Hester Biosciences Limited (HESTERBIO.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Hester Biosciences Limited Q2 FY '21 Earnings Conference Call, hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jeewani from IIFL Securities Limited. Thank you, and over to you, sir.

Good afternoon, everyone. This is Rahul from IIFL Securities. I thank the Hester management team for giving us the opportunity to host this call today. From Hester, we have with us Mr. Rajiv Gandhi, CEO and Managing Director; and Mr. Chetas Patel, Chief Financial Officer. I will now hand over the call to the management for their opening comments, post which, we will open the floor for Q&A. Over to you, sir.

Good afternoon, everybody. I'm Rajiv Gandhi, CEO, Managing Director, Hester Biosciences. Once again, and as always, it's nice to have all of you on the call, and I'm always happy to give a brief review on the functioning of the company. The discussions today are related to the Q2 and H1 results and the functioning of our company. While the press note has given quite a few figures, I would not like to repeat all these figures. And since the last 2 calls, as we have changed the format, it will be more of a subjective discussion that we would go through. And then based on that, I would be open to answering any questions. So coming to the results, like our Q2 and H1, there is a lot of variation because the -- Q1 had a very subdued result. And therefore, the difference between Q1, Q2 being reasonably high, the H1 even is not much -- is not in sync, in line with the Q2 results. And this probably would be true to most of the companies and industries in this year. So the same has happened to us. Going through the business review of Hester India. As far as the Q2 sales are concerned, the sales have been reasonably good. Compared to the Q1, we have had a 38% rise compared to Q1 FY '21. If we do a quarter-to-quarter comparison, that is this Q2 comparison with the Q2 FY '20, there has been a, 3-0, 30% rise in our sales. And if we do a H1 to H1 comparison, it's been a 10% rise. As you are aware, we have 2 divisions. We have the Poultry and the Animal Healthcare divisions. The Poultry Healthcare division had a growth of 21% in Q2 FY '21 and 7% in H1 FY '21 as compared to the Q2 and H1 of FY '20. The Animal Health division grew at 41% on a quarter-to-quarter basis and 26% on a half yearly comparison basis. So there has been a reasonable growth as far as the top line is concerned. And we see that this trend should now continue as far as sales are concerned because the demand for milk, eggs, everything has now started going up. The feed prices for poultry are also reasonably stable at this point of time. Last year, as you might recollect, there had been too many issues in terms of maize prices, et cetera, and the feed costs were very high. This year, everything now seems to be going on track, and we are hopeful, and we feel that the Q3, Q4 would yield us the results as what we had expected to achieve and the forecast internally made by us during the pre-COVID days. We have 2 range of products. One is the vaccines and one is the health products. Our vaccine sales grew by 26% on a quarter-to-quarter basis comparison, and the health products grew at 8% on a quarter-to-quarter basis comparison. And sorry, sorry, our -- I changed my statement our vaccines grew at 26% on a quarter-to-quarter basis and 8% on a half yearly basis, while our health products grew at 51% on a quarter-to-quarter basis and 22% on a half yearly basis. Our health products have definitely shown a remarkable growth as compared to the vaccines. Here, I would like to make one statement is that vaccines are -- there is a difference between the usage of vaccines and certain health products. The health products could also include treatment products, while the vaccines are mainly as a preventive medication. Health products our range also has curative medicines. In times of recession, we have always noticed that the products which are used for curative applications, they are continuously bought, while those used for preventive might be overlooked or might be skipped because of one -- because of financial needs. And vaccines coming into the segment of preventive, there could be a little bit of a chance that some people, the remote people, the small farmers, they sometimes do it. But having said that, the vaccine sales has also picked up as of now, and it should even take on further from here. On a geographical basis, our domestic sales grew by 30% on a quarter-to-quarter basis, 8% on a half yearly basis, while exports grew at 36% on quarter-to-quarter and 25% on a half yearly basis. As you all are aware that the Government of India has embarked on an immunization program against foot and mouth disease and Brucella. Hester Biosciences manufacturers a Brucella vaccine, and we would be part of the government's campaign towards immunizing cattle against Brucella. Earlier, there was a tender. The tender was canceled by the government and now the new tender is expected. We are, again -- would be participating. We are as hopeful to become the largest supplier of this in the tender once it goes through, and that should give us good business in Q3 as well as Q4. We have been -- another point that I would like to stress over here is the lumpy skin disease. This is an emerging disease in India. It is found in cattle. And the lumpy skin disease has no curative medication. There is only preventive medication, and preventive medication is only again due to -- through a vaccine. Hester Biosciences is, at the moment, the only company that is working towards the development of a lumpy skin disease vaccine. And in 6 months' time, we should be ready with this vaccine, being the only supplier of the LSD vaccine in the country, and we feel that this would be a tremendous huge opportunity for the company. On the health products side, we are also now looking at introducing herbal products, natural products. The world is going away from antibiotics. Even in animals in Europe, in the United States, antibiotics are banned in feed. And on same lines, we believe that natural products has a tremendous future. So on our health products side, we would be introducing a big range of natural products which -- in days to come, which could probably become the most focused product line out of our health products as far as Hester is concerned. Looking on to territorial expansion in India, in the last few months, we have again started hiring people, rejuvenated our team. And we believe that this additional hiring, et cetera, is going to yield us very good results in Q3, Q4, definitely, Q4 as we surely feel that poultry and cattle, both these markets, it has gone through a very bad time for a very long time. And now I am -- we are confident that it would be taken very well in the coming days in this whole financial year. In line with our mandate, with our philosophy to reduce the dependency on any product, division, geography, we are strategically working on this. And as you see, we have now put in a lot of trust on health products. As you see, the poultry contribution from 71%, 72% out of the total turnover, the poultry health products and vaccines, that has gone down to approximately 64%, 65%. Territorial-wise area also, we have made sure that all territories are equally covered. So all these events and all these actions that have been taking place and what we have been embarking on, clearly make us believe that we would be a company where there is no dependency either on a product or a product or a division and geography, so that there are any lull period, any recessionary period that does come in the animal health industry, at least we have the other division or the other product or the other geographies to depend on to sell our products. In view of the lumpy skin disease as well as the Brucella opportunity that seems to be coming our way, we have decided to embark on an expansion plan, which would be finalized in the coming few days. Upon finalization, it would be well notified to everybody. We are on the planning stage at this point of time. And sooner than later, we would be declaring our precise plans for expansion, creating an additional production facility not only for these 2 vaccines, which I mentioned, but overall as well. Last but not the least, talking about the COVID-19 human vaccine, which Hester is developing in collaboration with IIT Guwahati. Currently, the vaccine -- the virus is under construction at IIT Guwahati. As soon as that gets complete, we will start working on the animal trials at Hester. We hope to commence animal trials probably by the end of November or the beginning of December. And based on that, we would take things further. Also, we have been talking with a few human vaccine manufacturing companies to take on the development after the animal trials to take on it to its logical conclusion towards developing the human vaccine. So this much is for Hester India. As far as Hester Nepal is concerned, it's been a rough time for us. I'm now talking about our subsidiaries. As far as Hester Nepal is concerned, it's been a rough time. COVID has put nearly a stop on the sales as far as FAO tenders are concerned, as well as due to the non-transport, the nonavailability of aircraft movement in and out of Kathmandu. So that has gotten us to a near to stand still in the first 2 quarters, but now FAO has started releasing tenders. We have already started quoting, and we hope it's still in a small manner, but we have -- we believe that FAO will cover up the tendering business in the third and the fourth quarter, thereby assuring that they also complete their target as far as the PPR vaccine is concerned. We have also been starting putting -- we have also started putting in effort on the domestic sales, as also mentioned earlier, but even domestic sales were impacted because there was a closure for most of the time in Nepal, which led to even lower sales as far as the Nepal -- and the poultry industry or the cattle farm industry is concerned. Texas Lifesciences, the company continues to grow. It's directly dependent on Hester India and the way we grow our health product business. We are growing in health product business in Hester. Therefore, Texas Lifesciences has been able to at least maintain the sale as what we had last year. There has not been any much drop as compared -- there has been a marginal increase, in fact on the sales, and this would continue to grow as the health product business keeps developing in Hester. Our trading entity in Tanzania, which is Hester Tanzania, that has been reasonably impacted with the -- due to the COVID. In Q1, we did have some sales over there, which were again quite minor in nature. But Q2 was more affected because there was no transportation of goods that was possible into Africa, and therefore, there has been a reasonable downtrend in the Q2 sales, which has overall affected the trading business over there. But now with things opening, with even flights having started between Mumbai and Darussalam for vaccines, transportation. Even goods transportation is now well under movement. We hope that from this quarter, we would again aggressively get onto the trading business. And in the meantime, we have already started creating a good network over there. So all this will pay off in these coming quarters. Last but not the least, our manufacturing project in Africa by the name of Hester Biosciences Africa. Things seem to be going well except for a minor delay, which is to the tune of around 60 days or so, not really more than that. I think we have done reasonably well compared to the lockdown situation all across the world. The problem what we faced was not due to lockdown in Tanzania, but the problem due to transport and freight not being available to reach certain machinery over there. And more than that, in nearly in the whole of Q2, we could not send people, neither contractors could go there to erect the machinery, to erect the utility services, et cetera. So that has been a little dampener for which there has been a little bit of a delay, but we are reasonably confident that in the last quarter of this financial year, we will be able to commence production. So that covers everything from my side, and I -- it's over to all of you to ask questions.

[Operator Instructions] We have our first question from the line of [ Amar Jain ] from Jain Investment.

Firstly, I wanted to understand what is the size of opportunity we're looking at in the lumpy skin disease you are saying that in the next 6 months you'll be launching probably. What kind of time line do you foresee in terms of developing this vaccine?

As mentioned, the time line is 6 months for us to develop this vaccine. And this vaccine is to be administered to cattle, which includes buffaloes also, against the lumpy skin disease. And the total target population in India is around 300 million heads to be vaccinated against lumpy skin disease. This is the theoretical demand.

Okay, [ 300 million heads ] ?

Yes, yes. So when we say 300 million, we are looking at INR 30 crores.

We have the next question from the line of [indiscernible] from [indiscernible] Enterprise.

I had 3 questions, sir. The first one, could you talk about the status of registrations of the portfolio in the African countries? The second one is the status of the FAO tenders for Hester Nepal, which you have given in your press release, but you can just talk a little bit more about that? And lastly, sir, is there a possibility for the tie-up of the -- or just manufacturing of the COVID vaccine at your end, your thoughts or comments on this?

Okay. Your first question was related to registration of products in Africa, right? As far as registration is concerned, it's an ongoing process. There are more than some 14, 15 or probably even 18, 20 countries that registration processes are going on. And there could have been 1 or 2 products registered in each of these countries or even more or they are about to get registered. While I'm talking to you, I do not have the fact sheet in front of me on a country-wise breakup, but we are doing reasonably well. But please do keep in mind that due to the COVID reason, most of these government offices were closed for quite some time for nearly 4 to 6 months. So there has been a lag in the registration activities as well. Now the second question was FAO tenders for PPR from Nepal, right? Yes. Nothing much to say except that FAO has started the tendering process. Small tenders have already come. In fact, we are waiting for the outcome of those tenders. And it's a process which directly is not under our control. So we wait, and we take it further, though we have enough assurances from FAO that things would fall back on track as far as PPR vaccination programs in each country -- in each of these countries it is concerned. And the third question was COVID-19 human vaccine manufacturing capability -- ability at Hester Biosciences India. We, ourselves, do not see that as a possibility, how much ever capable we are. We have already built a business of over INR 150 crores of vaccine business that we are having at Hester Biosciences. We would not be in a position to overlook that business and go on to this. Having said that, there are opportunities already available with us from people and companies who are willing to take up the manufacture of the vaccine at their end. So it saves us the trouble of creating that infrastructure; two, it does not hold us back in our routine production that has been going on for the animal vaccine.

We have the next question from the line of [ Viraj Mahadevia ], an Individual Investor.

Rajiv bhai, a couple of questions from my side. When you state that Brucella is INR 100 crore per annum opportunity and PPR is INR 12 crores to INR 15 crores, how much share do you think that Hester can realistically get from this once the government tendering begins?

I would not really be able to tell what the share we can get. I can share historical data, which could be -- which is probably in even public domain. In terms -- as far as Brucella is concerned, we have made around 80% of the sales done in India in the last 1 year. As far as PPR is concerned, we have sold -- our market share through government tenders is approximately 70% to 75%.

Right. Okay. So if you replicate those percentages in this tender market, you're talking about a potential INR 90 crore sale between the two? Understood.

Theoretically, Yes.

You mentioned lumpy skin is INR 30 crores in volumes annually, theoretically. What does that translate into in rupee terms? And what is the broader market, including exports in rupee terms?

Yes. We would not like to disclose our selling price. We are still developing the vaccine. So I'll let -- it would be more prudent for me not to disclose that price as far as lumpy skin disease is concerned. And...

Maybe you can give a range, a very broad range? Are we talking about INR 20 crores, INR 30 crore potential or a INR 50-plus crore potential?

Any vaccine would be more than INR 1 for sure. So even if you take INR 1, it is INR 30 crores, you take INR 2, it is INR 50 crores. So...

Yes, yes, yes. What are you indicating? Are we talking INR 50 crores or INR 100 crores plus then?

Again, you're trying to hold me on to that. Just give us some time to get into this, Viraj. I mean, just give us some time. It's a good potential. It's a very good potential for us. That is all that I can say.

Okay. Excellent. Can you expect -- obviously, you had some working capital burden given what the rural and pharma folks have gone through over the last 6 to 12 months. Can we expect working capital cycle to improve every quarter from October '20?

Yes, it will improve. We have reached probably the lowest at this point of time. And we definitely foresee that by December, we should be back on track with our usual credit terms, with our usual sales and all these things. We definitely foresee that, no doubt about it. And plus, the tendering business would also start, which would, again, give us a lot of strength again.

Right. Of your consolidated gross debt of INR 120-odd crores, how much is from the Gates Foundation since your stand-alone debt is about INR 20 crores?

This is including the Gates Foundation, INR 120 crores? Gates Foundation is $10 million, INR 75 crores, approximately. I'm not getting into exact, but $10 million is INR 75 crores.

And compared to March '20, you have capitalized nearly INR 100 crores of assets in September 2020. Is this for Tanzania? And what is the pending CapEx for that project? And what will come from you versus the foundation?

Yes, we have -- I mean, when you say incurred, it is like we have acquired and we have built up the asset base, and it is mainly in Tanzania.

Right. And what is the pending CapEx for Tanzania?

No, we have completed our capital expenditure for Tanzania.

Oh, it's complete now? So going ahead...

Yes, yes.

In its entirety? So contribution from Gates plus company's equity?

Yes. Is everything complete? Yes, everything is done.

That's good to hear. So it'll be good to have that on stream next year. And if I...

And I tell you, it's just been a minor delay as what I mentioned. I think we are in a reasonable good position as far as the African project is concerned. It's been -- I think it's been a very good management over there. Partly, we have done it and partly, there is a lot of efforts that have been put by the team over there, the people over there, government also support. So it's been a good period these last few months.

No, I think given the circumstances, it's come up reasonably on time and on cost. Are you seeing a pull from market for your products already in Africa? So can we expect a good start next year?

There are inquiries that are coming in. There are distributors that -- who are there wanting to take up our distribution, et cetera. So it's something which is in a formative stage. At this point of time, it would be wrong to say there is a heavy demand, and we are waiting the day 1 it opens and there'll be a rush. I think that would not be a true statement. It is a fragmented market. Efforts will have to be put in, and distribution channels will have to be optimally utilized. So it's going to be an exercise. But yes, we are confident that we will go through all these processes, and vaccines will be made available to people where earlier they have never even heard or they never expected that they would get any vaccines against these animal diseases.

Right. And if I heard you correctly on the last question asked by the prior person. For COVID vaccines or human vaccines, we are not looking to manufacture in-house? Is that the takeaway?

Our idea is to, from here on, take it further because we have innumerable people willing to work with us to take this vaccine to the next stages. So in collaboration, there are facilities that are accessible to us wherein the vaccine can be manufactured. So in keeping that in line, we thought why get into an extra capital expenditure when there is some -- when there are some opportunities like this available?

Okay. Sir, Rajiv bhai, on that topic, maybe if you can help me a little bit to further this understanding. What would be your role then? Let's assuming you have a foreign partner with the tech pack.

Yes.

You have ability to advance it, understand vaccines and manufacture, but if you're saying...

No, I'll tell -- no, I'll tell you. Stabilizing the vaccine, going through the trials, going through the human trials, everything is our responsibility to ultimately get the vaccine released. Everything would be our responsibility. Our team would be working on the vaccine. Our team would be doing the modifications, if at all needed, et cetera.

Right. Only that you would identify a third-party contract manufacturer, manufacture it, is that correct?

Yes, yes, yes.

Instead of doing it in-house?

Yes.

Okay. And sorry, last question from my side, and I'll be gone. Are you exploring FMD vaccine at all in India? And are you looking at it in Nepal and Tanzania as well?

We have a desire to get into FMD vaccine. And let's see how we take it further. I would not say a yes or a no at this point of time, but it's been there up in our mind.

Okay. All the very best. Hopefully, next year is better than this one.

It is bound to be, but this year is surely going to be better infinitely than last year, be rest assured.

We have our next question from the line of [ Manish Gandhi ], an individual investor.

Rajiv bhai, just to continue on the human vaccine out-licensing, you said that we have INR 150 crores, INR 170 crores of many vaccines in our India. But what about the Tanzania or Nepal, do we have extra capacity? And can we explore that to out-license?

We have capacity because the plant has not even gone on stream. In Nepal, we are waiting for FAO tenders, so our sales are less. So I mean, theoretically, we have a lot of spare capacity. So we do have a spare capacity. It's not that we don't have our spare capacity. If the need arises, we can even convert the Nepal plant into a human vaccine and we can even take that further. So these are options available to us. What option we exercise, that is the issue, and we need to exercise the option, which is more suitable for the benefit of the company. So we would take that decision at the appropriate time.

Right. Because even Tanzania is coming, say, in January, February. And with our relationships and understanding with [ Guwahati ] also. So even in Africa also, we can explore, right? Because initially...

Absolutely. No options are shut, all options are open. But what happens is when I talk to investors, to people like you, analysts, et cetera, I have to be as clear as what I can. And therefore, I've made that statement for the human COVID vaccine. Please, I would appreciate all listings, do not read anything in between the lines or there is nothing of that sort. We are open for anything and everything. As long as there are alternatives available, as long -- why convert 1 capacity into another and not have business of 1 type of vaccine. So with this intention, it's not with any other intention. Not that we are not capable of, there is nothing of that sort.

Right. Obviously. I understand and appreciate. And you have created so many streams. And so with my little understanding, I always try to explore what goes into your mind and what are the opportunities.

No, no. Thank you very much. But be rest assured, there is no incapability, it is just taking the best choice that is for the company. That's all.

And I trust you. And the second question is Rajiv bhai, what led to retendering of Brucella vaccines?

It was in government's internal thing because they had certain probably an increase in demand. And what had happened is that legally also -- I'm not very sure, I could be wrong when I make this. There is a period after which things lapse and this COVID thing extended the whole matter too long. So that was -- that also could be one of the reasons.

Right. And so do you also feel that given the finance stress for government, it can even further delay...

No, no. No chance. No chance. Be rest assured, no chance.

[Operator Instructions] We have our next question from the line of Manish Gupta from Solidarity.

Rajiv bhai, I wanted to understand from you. This FAO program for PPR eradication has been in the works for quite some time. Now there is still no firm visibility on how that program will scale up. So just wanted to understand from you, what are the challenges they are facing? So have they secured the funding? Right now, even they are dependent on a lot of grants large countries, one would imagine. So do you have comfort that the train has finally left the station? Because we put up a huge plant in Nepal for this vaccine. And there just doesn't seem to be any sense of time lines when this project will finally take off?

It does appear what you perceive is, definitely, I would not say that it's completely a wrong perception. These are world bodies. Individual companies like us do not have access to reasons behind what goes in there and the reasons for delays or anything to happen. My knowledge would be, say, 5% more than what we read in newspapers about FAO, WHO, et cetera. But having said all this, I'm reasonably sure that the PPR movement, immunization movement would catch up. And it would slow, but it would definitely happen. There is nothing that it's not going to happen. I would say that even if they come up to 15% of what they have committed, that in itself is big enough for us to make the plant run at full capacity, earn the normal profits, et cetera. So not that our plant is so big that we are in a stress that unless and until that really comes up and all. If you see last year at INR 15 crore turnover also, we made a minor profit. We just -- we were a little over the breakeven point. So anything that gives us this much turnover, and we are good to go. So I agree it is slow. Even if it is slow, we will still be able to make it. It's not that we have such huge, big capacities. Also in Nepal, we have now taken the licenses of all the other poultry vaccines as well as a few other vaccines which India does not allow to manufacture, including the Brucella vaccine, which is also manufactured in India over here. So what we have done is we have created the facility over there, which can supplement the Indian production unit in the event of any specific needs at any point of time. So that's something which we have done in the last 6 months while everything was low and not moving.

Okay. Second question, Rajiv bhai, is that our poultry business it's quite like an annuity business because chicken is a consumption item. Our other vaccines, which are, say, for example, Brucella or lumpy skin disease, are these long-term opportunities? Or are these opportunities which are sort of finite time period? And then the demand will -- for these will dip?

In -- at this point of time, there is no finite time that can be defined that, by this, the opportunity would go down. There is 0 chance for Brucella to -- Brucella vaccine that it would not be needed, that it would be eradicated, that lumpy skin would be eradicated. There are 2 diseases that have been eradicated. PPR is the third disease, which is on the way. And that too has been time tabled as 15 years. That was 3 years ago, things are slow. So there is nothing that is going to happen in the -- even in the immediate long run that can disrupt any of our products or our business.

So Rajiv bhai, let me rephrase my question. So let us assume in the first year or 2 years, our demand for Brucella is still 100 units because the government program takes off to immunize all the cattle. So you get a huge boost in demand because this is 60%, 70% of the organized sector cattle gets immunized. But is there a need for a replacement shot for this vaccine in year 3 or year 4?

The Brucella vaccine is a onetime lifetime vaccine. But the new born calves that are being added every year, the population of which is increasing on a year-on-year basis, this is always going to require the vaccine.

Correct. Okay.

Every new born calf would need the Brucella vaccine, and it needs to be vaccinated around -- what is -- between 3 to 8 months, it needs to be vaccinated. So now there is always a replenishment of calves, and there is always the need for the vaccine.

Yes. Yes. Got that. My last question was, in our Africa business, how much of our business plan over there would be dependent on tenders vis-a-vis just our own salespeople selling into the market?

At the moment, the tender dependency, the calculations are with 0 dependency on tenders as far as Africa is concerned. If tenders come, that would add to our business.

So do you -- can you share any numbers about when we expect Africa to break even?

I think in terms of breakeven, we should break even -- I would not have the figures, but I think we should break even in 2 years' time. 2 to 3 years time. That's what our CFO is prompting me.

So you mean breakeven on the P&L? Or did you mean payback in 3 years' time?

We are talking of P&L.

[Operator Instructions] We have a next question from the line of Manish Jain from GormalOne, LLP.

Rajiv, just wanted to know on CapEx, you have mentioned for LSD, Brucella. So just wanted to know, when will you give preference to LSD Brucella over your plan for FMD in India?

Brucella over -- sorry, Brucella over FMD or LSD are you talking?

LSD and Brucella, will they get preference in CapEx over FMD?

Definitely. A bird in hand is always worth two in the bush, as the old saying goes. So what we are, that's something we will first look into and prioritize that for sure. No doubt about it.

And just an add-on to this question is, will you focus on FMD in Nepal and Tanzania?

There are chances that we could do that. And as I said, I'm not able to give an absolute time line as far as foot and mouth disease vaccine is concerned because, see, every time we get on to looking at it something closer, then we get another opportunity. What has happened is LSD vaccine or all these other vaccines also have a trade market apart from the government tender business. Today, FMD is the near to 100% tender business. What we feel is that we should focus on products where there is a hedging between government business, private business. And so these opportunities seem to be more of liking to us.

Got it. Second question was on getting an update on the Novapharma program that you were doing on now. If you can just give some status update.

It's an Egyptian company who wants to set up a poultry vaccine manufacturing unit, and we are giving them tech transfer, helping them to develop the vaccine and sell it over there. And in return, there is a technology transfer fee plus we have exclusive rights for international marketing. The project is under construction at this point of time.

We have our next question from the line of Ravi Naredi from Naredi Investment.

Rajiv bhai, again, the second quarter result is there, and we can talk to you. So finally, due to COVID, how much we may impact in financial year 2021?

Financial year 2021?

Current year?

The current year. I think our endeavor is to forget COVID as far as our veterinary business is concerned and move on. We have already been able to achieve the targets decided by us during pre-COVID times. And Q3, Q4, even if they go in a similar manner, we -- it would be good to us. I personally feel that we have moved on.

Okay. Okay. And sir, what is the progress of human vaccine progress so far?

I discussed everything in the earlier question, but I think I should again give it to you on a nutshell that we would be starting animal trials sometime end of this month or beginning December, and then we'll take it further once we -- once those trials are in place.

Okay. Okay. But it will take another -- how many months?

For the animal trials?

Animal trials and human?

Human, I cannot say. Animal trials, approximately 3 months' time.

We have our next question from the line of Richa from Equitymaster.

My question is regarding the herbal products opportunity that you have mentioned in the opening remarks. If you could give us a sense of what is the opportunity size and who are the existing players? And will the margins be very different from the antibiotics product?

The world is heading towards natural products. So herbal products are part of the natural products scheme of things. Antibiotics are banned in the Western Hemisphere. India, they have not yet been banned, but I'm sure I have reasons to believe that in days to come, if India wants to export farm products, meat, eggs, et cetera, all these issues would come up because of the residual value of antibiotics in meat, eggs, milk, et cetera. So the opportunity for herbal products definitely seems to be reasonably large at this point of time. Herbal products, we have a team that is now looking after doing some research on these herbal products. As far as the profitability of these products are concerned, we have reasons to believe that there should be a reasonable good profitability. They should match with the profitability of our vaccines. And there are a few companies in India. It would be inappropriate for me to mention any 1, 2 or 3 names in it because it might sound that we are trying to compete with A, B, C and all. So I think it's a good business opportunity that we are looking at, at this point of time.

We have the next question from the line of [ Deepak Mehta ], an individual investor.

Great set of numbers. My question is around the -- our sales for government orders. So out of total revenue, what is the percentage which we get from the revenue from government order and tender, sir?

I do not have those figures on hand at this point of time. Maybe on the side, we can give you this information. But I would -- I mean, this is -- you are asking -- as far as poultry is concerned, it is around 2% to 3% of our total business. As far as Brucella, PPR is concerned, it is approximately 80% of our business. Hello? [Technical Difficulty]

The line got dropped actually. We'll be taking the next question from the line of [ Shekar ], an individual investor.

Most of my questions have been answered. So just wanted to know about the Hester Tanzania. I believe we have invested, I think, INR 100 crores, is that right?

Sorry? Can you repeat your question?

In Hester Tanzania, how much have we invested till now?

Now there are 2 companies, Hester Africa and Hester Tanzania. Hester Tanzania is a trading company wherein our investments are very low. Hester Africa, our capital is USD 4 million, which is around INR 32 crore, approximately, which we have invested.

All right. And what is the revenue potential we expect, the peak revenue potential? I mean that...

At full -- at capacity, between INR 200 crores to INR 230 crores.

All right. And as you mentioned, we expect to break even in 2 to 3 years, on the P&L years? By break even, we mean like how much percent of the capacity has to be utilized for that?

We don't have the exact calculations at this point of time. And in days to come, when we do our forecast, we would be able to do all these things. Different vaccines have different breakeven points, due to product mix, et cetera. All this would be derived probably by sometime in the first quarter of the next calendar year, that is Q4. And then we would be able to put things on place.

All right. Got it. And similarly, for Hester Nepal, I would like you to give me a similar number. I mean what's the peak revenue potential?

Peak revenue is approximately INR 50 to INR 60 crores. And the breakeven -- at INR 15 crores, we made minor profit, so the breakeven would be less than INR 15 crores.

We have our next question from the line of [ Arnand Kapoor ], an individual investor.

Just on the Africa market, just to confirm on the right numbers. What we are saying is that essentially the peak revenue potential is INR 200 crores -- INR 230 crores between that range. And in 2, 3 years, we expect to be at INR 32 crore from a breakeven perspective. So potentially, right now, if I look at the numbers, it's INR 2 crores. So we're expecting INR 3 crores to jump to 16x, is that right?

No, no. I think you're confused between 2 different entities. One is Hester Tanzania, which is trading and one is Hester Africa, which is manufacturing. There is 0 turnover in Hester Africa at this point of time.

Okay. So essentially, it is 27 -- what is -- on your -- the press release says it's 27 million. So we expect that number to go to 32 million, right? Or is it some other number, which -- so I mean just to get a sense, what's the baseline for this entire Africa percent annual number?

No, I have not understood 27 million, what figures are you referring to? Full capacity...

The 27 million number? No, no, sir, 27 million number is for FY '20, 27 million for Hester Tanzania for last year. The question is in next 2 years, what do we expect -- for next 2, 3 years, what do we expect the revenue or net sales to be?

Where is this figure, 27 million ? I'm not able to -- where is this? Wait, just a minute.

[indiscernible]

Yes. Yes, yes, total. Okay. So that is for Hester Tanzania? Yes. I think for there -- you are talking about the breakeven over there?

Yes, yes, correct. I'm asking for the revenue potential, but breakeven...

Yes, the revenue potential is reasonably high. We should be doing 3, 4x the revenue we should have done this year. It's just that COVID has caught us down. But we will -- this is 27 million, that is INR 2.7 crores, right? We'll do 5x this turnover this year itself.

Okay. And for the second question on the LSD, you mentioned 30 crore population. And if I understand correctly that goat pox vaccine is being used currently in India. So do you expect that Indian government will shift to LSD vaccine as soon as after the 6 months, you've started in some phased rollout?

Absolutely. I mean, what else could be done? There is nothing else.

And sir, in terms of goat pox vaccine potential, you expect that total shift to happen towards LSD, right? Because...

Goat pox is being used -- no, no, no. Goat pox has its own demand, and it is being sold to cure goat pox. And this is in addition that they are using it at this point of time, but it would be a specific lumpy skin disease vaccine in some time.

Okay. Okay. And this will be a primary...

It's not identical. It's not the same. There is a difference. There is some difference in terms of dosage, et cetera. It's not just apples-to-apple or you can use this exactly for this.

Got it, sir. Got it. I was just reading at -- understood that the government...

Your information is right. Your information is right. It's not wrong, but it's not a substitute, complete substitute.

Okay. So the shift will happen then in 6 months or 1-year period?

Yes.

Okay. Okay.

Absolutely.

Got it. Got it. And this would be primarily a tender-driven business? Or do you expect private procurement also for this?

Private procurement, less to begin with tender more, then slowly once people start getting used to it and then if there are availability issues, then they start procuring privately. So initially tender and then privately.

Okay. Got it. And sir, just one final question. On the COVID vaccine, what do you expect as the revenue potential for Hester in 1, 2 years period?

I would not be able to say anything on this. Please pardon me.

Yes, sir. Can we move on to the next question?

Yes, we can.

Sure. We have our next question from the line of [ Lala Ramsey ].

My question is on the non-vaccine business, which we call animal health products, excluding the vaccine part. I want to understand which are the top 3 products, which -- or the major products which contribute to that business? And number two, I want to understand the strategy which we are following in that business?

Which products are the biggest -- which products are the biggest contributor? We have got a few star products like ProtinC. I would not really know the other product names at this point of time. ReproPlus is another good brand name that is selling. So there are quite a few products that are going well as far as this division is concerned.

May I know the application -- may I know the application area of these 2 names which you just took?

It is for milk -- improving milk production and the reproductive -- reproduction.

Got it. And second, sir, this production is done under Texas Lifesciences?

Yes, you have understood it right.

And this will be 100%? Or does Texas also do contract manufacturing for other brand owners?

Very minor, it's 90% Hester, 10% outside.

Got it. And sir, do we expect to make Texas a fully owned company? May I know who is the other 35% owner?

There are other shareholders from whom we acquired 55%. They continue. At this point of time, there is no plan for us to take full ownership, et cetera. The purpose is that we have our feed ownership in a company wherein we have control over the products, the quality, the supply chain, et cetera. Everything is happening on -- as per the objective. So as long as we are achieving our objective, why should we really try to change anything at this point of time?

Sure, sir. So may I know in this quarter, 50% growth, what were the key drivers? Which product or was it distribution in new regions? Can you talk about that? What drove the growth?

I think that's the question that you have asked me, probably I would need our team of marketing people to really enlighten me on all these things. And to be honest, these are quite confidential figures. So even if I would have them, it would be inappropriate for me against the interest of our own business to share such details.

Got it. So can you -- what are the things which you can share about this business long-term plans? Because I believe it's a focus area, right? Nonvaccine, you want to diversify your business, the cure business?

No, no, there is no diversification, please, please. Just please hear me out. There is no diversification. Vaccines is our strength, and we are producing vaccines. We will continue producing vaccines. We are getting into an expansion plan. The animal -- the health product market is bigger in terms of rupee or in dollar terms than the vaccine markets, therefore, we also want to be in that. The scope of doing a bigger turnover is very high in health products. Therefore, we are also into it. It is not a diversification, it is an addition.

I understood that, sir. I just want to understand that because it is a materially different business in terms of characteristics versus the vaccine business. How are we approaching that particular business in terms of...

It's in the same manner. We have the same marketing distribution network, everything goes through the same channels. And ultimately, the customers are the same.

So it is not a big -- so the key there is not to produce something. The key is to sell it, right? So it's not difficult to produce like vaccine, it's actually difficult to produce a vaccine. But it is more about...

Yes. The complexity in vaccine production is much more than in animal health products production.

So are you spending more in branding, marketing towards that side? That's what my question was. How we want to scale that? Because it's not about manufacturing, right? It's more about selling, creating a brand and all that. So I just wanted to understand.

I think -- no, I am not able to understand your question. We are a company that is marketing and distributing animal and poultry health products. And this is also a requirement of that. All our products have our own brands. So it is as much as working towards technically qualifying our product for the purpose which it is being used, and we are selling it. Yes, it is our own brand, and it is our own label, and it is manufactured at Texas, marketed by Hester. Texas is also partly owned by us. So I mean, that's it.

Okay. Can I ask one last question, sir?

Now that you are online, might as well.

May I know the -- what was the market share within Animal Health within the products which we are doing like enhancing...

Small market share, there are companies that are doing much, much bigger turnovers. So our market share is reasonably small, less, and that's the bigger potential that we are actually looking at.

Thank you very much. Participants, that was the last question. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

It's been a good question-answer session. I think it's been quite longer than what it has been every quarter. But I always enjoy answering these questions. I hope I've been able to answer everybody. To sum up, everybody at Hester is working hard towards assuring all its stakeholders, shareholders to -- that our hard work will definitely yield into good results in terms of the actual business, in terms of valuation, everything. Our philosophy continues to be the same. There is no change in whatever, however the turmoils may come, turnovers may go up, we still continue to follow the same philosophy, and we are proud that this will be the way we will take things further. We do have plans to become aggressive and take the turnovers on a geometric progression, upward growth. Unfortunately, the first quarter, partly the second quarter did -- the first quarter mainly did dampen our spirits, not only our spirits, but it has dampened the spirits of the entire world, of all companies, individuals at personal level, professional level, but we are all here to work hard and take Hester to the next level. Thank you.

Thank you very much, participants. On behalf of IIFL Securities Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.