Innova Captab Limited (INNOVACAP.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good afternoon, and welcome to the Innova Captab Limited Q1 FY '26 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectation of the company as on date of this call. These statements are not the guarantee of future performance of the company, and it may involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference to Mr. Ayush Kumar Garg from Innova Captab Limited for opening remarks. Thank you, and over to you.

Thank you, Ryan. Good afternoon, everyone, and thank you for joining us on our earnings call today to review the operational and financial performance for Q1 FY '26. We have here with us Mr. Vinay Lohariwala, Managing Director; Mr. Lokesh Bhasin, Chief Financial Officer; and representatives from SGA, our Investor Relations adviser. I trust you had the opportunity to review our financial results and the investor presentation, both of which are available on our website as well as on the stock exchange website. The transcript of this call will be posted on the company's website within the next week. Should you have any further questions after this call, our Investor Relations team will be happy to assist you. With that, I'll now hand over the call to Mr. Vinay for his opening remarks. Thank you, and over to you, sir.

Thank you, Ayush. Good afternoon, and thank you all for joining us on today's earnings call. I'm pleased to report that Innova Captab has continued to demonstrate strong growth momentum in Q1 FY '26. We recorded revenue of INR 352 crores during the quarter, making a 19% year-on-year growth despite drop in the API prices. Profitability also saw a significant boost with EBITDA rising by 28% to INR 57 crores. As part of our ongoing efforts to drive strategic clarity and operational focus, we have reorganized our business into 2 streamlined verticals, CDMO and branded generics. With [ CRO ] now fully integrated within the Innova framework and keeping in mind our business modality, we believe that this new structure better reflects the way we operate today and how we create value across our portfolio. The CDMO business now comprises our legacy CDMO operation, CRO business as well as part of our international branded generic portfolio that operates under a CDMO framework. The branded generic business includes our domestic branded generic business, along with the portion of the international branded generic portfolio that is run on a front-end on branded model. We believe this reclassification will provide greater transparency, better aligned with our long-term growth strategy and enhance stakeholders' understanding of our business performance. Coming to each business area. CDMO business. We contribute to -- we continue to be the partner of the choice for over 300 global pharmaceutical companies. Over the years, we have expanded our offering to a comprehensive portfolio of over 3,700 products across multiple dosage forms. The business contributes 71% of our total revenue in Q1 FY '26. We remain focused on deepening existing relationships while building new partnerships to drive sustainable growth, branded generics. Our branded generics business signifies our front-end operation with direct presence across India and key regulated and semi-regulated market across the globe. Over the years, we have achieved significant strides in the business by consistently adding new products and thorough market expansion, both in India and other international markets. Now let me talk about our manufacturing capability, which remain our key business driver. Enhancing this, this year we commercialized our greenfield facility in Kathua, Jammu in January 2025. I am pleased to inform you that the scale-up is going as planned. We are witnessing strong interest from our CDMO client as well as good demand in branded generic business, which gives us confidence in a swift ramp-up in the coming quarter. Looking ahead, we are seeing strong traction across both our business areas, partner-led CDMO and front-end branded generics. Expanded product portfolio, deep client engagement and geographical expansion with our branded generic business, both in India and internationally will be the fuel for our growth journey in upcoming quarters and years. We are proud to be progress -- we have made and remain committed to executing our strategic road map with discipline and agility to drive sustainable growth across all our verticals. Thank you once again for your continued support and trust in Innova Captab. I now hand over the call to Mr. Lokesh to take you through the financial performance in more detail.

Thank you, sir. And good afternoon, everyone. I will now take you through the financial highlights for quarter 1 FY '26. Our consolidated revenue stood at INR 351.5 crores, registering a year-on-year growth of 19%. CDMO business, which constituted around 71% of the total revenue in the quarter, clocked INR 249.5 crores of revenue as compared to INR 230.1 crores, registering year-on-year growth of 8%. Enhanced client traction, both new and existing served as the main catalyst for growth. Branded Generic business delivered stellar growth of 59% to INR 101.2 crores, fueled by a broader geographic reach and increased penetration in the domestic market. EBITDA grew to INR 56.6 crores for the quarter versus INR 44.3 crores in Q1 FY '25, signifying solid growth of 28%. EBITDA margins improved to 16.1% vis-a-vis 15.1% in Q1 FY '25, mainly supported by expanded gross margins. PAT improved 5% year-on-year to INR 31 crores, reflecting resilience in the face of increased depreciation and finance expenses. PAT margin stood at 8.8%. With this, we would like to conclude our opening remarks and open the floor for question and answers. Thank you very much.

[Operator Instructions] The first question comes from the line of Parth Mehta from Vallum Capital.

Congratulations on the good set of numbers. I have a few questions. Firstly, is it possible to provide the new revenue -- new segmental breakup for the previous quarter?

So you are seeing the reorganized number for previous quarter, right?

Yes, yes.

Surely, we will work out and Ayush will reach to you offline on this.

No problem. Second is, possible to share what would be the revenue from the new Jammu plant for this quarter?

Okay. And what is your next question? I maybe answer -- maybe to answer you on both.

Yes, yes, sure. So earlier, you have mentioned that revenue from the Jammu plant will be coming from the existing customer base by gaining the wallet share. So what is your strategy to gain the wallet share? And what would be -- what is the differentiating factor versus the competition? And what is the ratio of the outsourcing that is done by our clients?

Okay. See, the Jammu revenue anticipated for this financial year as we submitted in our earlier discussions is INR 400 crores. See, this INR 400 crores of revenue was estimated on constant pricing of our API, which is a key raw material for us. As everyone knows, during last few months, the API prices are showing a declining trend, which as high as 20% in certain cases. So we are still monitoring the situation. And we should be able to reach to a final conclusion or a more concrete conclusion where our this -- year of Jammu revenue will lie and subject to the stabilization of API prices.

Got it. And actually my question -- yes, yes, please continue.

And just to update, our current quarter's revenue for Jammu's plant was INR 60 crores.

This would be including the Baddi transfer, right? The products that would have transferred from Baddi?

Yes, yes.

Yes.

How much of that would be the transfer from Baddi?

So that is a bit difficult to comment on, but the overall revenue from the Jammu is INR 60 crores.

Okay. Okay. That helps. My second question was on the strategy. What would be the -- what is the strategy to gain the wallet share, the differentiating factor versus your competition? And what is the ratio of outsourcing that is done by your clients?

So the -- if you see this facility, Jammu facility is built with the INR 480 crore investment. So it is up to mark with the CGMP norms and all the automation is in place. So as the facility is new and has come out very well, all of our big customers are auditing us visiting our site. And from there also, we are getting good comments that the plant has come out very well, right? So facility-wise, we are having a good edge over our competitors that being a new facility and everything has been taken care. So, as far as the productivity or the output is concerned or the zero defect concept is concerned, we are having a very good edge and that is also a very attractive point for the customer also. And the other part is like ensure supply because a large capacity in CDMO, supply chain supply -- timely supply is very, very important. So there also, we are having a winning edge. And third, but not the least, but the third one is the prices. As you know that we have planned some incentive pass-through model, right? So that pricing is again in our favor. So all these 3, 4 points are in our favor. That's why we are hopeful that we will win more and more contracts in Jammu.

Right. Got it. And what is the strategy to gain the wallet share or strategy to utilize this facility?

So we have the relationship with the top companies in India, domestic front, as well as we will register our plants in the ROW and regulated market as well. So that is how we will -- we are approaching our partners regularly, and we'll try to get the maximum product what we can manufacture in Jammu for onboarding of that.

Right, sir. Just one last thing. I wanted to understand, we have seen higher growth in the exports business. And earlier, if I remember, you had mentioned that we were having some capacity constraints to cater with the export market. So have we started some manufacturing in the Baddi plant for the export market? Or how are we getting this export revenue from which segments or from which geographies also are we getting this revenue?

So capacity-wise, like if you see that in Jammu -- in Baddi, we have like a tablet and being a new facility in Jammu, our Cephalosporin capacity constraint has been already been removed. And in general category, we have the free capability -- capacity in tablet capsule. The only oral liquid section is now we have the constraint. Otherwise, there is no concern as far as the capacity is concerned. So once we -- if we are getting the new product registered continuously from the ROW and other market, and there, our export is being started. So this quarter, I think we have shown a good growth in the export market as well.

Sure, sir. Just one last on the generic side. If I want to -- just wanted to understand there has been a huge growth in the generics segment for the quarter Y-o-Y. So what -- which therapeutic segments or from which geographies would the growth have contributed for the generics business?

So that you are talking about the branded generic business?

Yes, yes.

Right? So that branded generic business includes our export as well as domestic branded generic business.

Yes, yes, I get that. But which therapeutic segment...

This quarter, we have a very good growth in our export market, export branded generic business. That's why as an overall composition, you are seeing -- you are looking at the growth.

Yes, I get that. Just wanted to know which therapeutic segment or from which geographies this growth would have come?

So therapeutic category, it's overall business spread across 10 to 15 therapeutic category. And as far as the territorial is concerned, so that is from the ROW.

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

Sir, my question is to understand more on the Baddi plant. I mean I understand that the Jammu plant is new and there are some products getting shifted from Baddi to Jammu. And that is why we are seeing a drop in sales of Baddi, but now growth happening in Jammu. But if I'm trying to understand, say, 1 or 2 quarters down the line, I would understand that a fair amount of shifting would happen and Baddi would come back to its usual revenue run rate. Just to understand in terms of time lines, where are we in terms of normalizing the entire Baddi plant transfer? And second is, earlier, last quarter when we talked about the INR 400-odd crores, I remember that we mentioned Jammu is incrementally going to contribute INR 400 crores. But the rest of the business, that is typically the international business will also grow. So the number was -- overall number is expected to be over INR 400 crores. That is Jammu plus others. Would there be a meaningful drawdown in your Baddi plant that could be a negative surprise?

So overall, if you try to understand the mathematics behind the numbers, so there is, I think, a net increase of INR 60 crores quarter-on-quarter. So if you multiply by 4, that is translating approximately, say, INR 240 crores on a yearly basis, right? So if we see INR 400-plus crores, our statement was like that INR 400 crores from Jammu and plus, few percentage point growth from even the Baddi. So that is deeply affected by the price erosion, especially in the antibody segment like the amoxicillin or the potassium clavulanate or the cephalosporin, these price in a few of the API hit by more than 20%, as Lokesh Ji has already covered. Still, we -- even in Q1, we have maintained the trajectory of INR 250 crores, right? I think -- I hope you understand what I'm trying to say. Even in Q1, we have shown the trajectory of the INR 250 crores, right? So we are very hopeful that there should not be any further decrease in the prices, still we able to maintain what we have stated earlier, right? The Jammu facility is being audited by all the leading customer and product onboarding are expected in the Q3 and Q4 at a much rapid speed.

So there will be a quarter-on-quarter -- every quarter going forward? So there will be a quarter-on-quarter increase in the utilization?

[indiscernible] put us on the same trajectory. So we have already -- in the last tele call, we also covered that it is how fast we reach at INR 100 crore level at Jammu facility, that is our priority. As a company, it is our top priority that how fast we reach at a INR 100 crore level from Jammu.

Sure, sir. And sir, to understand -- I understand that API is a pass-through. We work on a cost-plus business model. But 2 things here. One is, if the API prices come down and I understand that your anti-infective business is seeing a pricing pressure. The second is, I would also understand your Jammu facility has capabilities of manufacturing more complex products. Is it possible to shift one towards more complex products? And in terms of your contract, if I look at the gross margins have substantially improved. One is, of course, the Jammu and Kashmir tax coming back to the GST. The second is when the prices come down, do we work on EBITDA per kg in the sense that optically then your gross margins look higher, then your EBITDA will not change irrespective of your top line. So just wanted to understand these two.

So your question regarding like complex product, we are already working on that. Our R&D is -- have developed a couple of products. So that validation is going on there. So especially in the category of [ rest pools ] and the other style products. We are again working on the few -- we are exploring the few new products as well, so that can improve our GC as well, right?

Yes. The second question is to understand the gross margin. So one is your GST that you're getting back. The second is, if the API price comes down, if there's a gross contribution per kg, if it comes down, then your optically margins, gross margins look higher. If you're working on a margin basis, then it hits you on both sides. I mean your EBITDA comes down. So just wanted a clarity.

Yes, yes. Yes. So our pass-through model is like we have the 2 component of our gross conversion. One is constant and it is fixed. And the other part is the -- based on the profitability is the percentage base. So even -- you can say that a 50-50 type arrangement. So if the price goes down, then still our absolute per tablet or per capsule or per unit also goes down.

Okay. So we are partly getting impacted. I mean it's not...

Yes, yes. Partially -- generally, what happened, the API price move from 5%, 10% here and there. So in that case, there is no substantial impact. But this time, we have seen that the prices have crashed like potassium clavulanate INR 18,500 to INR 13,000 level. So that creates a very big turmoil for the market.

Sure. So one final question before I join back the queue is on the cost side. If I look at the fourth quarter versus this quarter, we have, as you mentioned, seen a jump of about INR 50 crores, INR 60 crores. But if I look at the operating cost, the operating cost has also improved on a Q-on-Q basis. So the rationale, what I wanted to understand is today, when we are running at INR 60 crores, I mean, this is going to only improve from here, INR 60 crores can to INR 70 crores, INR 80 crores, INR 100 crores. I mean, past INR 100 crores is good for everyone. But as the operating leverage happens, I'd just like to understand from here on, how do we see the cost curve coming down?

See, you are absolutely right. Our major cost, especially on employee and other operating expense is more on a semi-variable basis. So as we have already reached around INR 60 crores from Jammu and Baddi is already running at steady-state level. From here, the increase in revenue or increase in operation would not result in the proportionate or pro rata increase in costs. So of course, we are still monitoring the situation. But as and when the Jammu plant will reach to a certain level of, say, INR 100 crores of revenue per quarter, we should be saving a slightly better position from here.

Sure, sir. Any number that you have or we will reevaluate it once we reach it?

See, Jammu is still in the ramp-up stage, and there are lots of variables and moving parts, and we are observing the situation. We are still in the process of customer onboarding. So a firm number may not be -- we may not be able to share as of now.

Sure, sir. And anti-infectives as a proportion of your overall business, would it be meaningful enough to see a meaningful dent in your earlier guidance or probably we will still be plus or minus that figure, that you earlier talked about in the fourth quarter?

See, our overall revenue -- our overall revenue is a very complex combination of our capabilities, our categories in which we produce, our dosages, the clientele, the geographies. So the exact impact of API reduction as of now may not be able to reveal or share. But yes, it is slightly having an impact on our overall revenue. But as I said, that we are monitoring the situation very closely. And hopefully, if the prices stabilize, we should be able to retain our guidance.

The next question comes from the line of Avnish Burman from Vaikarya.

My question was again on the export side. It seems that the cepha business has been transferred from Baddi to Jammu and Baddi has catered to the export markets because of which the export revenues have grown so fast. You had mentioned earlier that there was a backlog. So my question is, now is the backlog over or there is still backlog that Baddi can continuously supply? And on a continuous basis, you can move the domestic business from Baddi to Jammu?

So how the product transfer is working that we need to have the client consent for that. So as we are getting the client consent for transferring, we are transferring our domestic business from, say, Jammu's cephalosporin to -- Baddi cephalosporin to Jammu cephalosporin. So I think the transfer activity will go up to the third or max by up to fourth quarter. This year, all these events will be closed. And your analysis was perfect that due to transfer of a few business from Baddi, we have created a vacuum in the Baddi capacity. So that was fulfilled with the export orders.