Gufic Biosciences Limited (509079) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Gufic Biosciences Limited Q2 FY 2025-'26 Investor Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Shweta Shetty. Thank you, and over to you, ma'am.

Good afternoon, everyone. I welcome you all to Gufic Biosciences Limited Earnings Conference Call for the second quarter of financial year '25-'26. We have with us today for the call, Mr. Pranav Choksi, CEO and Whole-Time 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 and to take questions, if any. Before we begin, I would like to say that some of the statements that will be made in today's discussion may include certain forward-looking statements, which are projections or estimates about future events. This estimate reflects management's current expectations about future performance of the company. This estimate involves a number of risks and uncertainties that could cause our actual results to differ materially from what is expressed or implied. Gufic does not undertake any obligation to publicly update any forward-looking statements, whether because of new confirmation, future events or otherwise. I hope you have received the investor presentation that we have posted on our website. I will now hand over the call to Mr. Avik for sharing the business highlights. Over to you, Avik.

Thank you, Shweta Shetty, and good evening, everyone, and thank you for joining. I'll provide a focused update on the direction and what is changing inside the business units. I'll start with our hospital injectables platforms, which include Criti Care and Sparsh. Our approach -- in Critical Care, our approach remains hospital-first and science-led. We are concentrating resources where protocols drive repeat use, such as sepsis-resistant infection and invasive fungal diseases. The intent is to win depth in the existing accounts, embed our therapies and care pathways and let molecules class compound share. Portfolio additions are chosen to strengthen our AMR stewardship and reduce escalations for the use of last-line drugs. On Sparsh, Sparsh is being shaped as a platform for offering niche products to a wider segment of hospitals and nursing homes where service reliability matters as much as the brand. Our medium-term focus areas are contrast media, parenteral nutrition and Cardiac Critical Care. In this division, we are tightening our execution levers, which include coverage, distribution control and increases in hospital rate contracts. So when contrast media and TPN go live, we scale within our existing accounts, and we don't have to go out looking for greenfield accounts. Moving to our women's health platform, which includes Ferticare and Zenova, Ferticare's path is category creation in advanced fertility, particularly in the reproductive immunology. The first-to-market immune therapy for recurrent implantation failure is about solving a very difficult clinical problem and earning specialist trust there and adoption here will be steady and not spiky. Our brands -- on brands, our working guardrails have remained unchanged as we have indicated in the previous quarter. Puregraf is trending towards a INR 25 crore annual run rate. Supergraf is on a 2-year path to a INR 15 crore brand. Guficin Alpha is well headed towards a INR 10 crore brand and Cetrocare is positioned to be the top choice in the antagonist class. The objective is a coherent basket that captures more of the IVF journey and not to have a long tail of just SKUs. Now on Zenova, Zenova is a stable specialty platform in women's health and ortho. We are building preference at the point of care and balancing the mix with differentiated launches. The near-term job even here is execution, quality, which is consistent prescription depth and very disciplined brand rollout. So growth here is durable rather than promotion driven. Now moving to our toxin platform, which has Aesthaderm and Neurocare. On the Aesthaderm front, we are extending from a toxin anchor into a fuller aesthetic ecosystem, which will include fillers, skin boosters and bistimulators. We intend to do this without diluting our focus on toxins. The logic is very simple. A broader portfolio enlarges the clinician funnel and creates a progression path into toxin over time. We've advanced our in-licensing for global quality fillers and biostimulators. We are building a scalable practitioner training engine so launches convert efficiently here. Now on the Neurocare front, which is our therapeutic toxin, the strategy is a long cycle but high lifetime value, which is create new injectors, widen indications where guidelines already support use and expand specialty coverage beyond neurology. This is methodical market making, which is covering training, evidence creation and awareness building so that usage is repeatable and protocols within. Now moving to our last platform here, which is a nutraceutical platform, where health care division operates. This particular division blends modern evidence-based ayurveda with musculoskeletal care. Our flagship over here is Sallaki, which is positioned as a care pathway rather than a symptomatic fill. Ridol continues to build relevance in the acute GI segment. We are adding selectively here. We've added molecules such as Vonoprazan and other molecules where science and prescriber behavior are shifting in order to keep the portfolio focused and relevant to the market trends. So that wraps up our domestic branded formulations business. I'll move to our international business update. Our international business continues to progress as planned with focus on strengthening our global partnering model and expanding regulatory reach. During the first half of the year Gufic Ireland secured its first marketing authorization in EU. This gives us direct access to regulated markets, an important milestone that establishes a platform for future filings. We also received 24 key product and facility approvals across regulated and emerging markets, including markets such as South Africa, Colombia, Portugal, Myanmar, Sri Lanka, Cambodia, Thailand and Lithuania. These approvals enhance our footprint across critical care, gastro and anti-infective portfolios. Now on the broader opportunity, which we had indicated in the last quarter, the combined addressable market for our priority molecules stands at about $800 million across identified countries. We are finalizing the sequence and timeline for market entry based on local intelligence have begun and we have begun the filing of dossiers across multiple geographies. The partnering model remains strong with continued engagement from leading global health organizations and regional partners. This is enabling us to scale our complex injectable portfolio internationally in a disciplined and compliance-led manner. Now on the last part, I'll give you a quick update on the Indore facility as well. So the facility continues to progress as per plan. Over the past quarter, the focus has remained on steady scale-up. Tech transfers have now been completed for 40 products and an additional 27 are under development and stability testing, expanding the base of both lyophilized and liquid injectable offerings. Vendor audits by more Indian pharma partners continue and with multiple new audits scheduled through the second half of FY '26. Our global audit timelines remain unchanged with EU GMP and U.K. MHRA targeted for latest by Q1 of FY '27 and the U.S. FDA milestone to follow client-triggered time lines thereafter. Operationally, the plant is on track to achieve its utilization and EBITDA target for FY '26, and we maintain our guidance of Indore becoming margin accretive by FY '27 onwards. Overall, the project remains aligned with our road map and is scaling in a disciplined, compliance-first manner. With that, I hand over the call to Mr. Roonghta, our CFO, for the financial update. Thank you.

Thank you, Avik. I'm going to give the financial highlights of Q2 of '25-'26 versus Q1 of '25-'26 because Q2 of '24, '25 versus Q2 of '25-'26 is not comparable because Q2 '24-'25 do not include the Indore plant because Indore plant was started from January 2026. Likewise, the half yearly result of H1 of '25-'26 is not comparable with H1 of '24-'25. Therefore, I'm highlighting the results of Q2 of '25-'26 versus the Q1 of '25-'26. Total revenue for Q2 is INR 230 crores compared to Q1 of '25-'26 is INR 227 crores. EBITDA for the Q2 is INR 37.9 crores compared to Q1 of INR 33.2 crores. EBITDA margin has improved to 16.45% compared to 14.63% in Q1. The profit before tax has been increased to INR 20.5 crores compared to Q1 of INR 16.3% (sic) [ 16.3 crore ]. The PBT margin has further improved to 8.9% compared to Q1 of 7.18%. The profit before tax (sic) [ profit before tax ] for Q2 is INR 14.9 crores compared to Q1 of INR 12.1 crores. PAT margin has further improved in Q2 6.47% versus Q1 of 5.32%. Thank you very much.

Bhoomika, we can start the Q&A session.

[Operator Instructions] The first question comes from the line of Nitin Gosar from Bank of India Mutual Fund.

One thing which I think would want to point out in PPT that you guys give out, I think somewhere we need to also start putting in numbers in terms of revenue share because that graphical representation is not giving us optically every quarter how things are shaping up. So if you intend to disclose data, I would say, request you guys do put in efforts to also disclose the numerical numbers so that life becomes easy for us to track your company. Coming to the question, sir, I would like to understand over the last first half, things have progressed on the revenue part. But when it comes to gross margin, we have shown a good improvement. However, the employee expenses and the other expenditures have been constantly going up. Could you help us understand what has changed in last 4 quarters where the costs have been going up. But on the sales mix part, definitely, things are improving, hence, the gross margins have improved. So if you could reflect back what has happened in the last 4 quarters and as we stand today, would this be the true desirable gross margin that our business can showcase with the current sales mix or there is any one-off?

Yes. So I think -- Pranav here. I'll take the question. And I think, Roonghta sir, I'll just request you to come in, in terms of the margins going forward. So just to understand, sir, about your question, so you say, would you like us to give a breakup of Indore and Navsari individually? Or would it be more preferred for you in terms of the 4 SBUs, strategic business units only?

Strategic business unit will help because eventually, both the plants will start to run at optimal levels, while our business strength relies on -- or the inherent strength is between the different SBUs. So I think if -- going forward, if you can give a breakdown of how the SBUs have done on numbers, that will help our situation because then we'll be able to closely monitor how things are progressing. Otherwise, we'll be -- indicatively, we'll be close, but we'll still not be sure how things are progressing.

And I think you're right. I think mostly we discussed it during the investor call. But if it's in the form of a PowerPoint representation, it will really be help to track that on a Q-to-Q basis. Fine. So we got that message. So I'll ask my team also to work on that. Coming to your question specifically, yes, as we had mentioned in the earlier few times also about the Indore plant finally contributing in terms of declogging the backlog of orders. that is one of the reasons why you see the revenue going up. So I'll just tell you the reason for the revenue and the gross margin, then I'll come to the employee cost specifically. And also, if you're not asked, but the other expenses also would be part of the mine. So I would just talk about that also in general, just to give everyone a perspective. So the revenue would be because of the de-clogging. October 2024 onwards is when the Indore plant commercially started raising invoices. I think December was the month when the first invoice was raised, and that's why you see the capitalization stop from Q4 on a whole. and others were there. Now in specifically regard to the margins increasing is because we also have in this first 6 months, gone a little bit more higher in the international business. And I think that is something which again answers your question. If we gave you that breakup of how the international business has a little bit moved up as compared to the other sectors, that would give you an understanding of how the margins would go up and also continue to go up in the next few quarters also. Domestic business is also growing. CMO business has a little bit, I would say, suffered in these 6 months because most of the capacity which was available we are mostly focusing on exports, and we have already requested most of our CMO partners to shift to Indore. But this is a long-drawn process because of audits involved as well as also validation batches and 3 batch data. They wait for at least 6 months of stability. And then every company has their own, I would say, requirements in terms of QA and then they transition to the new facility. But we hope that the CMO business also would start picking up from Q3 onwards. And we would see a wholesome, I would say, revenue to be captured hopefully by Q4 or maximum by Q1 2027. Coming to the employee cost, as you know, you must have seen the announcements in the last, I would say, 3 quarters in terms of getting Dr. Rajeev Agarwal or we got Vijay Kumar from Galderma or Dr Rajeev Agarwal from [ BSV ] or we had Dr. Rajasekar from International Business. He joined me back also in end of Q4 last year. Q1 was when he was full-fledged this year. And then also followed by Mr. Rajesh Kaul, who joined in Q2 this year. So there have been some -- in case of domestic business as well as international business, some recruitments and additions done. I'm just highlighting the top people -- and along them also the team has been structured by which we have got some additions coming, which will, of course -- they will already have started contribute, but you will see the add-ons happening in the quarters to come in terms of the regulatory, in terms of the market penetration, in terms of business intelligence and so on and so forth. And also with the regulatory department also being a little bit more expanded, keeping in mind the demands of Indore. So that's why there have been some products which have been, I would say, validated for the Indian market, where there are some Phase IIIs going or maybe there are some validation batches and testing going on or bioequalence being done for certain products, which we are going to launch in the next year as well as some clinical data being worked on some complex injectables. And that's the reason other expenses also have a little bit gone up in terms of R&D as well as those here. And employee, like I mentioned, because of these restructurings and addition of team members, this is what has happened. Plus the area also, of course, is one of the point. But again, I'll hand it over to Roonghta. Maybe he can elaborate in a little more specific manner. So Rota sir, please take it forward.

Basically, if you see the employee expenses has been gone up because of the Indore plant, we have to incur approximately INR 4.5 crores per quarter salary. And that is one of the reasons the employee expenses has been gone up approximately high because INR 9 crores is the extra employee expenses in the Q2 of current year compared to Q2 of last year. Other than this, there is annual increment has been given to the employees. That is another one of the reasons for increasing the employee expenses. The finance cost has been gone up because of the capitalization. Previously, the interest was capitalized in Q2 of the last year, whereas the current quarter, the interest has been charged to the P&L. Similarly, the depreciation has been increased because -- only because of the Indore. Interest is also increased because of the Indore. Other expenses has been increased because of the Indore also because there is an electricity bill, there is a consumable consumption and there is a fuel expenses. All these expenses are also contributing because of the Indore because including interest, depreciation, employee cost and other expenses, around INR 18 crores per quarter we are incurring for Indore expenses.

Got it. This is very clear, sir. This is very helpful. Apart from this, I just wanted to understand on the domestic part, how this business is scaling up because you don't have the past track record of how the how the quarterly numbers have shaped up. So any heads up how first half the domestic growth would have been and same for the international business?

Yes. So international business, of course, is growing in almost by, I think, 32% to 33%. That is also a reason because of some tenders from the U.K. market as well as some new markets also opened up like Canada and SouthAfrica and Brazil. And in terms of the domestic market, specifically, the infertility division has really taken steam with the Puregraf and the immunocinal -- or the Guficin Alpha along with even Supergraf, which was launched. So the infertility division is one of the growth, I would say, players. The Critical Care as well as Sparsh, I think, are growing at around 8% to 10%, but that is in spite of -- that is the value growth. But the main issue would be, of course, the erosion of units -- I'm sorry, the units are growing much higher, but the value is being eroded. So you see a net of around 4% to 6% only coming there because there has been some erosions in pricing. So it's not the margins getting affected, but the top line being affected because there's an overall price downward trends of the API, which has to be passed on to the market. But that's not that major. Like I said, because of the capacity priorities, the CMO has definitely taken a dip in the first 6 months. But again, coming back to the domestic market, the health care business and Zenova are in that 10% to 15% trajectory. This Ferticare is a little bit on a higher 18% and the domestic Ferticare -- I mean, Critical Care and Sparsh would be around 5% to 6%. Actually, before we go to the next question, I forgot -- I just got a nut from my colleague. We forgot to mention the botulinum toxin part of the business and the botulinum toxin business is also growing at around 22% for both that is, neuro as well as aesthetics. So that completes the domestic basket. So that's it. Sorry, let's proceed to the next question. Sorry, I just had to add that.

The next question comes from the line of Bhavya Sonawala from Samaasa Capital.

Am I audible?

Yes. Please go ahead.

Yes. Just 2 questions. So last call, you had kind of spoken about how we were in talks with some U.S. brands for in-licensing of Stunnox. Has there been any update on that? Are we still in talks?

Yes. So like I think that was around 2 quarters ago. Last quarter already, I also clarified that we had received a commercial offer, which we found not worth pursuing in terms of the bandwidth, which we had to employ in terms of setting up a separate entity only for the regulated markets. So talks are still on. But like I said, for us, the priority right now would be to completely scale up Indore, because as you understand if tomorrow, even if the money comes in from someone else, the entire bandwidth to create a new facility, again, would put us into some sort of a capital investment for the next 2 years and my team would be engaged. So the priority right now as a conscious call between the CFO, myself and the team that we have Indore, we have the dual chamber bag, we have botulinum toxin. Let's go for, I would say, focus on these 3 things, which are already available with us, get the debt off the books, go for a top line and increase the margins. Also, there will be a sort of a GLP-1 contract manufacturing opportunity also where we'll be putting in some money, which is anyway ongoing since the last few months. So let's focus on all this where our, I would say, bandwidth is already there, and we already have our hand in the field. And then maybe after a year or after 2 years, if that opportunity comes up, we can explore it.

Understood. So these other opportunities like GLP you spoke about that the timeline would be another few quarters to get some solid kind of business coming in?

So the GLP-1 is a pure CMO model with Hetero, which is there and one more company, but mostly with Hetero, where we are going to take the brand like remdesivir, as you all are aware, with Gufic had tied up with Hetero for the front ending. Similarly, here, we are purely looking at a CMO role for Hetero for semaglutide for the India and some other markets also. So those, I think, from Q1, the patent goes off in March 2026. So we see that I think Q1 revenue should capture that depending on the other market players, depending on the regulatory approval, DCI approval that is and depending on how the market goes. So it's too preliminary to talk about GLP-1. But like I said, there is an important bandwidth being utilized for that. But yes, that should be -- if whatever comes the upside would come in Q1.

Understood. Just a last question. I think you spoke about it, but just trying to reconfirm from the last quarter to this quarter, the revenue increase has been quite nominal. So is that of the result of one that you spoke about some API prices have taken a dip and the second that the CMO business has taken a hit because I'm assuming Indore would have scaled up quite a bit, considering 40 molecules have already -- that transfer has been done. So is that those reasons? Or is there something else that is kind of making the revenue look very marginal in terms of last quarter?

So when you compare April to June to July to September, if you see the additional revenue, which whatever you can see as compared to the last year is purely Indore, related because as you know, we are almost out of capacity in Navsari. Now answering your question specifically about Q1 versus Q2. So there's always a transition where some quarters, you take a product like a teicoplanin and some quarters you take a product like a pantoprazole. So even though the capacity utilized in terms of units is increasing from Q2 to Q1. But of course, we had more production of like vancomycin, azithromycin and what you call pantoprazole products happening in Q2, whereas in Q1, we had orders more of tigecycline, teicoplanin, where the top line was a little bit more higher. So this averaging as the batches get transferred, they are campaign-based production, which is happening in Indore. So you will see the cumulative effect coming in maybe Q4, where you will have both the basket and product being stabilized because the advantage of Indore is that once I take a batch of a teicoplanin is 105,000 vials or a tigecycline, which is almost 44,000 vials, then the repeat orders come after almost a quarter. So with the existing clients, what we have or even our domestic business, the inventory buildup. So the advantage of the large, I would say, batch size in Indore helps us to keep the capacity free for any opportunity business coming in. So the Q1 was mostly where you had high pricing and high revenue molecules. That's a mix. Even though the quantity increased in Q2, you had then low revenue products like pantoprazole or vancomycin or azithromycin being part of the tech transfer. As you go more in the Q3, there will be some Fungin with a mixture of even, I would say, glutathione and doxycycline, which again are a mixture of medium and high-end products, but the volumes of Fungin are less and the -- I mean, the low transfer pricing models are high. So that mixture will continue, and you will see the benefit from Q4, like I said, as a whole.

The next question comes from the line of Adityapal from MSA Capital Partners.

Am I audible?

Yes, Aditya. Please go ahead.

Just a lot of my questions have been answered. Just wanted to understand, so now that a lot of our CMO partners have audited or are in the process of auditing our Indore plant, a large part of that revenue will move to Indore. So there will be a dual effect, right? Navsari will start contributing a lot to exports and the CMO will move from Indore. So if you can just touch upon how the current Q3 looking and the Q4 looking in terms of plant audits from our existing customers?

Yes. So almost 4 of our clients have already gone full-fledged to Indore, except, of course, there are some residual products, which always go depending on the media sale, the liposomal Amphotericin B and the depot injections are not shifted it to Indore because there we want to go for a onetime validation for international market and domestic market together. So we hope that around 3 more clients would be onboarded along with the 4 clients also. I'm looking at purely domestic CMOs right now. Of course, there are small, small individual clients, which normally have 1 product or a couple of products at max, which also are going to be added. But the major, like say, we had around 12 to 14 major clients. Out of the 12 to 14, we can assume that 50% should be onboarded there by Q3. And also, there will be a new product line in terms of the vials as well as the ampules, which we are looking at CMO beyond the existing product line in Navsari. So those also should start kicking in from Q4 and Q1 next year. So that's why I mentioned that by Q4, you get a little bit of a holistic view. And again, to say that the erosion in prices do not contribute much in terms of the Indore project as such. But that is mostly the Critical Care and the, I would say, Sparsh division, which is normally -- that's an ongoing thing which happens year-on-year also. So this is what I see. I think Q3, you'll see 3 more. And then by Q4, you will see a little bit more of a mixture of existing clients coming in plus new clients coming in for new product lines.

So just a bit of color on -- can I say Q3 and Q4 will be -- because I assume Q2 will be flat in terms of CMO revenue, but Q3 and Q4 could be a large bump up in terms of CMO revenue along with our existing scale-up of our domestic banner business as well as slight uptick in exports because of ban being cleared in Navsari. Is that the way to look at it?

So I think large as compared to your definition, might be different. You're saying that on the lighter side. But yes, definitely, there will be an upside. How much will that be? We are trying to fit in as many pending orders as possible. So I would hope that the QA clearances from the other clients come a little bit faster, so we can ship them. But you also have to understand that these clients also are actually building -- build up almost 3 months inventory from Navsari before they shift because they also keep this transition risk in place before they actually shift from site A to site B, keeping in mind any issues or anything which comes in troubleshooting, which is a normal protocol which happens. So I still expect a decent -- I would say I would expect an upside in Q3. But in Q4, I would definitely expect a little bit, I would say, more decent or better upside.

Understood. Just one last question. So first of all, congratulations on the GLP-1. The other thing is just wanted to understand your view in terms of biosimilars or biologics because a large part of those molecules are lyophilized. So are we planning to enter that value chain either through CMO or export? Are we already in discussions? What is your view on that?

So biologicals become, I would say, defined in many parameters like a monoclonal antibody or a recombinant set of products or for that matter, even conjugates going on and there are other molecules also. So botulinum toxin also, I consider a part of that thing which we already are into. The vaccine thing is something which we already do, but that will have its own time period of whatever x 5 years. Recombinant products in terms of in hormones beyond hCG, hMG, LH is what we are already working on, and we are working on hCG also. So we have our own set of biological work happening in our pipeline. or maybe launch in terms of botulinum toxin, which would be more relevant to our therapeutic focus. But in terms of monoclonal antibodies, I think we would not be going into because that's not our core competency. Plus we -- all other companies already have a better lead than us, and we are too late or -- I mean, very frankly, first of all, we don't have our basic therapeutic prowess there. And I think even if we want to get into there, there are better people than us who are doing it and the pricing and the lead they have, I think it will be not economically viable for me to get into the monoclonal antibodies. So this is my opinion. I may be wrong, but this is my opinion as of now.

No, I just wanted to understand your thought process. It's very clear.

[Operator Instructions] The next question comes from the line of Shubham from Tikri Investments.

Congratulations, sir, for a good set of number. So sir, our revenue have grown by 6% quarter-on-quarter basis. So can I assume that it is fully contributed by Indore division? So around -- in the last conference call, you told that you were utilizing around 18% to 20% of Indore total capacity. So it would be around 24% to 25% this quarter.

Right. So yes, I think Roonghta, sir can give a better percentage idea because he does this also on a monthly and a quarterly basis. But yes, you would be somewhat right. Roonghta, sir, would you be right that 18% would have evolved to 24% or around. I'm sure that 22%, 23% was last month. I'm sure it would be around 24% now.

Yes. Basically, whatever the top line has come basically is only from Indore. There is no change in the revenue from the Navsari because Navsari capacity has been fully utilized. Presently, the production capacity is around 25%, but the sale will be around 23% during this quarter because it's a certain material line is the stock, but the production was around 25% and sale is around 23%.

Yes, because something will be the validation, which we'll keep, which we will not be selling also absolutely. Yes.

Okay. And sir, there is a steep increase in our current tax assets. So can you give a brief about it?

Can you repeat that again?