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

Ladies and gentlemen, good day, and welcome to Hester Biosciences Limited Q4 FY '24 and FY '24 Financial Results Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abdulkader Puranwala. Sir, thank you and over to you.

On behalf of ICICI Securities, I welcome you all on the Q4 FY '24 Earnings Conference Call of Hester Biosciences. And I thank the Hester Biosciences management team for giving us this opportunity to host this call. Today on this call, we have with us Mr. Rajiv Gandhi, CEO and Managing Director; Ms. Priya Gandhi, Executive Director; Mr. Nikhil Jhanwar, CFO. I will now hand over the call to the Hester management team for their opening remarks. Thank you.

Good afternoon, everyone. This is Priya Gandhi. I'm happy to have you all here for our quarterly update for Q4 FY '24. We released our results some time back, and I hope you all have had a chance to go through it. And here I am to walk you all through our performance for the current period. First and foremost, thankful to announce a significant milestone achievement for Hester Group with our revenue reaching the mark of INR 300 crores, including contributions from our subsidiaries. On a consolidated basis, the revenue went up by 18% on a quarter-on-quarter basis and 14% on a year-on-year basis. On a stand-alone basis, the revenue increased by 20% on a quarter-on-quarter basis and 12% on a year-on-year basis. Now delving into the performance of our division from India as well as providing some forward-looking statements. In our Animal Healthcare division, Q4 FY '24 showed a growth, which was driven by multiple factors. Despite facing challenges stemming from the regulatory changes that led to discontinuation of 2 of our brands, the division has shown a positive trajectory. The health [ care maintenance ] within the division has shown a 12% growth on a quarter-on-quarter basis and an 8% growth on a year-on-year basis, showing our ability to keep the momentum despite facing challenges beyond our control. On the Animal Health Vaccine segment, we have been focused on our commitment to the government of India by our timely and consistent supply of the goat pox and PPR vaccines to support the National Immunization Program. It is important to note that in the large animal health sector, immunization predominantly occurs through tenders, reflecting a [ robust segment ]. We are actively engaged in pursuing these tenders in the nation's interest. Furthermore, we are continuing our efforts in developing vaccines at the time when the government is requiring to meet the needs of the livestock farmers across the country. Moving forward, we also aim to capitalize on the anticipated growth in the dairy sector and expand our presence in the small dominant market this year. We also introduced 3 new specialized products to meet the evolving needs and broaden our portfolio. Moving on to our Poultry Healthcare division. We've achieved a growth of 22% in Q4. This growth trajectory has been consistent throughout the year, driven by industry recovery and our strategic introduction of diverse products meeting market demand. This year, we have put significant emphasis on our technical sales services or the aftersales service to better cater to our customers' needs. This includes robust monitoring of the field performance, covering factors such as vaccine administration, storage management, efficacy valuation through bird testing and data generation. These efforts show our commitment to innovation and responsiveness to market dynamics, positioning us stronger than ever before. In the coming times, we foresee growth opportunities driven by increasing demand for poultry products. Our focus on innovation, including the development of modified versions of some important poultry vaccines, is important in our market position this year. Coming to Petcare division. Although we have encountered a slight sales dip in Q4 compared to the corresponding quarter, our cumulative performance of the financial year shows a healthy growth of about 49% compared to the year before. This year marks our first full operational year with all 4 quarters functioning, providing valuable impacts and learnings to help us strategically plan for the upcoming year. Leveraging these learnings and building on our strength, we are optimistic about the potential for exponential growth in the coming years. Moving ahead, we are in process of introducing new products in therapeutics, supplement and prescription, pet food diet segments, which will further distinguish our offerings in the market. Speaking of the infrastructure at the Hester India plant, regarding the BSL-3 facility which was built earlier to produce COVID drug substance, process of reprocessing it. I'm also pleased to share with you all that we received the final milestone grant payment from BIRAC. And as mentioned, we are currently repurposing this for commercial production of veterinary vaccine. This is aimed at further enhancing our overall manufacturing capacity. In terms of the financial performance, we saw a positive development in Q4. Our gross profit margins have increased, primarily attributed to a strategic shift in product mix. Furthermore, both EBITDA and PAT listed growth, closely aligning with our enhanced sales performance. I'm also pleased to highlight that our cash flow for the current year have shown improvement, marking our positive trajectory. Additionally, we successfully reduced our debt by INR 30 crores, reflecting our commitment to making healthy financial position and prudent management of resources. Now looking at our subsidiaries performance. Hester Nepal has achieved a top line of INR 5.5 crores in quarter 4 and INR 13.5 crores in FY '24. Hester Nepal executed the FAO tender for the PPR vaccine and anticipating this to carry forward this year. Hester Nepal aims to increase the poultry vaccine manufacturing also to cater to the domestic as well as export needs of the Middle and Central Asian countries. This will improve our operational efficiency and also reduce dependency on the India plant. Speaking of Hester Africa, we've commenced our revenue generation in the current financial year, achieving a top line of INR 5.2 crores in the entire financial year. And as we look ahead, Hester Africa is also well prepared to meet the anticipated government orders in the coming financial year, with a timely focus on serving the East and Central African market. And to support this endeavor, we are actively establishing a robust marketing network in this region. Further to this, our strategic focus remains on strengthening our presence in African veterinary sphere. So this trend comes from vaccines tailored to address the African-centric animal diseases. We have submitted dossiers of 2 other products important in Africa called CCPP and sheep and goat pox. Through these efforts, we aim to contribute significantly to the socioeconomic needs of the continent. In conclusion, [ our performance ] provides valuable insights and clarity, driving our strategic focus moving forward. We are dedicated towards navigating challenges with meticulous attention to detail and implementing robust, long strategies to ensure sustained growth and success in the company. And with this, I thank you all for your support, and we now look forward to your questions.

[Operator Instructions] The first question is from the line of Viraj Mehta from Enigma.

Sir, my first question is, if you look at the poultry business in India, last few months has seen a significant uptick in poultry prices. Do you see now farmers spending more money towards vaccination of poultry? And sir, in the core business, what kind of uptick do you see in India?

This is Rajiv. I'll take the question. The poultry industry is now definitely on an upswing. And this upswing moved towards more signs in a progressive way of poultry farming. And yes, there is going to be an improvement on their pickup for vaccines, et cetera. And I'm sure this is now going to continue, for sure.

Okay. Okay. And sir, my second question is regarding the utilization of the Nepal plant. Can you put through some light where are we on Nepal?

On Nepal, we have done a reasonable good turnover. Our debt has gone down. More or less, it's a very small debt. In fact, we have already started paying income tax over there. This is the first time. So that shows a sign of progress. We did a turnover of INR 13 crores. Now we still -- even at this rate, we still have more than double the capacity -- 3x rather, we can do that turnover in our Nepal plant from where we are. So we seem to be in position as far as Nepal is concerned, for sure. INR 13 crores turnover can increase it by a little more than in time. And as I told you, we have started paying income tax, which in itself is a progress.

The next question is from the line of Ankit Kanodia from Smart Sync Services.

Sir, my first question is related to the poultry business. So just wanted to understand the poultry business right now. I mean prior to this quarter, we had a long period when this region is not doing well. So do we see this as a one-off quarter? Or do we see a structural change in the cycle? And if you can give more color as to what gives us confidence that this is a structural upturn in the industry, that would be very helpful sir.

I just answered this in the earlier question that the poultry industry is now looking at an upswing. And I'm very sure that things will remain upbeat, upswing. And it should take -- and I think it's a positive way to take it -- it's going to take it further. Do you want to take on that?

It is cyclic. And we can't really predict for the industry to not see this little bit of a dip going forward. But I think it had some role to play in the way people were looking at poultry and how the whole industry got impacted. But we definitely see it picking up again.

So my question actually was basically more on what gives us the confidence as in any data point or any products that you can put on that. This gives you the confidence that it is an option. That is what my question was.

So if we had understood your question right, it is you're looking on parameters, which give an indication whether the poultry industry is now going up further, et cetera, or you're talking about our product?

You got my question, right, sir. Regarding the poultry industry only, what parameters do you see which gives you confidence?

Yes, you are asking on the parameters of the poultry industry, right?

Yes, correct.

Okay. So the poultry is affected by feed prices. Right now, the ingredients prices are even okay. The demand for overall poultry is okay, as our economy is doing good. Disease incidences are less at this point of time, plus the government of India has also allowed the production of the Avian influenza vaccine, which will be launched not only by us, by other companies as well in the next 3 to 8 months. So all these are reasonable good indicators that the poultry industry is headed in itself for a good upward trend growth.

That was very helpful. Sir, my next question is related to the Tanzania plant. So we all know how much time we have taken and how much efforts we are putting over the years in making it reach to a level of commercial production. But still, the volumes -- so my understanding is very, very miniscule right now. So any color as to how we can see that shape up in FY '25, FY '26? Any qualitative and quantitative guidance you'd like to give?

Yes. The Tanzania plant as what we are saying, we bid this with a very big expectation. I don't just say that we did of optimism. There's a lot of confidence, which also means that while hoping for the best, we have always been prepared for the bad time. Incidentally, we have been going through the bad times. And those reasons are beyond our control, war, COVID, dollar issues with all the countries that would need to purchase vaccines. So now this is also getting [ the entire country ], getting overall holdings and are progressing further. Slowly, we have reasons to believe things will settle and country will start high. In fact, there were already tenders, which we had won the tenders, but because of the foreign exchange crisis, we have not been able to supply. So it's not that nobody wants supplies. It's just that their ability to purchase is being impacted of all macro reasons. And Tanzania, as a country in itself is looking at getting into animal disease immunization programs. We all are working at the same time. We have also invested reasonably well to address the private sector by creating a strong decision network. So all these activities are happening, and we are taking small steps, and we are sure that we'll see a good progress in a short time to come. Now again, I don't have the definition of the word short time, but we are definitely building a good distribution network, which -- wherein we don't even depend on the government buying, where the distributors buy from us and supply directly to the poultry farmers, cattle farmers. We, ourselves, there are many NGOs. We work with GALVmed. We worked with Bill & Melinda Gates Foundation. All are trying to push and be of one voice that the government giving a free vaccine and the government not being able to give a free vaccine does not mean that you don't vaccinate. It's in the interest of the poultry farmer, the cattle farmer to, in any case, vaccinate. So these are activities that are being embarked on not only in Tanzania but in other African countries. I see all this not to just give a rosy picture but to definitely tell you that there is work that is being done. Countries are even coming back to normal, or even if not normal, they will have to spend on immunization programs and definitely see business coming in, in the next few months.

One last question, if I may. Sir, in the past, what we have seen during the up cycle of poultry farming, poultry segment, what we do is that our gross margin moves us competitively between 80% to 90%. And then when the poultry segment is not doing well, it comes down to around 60% to 70%. Now given that we assume that the poultry sector should do well from the current quarter onwards, do we expect the margin to further go up? Or because of our more contribution coming from health products incrementally, we see less scope of gross margins going up?

Yes, Priya here. So with respect to the margin, I think you all are aware about the fact that we started as a poultry vaccine manufacturing company. And even if you see our product portfolio within the poultry vaccine segment, we pretty much have all the vaccines to cater to the diseases that go around in -- within the country. And if you compare any multinational company [indiscernible], they have a very, very big health product segment in their operations. And that is something we are striving to achieve because along with our vaccine, we want to complement the product portfolio and introduce the supplement biosecurity products and all these other health care products. So to answer your question, I think, yes, the margin will sort of shift depending on the product mix, but in the coming years, we definitely want to also focus on health care.

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

I wanted to understand the dairy sector in India, where we have seen government and private sector lending to the dairy sector rising. And lenders have been insisting on insurance of cattle. And insurers have been insisting on vaccination of cattle. Now how are you targeting to address demand coming in from this lending combined with insurance? And this will require significant increase in your distribution, making the last mile availability.

Yes, Manish, Rajiv here. The whole issue is now making the whole dairy industry more robust in the country. And these are always to make it more robust. One thing is -- the biggest current situation is that the fragmentation and the fragmented industry that it is where in dairy farmer, the average population with each dairy farmer is very, very small compared to any other country where -- which are milk producing. Now lending is coming in. This is leading to a little bit of a consolidation, which again is linked to insurance and vaccination. We had a meeting with an insurance company, which aim to meet us to even talk about all the things so that how do they take it or how does the cattle farmer gets the vaccine, et cetera. It is something which is an organic thing, which is happening right now. It is an evolution. While it's good it is happening, but it is going at a little slow pace as the area to be covered, the dairy farmers to be covered, it's very, very huge. Having said that, there is progress, and we are even meeting with all the stakeholders. And we are even working with them, identifying distributors, giving their names, connect distributors with the local people who were their insurance agents, sometimes even go to our distribution centers, et cetera. As I said, this is all evolving at the moment.

Okay. And the second thing is we have applied for a formal approval for lumpy skin vaccine. We have -- when will that come through?

On lumpy skin disease, we have acquired the technology from the government of India, IVRI. And we are in the process of developing the lumpy skin disease. This year, the government is going to be using the goat pox vaccine to immunize cattle against lumpy skin disease as the goat pox vaccine has given very good immunity and will continue to give immunity, not only India, that's common all over the world. Our developmental activity hopefully next year around this time, when the government starts again buying the vaccine, we should be ready before that for the dedicated lumpy skin disease vaccine. To put on record, in Africa, we have -- lumpy skin disease is, I think, already commercialized, which is already being sold, and we have supplied to 3 or 4 countries.

Perfect. Now if you can just give an update on the global PPR eradication program.

The global -- the PPR eradication program, as you know, has been spearheaded by United Nations Food and Agriculture Organization. And they in turn depend upon funding from countries, which slowly is now improving what it was in the last 2 to 3 years. And while there are no indications given to us or to any other manufacturer, to put on record every year, there are 1 or 2 meetings that are conducted. Another meeting is coming up in September. And they are always hoping that we are ready to supply when the orders come in big quantities, et cetera. We are as much hopeful as what we can be towards this situation. I do not have any financial data to give you -- give you on this. Neither do I have any information either known to me personally or in public domain towards the progress of FAO on this.

And my last question is on poultry sector. Given that we have seen increasing heat stress, climate led variants, does that lead to more controlled poultry farming, which further increases opportunity segment for vaccination, biosecurity and other health care products from a trend perspective?

Controlled housing has always been in vogue all over the world. In India, it's also now the big people have controlled farming. And yes, controlled farming would lead to a more scientific farming because we are using more chicken in a smaller area, giving them the right environment in terms of temperature, in terms of everything, biosecurity, et cetera. So growth promoters are making sure they remain healthy because the risk in such cases, if [ disease sets in ], it could catch more among the birds as they are more closely in those houses, yes. The more countries get into environment, the opportunities for companies like us increase.

Excellent. I actually have 3 more questions. I'll join back the queue.

Next question is from the line of Madhur Rathi from Counter Cyclical Investment.

Sir, I wanted to understand that our African subsidiary made an INR 18 crore loss last year. So in this present financial year, sir, in your best estimate, sir, what kind of losses, if at all, are you expecting from the subsidiary?

If there are any figures related to that, Nikhil, you can talk, but let me give a subjective cohort. The Africa plant or any plant which is -- whether it is built by us or anybody, it's never with the thought that -- to build up on such [indiscernible] anything. We have been working hard. The macro environment has pushed towards this. We are hopeful that the situation will change. It could change within 1 month. It could change within 6 months. It could take 8 months to scale. Be rest assured, this is not a permanent situation. All this is going to improve in -- within less than a year and there is....

Sorry to interrupt you, sir. Your voice is breaking, I'll reconnect you. Ladies and gentlemen, thank you for patiently holding. We have the management back on the call.

I was answering a question on the loss in Hester Africa. Shall I continue to answer that question?

Yes, sir. We have Madhur Rathi.

So we did incur a loss. Nikhil will definitely enlighten you on the breakup of the loss, how it has come. This situation -- I mean, it's -- we have chosen a territory where there is nobody, where there is instability. And at this time, there is opportunity. Once this thing starts rolling, it will itself grow and take it further. We are reasonably hopeful that in this year, we should be back on track. If you ask me the exact time, I would not be able to give you answer. But definitely, in this, we feel that we would able to take things forward as per plan. Now it's Nikhil, who will just enlighten you on the loss that took place.

So sir, if you see, there has been a net loss of INR 18 crores for the year. But if you look at the EBITDA numbers, so we are positive almost INR 1.5 crores EBITDA positive. The loss is also coming out mainly from the depreciation of INR 6 crores. And there is a foreign exchange loss, which has happened in the current year because the Tanzania shilling has depreciated very -- by a big number, which almost impacted INR 9 crore of unrealized loss, and this is not yet to be paid to the loan -- along the loan.

[Operator Instructions] The next question is from the line of [ Shyam Garg ] from [ Ladder Financial Limited ].

Congratulations on a good set of number. Sir, my first question pertains to what will be our expected revenue growth in terms of volume and value for the next financial year and financial year post that.

It's like we are working hard towards it. there was a lean period. We are now again on an upswing. we are here to ensure that top line improves and bottom line improves. We are working extremely hard, and we have reasons to believe in either case, we will be better off in this financial year than what we were last year or last to last year. This is what I tell you at this point of time. With whatever getting forecasting, we would have done internally at this point. Once bitten, twice shy. We have gone through bad times. We would not really want to discuss on these in terms of number, but it sure is upwards only.

So my second question is with respect to debt. How much debt we are planning to pay off this year?

So we have around INR 25 crores to INR 30 crores of debt will get paid on an annual basis.

Sorry, sir. Can you please repeat?

INR 25 crores to INR 30 crores on an annual basis.

The next follow-up question is from the line of Madhur Rathi from Counter Cyclical Investments.

Sir, I'm trying to understand that on a consolidated basis, our animal health division is doing between INR 31 crores and INR 34 crores revenue in the past 4 quarters. But if we see the profitability, it is fluctuating widely. In the first quarter on INR 31 crore revenue, we did INR 2 crore PBIT, whereas this quarter on INR 34 crores, we have done INR 12.3 crores PBIT. So is this a one-off? Or sir, should we expect the same kind of quarterly profitability to continue going forward?

So this quarter, we have progressed in our animal vaccine because really, as mentioned, in the tender, in the immunization program for the government of India this quarter, I think, has been the best quarter in terms of supplying for the tender. So yes, in terms of the profit, since the margins in the vaccines are better, this is what it has shown. With that said, in the coming quarters, like we just mentioned in the previous question, that right now, we want to focus on the bottom line as well as the top line. So we are looking at easing the volume even though we are looking at a high level budget. But at the same time, with the increase in top line, we will be able to see a stable bottom line.

And also, if you could just indicate that for FY '25, what kind of revenue growth and margins are you expecting in our all 3 divisions?

I just answered that in the earlier question. We are working towards it, not that we want to or anything. We will take it as it comes. We have now back onto an upswing and we will take it.

Animal health care industry itself grows at a rate of 8% to 9%. We have grown at a 12% stand-alone basis. So I think -- I mean, this is the yardstick which is there, and now we either maintain it or get better. These are the only 2 options.

And sir, lastly, I wanted to understand that in the past 2 years, we have received around INR 50 crores cumulatively from government grant. So going forward also, is there any unpaid portion of government grant that is left? Or we have got whatever we had to get?

We have got everything, whatever we had to get to build the BSL-3 facility. No grant is pending to be received by us by government of India. And I think that's about it.

The next follow-up question is from the line of Manish Jain from GormalOne LLP.

Yes, I just had 2 housekeeping questions. We have INR 168 crores of capital WIP. When is that likely to be commercialized? And which facility is this?

So this primarily pertains 2 items. One is our BSL-3 facility and second is the fill finish line. So that gives you the breakup. The BSL-3 facility, we have asked for purposing it from COVID to other vaccine. We will get permission shortly. We're already working, trying to get into other animal vaccines. And so that will be online, and the finish is near to complete, and that should go onstream in the next 2 months' time.

Perfect. And when I look at -- this is for both poultry and large animal vaccines, where Russia and other EU countries due to the changed geopolitical situation, is there any opportunity or inquiries, which are coming in to Hester based on that?

Russia, no. We have not had any inquiries from Russia. In fact, let me tell you, Russia as a country is reasonably self-sufficient in most of all these things, very old R&D institutes, et cetera. So there aren't any such inquiries that really have been coming to us for any of the vaccines. Not a single vaccine inquiry. I don't think any other Indian company manufacturing animal vaccines is also in line for supplies to Russia at this point in time. And secondly, the strains also. I'll give you an example. They produce PPR vaccine. They are self-sufficient PPR vaccine, but their strain being different, they are not offering it in the tenders, et cetera.

Perfect. And once again, congratulations to the entire team for actually bringing about a significant, dramatic improvement in your profitability and keeping that to the base and trying to improvise further on it.

No. So no, no, thank you for your good wishes. Because all mean well for us, and that's why the question is to understand us better and the company.

Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments.

Thank you, everyone, for joining and hearing us out. We hope we have answered your questions. If not, we are also available on call. I think Nikhil is more in touch with everybody. We are always happy to answer questions. As mentioned in the beginning of my talk, we are definitely on a stone of reaching INR 300 crores of company size, which has been encouraging. This year, [indiscernible] still in that transition phase. This year has given us a lot of valuable insight, clarity on our strength, on which we focus strategically on way ahead and to be done. And yes, we are committed to this -- to the animal health care industry as well as all our stakeholders. So thank you all.

Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.

Thank you.