope I'm audible.

Yes, sir. Please go ahead.

Sir, this year, FY '26, we have planned for 30% capacity utilization. So correct me, our assumption is by -- in next 4 years, this whole plant and INR 800 crores of additional revenue should be possible in 4 years. That is one. And the other question is, when do you see operating leverage playing out in favor? Because right now, we'll have expenses at the employee level, other expenses level, which is also visible in the current quarter. So what is the capacity utilization level at which you can expect the margins to reverse for upward journey?

Yes. So I'll comment about the capacity utilization, and then I'll request Roonghta sir to comment about the margins. And I think he already has mentioned about being EBITDA positive by the end of the year, but I'll ask him to elaborate on that further. In terms of capacity utilization, we already are on around 18% to 20% in Q1. So we foresee that -- and I'm talking, of course, about the lyophilization capacity. Liquid and ampule, we hope that by -- somewhere by around October or November, we should be close to 25%. But by the end of the year or maybe by November -- I mean, by the third quarter of this financial year, we should be around 30% and maybe beyond also. So that is where we foresee that the capacity consumption will happen. And based on that, we have a prediction that we should be breaking even in EBITDA this year. Roonghta sir, do you want to add anything on this, sir?

Yes, I'll just add, sir.

Yes.

Now, I already mentioned the capacity utilization has reached to 18% to 20%, but there are certain capacity which has been utilization for validation of the batch. So capacity utilization is depending upon how much we sell to the market. It also includes the validation. So once the capacity utilization reached around 25% only for sale, that moment of time, we are expecting the EBITDA will be breakeven. And if we reach the capacity utilization around 35%, that moment of time, we will be able to recover the interest and depreciation cost also.

Got it, sir. And 4 years, is it a fair estimate? I mean, business is around certain -- so 4 years is it...

It's too early to comment on this because we are in the process of how much live validation batches we're going to take, how much time the U.S. FDA is going to take the permission. It's too early to comment. I'm not in a position to say that after 4 years, it will be -- we will be able to reach to INR 800 crores or not.

Okay. Okay. And sir, second question is on the cash flows. Of late, the EBITDA to cash flow conversion has not been great. And I'm sorry, I'm new to the company, I'm still studying. But one of the reasons have been the Sparsh project. My understanding was because it helps us a direct connect with the hospitals, it should help us even to better the operating cash flows. So if you can explain a little bit on why EBITDA to cash flow in the last 1, 2 years has not been like how we used to do in history? And is Sparsh project having any impact on that? And what is the future plan on that to improve the EBITDA to cash flow conversion?

I think, Roonghta sir, I'll answer just about the Sparsh program and then you can definitely comment on the cash flow and the EBITDA question. Can I continue? Or is there some issue?

Yes, you are audible, sir.

Yes. Okay. So Sparsh, I think like we clearly mentioned, was a clear-cut division launch to increase the margins which we have. So if you see overall, the margins which were there of Gufic some years ago were close to around 48% to 50%. Now at least we have been able to increase it to around 54% to 55% year-over-year in spite of the erosion of pricing happening. So Sparsh was done that we, of course, try to go to the -- there are 2 purposes, not only for margin improvement, but also that we have a control of our predictive business in terms of the primary, secondary as well as tertiary hospitals. So we know actually what is the buying patterns, what molecules work in what geography and what hospitals are interested in what products, specifically keeping in mind that particular area and geography as well as economic background. So that is where the thing was, and we expected more of margin improvement. But always, when you know that whenever we try to go for the direct approach, the hospitals in India, unfortunately, have a habit of paying almost after 120, 150 or sometimes even 180 days. And that is something which we were recalculating. So there might be an approach change down the line, maybe in the next 3 to 6 months, and that's why there has been a leadership change also in Sparsh even the numbers and sales were happening, the cash flow was a little bit, of course, stretched, especially keeping the debtors in mind and also the inventories also. So we would be maybe going back in the next 3 to 6 months back to the CNF model where we again get the what you call the distributors in place where at least our collection and our, I would say, outstanding, which is currently around 120 to 150 days in that division comes back to that 45-day average, but it will take time, but it's worth exploring. So that will be my comment on Sparsh. I think, Roonghta, sir, you can comment about the EBITDA and the cash flow.

Basically, if you see the cash flow has been basically our inventory has almost maintained around INR 215 crores. There has been an increase in the debtors because of the -- after COVID, generally, previously before COVID, we are getting the payment average in 90 days. But after COVID, the payment circle has been increased by almost all the people from 90 days to 120 days. So that is one of the major changes in the payment cycle time. And second thing, because of the increasing is the sale of Indore plant, we expect there will be an additional requirement of the working capital. So the working capital requirement will be under pressure for this current year because of the Indore picking up.

Got it, sir. Got it. That's it from my side. I really have gone through the previous con calls. I really like the disclosures and the transparency with which you update irrespective of something good, bad, positive, negative. So really looking forward for next quarter.

[Operator Instructions] Our next question comes from the line of Nitya Shah from KamayaKya Wealth Management. Yes.

Hi sir. Am I audible?

Yes, sir. You are audible. Please go ahead.

Yes. My question was now I've been a shareholder for quite a few years. So I've seen that the revenues have largely ranged between, say, the INR 190 crores to INR 200 crores -- INR 200 crores range. And now we've shown a 10% growth. So looking at the various segments, so there's a lot of innovation and interesting, exciting segments in the company. But why has the top line not been reflecting all these changes in the sense that you surveyed around 8,000 hospitals? There's lots of interesting feedback as it was seen in the presentation. But why is this not flowing into the revenue numbers? Like when will we start seeing like strong growth of, say, 20% year-on-year? Like now we've reached 10%. So just could you throw some light on other than the Indore products like all your other therapies, what's exactly happening there? And when can we see a material change in our numbers due to that?

Yes, Nitya. So as you know, 50% of our revenue comes from the domestic market and then from CMO and then from exports, which are the major 3 parts. Further, if I go below after 50%, around almost 50% comes from Critical Care, which comprises of Critical Care, Sparsh and overall [ segment ] and then 30% from infertility and the remaining would be from mass marketing. So till -- if you see the numbers which have evolved from, I think, INR 690 crores, INR 800 crores, INR 800 crores and then whatever comes this year, we -- especially last, INR 690 crore to INR 800 crores was one jump and then INR 800 became flat at INR 800 because of 2 reasons as I mentioned last time. One was, of course, erosion of prices, which was to the tune of INR 120 crores to -- but more importantly, that capacity was the biggest concern which we faced. And because almost Indore project was delayed by 6 to 8 months, almost 9 months, we had -- and because of the introduction of the new validation, the revenues almost got pushed ahead. At the same time, there was a heavy order book, which was just got bloated in the meanwhile. So unfortunately, in pharma, as you are aware, we cannot just start a plant and start manufacturing immediately. There is a process of 3 batches -- sorry, tech transfer, anal method transfer, the validation then stability. And once the stability is okay, then your QA allows to take the batches ongoing. So this process, which was actively started by October 2024 is throwing some light, and that's why you have seen a 10% sort of uptrend in revenues in Q1. We hope that this 10% should further definitely increase in the quarters to come because more and more capacity will be unlocked from Navsari to Indore. At the same time, I mentioned that there is no further erosion of rival, which is happening in our major category, that is CMO as well as Critical Care and Sparsh. So there also, we see that we have bottomed out last year in terms of price erosion. And we foresee that there would be no other impact of that coming in this year. So the natural progression, the natural growth of those divisions, coupled with the capacity unlocking from Navsari to Indore, would help us achieve the numbers you desire, but in a step-by-step manner.

Understood. So currently, your branded business, Sparsh, where you're selling your own medicine, what part of revenue has that become around about?

It is around INR 55 crores to INR 56 crores on annually. That is Sparsh. Critical Care is of course, the highest one, which is around INR 220 crores.

So where do you envision Sparsh reaching in, say, the next 2 to 3 years, you're at, say, INR 50-odd crores annually. What's like the internal targets?

Internal targets would be close to INR 100.

Okay. In the next 2 to 3 years?

2 years -- 2, 3 years, yes.

Okay. And would you give a guidance of some sort that in, say, FY '26, you touch around INR 1,000 crores of revenue, looking at the capacity utilization and increase in other segments?

I would love to put a number on it. But yes, our efforts are fully on to reach that magical figure as soon as possible.

Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to Ms. Ami Shah for closing comments.

Thank you very much for joining us.

Ami, you have one question. If you want, we can take it...

We have the last-minute registration coming from the line of Shubham Selvadia from Tikri Investments.

Congratulations, sir, on a good set of numbers. Sir, I just wanted to know the volume growth which we have earned during the quarter.

If I understand your question right, volume growth would be the total number of vials and capsules and tablets.

No, sir, in percentage terms, like what last -- during quarter 4 of FY '25 and quarter 1 of FY '26. So what is the volume growth?

Very frankly, it will be very difficult for me to comment on that. I'm not -- normally, we take it molecule by molecule, we take division by division. Overall as a company, I will not be able to give you any molecule growth. But at least we know -- I can just add that our mostly facility in Navsari was saturated. So Indore is the additional volume which we have obtained, like I mentioned, 18%. So around, I would say, 18% of 18 lakh vials or including ampules is the capacity which we have unlocked in the last 3 months. So that would be additional, I think, from April to June. Again, it's a good question. Sorry, I'm a little bit -- I'm not able to give you the exact number. I'll get back to you. I'll take your details, and I think we'll ask Avik for Ami to get back to you with these details specific.

Okay, sir. And sir, what percentage of the revenue is coming from exports?

I think according to me, the export would be around 20%, 20%, 22% of increasing this year. But Roonghta, sir, is that the right understanding?

Yes, yes, sir, out of INR 800 crores of sales, INR 820 crores, INR 160 crores was revenue from last year '24-'25, which is around 20% in Q1 also INR 53 crores out of prudencing is around 20%.

Yes. All right. So I think around 20%, 22% is the export revenue. Yes.

Okay. And sir, what is the revenue breakdown from each division?

Generally...

Sorry, go ahead.

You can see that our segment is only one segment. So we will not be legally liable to give any information of the -- in the interest of the competitive to give us the breakup of segment-wise details from all the sectors. Just broadly that total our business is 50% is domestic sales and 30% is 20% is export, 20%, 25% is CMO sale and remaining is API sale. But number, we will not be able to share because of the competitive mix.

If you just understand and just addition to what Roonghta sir said in the last 2 conversations just, I think, 5 to 7 minutes ago, I've given a broad percentage of the domestic mass marketing, IVF and Critical Care also. So I think we'll get the details there.

Our next question comes from the line of Akshada Deo from Niveshaay.

So I've been following your company in progress for a while. But this quarter, we are seeing a good amount of margin stability and margins have started to come back to a little bit of normalization. So can we expect that this should be maintained going forward now that the Indore plant has started to accrue revenues as well?

I think actually you're mostly talking about gross margins, right?

No, I'm talking EBITDA actually...

Yes. EBITDA, Roonghta rightly replied. I think the issue would be just encashing on the assets which we just invested, you rightly said once Indore -- because there's no further erosion happening in pricing. So once Indore, of course, comes and takes the load off of the company, we hope that these margins should improve. Yes.

Is it right understanding now that the Navsari plant would also start to get more freed up because as the tech transfers keep on happening, more of the sales will start to happen from the Indore plant. So Nursari would also -- the bottleneck that was happening in terms of validations, et cetera, and just a lot of the sales were stopped also. So that capacity would also start to accrue to sales?

Yes, absolutely.