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

Ladies and gentlemen, good day, and welcome to the Gujarat Themis Biosyn Limited Q4 FY '23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not a 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 Mr. Sachin Patel, Director.

Thanks very much. Good morning, everyone. I would like to wish you all a very warm welcome to GTBL's earnings conference call for the fourth quarter and year ended 31st March '23. I would like to begin by expressing my gratitude to you all for taking time to join us today. We have on call with us, Mr. Rajneesh Anand from GTBL, Mr. Tushar Dalal Group CFO, and Ad Factors our Investor Relations team. Before we get into the business and financial performance, I would like to briefly share the recent development -- key recent developments in our strategic focus areas. The slowness in tendering business last quarter continued during this quarter as well, keeping the product uplifting mildly subdued. One of our 2 products, Rifamycin-O, continued to see decent demand in the market, leading to sufficient dispatches of these products. However, Rifa-S off take remained on the lower side during the quarter since this is largely a tender-driven segment. Several tenders continue to be delayed in Q4, and that reflects in lower sales volumes year-on-year. Tenders are now opening up gradually, which is why there is a slight growth quarter-on-quarter. Otherwise, based on the inherent demand in the system, we have continued the production of Rifa-S to build inventory to be ready once the tenders open up entirely. Also, based on the bullish demand outlook, we plan to continue with our ongoing levels of production for both the products. As mentioned in the last quarter, this year, we have not undertaken a plant shutdown as we had in the last 2 years so that we can continue to build inventory for the anticipated demand. I'm happy to share that despite these challenges, we registered a robust growth in top line as well as profitability vis-a-vis the previous financial year. Our revenue realizations improved during the year, which helped offset higher input costs, including substantially high utility expenses. Our CapEx plan of INR 200 crores spanning over 2-plus years is progressing as per plan. We have capitalized about INR 16 crores, while another INR 20 crores is in CWIP and about INR 10 crores of capital advances for the equipment have been given. The new warehouse, R&D and API block is expected to be ready by September '23. The last leg of our CapEx will be the new fermentation facility, which are expected to be ready by the end of the next calendar year. As already stated in earlier calls, these new facilities will be compliant with global regulatory loans since we shall be targeting export markets in addition to the domestic market. In conclusion, we believe that with our state of art manufacturing facility and our expanded R&D base, we are well positioned to deliver innovative solutions to the healthcare market and create substantial value for our stakeholders. Now I will hand this over to Mr. Rajneesh, Mr. Rajneesh Anand to take us through the financial performance of the quarter and the year. Thank you very much.

Thank you, Sachin bhai. Now turning to our financial performance for fourth quarter financial year '23. We reported INR 28.17 crores in revenue during Q4 FY '23, vis-a-vis INR 28.76 crores in the previous corresponding period. Our EBITDA for the quarter stands at INR 14.93 crores, increasing 14.12% year-on-year. EBITDA margin is 52.98%, which is up by 751 bps. Better realization and lower R&D investment of about INR 3 crores helped improve the profit margins. Our PAT during this quarter is INR 11.69 crores as against INR 9.79 crores in the fourth quarter of financial year '22. PAT margin stood at 41.50%. Earnings per share for this quarter is at INR 8.05. Coming to the full year performance, we reported INR 148.97 crores in revenue during the financial year '23, a 29.71% year-on-year rise over the previous fiscal year. Growth was mainly driven by rise in volumes, coupled with better realizations. Our EBITDA for the period stands at INR 74.22 crores, increasing 27.86% year-on-year, while EBITDA margin is 49.82%. Our PAT for this year is INR 57.97 crores, growing 32.88% year-on-year as against INR 43.62 crores in FY '22. PAT margin stood at 38.91%. EPS for the fiscal is INR 39.90. The Board has recommended a dividend of 20% per equity share of face value of INR 5, subject to approval of shareholders. Moreover, the Board considered the proposal for subdivision of one equity share of the company having face value of INR 5 each, into 5 equity shares of face value of INR 1 each, subject to regulatory, statutory and shareholder approval. That is all from our side. We can now take questions. Thank you very much.

[Operator Instructions] Our first question comes from Vishal Prasad with VP Capital.

So, we have been a fermentation company until now. However, we have decided to get into APIs, where we would be producing fermentation-based APIs as well as synthetic APIs, could you share your thought process behind our decision to get into synthetic APIs?

Yes. So on the whole, our philosophy still remains that we are going to be a fermentation company. But at the same time, we see that including the products that we produce and the future pipeline that we have, it may be until the intermediate stage that fermentation is required and then we would need to do a few synthetic steps to make the final APIs. So essentially, just makes a lot of common sense, we feel to be a part of the value chain, which is as advanced as possible and not just be at the intermediate level. So, in a way, if we did not have or if you do not have the capability of synthetic chemistry along with fermentation, we might find ourselves short in the market in the future.

So sir, if we have to manufacture the API -- and which is fermentation based, so all the intermediates would be fermentation or it could be mix of synthetic as well as the fermentation-based intermediates?

Our plan as of now is essentially only to work on products where the intermediates are fermentation based because that is where we see we can add maximum value as a company in GTBL.

Okay, So sir, out of 200 crore CapEx, how much we are planning to spend on the furmentation blocks?

I will hand this over to Mr. Rajneesh Anand to give you details on this. Hello. Have we lost Mr. Anand?

No, he's connected with us, sir.

I think he's probably on mute.

Let me go ahead and call him back. Just give me a moment.

Yes. Meanwhile, I'll ask other questions. So during our last call, we mentioned that in the API block, we would be doing on high-value product, but many small value products. So these small value products would be -- and these will provide us good margins. So are we trying to get into a job what kind of scenario for some other companies? Or this will be just -- we're trying to fill the capacity?

No, we are not intending to get into any job work scenario, at least in the foreseeable future. If circumstances change, we will look into that particular possibility. And if there is a prospect opportunity which is very interesting, we may consider that. But for now, all the plans are based on our own manufacturing and sales, which are there. And we say that these are small products, but we feel that it can add significant value to our bottom line and hence, those are the products that we would be -- we will be considering.

So I'm guessing we are not -- we would not get into a related party transaction with our parent as well?

No, these are all independent businesses that are being looked into. Is Mr. Rajneesh back with us?

Yes, I am back. Please tell me.

Perhaps we could just give a perspective on the CapEx plan and what percentage or what value of that is allocated to fermentation out of the INR 200 crores?

So out of the INR 200 crores, we are going to invest INR 80 crores in the Phase 1 of the fermentation block. And rest of it is into the API block. We are putting up 2 R&D pilot suits, and we are putting up a new R&D lab. With all this, we will require a wastewater treatment system with zero discharge and we will require a solvent yard. So will require some surrounding infrastructure with the fermentation block also. So rest of the investments would go into these things, plus the API block and our synthetic pilot plant for developing processes.

Okay. And how much we are spending on the R&D block?

In R&D block, this will be like 1 pilot suit, 1 is INR 25 crores. The rest -- the 2 is INR 8 crores and the lab is INR 9 crores. So INR 17 crores plus INR 25 crores, that will be about INR 42 crores in all.

So sir, last question from my side on the R&D block. I mean, we are spending a lot of money in R&D. So -- could you share your thought on where do we see our R&D effort going in the next few years? What kind of people you would be recruiting and what kind of products we would be focusing on?

So I'll put it this way, that with regards to the people we already have, a fair number of people in our team. Of course, with this block coming in, we will be expanding the teams from where we have right now. But we don't expect that there will be a significant change happening over there. And in terms of our plans over there, the reason why the R&D block is quite high in terms of cost because strategically, we have decided to put in a cGMP pilot facility. In fact, 2 cGMP pilot facilities over here. So that's all the products that are being developed at a lab scale can be actually scaled up from these particular pilot plants and also filed for regulatory filing. Because as Mr. Anand said, the cost of putting a fermentation facility in Phase 1 is about INR 80 crores, and we have 3 phases to go through after that. So we would like to make sure that we have maximum filings from our cGMP pilot before we move to the large scale commercial.

So, INR 80 crores for first phase and then 2 more phases, additional INR 160 crores, we will be spending apart from INR 200 crores, is it?

Yes. So that is something that we have not planned as yet. That is not included in the INR 200 crores. So that will happen as year goes by.

Our next question comes from Keshav with RakSan Investors.

Sir, I wanted to have some clarity regarding Rifaximin. So the product has been under patent till 2029 in U.S. and there's a Lupin product available in India. So can you help understand what the patent status for Rifaximin for different geographies apart from U.S.?

So I think the way we see it in ROW markets, a fair amount of markets have opened up, and that is why we see the volumes of Rifaximin and our sales of Rifa-O that we see right now. We understand that certain parts of Europe will be opening up over the next year or so. And then the rest of the world will open up with the U.S. So I think we have 2 stages to boost -- go through. One is Europe, at least a few countries in Europe, which open up in the near future. And U.S. is '28, '29, maybe a bit earlier depending upon what some of the formulators can do with the patent.

So sir, currently, whatever Rifa-O we are supplying, does some of it also go for the innovator supply or it's for the ROW market?

It is all for the ROW markets.

Our next question comes from Yogesh Tiwari with Aryan Capital.

Sir, I had some few balance sheet questions for modeling purpose basically. So if I look at the balance sheet at the end of March, there is a component of others under current assets. of about INR 90 lakhs, which has dropped from about INR 11 crores last year. And correspondingly, there's an other financial asset under assets -- noncurrent assets which has increased from INR 9 crores to about INR 41 crores. So first is like what I understand is this is all deposited financial institutions with the different tenures like a long-term tenure, short-term tenure. Am I correct?

Mr. Anand , would you be able to answer this question should we pose it to Tushar Dalal?

Im Tushar Dalal. So as you rightly say, that we have part of our surplus funds to be financial institutions and some of the money that we also kept with the Union Bank of India, as a short-term deposits system.

Sure. So, These others in the current assets, that has declined from about INR 11 crores to INR 90 lakhs. And correspondingly, the long term has increased from about INR 9 crores to INR 41 crores. So have we moved from short-term assets to like a short-term tenure to long-term tenure of the deposits?

Yes, some of the deposits, which were due within this year. So now we have taken it for a period of, say, 15 to 18 months. So that is why, once it goes beyond 12 months on, it goes to noncurrent assets rather than the current assets. So that is the composition is undergo change. Whenever some renewals have taken test has been external for that because we get some higher rate of interest, and that's what this particular adjustment has been made.

So this is reviewed every year like -- or is there a policy for it?

No, whenever the renewal taxes, then we review come how much money will be required in the current year and how much money will be required in the future. And accordingly, that we carry out this particular transaction.

So sir, just to model for FY '24, can we consider that the short term or the current portion will remain at lower levels, like around INR 90 lakhs and the long term will be the major portion like?.

It is quite possible, but we'll be also utilizing this particular money for the purpose of our expansion plan. So we have to view every quarter, every month, how much money will be required. This represent 100 by only our internal approvals. So we utilize this month so that only the time will tell us by how much will be in the long term and how much will be in the short term.

So sir, for modeling purpose, any assumption we can take for FY '24, whether long term will be a bigger amount than short term?

Quite possible, quite possible.

And we can take it as a percentage of total assets for modeling -- total assets or it will be like noncurrent?

It is Yes.

And sir, the other point on the loans under current assets. So about INR 17 crores we have, loan under current assets. And I understand it is -- this is all intercorporate deposit, and it is our constant. So can you share some details on this component? And like can we take it as constant going forward around the current number? The loans, the current assets INR 17 crores?

So we have parked some money with the ICDs with some companies which are known to us, which are done at -- these are all the public companies where in that we have given by way of ICDs, where in we also get a good amount of interest on this.

So can we assume the same -- like it will be a similar range next year also?

It should be. Yes.

Sure, sir. And sir, lastly, on the component, other noncurrent assets under noncurrent assets, which has increased from about INR 3 crores to INR 10 crores. Other noncurrent assets, INR 2,77 lakhs to INR 1,069 lakhs.

That is because some of capital advances have been made by us, to purchase the equipment. So those things are major, say, nearly a INR 10 crores of rupees. We have a -- we have given buy-off in advance to the capital suppliers. so that is coming under the noncurrent assets.

Sure, sir. And this is part of the CapEx program, which we are doing -- so like advance to -- and sir, prepaid -- Okay. And the prepaid would be a small amount, right, in that other noncurrent?

It's a very small amount.

Major is capital advance?

Yes, yes major is INR 883.50 is the capital advances. And to some of the creditors also that we are getting some advanced to get the material on time. It is also INR 100 lakhs. And the some security deposits are there to the extent of the INR 75 lakhs. That you have you to give it to the -- some of the statuary bodies.

Yes, sir. So sir, like we are still in the process of CapEx going forward. So can we assume the percentage that percentage of noncurrent assets to the total asset would remain the same going forward also about something over 6%?

It may come down, noncurrent asset may come down because we might be utilizing over some of our fixed depostis, which we are part in the financial institutions. It may come down to some extent.

What I meant is like the capital advance which we have given? If we would like to model it for next year, it would be in the same range? That is the percentage of total assets?

It should be. But then everything depends upon how far that we take on this particular payment to the parties to get the materials, to get our machineries and equity.

I think it really depends upon as we move along the projects, which are the vendors which would require advances and which are the vendors that should not require advances for procurement.

Okay. So just for modeling purpose, can we take the ratio of noncurrent asset to total asset in that similar range, which is for this year? Around 6% for FY '24, for modeling?

So we have not worked out the balance sheet for the whole year, but we should.

Our next question comes from Saloni with Molecule Ventures PMS.

My first question is regarding the tender path. So I wanted to understand the nature of the standard really, how often will we come across this because since we have shifted our business model to manufacturing, we hardly have seen these kind of delays happening on the business side. So I just wanted to -- wanted you to describe more about it?

So these are global tenders for tuberculosis, which come in and the biggest one is the global fund. And once these tenders open up, usually the supply on practice for 2 years, it's not a bit more. And depending upon when the last tender has opened up, what is the inventory, what is the requirement? And how much time the authority take in terms of processing it. There would be delays from a quarter or 2 quarters that we have seen. As I mentioned during my brief, this now started opening up. Global Funds has started opening up, which means that the requirements should be steady over the next couple of years.

Okay. Next question is regarding the CapEx part. So you mentioned you capitalized INR 16 crores, 2 WIP INR 20 crores and 10 crores, you can call it. So the crores you have already spent, right?

I will ask, again, Mr. Rajneesh.

Yes, yes, that's right.

Okay. So how much more CapEx are we expecting to spend till September '23? The remaining out of it, right? So INR 30 crores, we'll be still till september '23?

Yes. I think we will spend another INR 30 crores or INR 40 crores by that time.

Okay. Okay. Sir, can you tell me the current capacity utilisation? could last for a...

Your voice is -- that voice is breaking, can you...

Can you -- is it clear now?

yes, yes. Let's give it a try.

Okay. The current capacity utilization of Rifa-S and Rifa-O?

We are running the plant at full capacity right now. And whatever surplus production is there, is in inventory, and we are hopeful of liquidating the same in the near future, once the tenders open up, I think everything will be sold out.

Okay. Sir, so what is the time line that you are expecting for these tenders to open up?

They have started opening up. Now it will depend upon what is the supply chain inventory at various of our customers, how the thing stands. But as Mr. Anand said, we will not be able to tell you whether it's this month or next month. But this we opened up now, which means that the inventory is inventory build up that we had because as I mentioned again, we did not close down our facility this year as we did for the last few years for 2 months, which means that we have stocks in our warehouse, which are ready for dispatch, and those dispatches are happening and will keep on happening as months go by.

Okay. Also, my last question is regarding our growth estimates that we had already given in the last 25% to 30% that we were expecting after the API blocks comes in the picture. So are we sticking to that?

So you have seen that -- you're talking about probably 80% capacity utilization. So the previous year, we had about 70%, 75% capacity utilization, this time is higher. I'm talking now in terms of sale. In terms of the production, it's in 100% capacity utilization. So one would expect that if this year, we have higher capacity utilization only on the fermentation part, we should have both growth on the top line and the bottom line. The API block once it becomes it's commissioned and we start manufacturing, which will take some time because we are starting the API block in September. And then we will start validation backs. We will have to go through stability. So there's a new process involved in that. So I think realistically speaking, one can expect the API block to start giving us both top line and bottom line in the next financial year or perhaps in the -- a little bit in the -- towards the end of this financial year.

Our next question comes from Tarun Sancheti with Sanchay Capital.

Well, congratulations for a good set of numbers. First question I have is based on some of the research reports and information available on the public domain, et cetera. It looks like that WHO and also some of the funding agency, et cetera, have adopted to a medication regime change where in they are preferring 3HP rifapentine based treatment as compared to the current prevailing Rifampicin based or treatment regime. So any perspective on that one? How big that could be, if not in the near term, at least in the medium to long term?

So there are two aspects to this. One is the WHO recommendation for move from Rifampicin to rifapentine is a very recent, very recent development. I think happens during the course of last year. I think WHO will also go cautiously because they need to figure out on a larger population side, how Rifapentine is actually affected. But let's put it this way. We consider a scenario where Rifapentine is going to be the main stage instead of Rifampicin tomorrow. It should really affect us very positively, if I may say so because the dose. So first of all, Rifa-S that we currently supply to manufacture Rifampicin is the same intermediate that is required to manufacture the Rifapentine. So that's a good part. The second, this is that the amount of Rifapentine, which needs to be given as per the new WHO treatment is quite significant. So albeit it is for a shorter period of time. So it's 4 months instead of the 6 month therapy with Rifampicin. The amount of Rifapentine which needs to be given in terms of grants is quite high. Coupled with that, the ratio of conversion of Rifa-S to Rifapentine is lower than that of Rifampicin, which means you need more Rifa-S to make that amount of Rifapentine vis-a-vis Rifampicin. So both the factors in summary. One, you need more Rifapentine. And the second is the amount of Rifa-S that you need to manufacture Rifapentine is higher than that the manufacturer Rifampicin. Both of them are very, very positive outlook from Rifa-S manufacturer perspective. And of course, not to lose sight of the fact that we are coming out of the API block. So we also are very much planned to manufacture Rifapentine at GTBL.

That's very encouraging. Another follow-up question to that would be that, is it right to conclude that we'll have to go through some environment clearance or regulatory approval, et cetera, before we really go into the Rifapentine? Essentially, I'm trying to understand if we really decide to go towards that. How much of a lead time it would take?

So I would put it this way that certain regulatory requirements would definitely required -- will have to be put into place. And hence, I said that realistically speaking, we can expect Rifapentine business to start in the next financial year, or the API business will start in the next financial year or end of this financial year because we would -- our APIs will be ready in September, which means we start taking validation. It will take a month, 2 months to take validation from which we need 6 months stability, after which we can move to the regulatory authorities and get approval for the particular API. And the good news again is that there is a market locally for this, because as in line with WHO, even the Indian government is moving from Rifampicin to Rifapentine. Now, how much? We don't know. We have to wait and see. But, we believe that there is going to be a reasonably good requirement for Rifapentine in years to come.

Just last question related to this topic. How this is going to impact our customers today? Say, predominantly there are 2 clear who -- who are very significant on Rifapentine treatment will there be any change in customer mix or the contribution of customer mix, if at all we move to Rifapentine?

So there are two aspects. Rifapentine in no way affects Rifaximin. So the Rifa-O business remains as it is, there is no impact that one gets from there. With regards to Rifa-S, whether it is Rifampicin or Rifapentine, as I said, both the products need Rifa-S. And whatever we plan, whether it is in terms of Rifaximin or Rifa-O, Rifa-S, Rifapentine, Rifampicin, it will all be in cooperation with our current customer base, because I think we have a relationship which is built over for a significant period of time, and it has worked well for us. We hope it has worked well for them also. So I think there will be things that we will do, but only in consultation and cooperation with our customers.

Sure. That's very helpful. And last question, and I can come back to the queue again. One of the high-value APIs that you all get towards. I do understand you may not really give a directional view as to what therapeutical area etcetera it is going to be. But is it still going to be a B2G kind of business arrangement or is it going to be able to be or B2B?