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

Ladies and gentlemen, good day, and welcome to the IOL Chemicals and Pharmaceuticals Limited Business Update Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vaibhav Vijaywargiya from MUFG Investor Relations. Thank you, and over to you, sir.

Thank you, Steve. So good afternoon, everyone, and welcome to the business update call of IOL Chemicals and Pharmaceuticals Limited. Joining us today are Mr. Pradeep Kumar Khanna, who is the Chief Financial Officer; Mr. Abhay Raj Singh, who is Senior Vice President and Company Secretary; Mr. Kushal Kumar Rana, Director Works; and Mr. Rakesh Mahajan, who is Financial Adviser and Strategic Head, to provide an overview of the key business updates recently announced by the company. Before we begin the call, I would like to give a short disclaimer. This call may contain some of the forward-looking statements which are completely based upon our beliefs and expectations as of today. These statements are not a guarantee of our future performance and involve unforeseen risks and uncertainties. With this, I would like -- now I'd like to hand over the call to Abhay sir for his opening remarks. Over to you, sir. Thank you.

Thank you very much,. Good afternoon, everyone, and thank you for joining us. On behalf of IOL Chemicals and Pharmaceuticals Limited, I welcome you all to this business update call. We are pleased to connect with you following the recent announcements regarding 3 strategic growth initiatives involving a proposed investment of approximately INR 500 crores. These initiatives reflect our confidence in the long-term growth of ports across our pharmaceuticals and specialty chemical businesses. Let me briefly put these announcements into perspective. First, we are expanding our ibuprofen capacity by 6,000 MTPA taking our total capacity to 18,000 MTPA. Our existing facilities are operating at high utilization level and we continue to see increasing requirements from established customers as well as opportunities of level globally. The new facility will be a fully backward integrated, leveraging 1 of IOL's key competitive strength and is expected to be commissioned by December 2027. Second, we have established a new CDMO of acuity with a capacity of approximately 1,500 million tablets per annum or equivalent volume of direct compressible grade. This marks our entry into CDMO formulation star-based customer relationships, primarily in European region. The facility has received the EU GMP certificate and commercialization is expected during Q3 FY '27. Third, we are also establishing a dedicated speciality chemical facility under a long-term turning arrangement with a leading global chemical company. This is a customer-led investment, providing visibility of long-term manufacturing demand. Taken together, these initiatives are aligned with the strategy of strengthening our core businesses accelerating diversification and selectively pursuing adjacent customer-led opportunities. Collectively, these initiatives are expected to contribute an incremental 25% to around 30% to our top line over the coming years. Importantly, the proposed investments are planned to be funded through internal accruals in line with our approach to our disciplined capital allocation and our confidence in the company's cash generation capability. Around 30% of overall funding requirements has already been incurred. We therefore see these announcements, not as 3 isolated projects, but as part of IOL's broader journey of scale, diversification, backward integration and deeper customer relationships. With this overview, we now would be happy to take your questions and discuss these initiatives in great day. Thank you.

[Operator Instructions] The first question comes from the line of Disha with Safe Capital.

So a couple of questions. First on the ibuprofen capacity that you're setting up. So it's around 350 sort of CapEx that you're planning right -- when is this capacity is going to come online and what sort of asset turns are we looking at here?

So the idea is that this will be commercialized by December 2027 the asset 1.1 -- it's a 1.75.

Yes. So you're seeing around INR 600 crore to INR 620 crore sort of pretty peak revenue we can.

So revenue is around 1.75% of the investment. So this is it is only peak utilizes and value what we foresee. And see, again, the revenue, what is going to be the question, which is depending on so many other factors as well. So this is the tentative -- generally, our pharmaceuticals investments has 1.75 to 2x of the top line. But again, as a disclaimer, this is a mix of so many other factors, including the geography where we are selling, the customers, long-term arrangement and the quarter management and obviously, the market cycles as well.

Correct. Correct. Correct. Okay. But generally, we 1.5 correct?

Correct. Yes, that's.

For the next year, like how quickly will we be able to like utilize it, what sort of utilization will be targeting. So for the next year, we'll only have the capacity for which is 1 quarter. by FY '29 what sort of utilization will we be looking at? Any sort of color on that?

Yes. So this is Q3 -- Yes, Q3 of '28 will be commercialized. But in FY '28, this, I think, around 25% approximately utilization we can reach. This is our need and the optimum utilizations will happen in '28 and '29.

And that is -- what we that number so around 80%, 85%, sir?

As on that.

so the optimal.

Optimal is more than 80% and this is you're talking about the.

Yes. Correct. Correct. And just for the CDMO business, if you could just give more sense of the commercial operations are beginning from Q3 FY '27, what sort of contribution from this business are we expecting for this year or for the next year? And what sort of margins can we expect for this business segment?

And so you are right. We are commercializing this project in the Q3 of this financial year see. Again, the numbers to talk about will also depend on various API that is going to be utilized this segment. But again, this is something around 1 point -- I mean, 1 to 1.25x on an average basis, considering approximately 90% utilization. This is going to be the full case scenario. This is the average again, average numbers we are talking about. But another question of that how far -- how fast we can go. -- this will again be fully personalized in the next financial year.

And it will clearly depend on the customer development. because since this business has started on the request from some of our anchor customers. So again, development will take place, then regulatory approval process will be there, then we will talk about the commercial quantities.

But we do have some soft commitments from customers.

Yes, the commitments are there. They are with respect to making up the product. So probably, there is no challenge with respect to making of the product. But yes, the regulatory process will take it on time.

margin -- are you seeing been 18 to 24 months.

Sorry?

We expect optimal utilization will be achieved in the last 18, 24 months.

Okay. And what sort of margin, sir, can we look at here? Because this business will have typically higher margins, right?

Yes. The margins are pretty -- I mean, a little bit better or the sort of better than the margin available on the API.

Any sort of number, sir, that you would like to put on.

I think this is very early to discuss on the exact margin numbers.

Okay. Okay. Fair enough, enough. And just your sense of the current pricing environment we've seen paracetamol prices going up and the chemical prices have also skyrise of the world, what's the current situation right now? And do you see these pricing these prices sustaining?

So the prices of paracetamol now are not going upwards. And in most of the -- sorry, APIs, we are into the stabilized, either stabilized or at than going up our side. In fact, from the prices of the Paracetamol from peak during the last 6 months, they haven't softened down.

So for the next year, any sort of color on what sort of revenue and margins are we targeting? Because we have we'll have our CapEx also online.

So this CapEx is not going to be materialized much within this financial year. So we would like to maintain the financial guidance interline would be given in the last call also, something around 20%.

I was not asked about was asking FY '27.

So basically, FY '28 also is not going to be fully commercialized. This will be to be commercialized or utilized in next '28 to '29 -- and the top level, what we can assume is around 25% to 30% incremental in the top line. That will be the additional after completion of all these 3 full pledge.

The next question comes from the line of Surabhi at Alfa.

I have a couple of questions. My first question is regarding the ibuprofen expansion. Now this being a commodity product will largely growth at a very stable rate. But you are expanding the capacity by 50% in this product. Two questions here. What is -- where is the demand coming from? Is the demand coming largely because 1 of the larger competitors are shutting in the plant is back getting transferred? Or are you seeing new demand that is being created in this part.

So as far as the demand is concerned, yes, we have in mind that how the CAGR for ibubufen would be there. But considering the current scenario, we have some developments with our domestic as well as international customers. So we are trying to capture those requirements. And additionally, like our current capacity is exhausted up to the level of 90% to 95%. And Third point is we are looking at some of the numbers into our CDMO business also. So considering all these factors, we are planning to increase the overall capacity of ibuprofen.

Got it. So just to take that point forward, the formulation business that you all are doing for some of the European customers. Is this going to be largely existing products were you largely be actively using our API, and that's what is giving the cost advantages. and how have you cracked some of the European customers? Have they approached IOL company or we have gone ahead and diversified into the formulation is.

No, they came back to us that why don't you supply as the build tablets instead of sending the API -- so probably this is both was mutual agreement than we have gone for this arrangement.

And we are doing formulation in existing products only, right? Pandora, albino, ibuprofen, Mitano these products only where we'll be captively using our API.

Yes, definitely.

And what sort of contracts can your or soft commitments do we have in the formulation business?

No,. So basically, we are in discussions with the various customers. This is not the only 1 customer we can talk about this. we are having the idea of that we are -- the contracts will be the like of the similar contract we have with API. So these ranges to the 3 to 5 years and with the escalation clauses and other things also. So I think the same line contracts we have.

Got it. And just 1 last question, 1 question. What is the chemical tolling that we are doing -- what is the opportunity over there? And if you could explain that also a little bit.

So that product, which will be falling under chemical segment only. And probably, this is again a product which already -- which is already there in the market. And we have got some mutual agreement for the development and commercial supply of this product with the one-off or we know the customer.

So again, this is a product that exists currently doing, but now you will be doing it specifically for our customer. Is the understanding right?

Currently, currently, it is not under our portfolio. So we have completed the development, and it will be additional to our existing portfolio.

The next question comes from the line of Richard Balik with Artha Capital.

My question has been answered.

The next question comes from the line of Subrata Sarkar.

Sir, again, mainly on the IB environment only global environment. So we have announced a large CapEx, whereas some other players, competitors are thinking of exiting that business. So in this in the situation like what is our take on the pricing as well as the market of the Ibbusiness? And recently, is there any sharp increase in the price of idle in the international markets?

No. We don't think there is a sharp increase in the pricing of abulofrin in the market currently. Basically, if we can say it's a continuous sense of our strategy rather than any change in the direction. So whatever initiatives we announced, this is the part of our long-term strategy. It is not depending on any current time situation. So we should not look into it in that way. It's a targeted it. So I can say, keep it's going to fit very well suiting in our long-term strategy that we keep on discussing.

Okay. But do Middle East issue has some impact on the uprise because field store has gone up.

I think all that have not been neutralized. So there was the impact and the impact was during the initial phase or initial months of the war. But I think now because if there is an increase in the final prices, so the raw material price has also gone up. So it neutralizes for us.

The next question comes from the line of with 361 Capital.

Sir, just wanted to understand 1 thing. From the CDMO perspective, we are investing approximately INR 110 crores right now. and the current opportunity is around INR 100 crores, INR 150 crores, as you I think mentioned asset turnoff 1 to 1.2x and 90% utilization. So from a longer-term perspective, maybe 3 years to 5 years perspective, what is your vision of the CDMO business for you? And how big can this become from a 3 to 5 years' perspective. This is the first one. And the second 1 is we've also acquired land, I think, around 100 acres of land. And we were also planning CapEx on that. And I think regulatory approvals is what we were waiting for. So this there will be now pushed for a few years? Or that will also come in simultaneously along with this?

So I would like to take the second question first. The CapEx we announced 2 days back, is separate than the our greenfield projects at the new land. So these are not related. Basically, these are different, and we have not pushed the development at the site and neither delayed, that will be as per our initial plan. So as on date, the status is that we are in the process of obtaining the approvals regulatory approval. Most of the approvals are already secured. And initial base work is also -- I mean, a little bit we started, but the complete work will be started once we have all the place approvals. And the first question of the CDMO would we think for next 3 to 4 years. So that will be -- I think we can discuss once we achieve the optimum utilization of this line, we have come up, how response we are going to receive from the customers and in the market. So I think that will be pretty early to discuss post 3, 4 years of this line.

The next question comes from the line of Sami Ragni with Vera Securities.

Since the CDMO facility is primarily aimed at serving anchor customers in Europe. Can you provide some color on the contract tenure and revenue visibility from these customers?

Our contract terms are similar relating to the contracts we have for our existing API products. And the contracts are medium to longer term. So it is being finalized with various customers as a day. We will keep you updated as and when we progress in this respect. So I think the commercialization of this plant is going to be the next quarter, by the end of the -- so we will be discussing that time in much detail as well.