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

Ladies and gentlemen, good day, and welcome to Hester Biosciences Limited Q4 FY '21 Earnings Conference Call hosted by IIFL Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jeewani from IIFL Capital Limited. Thank you, and over to you, sir.

Thanks, Aisha. Good afternoon, everyone. This is Rahul Jeewani 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 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. As usual, it's a pleasure to interact with all of you on this quarterly call of the results of Hester Biosciences. Before I begin, I would just like to make a note is that while Chetas, who was a CFO, continues to work with Hester as a General Manager, Finance, we have a new CFO, whose name is Mr. Nikhil Jhanwar. He is with me today on the call and so is Chetas. So this is just to mention about the 2 of them.

Good afternoon, everyone.

Yes. So now with that opening note, I would like to get on to the business review of the financial year 2021. The press note has -- I -- we always try to make the press note as detailed as possible so that a lot of information reaches to all of you before we all get on to the call. So just as a recap of the information that you probably already have in your hands, on a quarter-to-quarter basis, Q4, we grew at 52% on the top line. And in terms of the 12-month period, overall, we grew at 23%. The year gone by, with COVID, the quarter 1 was low and then slowly the business built up and, more or less, we recovered by the time the Q4 ended. And we were also to post a reasonable good growth of 23%, which was as per the forecast. So that makes us happy that even in those COVID times, we were able to achieve the turnover as what we had forecasted. But there has been a little of -- you can say a deviation from the projections that we had earlier made in terms of domestic sales versus the international business because the year gone by, not that we did not, but we could not actually export material because there were -- on most of the part of the year and even right now, there have been too many restrictions in terms of shipping the material from India to whichever country. Most of our vaccines -- rather all of our vaccines go by air shipment and air shipment was very restrictive in the whole last year. Incidentally, the domestic sales covered up -- rather, a little more than covered up for the loss in the export business, and we did reasonably well wherein our domestic sales grew by approximately 29% on a year-on-year basis. And if you look at just on a quarter-to-quarter, it was a 55% growth. Yes, exports, as mentioned, grew only by 3%, while in actually in -- it grew by 3% in the quarter, but overall, there was a drop of 4% on the whole financial year, if you take it. Considering that we are already towards the end of Q1 and a reasonable amount of inputs are already with us on how the year is going to be going further from here, our exports will definitely recover. And we hope that our exports will grow by 100% in this financial year because more than -- it would be partly covering up, and we are confident that all across the globe, once things open up, things would grow more aggressively and it would, more or less, make up for everything that we have lost in this year. In terms of domestic growth, the earlier growth was around 20%, 22%, which we grew 29%. We are very confident that we should be able to grow at least this percentage, if not more. And I think, overall, without any problems, we should be growing at, at least 25% to 30% in this financial year as against the last financial as far as the top line is concerned. We also have other reasons to believe that the sales on the animal vaccines division would also take a reasonable jump. Three of our products, which are currently under registration, that is classical swine fever, lumpy skin disease and sheep pox, all these 3 vaccines should be registered. The government of India is looking at immunizing programs against all these 3 diseases. So -- and we -- out of the 3, we are the only company manufacturing 2 of these vaccines, that is the lumpy skin disease and the sheep pox vaccine. So we should be more or less having -- rather confirmed 100% of the market share, whatever -- however small it starts and it goes on further. So these are a few things. We have also focused a lot on health products. We -- in this quarter, we have launched a range of herbal products, which we believe, which will give us good results in this financial year. Herbal products have gotten reasonably high in the trend as far as animal health is concerned, and we have already launched a few products. Some of them are also in the pipeline to be launched. Another range, which we are looking at adding on, we already have a few disinfectants. We are looking into launching a few more disinfectants. So overall, if you really go to see, while vaccines, we would have 3 to 4 new vaccines this year, all on the animal side, on the health products, we would have poultry as well as animal health products, both range. And we are very confident that health business -- health products business would grow at an extremely fast rate at a geometric progression and that would lead the growth at Hester Biosciences. As I've always mentioned in the past and I repeat again, all animal health companies have a bigger portion of their sales with their health products rather than the vaccine. We have 70% sales of vaccines and 30% of health products. So in a way, that talks about the opportunity that we have to grow the business in a geometric progression. That more or less covers whatever I would have had to say for the financial year. Rationalizing the product mix has been an endeavor, which we have been doing continuously. I would not say even a year-on-year basis, on a quarter-to-quarter basis. In fact, at times -- now talking about the bottom line, at times, the bottom line, the gross margins do vary. And this is mainly because of the changed product mix that we might enter into in a particular quarter. But if you look at it at an average of a year's time, we are, more or less, able to achieve the percentages. Definitely the EBITDA and even the bottom line, we are more or less there. And it is our endeavor to still improve the bottom line by a few points. So with this, at least I have covered all the issues as far as our animal health business is concerned. Before I give the line on to Nikhil for his comments on the financials with whatever he might want to say, we -- as you all are aware, Hester has embarked on the COVID-19 vaccine initiative. There have been 2 initiatives that we have embarked on. One is with IIT Guwahati and the second one is with Bharat Biotech. The one with IIT Guwahati, for reasons -- technical reasons, we have not been -- rather, our collaborator, IIT Guwahati, has not been able to develop the master seed. Their role was to develop the master seed -- rather is to develop the master seed, give us the master seed. We would start the animal trial and then take it on to human trials and then take the vaccine further. Unfortunately, the seed has not yet been developed. The project is not shelved. It is -- we have hopes to continue this project, and we are hoping that sooner than later, IIT Guwahati would be able to develop the master seed and give it to us. It is a recombinant vaccine. Talking about our recent news on the MoU signed with Bharat Biotech. The MoU signed by us with Bharat Biotech is towards manufacturing the drug substance. It would be an agreement for manufacturing an intermediate that is just a drug substance, give it to them, with which they would formulate and sell their final vaccine, Covaxin. We have no role to play in manufacturing the final vaccine, Covaxin. It is the intermediate that we would be able to -- we hope to manufacture. Things are going on as per the time line at this point of time. There are quite a few things that need to be done at our end, need to be got from Bharat Biotech -- more things to be done at our end, rather. And it is going at a pace which has been planned and hopefully, in the next -- between 2 to 3 months, around 3 months' time, we should have some output from this project, which we have envisaged to take on our hands. This project is mainly with an objective rather than looking into profits, not that we will not be making profits, not that it was going to be a loss-making thing. Nothing of that sort be rest assured on that. Neither making of any of these products would eat away into our current production facility because we are creating -- rather, renovating a part of premises at our end that would be able to make these products. So there would be no drop in our normal production of animal vaccines. And this would go on the way it is supposed to be going on. So that covers everything. While I'm on the -- still speaking to all of you, I would like to talk a little bit briefly on the subsidiaries that we have, mainly first one, Hester Nepal. It has not been a good year for us because it's an export-oriented unit and flights were completely shut in and out of Nepal. Neither were the tenders for FAO. There has been very miniscule tenders, which we did execute also. So therefore, that has led to a sharp drop in terms of the top line as well as in terms of the bottom line. But I think 1 good year, and we should recover from all these things and come back to normalcy, considering that, like in India, the gross margins are good. We just need 1 good year to come out of any problems that we could be or that we would be. This is net -- not only for this time, for any point of time. Talking about Texas Lifescience, it is a company which supplies us -- manufactures and supplies the health products. The growth of Hester's health product business and Texas Lifescience business is directly proportional. And so therefore, we have reasons to believe that with Hester growing, Texas Lifescience is bound to grow, and this business would become bigger than what it is. The -- talking about the bottom line as far as Texas is concerned, it's not much of a relevant issue. 90% of the goods are sold in to Hester. And somewhere or the other, between Hester or Texas, the bottom line is anyway taken care of. So I really don't think it's a matter of concern or even a matter for discussion. Talking about Hester Tanzania. We have started putting in more efforts in Tanzania. In fact, we are looking at tying up, collaborating in terms of equity, maybe or looking into other partnerships, which we have always been looking, as I have mentioned to all of you all this time. Hopefully, we should be -- I think in the next -- in a short -- in the next few weeks or something, we would definitely be able to present probably a leap jump that we hope and intend to take in Hester Tanzania and try to grow the business at a very fast pace. There are very aggressive and strong talks that are, at this point of time, going on with many companies within Tanzania itself. On Hester Africa, the export-oriented unit, which is going to be manufacturing African-specific animal disease vaccines, things are a little -- they slowed down a little bit, but now the momentum has again picked up. Everything was to end in May. But unfortunately, the lockdown, they had their internal problems, the political problem, the disease problem. Air Tanzania flights, the direct flights, those were shut. There were no way to -- there wasn't any way to reach Dar es Salaam directly. So things, which could have happened in those months, in May and in -- by end of April and May in terms of validation, commencing the -- each and every equipment, et cetera, we could not do those things, but now things are again easing out. From the middle of this month, again, the flights and everything are going to be resumed with Dar es Salaam. And we hope that on a war footing we should be able to complete everything within a month's time to make sure that we have our inauguration in the month of August, if not earlier. So with this, it completes my presentation and talk on the performance of Hester and its subsidiaries. I think I would like to now open the question-and-answer session. And any finance-related questions, they would be answered by Nikhil. Over to all of you.

[Operator Instructions] The first question is from the line of Ketan Gandhi from Gandhi Securities.

Sir, the registration for CSF, LSD and sheep pox vaccine are for which country, sir?

At the moment, first, any product that we would want to launch, they should be first registered in India and then only we can do the registration in other countries. So we are, at the moment, under registration in India.

Okay. So no plan has been finalized for the other countries?

No. But the moment we get it registered, we should be able to start because all the 3 diseases are prevalent in the African continent. So we should be able to immediately move, mainly towards the African continent. And to tell you, lumpy skin disease, it's -- the disease is currently prevalent. We are selling which vaccine, goat pox? We are -- we already have a vaccine by the name of goat pox, which has the strain, and that strain is also working towards immunizing against -- immunizing cattle against lumpy skin diseases. So in a way, we are already selling the lumpy skin disease, but it is in the name of goat pox vaccine.

Sure, sir. Sir, can you share the technology transfer update on Novapharma for Egypt? And when is the first income likely to be earned from this tie-up?

No, the income has already -- I think we have already gotten 2 or 3 -- we have got already 2 -- twice. There is a staggered payment schedule, which would go over 2 to 3 years, and we have already -- and their project has got a bit delayed because of this COVID and things being closed over there, et cetera. So it is something that is already happening, and it is happening in bits and pieces, and it will continue happening in that manner.

Sure. Sir, regarding the sales team in India, Nepal or Tanzania, are you planning to expand? And if yes, what are the share of percentage incrementally?

Our sales team in India, also, we have taken it up on to increase our sales team as far as India is concerned. And this year, we want to increase our sales team by 40% to 50% within India. In terms of Africa, in most of the countries, we have firmed up a distributor. And at the moment, considering this current situation, COVID and all this situation, what we have decided that we will appoint a distributor, make that distributor exclusive for that country and then slowly embark on putting people over there to create the demand. And while in Tanzania alone, we are in a process of hiring a few people and getting more aggressive in Tanzania at least. I would not be able to give you the exact number of people and all these things because today's -- in today's day, all these things are quite fluid on a country-to-country basis. But we are sure that our sale in Tanzania would go up 3 to 4x in this financial year as compared to what it was last year.

Excellent, sir. Sir, can you share your equity-raising plan, which we have taken the enabling resolution and the center of the project for which you want to raise the equity?

Yes. We have the project in hand, that is the COVID vaccine project. And we have -- we are even looking at 1 or 2 other projects. So we are putting in the whole structure together, and then we would soon come up with a plan and then we would go on it rather than me talk about it while things internally are still being firmed up.

Sure. I have a question for the finance team, sir. In consolidated result, this quarter, we have made an EBIT loss of around INR 1.2 crores in animal health care. While the full year, despite the sales gone down from INR 63 crores to INR 58 crores, EBIT has gone up from INR 12.6 crores to INR 18 crores. I mean why is this? And this is going to be the new normal or it is onetime exceptional?

These are actually onetime exceptional because of Nepal instance, which is there because Nepal is primarily into the animal health care division. So that has resulted into this reduction because of the losses into Nepal division.

Okay. Can you share the likely improvement in working capital for the next 12 months, sir?

So we would be evaluating that based on the new projects coming in and the expansion plan, which we are having. So maybe based on that, we will be evaluating for the further working capital requirements.

Sure. And my last question is, sir, CapEx plan for India, Nepal and Tanzania for FY '22 and '23?

Yes. Rajiv here. The CapEx plan for '22, '23?

Yes, FY '22 and FY '23.

FY '22 and FY '23.

This year and next year, please?

Yes. This year, I think as far as the main -- the expansions are all that are going to happen that will happen in India. While we have already made the CapEx in Nepal and in Tanzania, and we do not think that there would be any additional significant or some inconsequential CapEx that might happen, but which would not have any impact on the balance sheet. So in short, nothing in Nepal, nothing in Tanzania, everything in India.

So sir, can you quantify that, India?

No. As I told you, we are working on it, and we will come back to you.

The next question is from the line of Ravi Naredi from Naredi Investment.

It is a fantastic result indeed. Sir, say something more about MoU with Bharat Biotech, sir. How much money we will invest and how the project will go?

This project with Bharat Biotech, as I mentioned in my -- while talking earlier before the question-answer, it is to produce the drug substance, not the final finished vaccine, produce the drug substance, supply to Bharat Biotech, which in turn they will use and manufacture the final vaccine. So that is what we hope to do. And we -- in this endeavor, we hope to invest approximately 4-0, INR 40 crore, towards setting up this plant towards doing this. And while these details are yet -- I mean all this is just firming up and probably everything should firm up in the next few weeks. I would be more clear and I would be able to present more details. And in any case, as and when things are happening with Bharat Biotech, I've always been presenting, and I have always been making the announcement, which also we would do as we progress.

Yes, sir. You are, by the way, investor-friendly and you give all the information to us. That is a fine thing. Give some guidance for current year growth in top line and margins, sir, and CapEx plan -- whole CapEx plan of the company.

Yes. So let's look at the animal health business. Let me not give any forecast for the COVID vaccine that we put -- keeping that aside. Whatever happens in that, it would only add to the top line and bottom line. As far as animal health and poultry health business is concerned, I am reasonably confident to grow the business more than what it has grown last year in terms of percentage. Last year, it grew at 23%. We are hoping that this year, we will grow at approximately 25% to 30%. That's something which we are reasonably confident. As far as the bottom line is concerned, it has always been our endeavor to try to improve the bottom line. And the least that we can -- the least that you can expect is that our bottom line would be maintained at least if at good, if not anything better. Be rest assured on that.

Okay. And CapEx plan, sir, for whole year?

CapEx plan, we are all working on it. We are even looking at some additional expansion plans, et cetera. So everything we will put into together and make one common thing and then I would like to address that issue rather than address it in bits and pieces at this point of time.

Okay. Okay. So we are mainly in animal drugs, and we are going for Bharat Biotech, this vaccines substance. So how these changes we will manage in future?

A good question. Point number one, nothing that we are producing right now will be impacted or will be reduced to accommodate any activity that we are doing. What we are doing, we are embarking on with Bharat Biotech. And to answer you, you might find my answer a bit evasive. This definitely makes all of us, our eyes and ears open to look at newer, bigger diversification plans, if at all they would come into the future. So I think when we are more or less ready, we think we will come back to you on this. And you see -- please keep in mind that 7-0, 70%, of our revenues are in vaccines. Our ability to produce vaccine is reasonably high.

The next question is from the line of Kuntal Shah from Oaklane Capital.

When I just see the financials, we have invested INR 40 crores in CapEx in 2021, INR 73 crores in 2020, and we are planning to invest another INR 40 crores in Bharat Biotech venture. So roughly around INR 150 crores of CapEx in last 2.5 years, of which the sales has not yet kicked in. Typically, our average asset turnover ratio has moved up from 0.5% to -- I mean, 0.5 to 0.7. With the changing product mix, do you expect the same asset turnover? You've been qualifying on the margin front that you are reshuffling your portfolio to get better margins. But what about the asset turnover...

One minute, I just want to interrupt. You mentioned that in the year FY '20, we invested INR 84 crores, right?

INR 73 crores.

Sorry?

INR 73 crore in 2020; INR 40.7 crore in 2021; and in 2022, you have earmarked INR 40 crores for Bharat Biotech outlay, right?

INR 40 crore Bharat Biotech and the -- that is fine.

Cash flow statement is showing...

That is in the consolidated you are looking at, right?

I'm looking at consolidated numbers.

Okay. Because I was wondering that there is nothing in Hester that we have put so much money. So yes, so now -- sorry, my whole focus got onto those figures, and I was not able to understand. So now having the figures in front of me, can you repeat the question?

Yes. So given this kind of capital outlay, given in part that our asset turnover has improved from 0.5 to 0.71, does this changing product mix impact the asset turns? What kind of asset turns we can expect?

Yes, so I'll tell you one thing. I think what your question is a very valid point. Asset to sales turnover, it is one of our objectives to continuously improve that ratio, asset to sales. And systematically, we will push it to a much higher level than what it is at this time. Product mix is also that we are now trying to see. Whether it is vaccine, whether it is health products, be rest assured, there would not be a single project, which would again dampen the -- this ratio. Now by the time the building up of business happens again in Nepal or in Africa, so do not take that as a very short-term way of looking at it. In the long run, our asset ratio would definitely improve substantially. And it is our commitment to do that.

Sir, how much of that is contingent on tender business? And how much of that is contingent on the...

Well, in Nepal, it is contingent on, you can say, 70% -- 65% to 70% on Nepal. In India, our tender business may be hardly 5 to -- I mean, it doesn't even qualified in double -- it doesn't even qualify in double digits as far as tender is concerned. In Africa also, we are looking more at the private market because the rates are very good in the private market, and we have yet to look into -- there are so many countries who have already told us that if you come out with the vaccine, we would want to buy, we would want to buy. Whether they tender it, whether the private companies start selling it over there, this is the first time things are going to be happening in Africa. So to give you a forecast on all this would be difficult. But tender business would not be a thing on which we would be dependent on for sure. We will create our marketing and distribution network to sell.

Sir, are you trying to tell us that in Africa, capacity utilization ramp-up will be far faster given there's a latent demand and...

Definitely, it will be far faster. Yes, you have understood it right.

And sir, in Hester Nepal, since the times of our investment with our partners out there, the asset turn ratio has been pretty subdued for one reason or other. And as you said, it's dependent on the tender market. So can you guide us on what is the issues involved in FAO tenders and where we can see some? Because -- is there a funding issue? Or is there a mobilization issue? Or what are the impediments in the FAO business out there?

I think the issue is at a macro level, United Nations Food and Agriculture Organization. So besides what we get, sketchy information, I would not be able to get more details on the whole financing pattern of United Nations and on the FAO. But what we have been continuously told by FAO in regular meetings, "Please be ready for more supplies. Please be ready for more supplies." So this is what they have been continuously telling us. And we believe them. If not now, at some point of time in the very near future, this thing has to happen. The world -- I mean, the United Nations, each country, they have all passed resolutions to eradicate PPR disease in sheep and goats. Now it has to happen. That is all that I can say at this point of time. I mean there are documents which prove that it is going to happen. [Foreign Language] I mean, it will happen.

Sir, okay. And then sir, any plan for a larger-ticket M&A in near future, couple of years or something you had?

Sorry. Sorry.

Any plans for larger-ticket mergers or acquisitions, inorganic growth, any plans? Because you have indicated a fairly large equity raise also. That's why. If you could just...

Yes. See, I'll tell you, a greenfield project is always something which I personally am more convinced about rather than an acquisition. But having said that, in Africa, we could acquire or collaborate with distribution companies, not with any production companies. So what we would acquire or what we could work with are companies that are into marketing and distribution. So even if there is an acquisition cost, it is not like acquiring assets, et cetera.

The next question is from the line of Vibha Batra from FairConnect.

My question is, again, on -- you have a large capital work in progress and not on the stand-alone but on consolidated balance sheet. So if you can give a broad time line on when will this whole capacity will come into production? And also how would that impact the interest and depreciation for next year? That is one question. And second is that you gave a -- this thing on -- outlook on top line and also on bottom line will be maintained. So just want to understand more if your top line is going to increase by 25% to 30%, are you expecting your margins to decline? And also there was an exceptional item this year. Are you talking about bottom line adjusted for that?

Yes. Ma'am, I'll answer your second question first, and then we will go on to the first one. As you increase the business and that too on the animal health products side rather than the vaccine side, it is our endeavor not to reduce the gross margins and look at products which do not make us reduce. But if you want to get into extremely higher turnover, higher turnovers, et cetera, while there could be a marginal drop on the gross margin, but the bottom margins will still improve because ultimately, the whole distribution, the infrastructure that is used is all going to be common, whether it is a vaccine or a health product. So I mean we have all the justifications to ensure that the bottom line is not impacted at any point of time.

Okay. But in absolute value, if your top line is increasing by 25% to 30%, shouldn't bottom line also increase? I mean you said it would be maintained.

Ma'am, you see it is -- at some point of time, you -- at some time, you look at absolute figures. At some time, we look at percentages. So it all depends upon...

No, I'm talking about absolute, absolute...

Yes. So on -- and so I mean, this is all subjective. I mean -- and I mean, at some point of time, either could be good or either could be bad.

Okay. But I -- so I haven't really understood. You're saying in percentage terms if you will maintain? Therefore, it...

Yes. I'm saying, ma'am, in percentage terms, we will maintain it. And we will take it further for sure. What is your expectation, ma'am? Or what is your question? I'm not actually -- what is it that -- is there an apprehension or is there that is...

None.

I mean I -- can you explain?

Yes, yes. So no, there is no apprehension. Just want to understand if the top line is going to increase by 25% to 30%. In your OpEx, there will be some variable expenses and some fixed expenses.

Yes.

So obviously, when you are increasing your top line, one can expect that your variable expenses, as a percentage, would either increase or decrease in the proportion that your raw material costs are changing, broadly speaking, and inflation-related adjustments. But as far as fixed expenses are concerned, they would not change. They would not increase, hopefully, by 25% to 30%, barring the CWIP. When it comes into production, obviously your interest and depreciation will go up. So I want to understand it at operating margin level.

Yes. Ma'am...

If you're -- and also on interest and depreciation so that I can make a sense on how your PAT in absolute value go up or come down.

I'll tell you, ma'am. I'll tell you. The issue is that when -- see, this whole thing is fixed costs, yes, but they don't remain fixed continuously. If we hire more people, that is going to be in the fixed cost. Variable cost is the raw material cost, et cetera, right? So there is bound to be an increase in the fixed cost. While at the same time, there will be an increase in the variable cost. The increase in the variable cost will be higher than the increase in the fixed cost. So all -- now it depends upon the margin of the product and sometimes we might even go aggressively on one product where we might want to sell on less margin. So all this would -- there would be a movement plus/minus somewhere or the other. But be rest assured that it is our determined effort to keep the percentages the same or go better.

Okay. So EBITDA margins, let's say, will it be maintained at Q4 levels, 32.62% on stand-alone? Or it is FY '21 that one should be looking at, 34.53%?

Yes, ma'am. So what has happened is maybe from -- see, this is primarily coming out from the Africa, which will start from September onwards. And Africa...

Okay. No, I'm talking about stand-alone EBITDA margins.

Yes.

They have -- sorry. Keep -- go ahead.

Stand-alone also, see, there are different margin levels or EBITDA levels as regards to poultry and as regards to animal health care. So those increase and all the margins overall at the -- it will get in line with those margins in the poultry or the health care segment. So overall, you need to look it from that perspective, along with an overall increase in the absolute terms happening. But yes, in case you say, animal health care we have to increase, it may have a lower run.

Ma'am, I'd like to answer your question in one sentence. Take FY '21 as the baseline for your EBITDA. Does that answer everything to you, ma'am?

Yes, yes, yes. And why did the margins decline in Q4? I mean I -- why were they lower? Because of the mix? Or there were some other...

See, these product mix is a constant thing that we are into. There could be some disease problem. There could be some other issue. There could be so many things, which sometimes make us sell or sometimes make us not sell. Sometimes they make us -- the market forces us to sell products which are of less margins. And then to keep the goodwill, we try to sell more of that in order to make sure that the customer base continues and then we cover it up into the next quarter. So all this is a strategy, and it happens on a quarter-to-quarter basis. But looking into the overall -- I mean there is always going to be a little bit of a plus/minus and a variation, ma'am. You could be rest assured that there will always be some variation.

Okay. Sure, sure. And any sense on interest and depreciation at consolidated level for FY '22?

Interest and depreciation. I'll just tell our CFO.

Ma'am, can you please repeat this question?

What would be -- at consol level, at consolidated level, what would be your interest, likely interest, assume the current interest rates and the borrowings that you have projected and depreciation that you will take in P&L? Because some of your CWIP, when it comes into operations, you won't be capitalizing interest. So what would be your interest and depreciation on P&L?

So what will happen is some of it will come from the -- I mean the Tanzania CapEx comes in and then this will get increased. Otherwise, it will remain constant with the current year. We have a lot of current maturity of the term loans which have been there, which are getting repaid. So from that perspective, it will reduce, but then we have our plans of getting new loans and all, which may increase it out in the subsequent period. That's something which will come up as the plan increases or how we make the funds raise at the QIP or the borrowings. Based on that, we will evaluate.

And when will Tanzania plan come into -- plant come into operation? Second half?

September.

September, okay. And broadly, what is the CWIP there or the gross block that will come into production?

The -- INR 108 crores is the CWIP as on date.

Oh, that's entirely for Tanzania?

Yes, primarily, it is all Tanzania.

The next question is from the line of Manoj Dua from Geometric Securities.

Congratulations, Rajiv bhai, for the good set of numbers.

Thank you.

I have two questions and I am putting them together. What's the status of the Brucella tender which we were expecting? And if it has been there, any sale has been recognized from this tender in Q4? And...

Yes, okay. So Just ask me one question after the other so I answer them because then sometimes I might forget the first question. And okay. So Brucella, the tender was done, and our bid was the second-lowest. We decided not to compete for the lowest bid in this year. We will bid again next year. On the flip side, 50% of that Brucella vaccine, which has already been manufactured in anticipation, we have got international orders at much higher prices. So we are already taken care as far as any financial impact for Brucella is concerned.

Okay. My second question is regarding our Nepal and Tanzania plants. If any opportunity of human vaccine come in these plants, are our plants technically sort of whatever like part manufacturing are complete? Can we seize these opportunities that comes? Can we take it? Or give some color about it.

Your question is -- I mean, these thoughts have always been in our mind. Vaccine production, whether it is human or veterinary, the processes are the same because the virus bacteria, their growth, everything is more or less the same. Of course, in human vaccine, one needs to have much more stringent infrastructure to handle those viruses because the people who themselves are handling should not be susceptible to that virus or bacteria. By making some changes, we could qualify to get into human vaccines in Nepal.

And Tanzania that's -- because of Africa will need a lot of...

We can -- I mean both our plants would qualify. In fact, even the plant over here, if we are willing to give up some -- our veterinary licenses, we could try to do a switchover and then take things -- yes, it would be a long time. But to answer your question in one word, yes.

Okay. Back to the technical side. Do you see any possibility having that or any color you're getting from people that for export side can -- there is a possibility from this area also? Like you got in India for a human vaccine.

You're talking for human vaccines?

Yes, yes.

See, like, for example, we started talks with Bharat Biotech. Sputnik has spoken to so many other companies and even Bharat Biotech has tied up with Indian Immunologicals, which is a veterinary company, to be producing these things. So these opportunities are more seeming to come now than they had ever come before. And that is all that I would want to make a statement, not anything more than that, at this point of time.

The next question is from the line of Mitesh Shah from ICICI Securities.

Congratulations for the good sets of number. Sir, my question is regarding the Bharat Biotech. Basically, in the INR 40 crores you are investing, the clients or the Bharat Biotech are contributing something for that?

No.

Okay. And they have given you any minimum assurance of taking the order?

100%. There is no minimum. What will I do if they don't take -- it is 100%. It is doing a toll manufacturing for them. So there is nothing like even 99%.

And the -- post the COVID, like COVID is -- assuming the finite opportunity for most of the companies, so after the COVID, how would we think about utilizing that plant? We can use for the animal vaccines or we are continuously using for the human vaccines?

We could use that capability. Having created a BSL Class 3 facility, it could be used to handle many other more viruses or bacteria. We would qualify to handle more exotic virus and diseases, bacteria, et cetera. We will take it as it comes. We believe that the opportunities will be very big for us in days to come. Let's presume COVID is over in 2 years' time. I think we should plan in that manner rather than think that COVID will go on forever.

And can you quantify that? What would be -- amidst all -- I believe that it's a MoU signed and this time will tell. But can you quantify that how many vaccines they can produce from your substance? Quantity of the...

You mean to say the number of doses?

Right.

The drug substance, we are planning to have anything between 50 lakhs to 1.5 crore doses a month.

Okay. Got it. That will increase? Or it just...

Sorry?

That will increase going forward?

I don't think we will increase the capacity beyond that at this point of time. We will see how the whole thing moves and then we will take a call.

Okay. And regarding the financials. Can you guide something about your gross margins? How would we see the gross margin going forward? Because continuously volatile and difficult to...

No, no. I'll tell you it is not volatile. The word volatile, it gives impression that as in it is like fluctuating between...

No, no.

Zero to 100. It's a few...

There's no doubt about that. It's not a right word, I understand, right?

See, 5%, 10% here and there is always going to be there because what is happening is that product mix, poultry, health care might sell more. Animal health care might sell more. Vaccine might sell more. Medicine might sell more. So all this little bit fluctuation here and there is bound to happen. And we are not much concerned or worried about it. And I'm -- more or less, we are sure that we should be able to be within a band as far as the gross profit margins are concerned, for sure.

The next question is from the line of Manish Jain from GormalOne.

Yes. Rajiv, just wanted to understand that you have -- the set of opportunities is consistently rising for you all, for all the efforts that you have put in over the last 15, 20 years. So wanted to understand. You have diagnostic capability as well for animals in a very big way. Do you ever plan to use it for human diagnostic capabilities? That's first question. I have a second one, but I will go one by one.

So well, to tell you that sometimes there are companies who, on the veterinary side, they do buy antigens from us for their veterinary diagnostics, which they manufacture, point number one. Point number two, it has always been in the back of my mind to get into animal diagnostics. At this point of time, there are no very clear direction or thoughts on human diagnostics. What happens is diagnostics could always be an offshoot of the vaccine business because for vaccines, you manufacture antigen. So you manufacture a lot many things, which go as a raw material in the kit. So the kit becomes a byproduct of something that you're already producing. So this is what it is.

And my second question was that, are there opportunities in COVID vaccines for pets such as dogs, cats and things like that, where -- is there a viable opportunity or...

There is an opportunity, and I would want to talk on that at some later point of time when we are in a position to talk on that. You might have heard that a few lions got impacted with COVID in Hyderabad.

Exactly.

Yes. So it is something which we are already internally looking at. Let's see how things progress.

The next question from the line of Anirudh Shetty from Solidarity Investment Managers.

I actually just wanted to understand a little bit more about the exceptional items that we saw in the current year. I believe it's somewhere around INR 5 crores. Can you just throw some color around that?

The exceptional item you're talking about?

That's right.

Yes, just a minute. I'll give it to our CFO.

Yes. So in the exceptional items, there are 2 portions. One is there is a loss on disposal of Patan Farm. That is of INR 3.3 crores. So that farm has been closed, and those assets have been written off. So that is an item which is a one-off and accordingly has been considered as an exceptional item. And second is we have evaluated about the impairmental analysis for the Nepal loans and advances. And considering the reduced turnover over there, we have evaluated and considered that as of now there is a provision required for this interest and loans, which have been given over there. So to that extent, there is an impairment of INR 1.9 crores has been considered. So this is how it has been explained in the results notes also.

If this is lower due to Nepal, is this being done on a like a conservative prudent basis and it's nothing to do with your belief in the company and its long-term potential? Is that how we should look at it?

This surely has no impact in the long term, rather would not have any impact even in the short run. And it's just that today, everybody is impacted, and I think life should change within a year's time. Be rest assured.

And I actually wanted to clarify. You've given us sales of -- aspiration number of 25%, 30% growth in 2022. So this -- I mean, this would be excluding the COVID-related businesses or including that?

Yes, yes, excluding COVID. There is no COVID business. There is no extraordinary business that has been included in it. This is all that what we have been doing and what we can do or what we had done in the past. Everything is additional and everything else is to be added to this.

The next question is from the line of Charulata Gaidhani from Dalal & Broacha.

Yes. My question pertains to the new -- the human vaccine. What is the time line for the drug substance that you are likely to pass the time?

Around 3 months' time, ma'am.

Okay. And this is only drug substance, right, not the entire vaccine?

Sorry?

It is only the drug substance that you will...

It's a drug substance. It has got nothing to do with the finished product.

Okay. But in terms of technicalities, because it is a human health product and you have not been making vaccines for human health, so are there any additional challenges that you foresee?

Yes. Infrastructural challenges are the ones that is taking more time for us to get into this. Therefore, there's a delay and the slowed approach. It's not our ability to produce or not to produce. It is the infrastructure -- the more stringent infrastructure requirement.

Right. So you believe you will be able to start supplies in 3 months?

Ma'am, that is the endeavor at this point of time. It's also a commitment that we have given, but these things are based on many other things that could happen, could not happen. So this is what it is at this point of time.

Okay. Okay. Right. And how much growth do you perceive in poultry vaccines and animal health upon...

Poultry -- yes. Poultry, I think the growth should be approximately around 10% to 15%. And in terms of animal health, approximately 5-0, 50%.

Okay. And do you see an improvement in profitability?

Our profitability, the worst case, we maintain the current profitability.

The next question is from the line of Vibha Batra from FairConnect.

Yes. I just want to understand this Patan Farm. How much is the total value of the farm that we've shown...

Just a minute.

It's -- the total value was 3.2 -- INR 3.3 crores, that was the building over there, so it has been disposed of. And so that is the -- that's the part which has been written back -- written off.

So the entire -- one more thing, so the entire building was written off, then?

It's an immovable asset over there, which has to be scrapped and the vacant plant has to be given back to the owner. So that's how it has been.

Okay. And what was this farm used for? For R&D and all?

Yes. For R&D, ma'am.

Okay. And now you have -- where will all that be done, whatever was done there?

We already have another location, ma'am. Rather, we have 2 other locations.

Okay. And if you can give me some sense on the return on capital employed between poultry and animal health care. Because you are incremental investments are more actually in animal health care...

Ma'am, we can give a total overall, which is already there in the press note.

Yes, yes, it is there.

Yes, so that -- we don't have the breakup. And we don't even look at it that way in the breaking up of all these ROE, ROC, ROI. That is all overall, ma'am.

Okay. But when you do incremental CapEx, do you have some benchmarks on -- like minimum which is the threshold?

Benchmark, ma'am...

See, there are other factors which we need to look at as like what are the growth which we will get in, what are the EBITDA margins coming in from there. So that is how we look at it. But return on equity, frankly speaking, this comes more from the overall employment -- the overall equity which we are putting. So that's how we look at it.

Thank you. That was the last question. I would now like to hand the conference over to the management for closing comments.

So thank you all for being patient, listening to me and the conversation between all the others, the questions, et cetera. I'm sure I would have not been able to answer 100% -- up to your 100% expectation, but the endeavor is always there. And all are always free to send e-mails to us and try to get some more clarification on any information that you would want from us. Do keep in mind that any information requested, whatever is in the public domain, without any hesitation, we would impart with that information and give it to you at any time. To conclude, the animal health business will continue to grow. We are very bullish about it. We are confident of growing at a good percentage on a year-on-year basis, maintaining the top -- the growth on the top line, maintaining the bottom line, the least at what it has been approximately in the last 1 or 2 years. I would not -- I mean, as I said, there could be a little bit of a deviation here and there. But nothing really much for us to be concerned about. In fact, if we get 1 or 2 good opportunities, it could even shoot up specifically if some vaccine business comes our way and that puts it up. But having said that, this is the bare minimum you could expect from us. Continue to have the faith in the whole management of the company, that is on me and my team. We are -- be rest assured that we are working hard towards making sure that the investments made are definitely giving you returns and making -- at least -- I mean, that there is wealth creation. That something is foremost in my mind as well as in the mind of the top management, our leadership team, of course, with high transparency, high moral values, et cetera. So with that, I conclude. Thank you. And we shall meet again in the next quarter. Thank you.

Thank you. On behalf of IIFL Capital Limited, that concludes this conference. Thank you, everyone, for joining us, and you may now disconnect your lines.