Ipca Laboratories Limited ($IPCALAB)

Ladies and gentlemen, good day, and welcome to the Ipca Labs earnings call, Q4 FY '26, hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Agarwal from DAM Capital Advisors Limited. Thank you, and over to you, sir.

Thank you, Rico. Good afternoon, everyone, and a very warm welcome to Ipca Labs Limited Q4 '26 post-results earnings call hosted DAM Capital Advisors Limited. On the call today, we have representing Ipca Labs management, Mr. A.K. Jain, Managing Director; and Mr. Harish Kamath, Corporate Counsel and Company Secretary. I will hand over the call to Mr. Jain to make the opening comments, and we'll open the floor to questions. Please go ahead, sir.

Thanks, Nitin, and DAM Capital for organizing this call. Today's gearing call and discussions answered given may include some forward-looking statements based on our current business expectation. This must be viewed in conjunction with the risk that pharmaceutical business faces. Our actual future financial performance may differ from what is projected purse. You may take your own judgment on information given during the call. Our domestic formulation business in Q4 FY '26 has delivered a growth of around 12%. Business was at around INR 853 crores as against INR 764 crores in Q4 2025. At March '26, current, continue to remain at 16. However, we have marginally improved our market share to 2.09% as against 2.08% in May, December '25, 6 of our brands are featuring among the top 300 brands in the industry. And both chronic and acute segment, we are continuously building the market. Overall, for financial year -- FY '26, our domestic business has grown by around 10% to around INR 3,817 crores as against INR 3,455 crores in FY '25. Our export formulation business has delivered a growth of around 9% for the financial year '26 to around INR 2,083 crores from INR 1,919 crores. The promotional business for the quarter has delivered growth of around 14%. And for whole of the year also, this business has delivered a growth of around 14%. Overall business for the financial year has remained around -- is around INR 664 crores on promotional business, promotional branded business export business as against INR 582 crores in last financial year. Generic business, excluding tenders, has delivered growth of around 17% for the financial year to around INR 1,149 crores from INR 982 crore in FY '25. Our Institutional business has declined during the year to around INR 270 crores from around INR 355 crores in last financial year. Even in the last quarter of the current year, also, business has declined to around INR 74 crores as against INR 111 crores in Q4 FY '25. API business for the whole of the year has delivered business growth of around 10%. The business now stands at around INR 1,396 crores as against INR 1,266 crores for FY '26. Overall consolidated business for the company in FY '26, March '26, has grown by around 6% to around INR 2,388 crores from around INR 2,274 crores, and consolidated revenue for the for full of the year has grown by around 8% to around INR 9,646 crores around -- against INR 8,940 crores for the financial year '25. Stand-alone EBITDA margins for the Ipca in Q4 has improved by to around 25.27%, as against 21.19% in Q4 FY '25. This is an improvement of almost around 4.08%. And for the financial year, March '26, overall EBITDA margin, the stand-alone for company has gone up to around 25.18% as against 22.66% in March '26, an overall improvement of around 2.52%. And we have significant overall, improve the margins as against our guidelines for the financial year. The consolidated Ipca Q4 FY '26 EBITDA margin has improved around [ 22.52% ] is against 18.4% in Q4 FY '25, an improvement of around 2.8%. And for all of the financial year, March '26, EBITDA margins has improved to around 20.72% as against 19.9% in March 25, an improvement of around 1.8%. We have delivered better margins as against our guidelines of 20% for FY '26 overall. Having given the broad numbers now, I'll request the participants [indiscernible].

[Operator Instructions] Our first question comes from the line of [ Angel Jalan ] with Lotus Wealth.

Sir, if you want to grow at 15% to 20% for the next 2 to 3 years, how many molecules do you think we should be launching at a early level? [indiscernible] old molecules will have higher competition. And pricing is also happening there. So how new launches do you think we should be doing [indiscernible]? And secondly, what is the product pipeline for Q1 and Q2 of FY '27? Yes, that's my question.

As far as we are concerned on the old molecules, we don't see any kind of price erosions as such. And normally, our policy is to take the price rise of around 5% to 6% in the year, depending on what kind of price size competitors are also taking in the market share. So that policy will continue that way. And as far as domestic markets are concerned, we don't launch too many products in a year. Each division has around 2 or 3 power brands and then there are support brands in each division. And at the most in this division, we may launch one product or some line extension in the here and there. So if we have 20 divisions in the year, we should be launching in downstream market around 18 to 20 products. So that has been our business philosophy because more number of products you launch, the attention of the people get diluted, that results in the overall defocus from the main power brands. So we don't -- normally don't launch too many products in the marketplace. As far as generics are concerned, let's say, currently, we are marketing around 8 products in the U.S. And I think this year also maybe around 6 to 8 products will be commercialized in the current financial year. And as far as European and other markets are concerned, each market situations are different. But normally, we launched 3 to 4 products in each market in every year in one that is our overall portion.

Okay. And so specifically for Unichem 6 to 8 products in?

My Unichem has also a good pipeline, and I think they should also be looking at least 5 to 6 products in the current year.

And then [indiscernible] in FY '27?

[Operator Instructions] Our next question comes from the line of Surya Patra with PhillipCapital.

Congress for the good set of numbers. Sir, the first question is on the U.S. business. Is it possible since it is a full year financials, what was the U.S. revenue that we would have generated out of IPCA and what outlook that we have provided for next year?

Overall, if you look at the consolidated numbers for the overall business, a USA and Unichem USA put together, I think in the quarter, U.S. has done business of around INR 428 crores as against INR 388 crores in Q4 last year. So there is a growth of -- and overall, for the full of the financial year, U.S. business is around INR 1,567 crores as against INR 1,379 crores last year. So U.S. has given a growth of around 14% on consolidated basis.

Okay. Similarly, sir, if you can just give some sense about the kind of growth that you have seen for the full of the -- for FY '26, basically for the key markets like, let's say, Europe, Africa, [indiscernible] like that?

Let's say, India should be growing around 12% -- in the 12% to 13% in the current financial year. CIS market will have around 10% to 11%. Overall, promotional market, we expect almost around 12% to 13% kind of growth. Then overall generic market will also have around 12% to 13% kind of growth, which will include U.S. also. So overall company as a whole, we should be able to, including Unichem put together around 12% to 13% kind of growth on a consolidated basis. And on EBITDA side from 20.7% currently on a consolidated basis, I think it should be almost around 22% or 22.3% something more or less on that line.

Okay. Yes. So next point was about the gross margin. So in fact, we have seen a strong improvement. And for the full of the year also, there is a kind of improved for funds that we have seen. But see, what can be attributable for this improved performance, whether it is a currency advantage or it is the synergy or it is the product mix improvement, U.S. picking it up? So what would have contributed to this margin improvement? And how sustainable the gross margin be?

I'd say cash stand-alone, if you look at against growth of around 10%. Our overall material cost has declined by around 2%. Overall, for the whole of the year, except from February onwards, earlier, the overall price was -- prices of materials has remained steady. So there was not much of fluctuations as far as the material cost was concerned around further first 11 months for the whole of the financial year because we maintain certain stocks. So as far as conventions are concerned, not much except in the March, certain solvent prices in February and March. The solvent prices and some other materials, which was supply chain detriments like ammonia and so many other things. [indiscernible] There are many of those materials has moved up. So little material costs have moved up in the month of February and March in Q4 of the current financial year on a stand-alone basis, if you look at the numbers. The improvement in overall margins is by and large because of product mix changes. Domestic business is doing good. ROW market business is doing good. Cardiac business proportion has moved up. And overall, the generic business, which is happening in most markets has also given us the better overall margins. So -- and even on the API side, we have improved our overall margins. So that has resulted in overall margin improvement on stand-alone basis. But as far as retail is concerned, there's -- overall, EBITDA margins have declined from 12% to around 8%. So -- and their turnover has not moved up. So that has resulted in overall otherwise, EBITDA margins improvement for consolidated business would have in further hire.

Okay. Just ask one more, sir, whether the supply chain disruption or any impact on the raw material availability or the price rise. So that situation is kind of already behind us or even the current quarter subsequent period could see some impact in the FY '27?

There is a significant improvement increase in the prices now. Let's say, if you look at packaging material, aluminum has moved up, PBCBDC has significantly moved up. On solvent price, if you look at prices are still 40% to 50% higher than what we were paying in the month of January or earlier in the whole of the financial year. And let's say, prices of a lot of other API has moved up because of, again, some or other things in the supply chain is disrupted. And overall, I see for current end of petroleum prices remain. Overall material costs should rise by almost around 10% to 12%. So that looks like that that's the kind of price rise is there in the -- currently in the market. Like say, simple product like Parasol has moved up significantly. Metformin has moved up significantly. And that moment is much higher than what number I am talking. I'm talking of overall. Overall is around 10% to 12% kind of overall increases there in the marketplace.

So practically, the product prices have gone up higher than the input prices?

I would say that these inputs have gone up. As again said, what is happening on IR output. Like say, as far as API is concerned, what we are selling today, entire cost increase, we are passing on to the consumer or to the buyers. So there are no issues. As far as the Domestic market is concerned, products which are in price control, the prices remain at the same level. You can't increase [indiscernible] data on that. And overall, the other be control product as against 5% kind of price, price, which we are taking. Looking at the overall input cost increase, we -- this year, price rise a little higher, maybe around 6% to 7% to offset the kind of price increase which has happened at the market pace, that will completely offset the entire overall cost rise, which are there in the marketplace. As far as generic market are also concerned, there the arrangements are a little longer term. So we are taking up with the buyers and increasing the prices wherever they are possible. So I don't foresee much of that impact coming. There could be maybe 0.5% increase in the -- or maybe 0.75% increase in the material cost. But I don't think so that will disturb my EBITDA margin significantly in the current year because, again, the product mix change and that's playing so overall your margin. And therefore, I have given the projections also of guidelines for the EBITDA margin for whole of year like it should -- it will move by around 1% to 1.25% in the current financial year. As against earlier, we were always talking of around 1.5% or a little more EBITDA margin improvement that little lower guidelines is only on account of metal cost. But if the petroleum prices again are moving up lower, then probably margins could still be better.

Our next question comes from the line of [ Raj Kumar ] with [ ARK ] Investments.

Sir, I just want to know what is the outlook for the Unichem business? When do you think the margins will improve?

Unichem last financial year had -- their U.S. business has not grown up, mainly because of certain high-volume businesses, they have lost certain market share. They again started gaining the market share. And I think in current financial year, their U.S. business should grow by around 10%. So hopefully, with that, the margins will also move up. They have done well in European market in last financial year. And we also see from further from that point of view, that business will improve and margins will improve there, plus they have also incurred some additional costs in last financial year because of their Ireland facility. There were -- manufacturing was happening, so that is closed and some -- those people were also given your package on severance and all those kind of things. So that cost also got debited. And all those productions are shifted back to India. So -- that is also -- will result in better margins overall on production of those products here. And also the overhead costs, which will be recurring in Ireland facility may be around 4 million to 5 million. So that expenditure will also stop in the current financial year. So overall, there will be better improvement in the Unichem also in the current year. We foresee that I think Unichem margin may become around 12% to 13% in the current financial year from that level. And from that level again in future years as our filings in other markets start coming up and then we start launching products in other markets. Margins [ 15.2% ] will keep on improving.

Okay. So this 12% to 13% that you mentioned, that is the overall margin for FY '26, '27?

For [indiscernible], yes.

Overall, the full year margin, right? Okay. And sir, the second question is this inventory at Unichem seems to be on the higher side. Last quarter also, like [indiscernible] question. You said there are some actions being taken, but the inventory remains more or less at the same level?

Overall, I think inventory wise, a lot of actions has been taken and -- but if you look at the nature of business itself in the case of Unichem because it's a U.S. business and supply chain disturbances, all were happening. So certain kind of inventory, the movement was taking longer time by ship and all that. They have started shipping everything from ships instead of air shipments. Significant amount of air shipment was there in Unichem maybe a year back to almost around 40% kind of shipment was moving by. Now it's hardly around 4%, 5% kind of shipment are moving it. And that's for the whole transit time has improved and the increase in all that. So that as little inventory has gone up on that account. But overall, we don't see any kind of concern on that account. Overall cycle itself is a little longer, and their business is mainly U.S. As far as Ipca is concerned, if you look at overall last 2 years, if you look at '25 and '26, and last put together, our inventory is at -- inventory and receivables entire there's hardly any money has been put in overall in working capital. The entire your cash generation is overall, there is accruals are there and there is hardly any kind of money has gone in working capital in last 2 financial year. We have perfect control as soon [indiscernible] overall inventory cycles are coming.

Okay, sir. Sir, lastly, the question is on the Lyka Labs subsidiary. So the performance has been deteriorating. So because lastly, you took an impairment for [ Credo ]. So will it also lead the same way because the performance is really deteriorating quarter-on-quarter?

Let's say, I should not be speaking for Lyka Lab, I think we should be talking but -- to Lyka Lab on that part. But otherwise, I'd say broadly, if we look at -- they have started marketing their injectables and animal health care products in the market, and they have recruited a lot of sales force. And it takes time, last 2 years, significant amount of expenditures has gone in creating the more sustainable business. Because of that, because of addition of field people, there's -- on P&L account, there are pressures. But I think journey is going very well as far as those -- the animal health care and the team, which has launched and also the critical care team their launch. They are progressing well. And we don't foresee much of concern on that account. Really that profitability is currently lower. But as the time goes, these teams start maturing and business start building up, margins will start moving up there also.

Our next question comes from the line of Shashank Krishnakumar with Emkay Global.

My first one was on the other expenses paid for Unichem with sort of sharp increase this quarter. So was it primarily driven by an increase in R&D? And if you could also share what the R&D spend was for both for Unichem and Ipca stand-alone as a percentage of sales by 2026?

I think Unichem that other expenditure moved up a is largely because of R&D because they are looking at some kind of institutional business in the U.S. So around 4 to 5 products have been -- technology transfers are given to third-party manufacturer. So that from -- we can manufacture those products for the U.S. itself to supply to the -- for the government purposes. And therefore, this quarter is around INR 10 crores to INR 12 crores of additional expenditure on account of boost at transferred to the U.S. or supporting manufacturer. So there's hardly any kind of exceptional cost. Other expenditures [indiscernible] moved only on that account.

Got it. So what was the R&D for [indiscernible], FY '26 as a percentage of sales?

It's around 3.71%.

Got it. Sir, just secondly, if you could just share the market-wise growth trends for the year gone by both branded formulations and generics particularly because this quarter, we saw an increase in generic revenue. So which market primarily drove that? If you could just share some color around how the individual markets have performed.

Domestic has grown by 12% for Ipca. Branded formulations have grown by 14%. Distribution has declined by 33%. Generic marketing this quarter has grown by around 39%. So that's overall Ipca is concerned. And as far as the whole of the financial year is concerned, domestic has grown by around 10%, granted by 14%. Institutional, there is a decline of around 24%, and generic has gone up by around 17% here. So that is already given in press release. If you go through our press release, yes, all those numbers are very well displayed there.

Looking for more market-specific trends, which you usually share, any particular market which drove growth this quarter or during the financial year?

You have said branded is brand large driven by, let's say, RCS market and French-speaking African market. India is, by and large, driven by our pain and cardiac can Derma and Europe and the CNS portfolio what we have. Institutional has by and large declined because of funding constraints currently being faced by the institution. And generics are -- both Europe has done well, Austria and Italy and has done well. So it's broadly the old markets and also the U.S. launches, which has happened current year. So overall, the business has been good as far as generics are concerned.

Okay, sir. And just the last one, if I could squeeze in. So would just comment on the performance of subsidiaries exit this quarter and for the full year.

As far as Unichem are concerned, I think current year was tough for them. I think -- and I have already shared the guidelines as far as Unichem is concerned that how they will be performing in current financials, this should be growing around 10% in current financial year, and they will improve their EBITDA margins also. Other than that, we have domestic subsidiary, which is called Topic Wellness. They have done well. I think they have significantly contributed. They are marketing neutraceutical, with business is around -- maybe around INR 125 crores and I think they're generating profit of almost around INR 40 crore plus overall. So that, like I already told me, it's not our subsidy associated company. As far as the scraps are concerned, their performance is improving now. One of their plants, which is at Nellore has started EBITDA positive. Other plants, there are certain concerns going on right now as far as collision departments are concerned. So once that is resolved, I think hopefully, we should be able to put that plant also on EBITDA positive kind of number. As far as U.S. European subsidiaries are concerned, we have 2 subsidiaries in U.S. One is Ipca formulation marketing company and another is Onyx Scientific, which is doing the your business of renting the research services to the other formulation company. One is spend facing some kind of issues there because of overall inquiry levels for those kind of projects have gone down because of current overall environment. This subsidy has been last 10 years, has been doing very well. For the last 1, 1.5 years, there are certain issues. But we are now seeing signs of improvement there. And it [indiscernible] subsidy, it is marketing the formulation in -- particularly in the U.K. That has given a loss of almost around 2 million to 3 million kind of bonds. And largely because of last financial year, the pricing scenario in that market was very, very bad. But we are seeing now -- again, there are a lot of shortages and overall improvement in the prices. So we hope to do better there also. As far as U.S. subsidiary is concerned, Ipca is only one, which is a major one, which is [indiscernible]. So there also, there is a formulation facilities under construction there. I think probably I think in the fourth quarter of the current financial year, they should be able to ready to commission the plant. So any meaningful turnover coming from there will be, I think, in next financial year only. not in current financial year. And their API facility is also seeing now good order position now. So hopefully, there will be further improvement in that operations also.

[Operator Instructions] Our next question comes from the line of Tushar Manudhane with Motilal Oswal Financial Services.

Sir, on the exports plan, you have guided for broadly 12% to 13% revenue growth. Is this considering the currency depreciation as well? Or is this in INR terms?

The guidance given is in INR terms, Tushar.

Okay. Got it. And as far as domestic formulation is concerned, given the raw material linked pricing, but if you could at least -- if you could share what could be the price volume, new launches growth that we can expect for FY '27?

No, the guidance given for domestic branded business is around 12%. Maybe out of that 1% to 2% could be new product and balance price increase and volume.

[indiscernible] our overall material cost to sales ratio of Ipca is only 25%. If there is an increase, that will get offset by overall your overall increase in the top line and also overall the profitability of your products in domestic ROW and all those kind of things. So we don't foresee that this ratio will significantly alter. Maybe it's only 0.5% here and there.

How has been the freight cost trending? Or will that -- maybe like at the gross margin level, I understood like the -- it's possible to pass it on the interim in the raw model. But how to think about the freight or the logistics costs?

Normally, let's say, our branded formulation business and certain KPI business, that all happens to, let's say, C&asis. There are a lot of other generic businesses that happens on the where the freight are borne by the party. So overall, I think our freight cost has moved up by most, I think, in the fourth quarter by almost around 25%. And this trend is continuing currently also. So that will have some impact on the overall number profitability till the time this issue of your issue remains of Iran kind of conflict, which is currently happen straight of arms and all that kind of thing. The oil prices are elevated. Wherever air shipments are concerned, the freight has multiplied now. And even getting the sometimes the cargo availability of space also it takes a lot of time. So sometimes materials remain for 10, 15 days. So availability itself is becoming an issue now to the various destinations. That issue remains in India.

So then effectively, will this have impact on Q1. But overall, we think that subsequently in the coming quarters, we'll sort of come back?

There will be some impact, but if business improvement is also there, but like I say, last year, we have grown by 10%. This year, we are guiding for 12% to 13% kind of growth. So that growth will offset everything because [indiscernible] cost to sales ratio is around 25%. So if you take your overall gross margin addition itself will be high. So all these costs should get offset.

[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Yes. Since all questions are answered, I think we can close this conference call. Thank you, everyone, for participation.

Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.