Gujarat Themis Biosyn Limited (506879) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Q2 FY '23 Earnings Conference Call of Gujarat Themis Biosyn Limited. This conference call may contain forward-looking statements about the company which are based on the beliefs, opens and expectation of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions]. And there has been an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Dr. Sachin Patel, Director from Gujarat Themis Biosyn Limited. Thank you, and over to you, sir.

All of you a warm welcome to GTBL Earnings Conference Call for the second quarter and half [indiscernible].

Sir, sorry to interrupt. Your voice is breaking. I would request you to come in the range, please?

Okay.

Sir, your voice is still breaking.

Is this better?

Yes, sir, please continue.

Okay. So once again, good morning, everyone. So thank you very much, [indiscernible] good morning, everyone. I would like to wish you all a warm welcome to GTBL's earnings conference call for the second quarter and half year ended 30th September. I would like to begin by expressing my gratitude to all of you for taking the time to join us today. On this call today, we have Mr. Rajneesh Anand; and Mr. Tushar Dalal, our Group CFO, and of course, [indiscernible], our Investor Relations. Before we get into the business and financial performance, I would like to share a brief overview of the company and its key investments and our strategic focus areas. Starting with the [indiscernible] about the [indiscernible] In 1981 as a joint venture between GIIC that is a government of Gujarat and Chemosyn and became public subsequently in 1984. In due course of time, GTBL will established a strong R&D, which enabled it to develop its own expertise in fermentation chemistry. Today, GTBL is one of the few fermentation-based manufacturers of pharma intermediate in India with a robust technical know-how and strong capabilities.

Ladies and gentlemen, please stay connected while I try to reconnect the management. [Technical Difficulty] Ladies and gentlemen, the line of the management has been connected. Sir, kindly proceed.

Yes. Apologies for that [indiscernible] a little bit of an introduction. So GTBL as well the few fermentation based manufacturers of pharma intermediate in India with a robust technical know-how and strong capabilities. We have an environmental friendly and sustainable prospect using aerobic bacteria for fermentation. Our product portfolio grew with [ 5% ] in 1991 and lower [indiscernible] 2003. Subsequently, the company started manufacturing Rifamycin S as an intermediate. During the -- we changed our business model from contract manufacturing to manufacture and sale model. After concluding all contractual obligations, we were able to make a strategic shift, which has led to improved realizations and substantially improve margins. The success is testament of our superior capabilities and strong processes. With long experience of handling the fermentation process, understanding of intricacies that are involved and understanding the impact of various variables we believe to the company is now ready to move into the next level of growth and collaboration. In addition to a state-of-art manufacturing facility in Vapi Gujarat, we have expanded our R&D base [indiscernible] focused on new product development. As mentioned earlier, fermentation-based process for intermediate development has its own challenges. But with our long experience of product development and making it commercially viable, we are confident and optimistic. I hope [indiscernible] unit have gone through the presentation we have mentioned about a road map for development and launch of new intermediates. Also, we plan to move up the value chain and forward integration manufacturing API. We announced a [ 200 ] [indiscernible] CapEx that spread over the next 2 to 3 years in a [indiscernible] plan comprises of developing strong R&D difficulties. Furthermore, fermentation capacities are also being expanded. [ Here in lies ] is one of our key differentiators, the experience and technical know-how to scale up a new product from lab to commercial level. The new products could address different therapeutic areas thereby expanding our product and application as well as customer profile. While currently, we are catering to the domestic market with the new facilities and products we shall be targeting over [ feed ] markets as well. Therefore, the new R&D labs and manufacturing facilities would be compliant with various regulatory authorities. Moreover, we are also looking into the possibilities of forward integrating into APIs. On this slide, we aim to develop an API block as part of the mentioned CapEx plan. Backed by a strong cash flow position combined with [indiscernible], we are well positioned to fund this expansion primarily to internal approvals with the option to raise debt if and when required. Going forward, we strive to expand our presence in the value chain and overall markets. while we leverage our technology, the technological expertise in [indiscernible] to develop new products, a long-standing association with the customers ensures [indiscernible]. Now turning to financial performances, I will hand it over to Mr. Rajneesh Anand to take us through the [indiscernible]. Thank you very much.

Thank you very much, Sachin [indiscernible]. Good morning to all of you. We will now turn to the financial performance. This is about second quarter FY '23. We reported INR 47.69 crores in revenue during Q2 FY '23, a 36.08% year-on-year. Growth was primarily driven by higher volumes. Our EBITDA for the quarter stands at INR 24.4 crores, which increased by 32.29% year-on-year. EBITDA margin is 51.17%. It is down by 146 bps. Our PAT during this quarter is INR 18.7 crores as against INR 13.79 crores in the second quarter of the FY '22. Net profit margin stood at 39.21% Earnings per share for this quarter is at 12.87 -- INR 12.87 per share. Coming to the half yearly performance. We reported INR 92.64 crores in revenue during H1 FY '23, a 37.26% year-on-year rise over previous year's first half. Growth was mainly driven by rise in volumes. Our EBITDA for the period stands at INR 47.18 crores increase of 34.15% year-on-year. EBITDA margin is 50.93%, a decline of 118 bps. Our PAT for the 6 months is INR 36.47 crores as against INR 26.71 crores in H1 FY '22. Net profit margins stood at 39.37%. EPS for the period is INR 25.10 as against to 18.39% in H1 '22, an increase of 36.48% (sic) [ 36.49% ]. That is all from our side. We can now turn to questions.

[Operator Instructions] We have the first question from the line of Saloni Hemnani from Molecule Ventures.

Congratulations on the great set of numbers. Sir, I have a couple of questions. First one being the state that we acquired from PBG. So based on the document, -- so the promoter has already sold majority of the stake in PBG consortium. So what was the purpose behind acquiring stakes from PBG?

[indiscernible], I think there is a bit of a confusion. There is no stake acquired by GTBL from PBG.

Let me get back to that question. Second question is regarding the CWIP, [indiscernible] have absorbed in the September results. So sir, how much out of the INR 80 crores that we had planned in the AGM. So how much of that has been already spent in the [indiscernible]?

I'll request Mr. Rajneesh Anand to answer this question.

Yes, yes. The investment is ongoing. We have spent about INR 22 crores till now, which is mostly in CWIP and the projects are ongoing. In the current quarter, in the quarter which is going on, we will be capitalizing our warehouse and put it to use. The rest of the projects will also continue through the next quarter.

All right, sir. Sir, are we sticking to the quarter 3 of FY '24 time line for commissioning Phase I?

The warehouse part will be commissioned. The R&D center that we were envisaging will initiate in this quarter will be postponed to next quarter.

All right. All right. And sir, what is the current capacity utilization of the existing capacity?

I think right now, we have been consuming -- utilizing almost 95% of the capacity.

Because this quarter, we mentioned in the PPT that the sales growth was primarily driven by higher volumes. So I'm just trying to get a sense on the [ leeway ] we have then the CapEx has commissioned basically?

So still the new CapEx in the new facilities or capacities come in, the volume growth will be limited from our current manufacturing processes which are there, our current manufacturing capacities, which are there. But at the same time, we are exploring alternative strategies in terms of how we can bring in volume growth too, not necessarily in the next couple of quarters, but after that.

We have the next question from the line of Keshav from RakSan Investors.

Currently, for the H1, what is the percentage split between [indiscernible]?

Sure. these kind of questions, we would not like to address share because this is all confidential information of the company.

Okay. No, sure, sir. And sir, for Rifa, do we see a secular growth trend going forward? Because in the U.S., it is still under patent protection. So we should be yet to see generic supplies coming in for that [indiscernible]. So the volumes overall should see reasonable growth for the years to come. Is that a correct understanding?

Yes. So typically, this is what you would envisage, but we will have to wait and see for the patent expiries to come in at the same time, how the [indiscernible] market is behaving as the years go by. So yes, one would expect that's typically in line with what would happen -- what happens in the generic space, the volumes go up once the patent expiry is there. That should happen like for all other products. But how that will impact the overall require demand is something that we are still trying to figure out.

Sure, sir. And sir, secondly, I wanted to understand a bit more about our expertise or other companies is a barrier to entry when we talk about fermentation. So I'm aware of at least 3 district players who are folding into this space. And 2 of them are smaller companies than us and one of them as products and the prospect list that include a couple of antibiotics we had filed for in the [indiscernible]. So is it that the barrier to entry are more macroeconomic than the technology or the ability to handle itself? Like India used to have a decent fermentation base before China took it out with their economies of scale, lower cost of utility subsidies. So could you help sort of understand if we bring something more to the table than these newer entrants might and they would find difficult to adapt to? Is it more a macro trend that will support us as well as the newer players?

So I believe that most definitely the macro trend is positive. So not just us, but there is a good possibility that a fair number of fermentation companies who are in the right space at the right time would do well. That is what we believe. With regards to other companies coming in [ vis-a-vis ] us, I would only say that in our past experience, there is a significant challenge to scale up. So one may do something at a particular level, starting from last to even pilot. But then to scale it up to commercial scale and be able to be competitive in terms of the market. It has a fair set of challenges and experiences required in that. Saying that, obviously, we should never consider that other companies will not be able to do it if we are able to do it. So I think anything more than that would be speculative positively or negatively.

Understood, sir. And sir, so just a follow-up to that. So on the technology itself, if we say [ foreign ] into a new product, the typical value chain would be in-licensing the strain and then developing a process using it, right? There would not be any strain engineering done by us in collaboration with someone? Is that the correct understanding? So our expertise would lie in scaling up and handling these systems?

That's right.

Okay, sir. And sir, lastly, if I may. Going forward, would we be equally focused on intermediates as well as APIs? And I mean -- so when we when we start the regulated market supplies, would we have -- we have separate manufacturing bases for intermediates and APIs?

So the facilities that we are building up have a lot of flexibility. Product based, we will -- product base and at the same time, partnership-based we will decide whether we should manufacture the API or the value addition for us or the value proposition for us is best in only manufacturing the intermediate and not the API. So really, it would have to be a case-to-case scenario that we will have to explore. The important bit is that we should have the flexibility of doing both.

We have the next question from the line of [ Stern Sanjit ] from [ Sunshine ].

Firstly, congratulations on a great set of numbers and consistently reporting very cost profit. Since we really don't get too much of opportunity to [indiscernible] management. I would like to clarify follow-up questions specifically from a business economist perspective. So the first question I would have is that -- as we know, historically, our fermentation industry was under significant pressure from China because of [indiscernible] repricing and the policy benefit that they had. On the other hand, what we understand also is that now that cost advantage is going away because of [indiscernible] prices going up, energy prices going up, et cetera. As a [indiscernible] China in some other industries, [indiscernible] we have offered is [indiscernible] I still continue to do the project pricing given that those policy benefits are taken away. Keeping that context in mind, what is the source of confidence that China that is entirely eliminated and the [indiscernible] industry will be able to offer with our super challenges, which were historically part of multiple industries?

So I would put it this way that I think for any of us to be complacent and think that -- there is no potential threat, be it from China or anywhere else in terms of pricing or in terms of competition is a bit too complacent. So we will -- I think we all need to be wary of that particular front. And hence, our future is basically the decided not just on the basis of one particular product. We are spreading what we are doing into multiple projects into multiple products, which are there. And with strategies, which we hope will sail us through. So basically, if the price of a particular product is suddenly coming down in a -- from an XYZ competitor. It should not affect us at least in the near future. If we have the right kind of contracts in place. So it's a complexity of manufacturing at the same time on the business side, I think everyone has learned that steady supplies are more important than going to up and down and going to spot businesses. So we, as a company, also are minimizing the amount of spot business that we do. Most of the business that we do is through long-term partners and contractual obligations on both the sides.

Another question, again, to understand more of a competitive landscape for the industry. [indiscernible] has been helping a significant and a long-standing customer for us? And what we also understand is that lately, there is a change in the business model, we think we moved away from a [indiscernible] model to a [ montage ] pricing model. In that context now that the [indiscernible] has changed, what all options are looking or [ Unichem ] would have if for any reason, we are not able to supply that? And to flip it around what all options we would have in case looking for another sort? I'm trying to understand the overall supply chain dynamics of this particular thing.

I think on both the sides, there are -- there are no immediate solutions. And that is why the relationships are what they are. I would say that we would not have too many options. I would believe that they would not have too many options. Otherwise, I'm not specifying a particular company, but companies that we have contracts with would not sit on the table and have a contract in place, right?

So fair to conclude that it becomes kind of a mutual relationship and without much of competition coming in the foreseeable future. Is that the inference here?

I think the first point is, I would say, a sign of a good agreement that it should be mutually beneficial. And if it is mutually beneficial, then the second part, hopefully, is taken care of. If everyone is sensible.

Okay. That helps. Another question would be that during the last call, management has mentioned about adding a couple of customers. [indiscernible] on current visibility, what we understand is that [indiscernible] and update, which is a [indiscernible] company, [indiscernible] customers contributing significantly to the overall revenue. Now knowing the fact that we are operating at close to 80% of our capacity utilization. How are we looking at adding more customers? And in case a couple of other customers some onboards in the near and immediate future, how we are going to serve that considering that we are already operating at 80% of the capacity utilization?

As Mr. Rajneesh pointed out to the last question previously, we are operating at 95% capacity and not 80% capacity. And also, we have developed 3 other customers, but they are in very small volume. So that is where things will lie. If we see more demand come up in the future, we will have to plan for it. But at the moment, very honestly speaking, we are not able to speculate what -- if there is going to be an increase in demand when the patents of [ Rifampicin ] go off and how the [ super close is market ] will be here. So these are still things that we are working on basically to see that 2 years down the line, whether there is going to be an increase in the rear [indiscernible] demand for us.

And the 3 customers that you alluded about those are customer [ fortified ], right?

Yes, they are customer [indiscernible].

Okay. The last bit of the question I would have, and I can join back in the queue again. Please talk some of the relative filing, we understand that some of the products are being transferred to Themis Medicare, which is a group company, for example, [indiscernible]. And also within Themis Medicare, we are building up capacity for [ Refi ]. So the question is that why is that we are not looking at fermenting the capacity within [indiscernible] of looking at Themis Medicare?

So I think on the first count, it's not correct that from GTBL, lovastatin is transferred to Themis Medicare, that is not actually accurate. In fact, historically speaking, lovastatin was transferred from Themis Medicare to GTBL, and it still remains in GTBL, although we are not producing the same for economic reasons. And with regards to Themis Medicare manufacturing Rifa S is also not the case. Themis Medicare is not manufacturing Rifa S. GTBL continues to manufacture Rifa S. Themis has its own plans in terms of what it is doing.

One last [indiscernible], I would have a -- in some circles, there are some sort of information spread around [indiscernible] change in the stakeholder pattern for the parent entity, which is your pharmaceutical business. I think it would be fair and confident for everyone to understand our position on that --

Could you repeat the question -- could you repeat the question, please?

Yes. So my question is that there is some sort of communication or information out there in the investor community about changing the ownership structure for pharmaceutical business growth. So in that context, to subside any kind of rumor in the market, a statement from the management [indiscernible] to be very, very helpful. In case, if there is on those lines.

So since we have not heard about this, and there is no fact to it, I don't know what we can clarify apart from the fact that the PBG owns 51% of GTBL shares and the promoters of PBG are essentially promoters that we have been for a very long time.

[Operator Instructions] We have the next question from the line of Mr. [indiscernible] from [ Iglo ] Enterprise.

Congratulations on a great set of numbers for H1. My question is regarding the capacities. So one of our peer is coming up with -- who has already filed for DRSP and seeking almost double valuations than what we trade at. So they were able to generate close to INR 450 crores to INR 500 crores revenue consistently when they had back in the days until 2020, capacity of 450 cubic meters close to our capacity. But we will be, as I understand, on optimal utilization, we can generate close to INR 200 crores. So sir, what is the difference in this asset turn? So does it depend on like product to product? Or can you please throw some more light on that?

Absolutely. But I would like you to repeat the beginning part of the question because I could not get that very clearly. One of the competitors is --

One of our competitors who has already filed for DRSP and they are --

Understood. I got it. Yes. So the -- so I think -- at the end of the day, the fermenters are permits, it depends upon what you produce in it, right? Now currently, what -- what we are doing is we are producing up to the intermediate. We are not manufacturing the API. If we were manufacturing the API our sales turnover would be higher. If we will be manufacturing the finished dosage from that, our sales turnover would be even higher. Currently, what we have done is we have seen where the maximum value for us is in the entire supply chain. Not to say that it does not make sense to go ahead. But looking at the product that we are in, we feel that this is where our -- we are driving the maximum value from the entire supply chain. I think for that particular reason, perhaps our EBITDA margins are perhaps higher than the other companies also if you look at percentage-wise. But if you consider what is the best way to utilize capacity and your -- whatever 450 cubic meters that you have, I think in a way, that depends upon the products that you've [ picked ]. Now we have picked this particular one, the capacity has been designed. The facility has been designed to manufacture this particular product. So if they wanted to come in and they want to produce this product, it would not be so easy for them to do it in the same competitive way or same kind of margins that we do it with. And if we wanted to do what they do, we would not be able to do the same for multiple reasons. So I think it's just the place that we all are in. And obviously, going ahead, they would plan many other things like we would in terms of how to get the maximum profitability and returns in terms of the investments that we are making.

Sure, sir. That was helpful. And one more thing I wanted to know, are there any plans on getting listed on NSE because given that we are now almost close to more than INR 1,300 crore market cap company, but there is barely any liquidity because we are only listed in BSE.

So I think there is -- we have to fulfill one criteria of NSE. Because of historical reasons, we're not being able to fulfill and that is that the net worth of the company has to be over INR 100 crores for 3 consecutive years. I think our third year gets over next year after which we shouldn't be most definitely listing on [ MSC. ] Sure