Indoco Remedies Limited (INDOCO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Indoco Remedies Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Rashmi Shetty from Dolat Capital Markets Limited. Thank you. And over to you.

Thank you, Atharva, and good afternoon, everyone. I, Rashmi Shetty, on behalf of Dolat Capital, welcome you to the Q1 FY '27 Earnings Call of Indoco Remedies. We thank the Indoco Remedies' management for giving us this opportunity to host the call. Today, we have with us the senior management of the company represented by Ms. Aditi Panandikar, MD; Sundeep Bambolkar, Joint MD; and Mr. Pramod Ghorpade, CFO. I will now hand over the call to the management for the opening remarks. Over to you, sir.

Thank you, Rashmi. Good afternoon, everyone. Thank you all for joining this call today. Let me draw your attention to the fact that on this call, our discussion will include certain forward-looking statements, which are projections or estimates about our future events. These estimates reflect the management's current expectation of the future performance of the company. Please note that these estimates involve several risks and uncertainties that could cause our actual results to differ materially from what is expressed or implied. Indoco does not undertake any obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Thank you. Now, I will hand over this mic to Ms. Aditi Panandikar for her opening comments. Thank you.

Thank you, Pramod. Good afternoon, everyone, and a very warm welcome to our Q1 FY '27 earnings call. I will commence with perspectives on our performance during the first quarter of financial year '27. Despite operating in a very dynamic market environment, Indoco has maintained its growth trajectory and focus on strategic execution. During Q1 FY '27, our stand-alone operational revenue grew by 5.8% year-on-year to INR 4,081 million, with consolidated revenue reaching INR 4,662 million, up by 8.2% year-on-year. Stand-alone EBITDA saw expansion to INR 422 million, delivering an EBITDA margin of 10.3%. This steady performance highlights our operating momentum backed by strong execution across our core domestic formulations franchise, regulated international markets and our vertically integrated API platform. On the regulatory approval side, I'm pleased to share that our Baddi Unit I successfully completed Malta Medicines Authority audit, while our Baddi Unit III facility received EU-GMP certification from the German Health Authority, Berlin. Adding to this, our Goa plant I successfully cleared the Malta Medicines Authority audit. The facility has EU-GMP certification from the authority, confirming that it complies with the good manufacturing practice requirements as referred in the EC Directive. I'm happy to share that Indoco Stability Center, IAS, at Chhatrapati Sambhajinagar or Aurangabad successfully completed a pre-approval inspection by the U.S. FDA with 0 observation. Moving to our domestic operations. Our domestic formulations business recorded revenues of INR 2,040 million in quarter 1 FY '27. As per the IQVIA MAT June '26 data, Indoco continues to maintain a solid position in the Indian pharma market at the 33rd rank while maintaining an impressive 20th rank MAT May '26 in prescription volume. The strong doctor connect is driven by a field force that reaches over 242,000 prescribing doctors across various specialties. Through an emphasis on building and scaling high-margin brands as per IQVIA MAT June '26, our top 5 flagship brands now contribute 42% to our total domestic portfolio. Cyclopam continues its trajectory as a major growth champion, achieving 44% absolute growth since 2022 to now reach INR 196 crores on the verge of becoming a landmark INR 200 crores mega brand. Following the post-COVID market realignments, acute products like Febrex Plus, have now stabilized and rebound to a turnover of INR 118 crores. Midsized brands are emerging as primary growth drivers for our domestic business. Our focused portfolio, including SM Fibro, Rexidin M, Oxipod CV and Dropizin recorded an aggregate growth of 86%, with Dropizin delivering a 3x breakout to reach INR 14 crores. Furthermore, Indoco has established multi-brand market leadership in targeted subsegments, posting 4 distinct brands in the top 20 of the stomatological market. It is worthwhile to mention that the divestment of the Ophthalmic Division in India and agreed territories in Africa is an important step in sharpening our focus on core therapeutic areas with stronger potential. Now, turning to our international operations. International formulations contributed 35% of the quarter 1 FY '27 revenue at INR 1,451 million, while our active pharmaceuticals business delivered a stellar performance this quarter, surging to 42% Y-o-Y and a turnover of INR 522 million. With consistent growth, this platform provides crucial backward integration for our formulations pipeline, ensuring both cost competitiveness and supply chain security. Looking ahead, I'm confident in our ability to sustain profitable growth across all core businesses. In India, our priorities are scaling midsized brands into mega brands, deepening specialty prescription share and expanding our chronic footprint. Internationally, we will leverage our integrated R&D, CRO and API capabilities to accelerate high-value filings in complex ophthalmics, injectables and oral solids. Grounding these ambitions is our relentless commitment to cost optimization, operational excellence and long-term shareholder value. Thank you. I will now hand over to Mr. Sundeep, who will present the detailed financial highlights.

Good afternoon, all. Thank you, Aditi. Let me first begin with the business highlights. Stand-alone net revenues of the company for the first quarter of FY '26-'27 grew by 5.8% at INR 4,081 million compared to INR 3,856 million for the same quarter last year. Consolidated net revenues of the company for the first quarter are at INR 4,662 million compared to INR 4,309 million for the same quarter and INR 4,559 million for the immediately preceding quarter, that is Q4 FY '26 at 8.2% and 2.3% growth, respectively. Stand-alone EBITDA to net sales for the quarter is 10.3% at INR 422 million compared to 3.8% at INR 148 million for the same quarter last year and for the immediate preceding quarter is 14.7% at INR 630 million. Consolidated EBITDA to net sales for the quarter is 8.8% at INR 410 million compared to 4.1% at INR 175 million. And for the immediately preceding quarter, Q4 FY '26 EBITDA is 10.9% at INR 497 million. Domestic formulation business. Revenues from domestic formulation business for the quarter are at INR 2,040 million as compared to INR 2,028 million for the same quarter last year. Major therapeutic segments like urology, gastrointestinal, vitamins, stomatology and dermatology performed well during the quarter as compared to the same quarter last year. Now on the international formulation business front. Revenues from international formulations grew at 2.8% at INR 1,451 million compared to INR 1,411 million same quarter last year. Revenues from regulated markets for the quarter grew by 19.3% at INR 1,133 million as against INR 950 million. Revenues from the U.S. business for the quarter grew by 62.2% at INR 459 million as against INR 283 million. Revenues from Europe for the quarter grew by 2.5% at INR 650 million against INR 635 million. And revenues from South Africa, Australia and New Zealand are at INR 24 million against INR 32 million. Revenues from emerging markets for the quarter are at INR 317 million as against INR 461 million. Revenues from API business for the quarter grew by 42.4% at INR 521 million as against INR 366 million. Revenues from AnaCipher CRO and Indoco Analytical Solutions for the quarter grew by INR 36.2 million -- sorry, 36.2% at INR 69 million against INR 50 million. That's all about the business highlights for the quarter. And I now request the participants to put forward their questions. Thank you.

[Operator Instructions] The first question comes from the line of Nirmam Mehta from Unique PMS.

Ma'am, my first question is any update from the U.S. FDA about the plant?

No, we've not heard anything yet, but let's keep our fingers crossed, hopefully in the next couple of months.

Okay. Secondly, on our international business, so when we see revenues are largely flat, the U.S. business has grown, but Europe business has not grown and there's a degrowth in the emerging markets. So, are there any concerns? Or do you expect these markets to grow for this year?

Yes. So, I'll start with the emerging business. So as you know, emerging is a branded formulations market. And sometimes for the March quarter end, there is a bit of a push and especially with the war-like situation and there were shortages of products. So, there was a good amount of primary billing in March. But if you look at the March, April in combined, then we are still doing a much better per month sales. But I'm sure this is only a temporary 1 quarter glitch.

Even for the European markets?

Yes. Europe is about roll-in orders. So, probably it is just about -- the timing must have not been able to sort of release products on time, et cetera. I'm sure there is nothing fundamentally wrong.

Okay. And on the domestic business, so Indoco stand-alone business plus the warrant, I think even that business has been flat. So, any comments on both of that?

So if you look at the top 10 large brands of the company, then we have got almost all segments in double-digit positive growth, except 2 products, 2 segments. One is anti-infective and the other is respiratory. And both are very seasonal. And this year, we did not get rains in June. So, there was almost a 1-month pushover. So, I expect that is why on a Q1-to-Q1 basis, you see that drop. If you look at performance on the immediate preceding quarter basis, you will see a good growth because the season has started to come in, but it is not equivalent to what it was last year. So sadly, the wonderful performance by all other brands, whether you look at Cital, Carmicide, Cyclopam. You look at some of the other brands, like I think, even your -- all the dentistry products, have all done very well. It is only Febrex Plus, Karvol Plus and one antibiotic, which are heavily degrown on the primary, that too.

So, what would be the potential for these brands? I mean, at the India business, can we grow double digits here for next 1, 2 years or these are high single-digit growth brands? How do we look at these?

So as the top 10 brands contribute more and more to total turnover, we are much more in control of delivering a more consistent performance. So, you should expect higher single-digit to double-digit growth in India business going forward.

Okay, ma'am. And lastly, on the margins. So while the margins have grown year-on-year, but our gross margins have taken a hit for the quarter. So, do you expect these gross margins....

Gross margins, this quarter, we had an impact of the increase in cost of goods because of the war situation. And a lot of the products, there were shortages even in availability of materials, let alone the increased pricing. So for this particular quarter, you see COGS impacted and almost by 2 percentage points, our cost of goods has gone up. Otherwise, the performance would have been even better.

Okay. So, we expect double-digit margins for the year, EBITDA margins?

That is what we are aiming for.

Sure, ma'am. And lastly, just on the debt and interest cost. So Pramod sir, if you can highlight the debt number and how do we expect the interest cost to pan out for the year?

Yes. So overall debt, we have reduced by almost about INR 30-odd crores as compared to what we used to have in March '26. So, overall debt level remains at around INR 930 crores now as against INR 964 crores as of March '26. So, we have repaid certain term loans. This is both put together, long term and short term put together. While the interest cost, as we discussed last time also, it is in the range of 9% overall, which is quite competitive at this point of time.

[Operator Instructions] The next question comes from the line of Sudarshan Padmanabhan from ASK Wealth.

Yes. Sir, my question is, if I look at the U.S. business, I mean, we have a fair basket of ophthalmic products. I mean, if you look brinzolamide being one and certain other products like [ Afebrex ], et cetera. So if you can give some color with respect to how do we see launches in the U.S. and probably traction in the existing products? And also some color with respect to how do we see pickup in the European market going forward as well?

So European market, as I said already, this was a one-off quarter where there was a dip. But otherwise, we expect very good consistent performance for Europe. And there is a good product basket, very predictable. We supply Europe from our Baddi sites and some also comes from Goa. For U.S., you asked specifically about new launches. So as you know, for the sterile business, our new product approvals are [ pending ] because of the U.S. audit, which is yet to happen. But all the same current products, including brimonidine, dorzolamide, [ dorzol/timo], as well as solid orals like allopurinol, glimipiride, vildagliptin are doing exceedingly well. For the solid orals of the future, of course, we have some products, which will be -- we will be able to launch post-patent expiry in '27. There are some early patent expiries expected in Europe next year. We will talk of them as the time approaches.

Do we have any aspiration for, say, FY '27, FY '28 for European and U.S. business? And specifically with respect to Vigamox, how do we see this product gathering momentum and how big would this product end up being?

So as I said, at this stage, it is better to not say anything about ophthalmics too much. I would wait for the U.S. FDA audit to happen after which we should discuss more concretely numbers.

And with respect to the cash that is coming in primarily post the transaction, one, I mean, what should be the use of it? Because if I look at the domestic business, I mean, as you mentioned, I think the anti-infectives has been a little bit of a joker in the pack, a little bit more volatile than what was expected. So, I mean, would you be primarily looking to repay debt? Or is there a way where you can buy growth in?

So going forward, definitely, the company will look to invest in acquisition of brands possibly for India business. But at this point in our journey, it was more important to repay debt, I think. So, some of this money that is accrued has gone towards that for sure.

Yes. Sure, ma'am. And with respect to -- one is the operating leverage as the scale picks up, I mean probably the last few quarters is clearly not the right representative of the business trends. So, I mean, where do you see the steady state margins going forward in the next 6 months or the next 2 years?

So, you must have noted we are not giving any definite guidances on margins exactly. But if you have looked at the performance of the company over the last 9 quarters, you will agree the last 2 quarters show a very clear upward trend in improvement in performance, okay, although I agree that international business this quarter has given a bit of a dip. But otherwise, consistently across domestic, international, reg and as well as API, you see a very consistent growth. API division, in particular, has done very well. So, we expect margins to keep improving quarter-on-quarter from here on.

Sure, ma'am. One last question before I join the queue is one is, of course, operating leverage, but do you see any areas where we can reduce the costs, improve the efficiency given that we have seen challenges as far as growth is concerned?

Right. So you must have -- you remember, we must have spoken earlier about our Master Manufacturing Plan, whereby we increased efficiency in the plant, increased batch sizes, looked at reorganizing the product mix across various locations, looked at reducing process time, increasing speed of packing, et cetera. All that now structurally is in place. As the orders start flowing in, this will result into requisite numbers. Even for this first quarter, if I have to tell you, if we look at the number, the value of product made first quarter last year and first quarter this year. And if you look at the number of batches taken, we have actually manufactured 26% less batches. So, that definitely will result in efficiency over a period of time. We have also reduced the number of people engaged in operations because due to the high-speed machines, due to automation, we are able to optimize that. And all of this eventually will slowly start showing in the margin. Does that answer your question?

Yes, ma'am.

The next question comes from the line of Kenil Mehta from Boring AMC.

Ma'am, just wanted to know any particular reason why we haven't scaled up our emerging market and European business because over last few quarters, we were very bullish?

Yes. So like I -- yes, Kenil sir, like I answered earlier, emerging business is a branded business. Also to Africa emerging business when it is sold is like booking primaries. I just look quickly at the secondary growth in the emerging business quarter-on-quarter. They're extremely steady, good double-digit growth in secondary demand. So, this kind of fluctuation you see over the March quarter and then the first quarter next year. Of course, there were challenges of product availability because of war issues. There were some challenges related to being able to get the right freight at the right cost. Those things were there, but they have not impacted much. The real impact is that after the very high range because emerging was on 110% to 101% last year. So, you expect a little bit of that and then the first quarter does take an impact. So to that extent, there has been a bit of an impact from emerging, but I don't -- fundamentally, secondaries are doing really well. And I, therefore, expect primaries to rebound immediately as in second quarter. Coming to Europe, again, international business reg did a record-breaking number for the March quarter. And for this quarter, looking at the rolling plans from some of our European customers, it is just 1 quarter where we've not been able to ship a lot and therefore, not booked it. But I don't expect this to be a very big problem. I think as of now, we have in excess of INR 250 crores of orders in hand for execution. So, this is not on account of not having orders. It is probably just the timing of it.

Okay. And this order book is for 3 to 6 months or for 1 year?

So that is the thing. Most of our buyers and partners, we've been in partnership for a very long time. And I think some of my boys when they do their KRAs, work it out, so they push a bit here, push a bit there. What I'm trying to tell you is that the order book position is really very good and fundamentally, there will be good growth, not to worry.

Okay. So the target, which we had set doubling our export business in 2 to 3 years, is it in line?

Yes. We are directly in line for that.

Understood. And does that include all the new products also?

Yes. Definitely.

Okay. And wanted to know the capacity utilization for Baddi plant and MP, both plant and the Goa injectable separately and OSP?

Okay. So, I think Goa plant I right now on a single shift basis is occupied to 80% roughly. 70% to 80%. And Baddi I, which is a smaller capacity, high-value kind of plant is also occupied to the range of 70% to 80% on a single shift that too. Baddi III, which is the large plant which makes paracetamol, again, in the range of 70%, 75%, if I'm not mistaken.

Okay. So, all the incremental as we expand our quarterly exports to INR 200 crores mark will lead to higher efficiency and margin expansion?

Yes, yes. So this is -- this quarter inability to supply has not resulted in the top line. And as you correctly said, as these capacities get further utilized, you will start seeing the efficiency.

Yes. Sure. So going forward, do you think in this financial year, we will see a PAT -- profitability for a quarter going forward in coming quarters?

That's what we are working for.

Understood. And ma'am, can you -- just a suggestion -- can you give the paper burn PPT, [Technical Difficulty] FPP. What is the revenue of FPP and profitability and warrant separately so we can get to know where the hanging fruit is because if FPP is getting profitable during this quarter, then the warrant should also improve the numbers going forward. So, we can get to know the consolidated numbers in a simple manner and where the issue is?

Okay. We'll send this information. We'll send this information.

The next question comes from the line of Kaustav Bubna from Kamana Holdings.

So, I'll try to ask this question in a different way. So even if I look at your FY '26 numbers and I add your interest cost and depreciation, that's around INR 250 crores around, right? The last 2 years, our operating profit of the company has -- is probably half of this number, half of this INR 250 crores number. And obviously, debt has increased, which has increased your finance cost, which is a key trigger to this finance cost increasing in this INR 250 crores number I spoke about. But what I'm trying to understand is moving forward in the next couple of years, could you identify the key triggers, the key possible triggers that take this INR 150 crores, INR 160 crore operating profit towards higher than the finance plus depreciation cost together so as to turn profitable on a PBT perspective?

Yes. So if you look at our business, there are 3 main segments really. One is the India business, which is the most profitable, obviously. Emerging follows very close, almost same levels. So these businesses, there is nothing to worry about how profitable they are or whether they return cash and things like that. So as these businesses grow fast, of course, this will come into operating profits. The international business, especially the one to Europe is now of quite a substantial size. And given the kind of investments we have already made in improving efficiency at the plant, this business on the high number, when profitability of this business improves, it will also come down into operating profit. U.S., on the other hand, is right now in a high-growth phase, meaning it's very small, and we will continue to sell more. And while this U.S. business at a GC level is very profitable, U.S. has its own challenges on working capital cycles, et cetera. But it will add, but it will not dent too much. So as per me, from a scaling of operating profit angle, one should look at India and emerging steadily adding to it and one should expect increased profit coming from Europe.

Okay. And what about your debt levels? I mean, how do we plan to get this down? Do you have any targets?

Yes. I'll let Pramod handle that.

Yes, Kaustav. Our debt level, long-term debt is at currently INR 600 crores. We have another about INR 100 crores plus repayment schedule, which is for this particular year, July to March. And short term is in the range of INR 325 crores. So both put together, we are at around INR 930 crores at this June end. And we are repaying our -- as per our repayment schedule. So, this particular year, as you would have seen, our EBITDA number and probably we'll have better numbers going forward in the next 3 quarters. We'll be able to repay the principal as well as interest component for remaining 3 quarters.

So what -- is it realistic to talk about INR 500 crores long-term plus short-term debt together in a few years or that's too ambitious?

Yes. Certainly, certainly. Our objective is to repay INR 110 crores this year and another INR 150 crores in next year. So, around INR 260 crores, we are going to repay within next about 7 to 18 months.

The next question comes from the line of Pratik Kothari from Unique PMS.

First, ma'am, these excellent numbers on other expense and employee. I mean, after -- I mean, we have been talking about it, but finally, we are seeing it in numbers. This are sustainable? And if you can just highlight what went behind this to get to these numbers.

Yes. So yes, thank you for that. This is something we have been working on for a very long time. As you know, the company employs close to 6,000 people and half of them are in field as sales and good 40% are employed across various manufacturing sites in particular. And here, we have seen maximum efficiency. As I mentioned earlier, 26% less number of batches have been taken to get equivalent or more sales for international business this year. Consequently, we've been able to bring down the number of people engaged in operations by quite a large number. Quite honestly, close to 900 people have been reduced. In addition to that, with the hiving off of the ophthal division, 200 people engaged in that activity, their cost also for 1, 1.5 months this quarter has come down. So, we are consistently looking at bringing down employee costs. We are consistently looking at reducing cost of repairs and maintenance, stores and spares. There is a very deep planning involved in operational efficiency to the extent that if we have to run one shift, we run only shift, nothing more. So keeping utilities in check, looking at unnecessary expenditure, which can be postponed. So, a lot of work going on, and I think you're able to see that.

[Technical Difficulty]

Sorry to interrupt, sir. Your voice is not clear. May I request you to please use the handset?

Yes. So, Pramod sir, sir, INR 930 crores of debt, 9% interest, I mean, that doesn't reconcile with this INR 28 crores a quarter or even if you look at last 5 quarters, it's been above of INR 25 crores.

Yes.

If you can just highlight where is this?

Yes. Pratik, there are 2 components. One is term loan and second is working capital, the short-term component. So short term, INR 320 crores, as I said, it depends on the cycle of collection. In case of domestic, as you know, we have 7 plus 21 days of kind of a collection cycle. While in case of exports, each market has different terms. So depending on the collection cycle, our short term also varies. Sometimes it will be less than INR 300 crores. Sometimes it will be INR 320 crores, INR 330 crores kind of short-term cycle. And based on that, interest value in terms of quantum will change. That is one. Secondly, certain exchange losses are also factored as part of finance cost. So, purely finance cost 9% on an average of INR 900 crores, you can see roughly about INR 81 crores. If I split between a quarterly, it is around INR 20 crores. So, that is the -- average interest cost is about INR 20.5 crores on an overall debt.

But this FX loan that you have, this is in dollar and you'll be paying in dollar, right? So, I mean, it's not notional, it's actual loss.

In euro.

Yes, euro. We have euro loan.

We have very good exports in euros. So, euro to euro repayment can happen.

No. So when you say FX notional, it's not actually notional?

No, no, no. It's not notional. See, there are 2 components. MTM is the notional, while the interest payment on the loan repayment, which is in euro is actual.

Correct. So, this INR 28 crores is actual in rupees, I mean, when converting into euro?

Yes, it is.

Correct. Perfect.

Correct. Correct. And last and secondly, the earlier participant's question, if you can share the FPP revenue numbers and the losses or profit of your warrant in FPP both?

Sure, Pratik. We'll share.

Sorry, sorry. One last, sorry. On the debt part, right, so we got INR 100-odd crores from Ophthal. And last quarter, we called out the land parcel that we have that we intend to sell. This is over and above the INR 140 crores of debt repayment that we intend to do.

We've closed that in the month of September, definitely.

So no, no, there is nothing additional. I think what we're trying to say is the INR 140 crores repayment that has to be done, part of that will come from some of these proceeds. But all of these proceeds will not be used for paying debt.

Correct. So, debt repayment this year can be higher than INR 140 crores that is scheduled.

We will do what is required.

We'll see how it pans out. For the working capital requirement also, we require funds.

So, this INR 100 crores which came from Ophthal, have we utilized that or that's lying on our balance sheet?

Partly.

Partly lying in as an investment also.

The next question comes from the line of [ Sujoy ] from [ Credent ].

Actually, I have just one query. Can you share the A&P expenses on a stand-alone and on a consolidated basis?

What expenses? Sorry?