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

Ladies and gentlemen, good day, and welcome to IOL Chemicals and Pharmaceuticals Limited Q2 and H1 FY '27 Earnings Conference 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, Uda. Good morning, everyone, and welcome to Q2 and H1 27 Earnings Call of IL Chemicals and Pharmaceuticals Limited. Joining us today are Mr. Pardeep 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 the Financial Adviser and Strategic Head, to provide the results overview 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 now like to hand over the call to Mr. Abhay, sir, for his opening remarks. Over to you, sir. Thank you.

Thank you, Vaibhav. Good morning, everyone, and welcome to the Q2 and H1 FY Earning Conference Call of IL Chemical and Pharmaceuticals Limited. Thank you for joining us today and for your continued trust and support. I hope you have had an opportunity to review our financial results and investor presentation filed with the stock exchanges and all on our website. We have maintained the positive momentum during the second quarter of FY '27, delivering healthy growth across our businesses accompanied by a meaningful improvement in profitability. This performance is particularly encouraging in the backdrop of continued geopolitical uncertainties, global supply chain disruptions and volatility in raw material prices. It reflects the benefit of our continued focus on product mix, operational efficiencies better capacity utilization and disciplined execution of business strategy. Coming to our pharmaceuticals business, we continue to witness encouraging demand across our product portfolio. our non-iron propane portfolio maintained its growth momentum, registering approximately 70% Y-o-Y revenue growth during Q2 and contributing 45% of pharmaceutical revenue compared with 38% in the corresponding quarter last year. This reflects the increasing scale and contributions of our diversified API portfolio. At the same time, ibuprofen continues to remain an important business for and we remain focused on strengthening our competitive Fugro capacity expansion, badware integration and process. Our Chemicals business also witnessed a significant improvement in performance with its contributors to overall EBIT increasing to approximately 7% during Q2 compared with around 1% in the corresponding quarter last year. This improvement reflects better realization, operating efficiencies and disciplined procurement. We believe our integrated manufacturing capabilities and investments in capacity enhancements will further strengthen this business and support its contribution to the company's overall performance. On the regulatory front, we achieved important milestones during the quarter. We received certificate of suitability from EDQM for fenofibrate process to taking our total CEP approvals to. Additionally, we received a GMP certifications for our formulas CDO facility, further strengthening our regulatory credentials and manufacturing capabilities. During the quarter, we also secured EU reach registrations for our trait is strengthening our ability to access international markets. These developments represent important steps towards expanding our regulated market be enhancing our manufacturing capabilities and creating opportunities for sustainable growth across our pharmaceuticals and Speciality Chemicals portfolio. Moving to our strategic growth initiatives. During the quarter, we announced significant manufacturing projects involving a combined investment of approximately INR 500 crores to be funded through internal accruals. These projects represent an important step in strengthening our manufacturing platform and broadening our business portfolio. The initiatives include the expansion of our ibuprofen manufacturing capacity from 12,000 MTPA to 18,000 through a backward integrated facility establishment of the formulation CDMO facility with an annual capacity of 1,500 million tablets or equivalent direct compressor trade volume and setting up a dedicated specialty chemicals fertility under a long-term tolling element with a leading global chemical company. These investments are aligned with our long-term objective of building a scale is strengthening indication and creating a reasonable growth revenues. The CDMO and speciality chemical projects are expected to commence commercial operations during FY '27, while the ibuprofen extension is targeted for commissioning in FY '28. Our CDM initiative will enable us to leverage our existing pharmaceutical manufacturing and process capabilities to participate in a broader range of customer requirements. Similarly, the specialty chemical projects is aimed at establishing our budgets in contract manufacturing, providing an opportunity to develop long-term engagement with global customers and create an additional revenue for growth. Together, these initiatives will broaden our revenue streams and strengthen our position across the pharmaceuticals and specialty chemicals value chain. Looking ahead, ARPU priorities remain focused on executing the announced capital projects, scaling our diversified KPI portfolio, improving operating efficiencies and strengthening our pages in international market. We will continue to pursue growth opportunities with a disciplined approach to capital allocation while maintaining a strong focus on operational excellence and financial performance. the progress achieved during the first half of FY '27, reinforces our confidence indeed the access of our business and our long-term growth strategy. Going forward, we remain focused on strengthening our capabilities expanding our business, food and executing our strategic initiatives with discipline while continuing to create sustainable value for our stakeholders. With that, I would now request Mr. Pardeep Khanna, our CFO, to take you through the financial performance for Q2 and H1 FY '27.

Thank you, Mr. Abhay. Good morning, everyone. I will now dive onto the financial performance of the toy for the second quarter and first half year of.....

Sir, can you please come closer to the device?

During second quarter of financial year '20, our revenue from operations stood at INR 795 crores, registering a growth of approximately Y-on-Y and 5% segmentally or first half year of finance period '27, revenue from operations, we retinitis or 25 months year. This growth was quoted by healthy demand across our pharmaceutical and chemical businesses, along with them improving product committees. On the operating front, Arista of second quarter stood at approximately INR 115 cars compared with INR 64 in second quarter of fancier 26, registering a growth of nearly 80% year-on-year basis. EBITDA margin improved by 31 basis points to 14.4% compared with 11.2% in corresponding quarter of last year. For first half year of an year '27, which increased by approximately 70 percentage Y-on-Y to INR 227 year with an EBITDA margin of 14.5 percentage compared with 11.8 percentage in the first half year of financial year '26. Momentum profit, profit after tax for third quarter of 227 stood at approximately INR 65. And compared with INR 30 in quarter 2 of the last year, registering a growth of approximately 170%. For first half of financial year 27 PAT increased to approximately 10 year compared with 64 are in the correspondent period of doubling or -- on the cost front, an outsource an increase during the quarter compared with the quarter service period last year, primarily due to higher sustaining capital utilization to support increased digital separations and volume. From a segment perspective, the pharmaceutical business continues to be a key contributor to overall performance, while the cement a meaningful improvement in the operating profitability. Exports contributed approximately 28% of revenue during the first half of reflecting the continued contribution of our international in. As we move to the second half of the financial year, our focus will remain on proving activity, optimizing capital and maintaining financial discipline. With this, we can now open the floor for questions and answers. Thank you.

[Operator Instructions] The first question is from the line of [indiscernible] from [indiscernible].

Congratulations for a good set of numbers. So sir, for us, I wanted to understand that are we in the line of coming up with the facility like we are in -- so how -- what is the status currently going on, like the civil construction has been started. And have we placed the order for the equipment and all and how quickly we are coming up with it? Because what I can see from the market scenario, there has been a quite realization increase happening in the ibuprofen market. So I wanted to understand from you also about the current scenario of the market, like how you see the ibuprofen realization have been? And what are realizations this quarter compared to the previous one. And are we getting benefited from it like other players in the market are seeing the benefit out of it?

So as we already said, this project is -- we think that will be operationalized during the FY '28. And relating to the equipment, this is already ordered, and we are in line as for our projected target lines. So we are very hopeful that this facility will come up during the Relating to the global market and Grupo fine business, see, we -- this should not be considered as the short-term measure for the company's initiative. This is strategic initiatives as we have taken. And this is in line with our current utilization of the upon also the development or engagement we are having with the various customers. And having said that, we also come up -- coming up for the CDMO formulation based -- so we are having the good interest generators there. So some part of the adopting will also be utilized in that city. So I think we are very in line with our strategy -- long-term strategy. So this is not related to the -- what is going on personally and what is going on with the peers.

Understood. But sir, can you tell us like what are the current scenarios? Like, do we see the realization like going up like pit see it tables coming to 3 years because I think there are a lot of flares globally who are backing like was stepping back in this ibuprofen business. So just wanted to understand from you the scenarios going on like how the demand and the realization scenarios currently though, our strategy is for the long term, I wanted to understand what currently we can see like for example, in Q3, Q4, can we see the realization gain happening in our ibugrufine business and how we see that benefiting us in terms of EBITDA because we are already degraded. So wanted to understand in the like 1, 2 quarters, can we see a good margin hike and realization gain in this business?

So I think we remain mindful of global demand supply dynamics pricing trends and competitive developments across the peers and across all global markets. The is, I think, are stable for last -- I think, from last quarters and hovering around the same level. And we assume that it remains more or less same near term, so 2, 2 to 3 quarters. Having said all this, our investment should not be viewed merely as increased the installed capacity. This is relating to we consider rather than strengthening our position into the global market and the domestic markets both. So we are hopeful that we need to definitely be able to achieve good realizations from this business and our development as per our targeted lines. So things are going well for the going.

Got it, sir. And sir, just a follow-up on this. Can you like share like do we have a long-term contract for the customers in our business reasonally like what is the time line of 1 for this API business if you can [indiscernible]?

For business for any product, it takes around 6 to 8 months for any customers from making to sartorial orders. the order book means around 4 to 6 months for every big customer. And the average order book size is around 4 to 6 quarters.

Got it. And we have the clause to pass on the -- any like cost because raw material sizes are also increasing a lot..

Yes, the prices are very volatile. So the class is inserted in that order.

Got it. And sir, another question I have is on the CDMO business. Basically, I just wanted to understand that there, what we are trying to make like to a customer base, but just wanted to understand which therapeutic area or which kind of formulation we are focusing there, if you can make us understand on the CDO business.

So currently, our plans are to convert our existing molecules either into the tablets or into the customized requirements be listabacking or something. So currently, we don't have our plans to go with our own MAs. So we will be going ahead with our own thoughts as of now.

So you are saying you will need for the CDMO part, for example, you are into ibuprofen then you will make are you putting tablet out of it and sell it to your CDMO customers. Am I right?

Yes. Yes, I do Paracetamol -- any type of API which are the noreportfolio, we can make target for that.

Okay. And do we have like a full -- how much commitment from our CDMO customer, like do we have only 1 customer for that? Or there are multiple more customer for our formula facilities?

So as of now, we have developments going on with 2, 3 customers, but patrol, we are talking to other vendors and manures also.

Got it. And sir, how much margin we are expecting to get the business because we have a -- so what I think can we expect coming out of the CDM business?

Basically, also, this is lucky to difference in margins. But like chemicals, we have 3 business chemicals, API, and this is again forward integrations for the APIs. So generally, CDO amounts better than -- this compared to the [indiscernible].

The next question is from the line of Ahmed Madha from Unifi Capital.

Just to follow up on the previous participant's question, who will be the typical customer for us? Will it be the domestic is selling a branded product? Will it be U.S. is selling a product in OTC market. Can you give a little bit more led on the profile of the customer base in our CDMO business for formulations?

So CDM formulations, we already announced that actually. So our target is export. And if we say the export, this is majorly the European market and the development is happening with a few of our existing customers. those, we are having the long-term relationship with customers. And basically, this is a customer slide business also. So our focus is very clear that we are going for the CDMO, and we are starting with the existing customers.

All right. And in terms -- so you can continue your answer. Sorry, I cut it off.

So my answer is completed. What I was saying is in European region. The target is [indiscernible].

And sir, can you give some more sense on how pricing for proven has moved for you in current quarter compared to last quarter. I understand some of the formulation guys will have some sort of contracts with you, which you spoke about 4 to 6 months. So the over India index pricing we see has inched up a little bit in last 6 months post war. So do you see pricing benefits further coming in your new orders in Q3, Q4? Or that is already in the P&L as of now?

No, I think we already in the P&L and the prices are sort of stable for and they were also into this quarter or again. And relating to the how smooth we are, that can be vouches wide capacity utilization, we are operating it for quarters around 90% to 95% capacity that is being utilized. So I think prices for the next 2, 3 quarters, we expect that will remain at the same level.

Sure. Sir, in terms of your expansion from going to 5,000 tonnes to 18,000 tonnes, which I think will come by next year and -- do you see the core market becoming again a little bit tricky in terms of excess supply, there is an Indian company who sort of wanting to expand capacity. I don't know a lot of visibility or clarity in terms of Chinese supply. So how do you see the supply side evolving at 12, 18 months down the line?

So basically, this is sort of the long-term initiatives we have taken and the project will ramp up during the FY '28. And I think it will be fully utilized by the '28 and the -- so optimum utilizations will happen in FY '28 and '29, and for last quarters we are operating around 95% and even more than that capacity is -- and this step has been taken not considering the current scenario, which is happening around the market. But this is on the basis of our development we are already having in and we have very well visibility that how this product is going to be utilized in the API and the CMO, both in next 2 to 3 years.

And sir, for your intel capacity, do you expect it to be your similar merchant customers? Or you think large for the incremental customer will go towards your formulation price?

Anything makes of both.

Can you give a broad break I'm just trying to understand how much would be at the end market will grow at a certain percentage, 3, 4, 5 percentage and there is a fair amount of supply coming in. So I'm just trying to understand how much supply expansion happens and how much do you utilize to fulfill your formulation customers?

So I think it will be a mix again probably. We have some new developments with our API suppliers also. So their market demand will be catered from this plant. And additionally, like our CMO plant is going to be utilized, so some of the quantity. You can say 50-50, either 50% will go to the new consumer and 50% of it will be consumed for my engine suppliers.

The next question is from the line of Vignesh from Sequent Investments.

Congratulation on a good set of numbers in a tough environment, right? So my first question is on the CV side. Just wanted to understand, sir, if I would -- you mentioned that commissioning is in wanted to understand how long does it take for the customer approval to come for the products that we intend to manufacture in this facility?

So it will depend from customer to customer and in which market the customer is operating. So as we said that we have a main focus area for the European market, so like we will start the validation process first. And after validation, we'll submit our samples then probably we'll make documentation accordingly. And then that customer will go ahead for their approval into their respective country and then it will move on. So generally, it is maybe 1 year's time, around 1 year's time. I mean 3, 4 months here and there.

Okay. Got it. Got it. And also, can you sell the CapEx number that we are actually already spent in first half of the year -- and how much will be trending on the second half of the year?

We planned the CapEx of INR 250 million here in the current year, and we have already spent half of is in the fast and very ninth second half of the year.

So if I understand, INR 250 crores for the entire year, right, your total CapEx?

Yes.

Okay. So also with the annuated prices from the product we are seeing that there would be a requirement of a higher amount of working capital on diner, guys requiring anything on this? I mean so the total finance that will even require CapEx plus working capital will probably be more than you can the cash flow as you making for the year. So there will be some entree borrowing in this year?

You are right that the -- on the increased level of operational increase in selling annual input prices, requirement of working capital is on a higher side. And you've seen that in the order numbers, there is a slight increase in the on costs also. But these limits are proper already fully utilized. So we -- so in the last quarter, we have Julie working at the optimal level. And we are not going to take any borrowing in the coming years. We have scene cash flow operating and in hand so with the company as of now.

So this [ 2/3 ] of short-term borrowing that you have as on 30th September 2020 sales, that would be the piece borrowing is what you are saying for the rest of the year?

Yes. It is working capital from the bank only other than there's a short-term working capital only.

Yes. So that is a peak working capital requirement is what I'm saying. So you don't require more than INR 200 crores, right, for the next of the year.

Yes.

The next question is from the line of Maulik Varia from 360 ONE Capital.

Just the relet of REIT rating and clarification on the previous participants question. So firstly, sir, our CDMO business. So you mentioned that it has been recently inspected by -- I mean the GMP inspection has been done. So for the products which we are converting the API existing API products, which we are converting into formulations, will we require any additional filings or approvals apart from this? Or how does this work? Can you please make a comment?

As far as approvals are concerned, we have the local approvals from the state licensing with protecting the plant and additional environment from the customer side was the European GMP industry probably item going forward, it will be the documentation required for buying in new business incents that [indiscernible].

Okay, okay. And in terms of point, you mentioned that the new capacity which is coming up will be utilized by FY '28. Is my understanding correct?

Yes. This is correct.

Okay. Okay. And also, sir, in terms of order book, you mentioned of 4 to 6 quarters. So that was across all pharma products or [indiscernible]?

[indiscernible].

Okay. Okay. And so in terms of our growth east in the quarter. And this can you help us in terms of making up between volume and value growth for chemicals and pharma?

So commodity, so if we talk about the volume, our major products are being utilized at 95% to 100% capacity utilization. So I think breakup of what volume is contributing and what price is contributing is not available right now with us. But majorly, this is on the basis of the prices and the better utilization and also the efficient procurement.

Understood, sir.

Mix of [indiscernible].

Understood. Okay. And sequentially, what do we expect for second half of 2017, do we still expect improvement on -- as compared to first half? What is your view, sir?

For FY '27 when complete, we perhaps said we will be having around 25% plus revenue growth with 14% to 15% of EBITDA generation. So I think -- so 2 quarters already gone, I think we should have for the next quarter more or less same performance.

Sorry, sir, sorry, your voice back for sorry?

Q3, I think Q3 and Q4, remaining 2 quarters, 6 months, perhaps we should have the same performance because we are expecting more than 25% or close to 25% revenue growth this year.

Understood, sir. Okay. And the new projects, so the IMO, which is expected to start in FY '28. So do any in the first half or second half of FY '28?

Probably in the third or the fourth quarter. So this will be having very less amount of the impact during that near '28. So real benefit will come in by '28 and '29.

Okay. So second half of FY '28 and we'll be seeing contribution from Ibu business also?

No, no. This will be commercialized during the FY '28 as during the December and March between some. So in that app, this will be very less time for ramping up the production and realization. So the benefit will start coming from '28, '29.

Understood. Okay. Okay. Got it, sir. And another question is on booking side. The other expenses were higher for the quarter. at approximate 14.5% of sales, usually, our rate is 13.7%. So any particular reason? And is this the new normal, which we should expect going ahead?

Other expenses have increased due to cost of and the logistic costs during the quarter power and fuel cost generally every year, higher in the second quarter because of origin and live in [indiscernible]. So other cost logistics, which is due to high cost of shipping rate even we have capacity to go from the customer in the coming months. So we hope it will decrease both the cost decrease in the third and fourth quarter.

Okay. Sir. And my final question is, sir, what products would be the key drivers in the Chemicals segment, which drove the 38% growth in this quarter?

We have used 100% of appropriate capacity for both a high appetite as a candidate. And prices are also better and in this space. So this will contribute -- this is contributor to our capital rates.

The next question is from the line of Yogesh [indiscernible] from [indiscernible].

Sir, just revisiting your guidance, you said 25% full year growth. It means the H2 growth will be lower relating to the H1?

No. What we are seeing that this is the overall year we are talking about. So because 25% plus we are saying. So I think -- because we -- initially, we said that we will be around 15% to 20%. Now we have the visibility because half year already gone. So the remaining half year will be performing more or less the same than the half year or -- so in overall terms, it will be 25% plus.

Okay. Not cap between around 25%?

Obviously, we are doing a lot of backward integration and process improvement. And I see around 100 bps improvement in gross margins and operating leverage in spite of higher other expenses.

Sir, do you see going forward, because see, pricing is not in our control. We can only improve the productivity already with the cost. Sir, do you see the cost of production in going forward with [indiscernible].

Depends on the raw material prices, how they are going up......

Cost of production.

I think cost of production. Being a statin backward integration, our continuous focus on how we can increase our efficiencies better product mix and how to minimize POs and give better quality. This is our main focus for better action, better bottom line in the company. But the price utilization or the price is maybe not controlled by any person in the industry.