IOL Chemicals and Pharmaceuticals Limited (524164) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 and 9 months FY '25 Earnings Conference Call of IOL Chemicals and Pharmaceuticals Limited. From the management, we have Mr. Pardeep Khanna, Chief Financial Officer; Mr. Abhay Raj Singh, Senior VP and Company Secretary; and Mr. Rakesh Mahajan, Advisor, Finance and Strategy. We also have an Investor Relations team from Adfactors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Darshan Mankad from Adfactors PR for opening remarks. Thank you, and over to you, sir.

Thank you, Rituja. Good afternoon, everyone. We welcome you to the Q3 and 9 months FY '25 earnings call of IOL Chemicals and Pharmaceuticals Limited. Trust you have gone through results and investor presentation. Please do note that some statements in today's call might be forward-looking in nature. Owing to the nature of the business, it may involve risks and uncertainties, including those related to the future financial and operating performance. Request you to consider the present sectoral scenario while analyzing the results. Please do bear with us if there is any disturbance or call drop, would ensure it is resolved the soonest. I now hand over the call to Mr. Abhay Raj Singh for his opening comments. Over to you, Abhay sir.

Thank you, Darshan. Good afternoon, everyone. We thank you for joining today's call. We trust you have gone through our results and investor presentation. We have seen consumption slowdown creeping in and impacting the growth. Despite being expected to be the fastest growing next year also, there are concerns which are likely to sustain and impact overall corporate earnings and economic growth. The trade war doesn't auger well for the Indian economy in general and pharma and chemical sector in particular. Through tax relief, the government has tried to address the issue of consumption slowdown, and that is likely to support demand in the short term. However, any impact on exports due to tariff reciprocation by U.S. is likely to be a major dampener for Indian manufacturing sector's growth. The third quarter has been a flat one for the industry and IOL has been no exception to it. The stagnant demand and pricing pressure continue to impact margin and revenue growth. However, through cost corrective measures and volume growth leading to economies of scale and enhanced operational efficiencies, IOL has minimized this impact. The logistics challenges due to rise in freight cost, though not deteriorated, has sustained, thereby limiting the cost reduction. The fourth quarter doesn't seem to be any different. However, we expect some recovery in demand and pricing pressure to ease from Q1 of next year as trade situation stabilizes. API prices subdued amid stagnant demand, while margins received some support from reduced input costs and enhanced operational efficiencies. The long-term outlook remains positive, driven by anticipated improvements in volume and continued efficiency gains. In the specialty chemicals sector, prices have remained stable in recent months for raw materials and finished goods as well. Export realization has softened to some extent, though an improvement in demand was observed. With this, I now hand over the call to my colleague, Mr. Pardeep Khanna, who will brief you about the financial performance for the quarter and 9 months ended 31st December 2024. Pardeep ji?

Thank you, Mr. Abhay. Good afternoon, everyone, and thank you for joining us today to discuss our performance for the third quarter and 9 months ended 31st December 2024. I will now give a brief overview of standalone financial highlights for the recently concluded quarter and 9 months ended 31st December '24. The total standalone income of the company in the third quarter of financial year '25 stood at INR 527 crores as against INR 529 crores in the third quarter of the financial year '24 and INR 532 crores in the previous quarter ended September '24. EBITDA for the quarter was INR 51 crores as against INR 53 crores in the corresponding quarter of the financial year '24 and INR 48 crores in the previous quarter ended September '24. EBITDA margin for the quarter is 9.7 percentage as against 10 percentage in the corresponding quarter of financial year '24. In the previous quarter ended September '24, EBITDA margin stood at 9%. The net profit in the third quarter of financial year '25 is at INR 21 crores as against INR 23 crores in the third quarter of the last year and INR 19 crores in the previous quarter ended September '24. EBIT margin for the pharmaceutical segment was at 8.7 percentage in quarter 3 of financial year '25 while EBIT margin for the specialty chemicals segment was 2.1 percentage. The CapEx for the quarter is INR 54 crores. Here it was INR 80 crores for the corresponding quarter of financial year '24 and INR 83 crores in the previous quarter ended September '24. I would like to share two additional updates. The Board has declared 40% interim dividend that is INR 4 per share of face value of INR 10 each for the financial year '24/'25 and fixed the call date of 18th February '25 for ascertaining the entitlement and the same will be paid within this month. Secondly, as you might be aware, the Board has fixed 11th March '25 as the call date for bringing subject of face value of equity share to INR 2 from INR 10 earlier for shareholders' approval. With this, we open the floor for a question-and-answer session. Thank you very much.

[Operator Instructions] The first question is from the line of [ Udit Gupta ] from Ashika Institutional Equities.

So my first question is, how is the demand scenario shaping up for ibuprofen and a brief view on current trends in API pricing environment? Do you foresee any pricing pressures on -- or margin impact going forward?

You have asked about the ibuprofen scenario. And ibuprofen, the margin are stable as we think they are already bottomed out from the last 3 quarters. However, in the last few days, the prices of ibuprofen again going from softened -- went from softened prices. And now the average of ibuprofen prices remain around $9.

And what about the current trend going in API pricing environment? Do you foresee any pricing pressure or margin impact?

Already it is, I think, already it bottomed out, and there should not be any further reduction in prices.

And as previously -- my next question is, as previously mentioned about the efforts ongoing to onboard the new clients in the U.S. where do we stand in this process? And when can we expect to see initial benefits in terms of revenue contribution?

As of now, we are exploring new customer in U.S. market. But the process of getting the customer is taking 2, 3 quarters. So as of now, there is no major development for -- immediate development for supplying the material to U.S. market. But the demand in Latin America and Europe is constant.

Okay. And lastly, what is our current capacity utilization?

Current?

Capacity utilization?

Capacity utilization around 75% of ibuprofen.

Are we targeting to return to 90% utilization levels in near term?

We are hoping for that to increase to around 90% in the next 2, 3 quarters.

[Operator Instructions] The next question is from the line of [ Sanjay ], an individual investor.

Am I audible?

Yes.

Sir, I have three queries. So one is if you see the standalone balance sheet on Page #11 of the investor presentation, we see that earlier we used to have very good EBITDA margins of closer to 28% and 30%. So do we have any chances of going to those levels in the future because we see that the margins have dropped continuously over the years?

Earlier -- as I have earlier discussed that the prices of API was bottom out due to destocking and stagnant demand. However, the earlier level, which were around 3 years back was an exceptional period. So we don't expect that much of high level of EBITDA in API segment in upcoming 2, 3 quarters. But we are constantly taking various steps or measures to increase our margin level with the best of our efforts and market explorations.

Sir, correct, sir. But when you say that these margins have bottomed out, so bottoming out 70% drop from the top, from the highest level. So what are the levels that the management foresees, let's say, in the next 2 or 3 years, very conservatively, what are the margins we can expect?

Margin which we company expecting on the EBITDA level, it will be company as a whole may be around 13% to 15%.

Okay. That was one question, sir. Sir, my second question is about the new land that we purchased on the Chandigarh-Bathinda Highway. So what -- by when -- what are the plants that we are going to construct on those? And what are the products that will be manufactured through those? Because it's a huge land and the capacity, I think, will be huge in that. So what are the business plans for that particular acquisition that we've done for land?

So Sanjay ji, that land has been acquired for setting up the new facility over there. And the business model will remain same that we will having some chemicals as well as some API plants in that particular land. So the products are in the process of the finalization. So at this moment, we are not able to tell you the specific product line we are going to manufacture.

Okay. Yes, sir. So -- but by when can we expect the operations on that particular plant? By when do we expect the execution to happen?

So we applied for the environmental approvals, and there are a lot many other approvals are required. So we are taking up on the priority, and we hope in 18 to 24 months, we will be able to ramp out the facility in that new land.

The next question is from the line of [ Sheikh Mohammad Ayaz ], an individual investor.

Congratulations for the set of numbers, which management has told in previous conference call. Now my question is what's the guidance for the next quarter because you told exactly what we have got.

We think it will remain the same number, almost same performance.

Yes, it's a sort of flat quarter we are looking into with a slight margin. So because the pricing pressure and the stagnancy in the demand is persisting. Earlier, we were expecting that there will be some relief from Q4 onwards. But I think now this is deferring by and languishing by about 1 quarter or so. So we are expecting sort of similar number.

We used to do long-term contracts in the start of the year, right? So don't you see any positive from that?

Long-term contracts are there in. So -- but because all the contracts have some price escalation or the price adjustment clauses.

Okay. So okay, coming to the next question. What about U.S. FDA inspection? Is there any update? Because it has -- I think last -- first U.S. FDA inspection we got in 2017, then 2020. But now almost 5 years, there has been no inspection.

So no, we were having the first in 2015 and then the re-audit was done in 2019. And the audit since then is pending, and we were expecting to happen it for last about 1 year, but we are not getting any information or communication from the U.S. FDA. Though 2, 3 molecules has also been filed -- the ANDA has been filed for 2, 3 molecules for the company, and we are expecting that during the evaluations of this ANDA process, the U.S. will come and visit us because technically, this time, it is mandatory for the U.S. to visit IOL facility before approving any ANDA. But we are absolutely not in a position to communicate the timing about the U.S. FDA.

Okay. It has been very long because we are not able to perform because of that only.

For non-ibu segment, that may be right. But we are having the CEP for the non-ibu segment. Obviously, you are right that the U.S. FDA approval for the non-ibu products will definitely give us a boost to increase our sale in the existing regulated market where we are selling. But that is beyond our control.

Okay, sir. Sir, I have asked so many times that regarding what -- when we are going to stock split or something else. Finally, we are getting it. But at that time, you told that when the price will reach at that level, then only we will make stock split. And now suddenly, we have gone for stock split. What's the rationale behind it?

So basically, there was a continuous demand from the various stakeholders requesting for the stock split. And when we initiated this process, the market overall was on a higher side and since then the market has gone down. So I think this is a temporary phase because of the market situation and the sentiments in the equity market is not stabilizing. It's going towards south. So we are hopeful whenever the sentiments get stabilizes and our number will also -- because you can vouch that we are selling through with this challenging period. The company's performance is again and again representing the resilience. So that will -- is reflecting in the performance and will also reflect in the performance in the quarters to come. So we are very hopeful and our estimate is that this will give liquidity comfort to the retail investors also. So I think we are hopeful that the prices will increase along with the market sentiments -- increasing the market sentiment. I mean this is the only thing we can comment, and we are also not aware about all those things.

Okay, sir. Sir, what is the pricing difference in metformin, fenofibrate and paracetamol in the regulated versus nonregulated market?

It depends on the product to product. But in some cases, it is maybe 10%. In a few cases, it's may be 30%.

In case of metformin, it is 10% to 12% generally. And in case of paracetamol, it is 15%.

And for the fenofibrate, it is around 30% to 35%.

30% to 35%?

For fenofibrate.

Fenofibrate. Sir, we are not having any plants dedicated -- are you having any plants -- dedicated plants for fenofibrate?

No, fenofibrate, it's not dedicated. It's a multi-facility product wherein 2, 3 other products are also being manufactured. So -- but the capacity is fungible. So I mean, depending on the requirement and the demand that any molecule can be -- capacity can be adjusted as per the demand.

[Operator Instructions] The next question is from the line of [ Harshil Patil ] from Family Office.

I just have two questions. Could you let us know on an overall basis, how much has been the volume growth in comparison to the same quarter last year and previous quarter? Also, if you could elaborate which products of whether ibu or non-ibu products are driving this growth?

In our chemical sector, there is substantial increase in the volume. But in the non-ibu and ibu segment, API segment, they are almost stable level, maybe 1% or 2% growth only, not substantial. But in chemical sector, it is around more than 15% from the last quarter.

Okay. And can you see an increase in depreciation cost? Could you explain the reason behind it?

We have just capitalized fixed asset last year, like we have started acetic anhydride and other product during the start of last financial year. So in this full year, we have made some CapEx like revamping of our cogeneration plant, environment equipments, ATP, introduction of new ATPs. So that all accumulate to the increase in the depreciation.

The next question is from the line of Sanjay, an individual investor.

Sir, in the last call, you had told that there is another competitor who is coming up with the ibuprofen capacity. So do we have any challenges going forward with respect to that considering that you're telling that the demand and all is not so good now?

[Technical Difficulty] in Hyderabad is coming from since last 2, 3 years. And we feel there is no major impact of that. Slightly they are trying to enter the market. But still as per their transcriptions and earnings calls they are at a very broad line of capacity utilization as of now.

Okay. And sir, considering that you told us in the opening speech regarding the trade war that is not beneficial for the pharma and chemical players. So currently for ION Chemicals, are there any existing tariffs? And if so, what are those levels? And what does the management expect in case there are any such tariffs that are imposed? So what could be the levels of tariffs that will be imposed on our products?

So basically, we are not exporting any direct chemical to the U.S. And what we discussed about that the talks about the reciprocity on the tariff is the thing which is disturbing the market sentiments. And the overall manufacturing sector is getting disturbed. So that is the thing. But we as a chemical producers of our products, we are not directly. But indirectly, somehow because everything is interconnected with each other. So anything which is getting disturbed at one place, obviously, the other place is also getting disturbed, but we do not have any direct impact on it.

Sir, so you told we don't have any direct impact. So obviously, we will be supplying those APIs to a particular manufacturer who would be exporting it?

Yes.

Yes.

So then obviously, we will have an impact if there is any such tariffs being implemented.

Yes. Obviously, but that impact, we cannot calculate as of now, let the things get more stabilized. At that time, I think we will be in a better situation to talk about on this topic.

Correct, sir. I'm just assuming, in case there is, what are the origins from where our competitive products are exported? Are those countries are also on the list? Any such idea for the products -- for the APIs that we give to the final producer?

I don't have that much of idea. But the tariff is what Russia -- what U.S. is saying that they will be reciprocating the tariffs. So suppose if I'm exporting anything to the U.S. and U.S. is exporting the same thing to us, we are charging some tariff, they will also charge the same tariff. So that is the discussion is going on. So that may impact, but indirectly, not directly.

The next question is from the line of [ Vidisha Shah ], individual investor.

I have a couple of questions. First one being that we see improvement in the margins in chemical sector this quarter. So could you just let us know what is the driving force behind this? And can we think of it as sustainable going ahead?

In chemical sector, there's direct relation with raw material prices and finished good prices. So because of some operational efficiencies, capacity utilization and increase in our export market volume, we are able to maintain some improvement in the chemical sector. Because earlier around 5, 6 quarters there was a lot of volatility in the raw material prices and finished good prices but since last 2, 3 quarters, the prices have almost remained stable. And we have explored some new markets also. And around last year, we have got our REACH certification by which our export in the ethyl -- export of ethyl acetate in Europe has improved to some extent and we are continually diversifying and expanding our export market in chemical also. All these efforts resulted in some stabilization of the margin in chemical sector.

Okay. Sir, my next question is on the export side. So we have seen fall in exports substantially compared to last quarter same year and even in comparison to the previous quarter. So is this mainly due to the decline in prices? Or are there any other factors?

You are right. The primary reason is the reduction in the prices, especially in non-ibu segment.

Okay. So sir, one more question. Could you just explain how are we planning to increase our revenue from the non-ibuprofen profile?

To increase our volume realization and revenue in non-ibu segment, especially in the European market and the Latin American markets, already lots of validation of clients, vendors are in the process. Usually, it took 3 to 4 quarters for getting a regular order from a new customer. And many of them are taken trial orders or samples and others and the process is -- we think we have achieved the -- we are near to the fag end of the validation and are expecting some good clients in our non-ibu segment.

The exports of non-ibu segment is going to increase...

Volume-wise.

As compared to the last year, we have export more than the last year's numbers. So export is increasing. So by getting the better price from the export, we will be able to get the more revenue from the non-ibu segment.

The next question is from the line of Maulik Varia from B&K Securities.

So for this quarter, we've seen 6% growth from the non-ibuprofen portfolio. So can you please help which products drove this growth?

It is metformin. So primarily it is metformin and also Pantoprazole.

Okay, sir. And sir, just one more question. I think you already mentioned it, but I was not able to hear it properly. What led to the fall in our chemicals revenue by 4% for this quarter? Can you please clarify again?

Can you repeat the question? You are not properly audible.

Yes. What led to the 4% decline in our chemicals revenue to INR 275 crores?

Our chemicals revenue is downward because of price because price we get in the last year, it is lower than -- less than the last year's price.

Volume has increased.

The volume is stable and increased by some figures, but due to prices, the revenue of chemical has decreased.

Raw material prices have also decreased to some extent corresponding to that.

Okay, okay. So it's mainly price decline, which has impacted the growth.

Yes.

Okay. And sir, can you please update about the paracetamol prices currently?

About what?

Paracetamol pricing, sir, is it like steady sequentially? Or has it increased because it was nearly bottom in the previous quarter?

There is no major increase in paracetamol prices, only 2%, 3% increase from the last quarter, but no major increase in the price of the paracetamol.

[Operator Instructions] The next question is from the line of Sheikh Mohammad Ayaz, an individual investor.

My question is whether this chemical sector performance is steady? Will it continue? Or it's just for a particular quarter?

No, it will be improved because we have explored new markets, especially export in Europe. We hope that it will be improved a little bit from the current quarter in the next quarter also.

Also, we are now exporting acetic anhydride, which is commercial in the last year. So we will get the better price from the acetic anhydride, that already is starting.

Sir, are we -- do we need CEO for our company or we can perform -- we can stay without CEO?

So basically, Mr. Vikas Gupta, who is the Joint Managing Director of the company is taking care of the company...

I'm sorry to interrupt you, sir, we are unable to hear you.

[Technical Difficulty] I think in every call. So as already told you the last time also, Mr. Vikas Gupta, who is the Joint Managing Director, is taking care of the company. So -- and legally, as you asked the last time also that whether we legally require the position of the CEO or not, no, it is not legally required but this is being taken care by the -- cumulatively by all the professionals. We have overall the professional setup led by Mr. Vikas Gupta under the guidance of Mr. Varinder Gupta and independent Board.

Okay. Sir, we have recently got CEP approval for Mesalazine. What are we targeting exactly only for the export market is there any plan we are having for Mesalazine?

So campaign basis, we will start with this product. As of now, we have not started the commercial production in a big manner. We are exploring the overall market, and we will start in some time.

Okay, sir. Sir, after getting DMF, what's the procedure to send API to USA? How much time it will require after getting DMF approval?

So after the DMF approval, the company -- I mean, the formulator which wants to buy from us, they need to file the ANDA. The ANDA is approved by the U.S. FDA. And while approving the ANDA, they also visit or inspect the company, I mean, IOL, of whom the API is being used for making that particular drug. So that basically depends on the ANDA filed by the formulator and also on the wish of the FDA, U.S. FDA when they want to visit. But the process is like this. Filing DMF is in our hand, filing ANDA is in the hand of the customer and the ANDA is reviewed by the U.S. FDA. And during this review process, they review the facility of the formulator means customer as well as the API producer means IOL.

The next question is from the line of Kenil Mehta from Omkara Capital.

Sir, would like to know your revenue from European market for 9 months and I would love to know what will be our strategy for growing our European sales as we have received a lot of CEP approvals over the last 1 year? That could be a major growth driver for us in the export market. So can you give...

From the last 1.5 years, we have started getting approvals for various products both non-ibu and chemicals also from the European market. And our marketing team is continuously exploring this thing there to explore the customer and getting their samples, giving them samples, orders and other things. And we, as a company, more focused on the European market to increase our export share there.

Okay. So are we targeting the innovative OTC segment or generic segment majorly?

Which segment?

Innovative OTC. OTC market.

OTC. Most of our products are OTC like paracetamol, metformin, ibuprofen, they are all OTC products.

Okay. So what will be your target for Europe export sales over next 4 years as a percentage of our...

I mentioned in the last earnings call also, we are targeting 40% to 45% export share for our -- as a company as a whole.

Okay. Understood. And have you commercialized Lamotrigine on a large scale or it's still going on a trial phase?

Can you please repeat your question?

Have you commercialized Lamotrigine on a large scale compared to your stated capacity?

Lamotrigine we are producing since last 7 to 8 years, but it is only in the campaign phase and in our multiproduct facility.

The gabapentin one will be converted [Technical Difficulty]?

When there's continuous increase in the Lamotrigine demand, we will surely go for that. But I think its global demand is not more than you can say 3-digit number. So we are getting some part of that. In case when we get the good numbers, we will surely go for the dedicated. But from the last 4, 5 years or 6 years, we are producing in the multiproduct only.

The next question is from the line of Harshit from RoboCapital.

Am I audible?

Yes, you are.

So sir, can you tell me how can we increase our EBITDA margin to 14% to 15%? And when can we reach that level?

We are now focusing on the capacity utilization of our products. So whenever the prices of these products recover, we hope huge improvement in the bottom line. So now we are only focusing on the capacity utilization of our products.

Sir, do you have any outlook for your top line guidance for FY'26, '27?

Please repeat.

Do you have any outlook for your top line guidance for FY '27 or FY '26?

So top line guidance, we are estimating to grow around 10%, 10% to 12%, considering the current scenario.

The next question is from the line of [ Ashish ], an individual investor.

Am I audible?

Yes, you are.

So basically, my question pertains to the stock split that's been announced lately. So I mean, in one of the last con calls, we were told "Let the share price reach a certain level, then the management will consider a stock split." Not to mention the stock price of IOL at that point in time was trading under levels of INR 500. So what exactly propelled the management to consider the stock split, even though the share today is trading at a decadent levels? So that would be my first question, sir.

So we already addressed this question in this call as well. Perhaps you were not there in the call. So -- but as -- because this was a continuous demand from the shareholders since past. And when we consider the shares was trading around INR 400 and something, around INR 425 at that level. But because of the negative sentiment spreading across the market since long, I mean, for about 1.5 months, this perhaps our share is also behaving in that manner. The rationale behind this was considering that, number one, we need to address the shareholders' demand and just to have the greater liquidity in the hands of the shareholders. Considering the global market trends and the Indian market trends and the company's performance, we are hopeful that this will very soon come back to the previous level.

Okay. So my second question would be, sir, I mean, for the past few years, to be precise, during the times of Mr. Sanjay Chaturvedi, our target has been to increase the operating profit margins in double digit. But in pursuit of that, we've faltered badly. And the company is only buying time. When do we foresee achieving the double-digit operating profit margins? I mean the top line has faltered badly, and that affects the domino effect as well. So when do you see the operating profit margins achieving the double digits? Because it's been for quite some time that we've been aiming at that, and we haven't been able to. In the meantime, I admit we did, but still, we are just faltering badly. When do you expect to achieve it, sir?

So expectation is one thing, estimate is another thing. So what we are estimating that from Q2 onwards, we will find some -- or maybe the Q1 onwards next year, we will start seeing the improvement in the pricing pressures because last 2, 3 quarters, the prices we are feeling the pricing pressure despite that the quantity is either maintained or increased. So that is the mainly reason that the -- our turnover for last 2 years or the 3 years, you can say, is hovering around the same amount. We are not able to see the jump what we are expecting in the start of the year. But I think chemical sector is also -- people are considering -- all the experts are considering and we as an industry player also considering for last 2, 3 quarters to show the recovery, but it is always getting deferred by 1 quarter or by the 2. So at present, considering the current scenario, we are hopeful that from the Q2 onwards, the chemical will start performing well as well as the API.

And fourth would -- I mean, my third question would be, how well are we prepared for the U.S. FDA inspection that's expected anytime soon?

So inspection is a regular phenomenon for us. Every month, we are handling 3, 4 inspection or the audit you can say by customers. The last year, ANVISA did inspections also. All the 10 plants of our company inspected by the ANVISA and no objection was raised by them. So we are always prepared for that because we understand the FDA can come any day. So we are always audit-ready.

I hope to see recovery in the top line, bottom line and also reflecting in the share prices.

We are also hoping for the same.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Rakesh Mahajan for closing comments.

Good afternoon, everyone, again. Thank you, everyone, for joining us today. The second half of the year has been tough for the Indian manufacturing sector with slowdown and trade challenges affecting growth. This trend is likely to continue in quarter 4. However, we are hopeful that demand and pricing in the pharma and chemical sector will pick up in FY '26. At IOL, we are working towards strengthening our capabilities and expanding our product range, keeping an optimistic outlook for better market conditions. We truly appreciate the support of our investors and believe that with their trust, we will navigate through these challenges. Thank you very much once again. Have a good day.

Thank you. On behalf of IOL Chemicals and Pharmaceuticals Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.