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

Ladies and gentlemen, good day, and welcome to the Innova Captab Limited Q2 and H1 FY '26 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. Before we begin, a disclaimer. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. The statements and other guarantees of the future performance and involve risks and uncertainties that are difficult to predict. I now hand this conference over to Mr. Ayush Kumar Garg, Head of IR. Thank you, and over to you, sir.

Thank you, Mark. Good morning, everyone, and thank you for joining us on our earnings call today to review the operation financial performance for Q2 and H1 FY '26. We have with us Mr. Vinay Lohariwala, Managing Director; Mr. Lokesh Bhasin, Chief Financial Officer; and representatives from SGA, our Investor Relations adviser. I trust you have 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. Should you have any further questions after this call, our Investor Relations team will be happy to assist you. With that, I now hand over the call to Mr. Vinay for his opening remarks. Thank you, and over to you, sir.

Thank you, Ayush. Good morning, everyone, and thank you all for joining us for today's earnings call. Innova Captab continued to build on its strong growth strategy in the second quarter of the financial year, delivering a robust year-on-year growth of 19.5%, both in Q2 and H1 FY '26 reaching INR 380 crores and INR 232 crores, respectively. This performance come despite the challenge backdrop of weakening API price, which directly impacts our CDMO business. However, we are now seeing early signs of price stabilization. During the quarter, we witnessed healthy volume growth at group level, which is in testament of our expanding market presence and strong customer demand. Briefing on profitability, we achieved year-on-year EBITDA growth of 8% in Q2 FY '26 and of 17% in H1 FY '26. EBITDA margin remained within our estimated level of around 15%. PAT margin were also around 8%. I would also like to bring to your attention to the fact that during this quarter, our manufacturing capabilities were further strengthened with the successful inspection of our Cephalosporin plant in Baddi by U.K. Medicine and Health Care Product Regulatory Agency, that is U.K. MHRA and our Jammu facility by State Service of Ukraine on Medicine and Drug control, SMDC. This milestone underscore our adherence to global quality standard and reinforce our presence in key international markets. I would like to highlight that we cater to some of the most prominent pharmaceutical companies in India as our CDMO client. Several of these partners have already completed their audit and review data from stability basis, process validation basis and other key pyramid at our newly commissioned Jammu facility. We have already commenced business operations with some of them, while discussions with others are at an advanced stage. This provides a strong foundation for scale-up in the near term. Coming to to each business area. Our CDMO operation, through which we serve our 300 clients across the globe, witnessed a year-on-year growth of 15% in Q2 '26, and 12% in H1 FY '26. Despite the temporary pressure from lower API price, the resilience highlighted the strength and diversity of our client base and product portfolio. The Branded Generics business, which is our front-end operation with a direct presence across India and key regulated and semi-regulated markets globally, continue its strong growth trajectory. This was driven by expansion of our product basket and hence market efforts. The business recorded an accelerated year-on-year growth of 31% in Q2 FY '26 and 43% in H1 FY '26. As we move into the second half of the financial year, we remain optimistic about sustaining our growth momentum. We have a strong order book, which will see growth in the business in the coming months. Further continued operational efficiency at our manufacturing sites and possible stabilization in API price provides a strong foundation for the coming quarters. Our focus will remain on maintaining high service quality, deepening client relationships and optimizing our cost structure to deliver consistent value creation. With a disciplined approach and a clear road map, we believe Innova Captab is well positioned to deliver sustainable growth and long-term value for all stakeholders. With this, I now hand over to Mr. Lokesh to detail about the financial performance for this quarter.

Thank you, sir, and good morning, everyone. I will now take you through the financial highlights for quarter 2 and H1 FY '26. Our consolidated revenue stood at INR 380.4 crores with the same year-on-year growth of 19.5%. For H1 FY '26, the consolidated top line was INR 731.9 crores. Exports contributed 30% to the overall revenue mix both in quarter 2 FY '26 and H1 FY '26, reflecting a well-diversified geographical presence. CDMO business crossed INR 265.7 crores of revenue as compared to INR 230.6 crores in quarter 2 FY '25, thereby registering year-on-year growth of 15%. For H1 FY '26, CDMO business revenue totaled to INR 515.2 crores. The growth was propelled by deeper client engagement and expansion of our product portfolio. The Branded generics business continued to deliver stellar growth and recorded revenue of INR 114.6 crores with a year-on-year growth of 31%. H1 FY '26 revenue from this business cumulated to INR 216.7 crores, with a year-on-year growth of 43%. The EBITDA grew to INR 56.1 crore for this quarter. Vis-a-vis INR 51.9 crores in quarter 2 FY '25, the signifying growth of 8%. For H1 FY '26, EBITDA was INR 112.6 crores versus INR 96.2 crores in H1 FY '25, growing by 17%. EBITDA margin was 14.7% in quarter 2 FY '26 and 15.4% in H1 FY '26. Profit after tax for quarter 2 FY '26 INR 29.7 crores and INR 60.7 crores for H1 FY '26. With this, we would like to conclude our opening remarks and open the floor for further questions and answers. Thank you very much.

[Operator Instructions] The first question is from the line Sudarshan Padmanabhan, from ASK NDPMS.

Sir, I understand that there was a GST impact that could have impact on the volumes. And second is also that we have the PAT benefits coming in [indiscernible]

Hello. Could you please come closer to the mic?

Yes, sure. So I would like to understand the impact on GST. One, was there any disruption because of the GST in this quarter, I mean, from our clients end. And second is going forward, given that the manufacturing at Jammu gets benefit in terms of GST coming back to us. Is there any thought process change? I mean, how are we going ahead with the dialogues with the Jammu Government with respect to the GST? Some color on this.

Yes. Thank you Sudarshan. So this quarter, as you all know that the center government has reduced the GST rate to 2 rate structure. So in our Pharmaceutical Formulation business that rate has been reduced from 12% to 5%. So as you know that in Jammu, we have a direct benefit of BSP incentive. So let's say, we have the 12% GST incentive and subject to a maximum incentive of approx INR 75 crores, INR 80 crores. So now our benefit will reduce to from 12% to 5%. Whereas the overall quantum of the GST benefit will remain the same. So earlier, let's say, if we need to do annual sale of INR 650 crores to achieve the complete incentive. Now it will be approximately, let's say, INR 1,400 crores. So in short term, yes, definitely, we are adversely impacted. But in long, say, post 2 to 3 years' time, as this Jammu project is expected to do the revenue, let's say, from more than INR 1,000 crores. So that time, I think the benefit -- the adverse impact will be neutralized. But certainly, that 12% reduction to the 5%, it's a straight away 7% benefit has been gone.

Sure. So there will be about INR 30 crores impact versus what we had initially thought about? That is the on the reimbursement side, even if you're assuming the basis is for the next 2 years, the INR 30 crores, INR 40 crores, INR 50 crores?

So, I'm not able to hear you clearly.

So it's about INR 30, INR 40 crores anywhere -- between INR 30 crores to INR 50 crores given the kind of scale up that you had in outline in the utilization of Jammu, in the next couple of years, just in the next couple of years, post which we will basically catch up?

So we cannot measure that impact in this way. But certainly that we are going to get the, let's say, 12% investment. Instead of that, we are going to get the 5% reimbursement. So this business is basically a -- total business is B2B. Most of the business is B2B. So in that case, let's say, if we are going to pass some percentage point to our customers, that will be reduced. So exactly, we cannot say that the 7% impact will be transferred to the P&L. So the pricing will be redefined.

Okay. Got that. And sir, with respect to ...

Let's say, from the other area, if we have the earlier 12% advantage, now the advantage remain at 5%.

Sure, sure. So got it. So you'll basically reduce the benefit that you're passing on to the client. It's not necessarily that you'll take the entire hit on that side?

Yes, yes. Simply, it's like a [Foreign Language] So if you see from the bottom, the [Foreign Language] still, we have the 5% benefit. And if you see from the top, [Foreign Language] 7% margin is loose.

Sure. And sir, vis-a-vis what we had earlier envisaged. I mean, we thought that Jammu, we can basically do the INR 400 crores from the facility. Given that the first half, you basically reported -- if I'm looking at it close to about close to INR 700-odd crores, INR 730-odd crores in terms of sales, the implied sales for the second half seems to be very high. I mean it has to be between INR 450 crores to INR 500 crores. I mean I understand that there has been a fall in API prices as well. In this context, I mean, do you still believe that the INR 400 crores of target is achievable?

So let's say, sir, Jammu number is currently for the H1 is somewhere around INR 120 crores. So for the H1, we have achieved a number of INR 120 crores. So let's say if we double it, it is approximately INR 240 crores, INR 250 crores. And that is with the API correction like in potassium clavulanate somewhere, it was INR 18,000, now it is INR 13,000. So in few of the -- there is a 15% to 20% correction. So still, we are on the clear cut trajectory -- professional trajectory of INR 250 crores, right? And we believe that in the next half, we will do better from Jammu also. What we have done in H1. Despite the cut of GST, we are saying that we will do better in Jammu sales in the H2. so it looked like a clear cut trajectory of INR 300 crores, what we can say. So let's say, so if we make like INR 75 crores, INR 75 crores, then it will be like INR 270 crores, INR 280 crores. But let us correct our guidance from INR 400 crores to let's say, INR 280 crores, INR 270 crores.

The next question is from the line of Gautam Rajesh, from Everflow Partners.

My first question was on what sort of growth do you expect from -- over the next 3 to 5 years? How do we see this growth?

Thank you, Rajesh. So from -- if you see our past history, we have always doubled our top line in 3 to 4 years time. So that translates into a 20% plus growth trajectory. Similarly, post IPO, you see, we have -- we committed to maintain the same trajectory. So let's say, if you see the post IPO, our level was INR 1,000 to INR 1,200 crores. So in the next 3 years, our target is to double our top line and vis-a-vis EBITDA and PAT. So similarly, we are committed to that, and we see there is no challenge in that.

Understood. And my next question was on the Jammu facility plan. How do you see the Jammu expansion changed our growth trajectory? How much of this growth that you are seeing would come from Jammu? How do you see the growth trajectory in Jammu? And also on what CapEx have we done for this facility? And what is the peak revenue we can expect from this?

So we have -- Rajesh, we have Investor Day a total amount of around INR 480- plus crores in Jammu. And at it's peak level, if I talk about optimum capacity level, so we are expecting an optimum capacity level of, say, 65% to 70%, we should be getting a revenue of north of INR 1,400 crores from Jammu facility.

All right. And how -- when do we see this happening? Will it take 3 years?

Yes. So yes. So let's say, this is the ramp-up plan is like 3- to 4-year plan that we should reach in 3 years, INR 1,000 crore plus, right? So that's why we always say that the 20% plus growth trajectory should be maintained in the coming time.

All right. All right. And sir, just on your first question -- first question asked, what are the other benefits? Is the 5% GST the only benefit that we get from Jammu facility? Are there any other benefits that having the facility over there?

So basically, what I understood is that you were asking that what are the benefits other than GST that we are going to accrue from Jammu plant?

Yes, yes. My understanding is 5% now due to the GST thing. Is there any other benefits that we have from the from the Jammul facility?

That is right. In addition to GST incentive benefit, we are eligible for an interest subvention benefit on the term loan that we have taken on the plant and machinery for Jammu to the tune of 6% of our finance cost.

The next question is from the line of circuit from Saket from Sagari Capital.

So sir, first question would be that you talked about while the prices did seem to erode a bit during the quarter, but volume numbers were strong. So can you help us with what was the volume growth? And what was the price decline, sir, on a consol basis for especially for the CDMO manufacturing side? [Technical Difficulty]

Ladies and gentlemen, the line of the management has been disconnected. Please stay connected while I reconnect the management. Ladies and gentlemen, the management line has been connected. Thank you for staying connected. Hello. Mr. Saket, please repeat your question.

So sir, my first question would be that you said that the volume growth was excellent despite price erosion. So for the domestic CDMO manufacturing side, what was the volume growth? And what was the price decline, sir?

So Saket, this is a complex environment. So in our case, there are 2 factors for the growth. One is, of course, our J&K facility which is putting a growth number, right? The other one is the Baddi volume growth. So let's say, I request Lokesh for the volume growth number.

Yes. So if you talk about our volume growth on our ex-Jammu basis, for our manufacturing facilities at Baddi. So overall while the negative price volume is in the range of 10% to 12%. And at the same time, our volume growth was around 8% to 10%.

So sir, my next question would be that you talked about things stabilizing, but you've also been highlighting that anti-infective was a big culprit as far as price erosion goes. So the stabilization is now seen across segment or including, say, anti-infectors, this price stabilization? And how is the volume picking up, say, for the -- almost now we are 40%, 45% for Q3. So is the volume growth sustaining, sir?

Yes, yes. So if you see the API prices, there are a few early sign of reversal of the API pricing. So there are early sign-off reversal of API price or we can say the bottom out of the API pricing trend. That's why we speculate that in the near future or the coming financial year, there should not be any further degrade in the prices. But let's say, it all depends on the supply demand and the capacity availability in the future prices, we -- even nobody can predict the actual trend.