Ipca Laboratories Limited (IPCALAB) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Ipca Laboratories Q1 FY '27 Earnings Conference Call. Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Agarwal from DAM Capital. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and a very warm welcome to Ipca Labs Q1 F '27 Earnings Call hosted by DAM Capital Advisors Limited. On the call today, we have representing Ipca Lab 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 opening comments and then we'll open the floor for questions. Please. Thank you.

And DAM Capital for organizing this call. Today's hearing call and discussion and answer given may include some forward-looking statements based on our current business expectations. This must be viewed in conjunction with risks that pharmaceutical business faces. Our actual future financial performance may differ from what is projected and perceived. You may use your own judgment on information given during the call. Our domestic formulation business for Q1 FY '27 has delivered growth of 13% to around INR 1,082 crores as against INR 961 crores in Q1 FY '26. June '26, Ipca's rank remained continuously around 16% as per IQVIA. Market share has marginally improved to around 2.08% as against 2.07% in March '26. Top 6 brands of IPCA continue to feature in the top 300 brands of the country. And both on chronic and acute segments, ICA has outperformed the IPM. Our chronic segment growth is around 17.2% and acute growth is around 8.9%. And overall IQVIA has tracked our growth at around 11. Overall export business has delivered growth of around 34% for Q1 FY '27 to around INR 603 crores from INR 450 crores in Q1 FY '26. Promotional branded markets of ROW markets has delivered growth of around 16% to INR 143 crores from INR 124 crores in first quarter last financial year. Generic business, excluding tender business has delivered growth of around 27% for Q1 '27 to around INR 340 crores as against INR 268 crores in Q1 '26. Institutional generic business has delivered growth of around 10% to around INR 11.75 crores from INR 58 crores in Q1 FY '26. Approximately INR 40 crores worth of shipment, which was to go in March was shipped in April, and therefore, institutional business has shown exceptional growth in this particular quarter. API business of Q1 FY '26 has delivered growth of almost around 30% to around INR 424 crores as against INR 362 crores in FY '26. So almost all businesses has delivered good growth for the company for the first quarter of the current financial year. On a consolidation basis, if you see overall business has grown to around 21% to INR 2,788 crores from INR 2,309 crores in FY '26. Q1 FY '27, we have seen a lot of uncertainties, significant fluctuations in material prices, shipment delays, nonavailability of containers and significant increase in logistic costs, which is further going up in the month of -- from July to August and some of the destination sites like South America and all very difficult to get the containers and ships. Overall, despite all these factors, we could deliver better profitability. Overall consolidated EBITDA margins has improved to 22.8% for Q1 FY '27 from 18.39% for Q1 FY '26. That's an improvement of almost around 4.9% from absolute amount is around INR 638 crores as against INR 425 crores in last financial year, an increase of almost around 50%. And stand-alone EBITDA margins for I has improved to 26% in Q1 FY '27 to around 2.82% from around INR 557 crores from INR 416 crores in last financial year, an improvement of almost around 34%. Having given the broad numbers, now I'll request participants to ask.

The segment, we have the [indiscernible].

Ipca, our growth at 8.9%. But by and large, in this market, I think our antimalarial segment has declined by almost around 24% this quarter. And that's one of the reason that our performance is not that great compared to the overall because malaria in this particular period. chronic is concerned, our trend by IQVA around 17.2% and chronic growth was almost around -- the market growth was around 15.2%. As far as the overall business growth are concerned, our internal growth. Our pain management business, which includes rheumatoid arthritis and osteoarthritis, both put together has grown by around 13% for the quarter. Cardiovascular and antidiabetic segment has grown by around 17%. As I talked earlier, malaria has declined by almost around 24% in this quarter. And now malaria business is becoming almost insignificant. It is just hardly 1% of our overall business. [ Endobacterial ] has delivered growth of 1%. CN has delivered a growth of almost around 19%. Our cough and cold segment has delivered growth of around 9%. Dermatology has delivered growth of -- derma business has delivered growth of almost around 17% Urology business has delivered growth of almost around 25% ophthalmology around 17% and overall growth of business is almost around 13% over -- and overall outlook is also looking better because the market growth itself has started moving up and what we are seeing the trend that the chronic business growth in the market is very good, and we are also delivering growth in terms -- in line with markets now.

So the guidance which you have given earlier of 12% to 13% will remain for this year, right?

Yes, yes.

Okay. And sir, in terms of institutional business, what kind of normalized growth should we see in the subsequent quarters? Or is best if you can give for the entire year only and where the pickup is happening basically.

Let's say, as I said in this quarter, the growth has been significant is only because of INR 40 crores worth of shipment, which was to go in March, they were shipped in April because of shipping delays and all those. They are all nominated shipments, and it is not in our hand to -- we just deliver the goods to notify that goods are available to the nominee of the buyer, and they pick up the goods depending on the availability of shipment. And what happens sometimes is by the time they book the ship and they take the permission to ship the freight rate and all that, the ship has gone or the rate has gone up. So again, he has to do start and then delivery become later. So because of that reason, the shipments are delayed, and therefore, there is exceptional. Institutional business, we don't look for a very high growth. It will be -- remain in single-digit kind of growth from the -- and overall business may be around INR 260 crores to INR 300 crores. That's the range it will be. We are not looking for a very high growth from institutions and

Just one last question, if I may. On the generic segment, we have seen a pretty good growth. So earlier we were facing some supply issues in the U.K. business, whether all those things have been resolved now and therefore, we are seeing a good growth pickup. Are we seeing any traction in other geographies? If you can elaborate on that, what will be the outlook for the whole year for this piece as well as for the branded generic business?

Overall, if you look at broad all the market has given good growth in the -- if you look at U.K. European business overall, that has delivered almost around 70%, which is the main growth driver. Almost business has become from INR 33 crores to INR 137 crores. So that is a significant growth has come from EU. U.S. has given around -- our to U.S. is around 8% up. Canada, there is some minor decline is there. And overall let's say, the generic business is almost around -- excluding institution is around INR 268 crores, it became around INR 370 crores for ICA as a whole. And overall growth because of institutions and other European high growth in Europe, overall business growth was very high.

So are we going to upgrade our guidance for the generic business for FY.

The overall business will grow around 12% to 13%. But now looking at the upside what we are getting from the overall generic business, India business performing very well the API business has given good growth. So overall growth percentage from 12% to 13% may become almost around 14% to 16% overall for the whole of the current financial year.

Okay. And this 14% to 16% will be mainly driven from your upgrading in some part of the guidance in branded, generic market? And any update on your UniChem is also performing very well in terms of the margin in terms of strong growth on revenue front -- where do we stand there? And what kind of growth and margin guidance we.

For UniChem, I think if you look at first quarter, U.S. business has given growth of almost around 27%. And that is largely -- I think UniChem portfolio per se has grown by around 9% I portfolio, which they are selling for us in U.S. That portfolio has grown very well, and that's the reason it delivered almost around 37%, the UniChem's own portfolio has delivered a growth of almost around 9%. Then their Europe portfolio has delivered growth of almost around 3%. Brazil has given good growth and Brazil traction is also improving. So they have grown by almost around 52% in this quarter and continue to do well in business, which is the ROW market business, that has also become almost around double in the quarter from INR 8 crores to INR 17 crores. So overall -- and API business of UniChem has also started now moving up from INR 33 crores, INR 34 crores to almost around INR 58 crores. So almost around 73% kind of overall improvement in that business. So overall, UniChem has also done well in terms of overall.

And the guidance of 10% growth in the UniChem portfolio and 13% EBITDA margin, which you had given last quarter, that remains intact, right?

UniChem guidance, I'm not revising right now. Let's see for some more quarters how it performs and we are working hard to deliver more growth, but let us see on ground and thereafter, we'll revise the.

The next question is from the line of Kunal from Axis Capital.

Sir, firstly, on the U.S. business, if you mind giving us some color on what we can expect for the next 1 to 2 years, maybe some sense of the number of launches, both from ICA as well as from UniChem. And also you had talked in the past that some of UniChem products, you are going to change the APIs to ICA. So some more color on the U.S. business would be very helpful, sir.

S normal ICA launches will be almost around 3 to 4 products and UniChem will also launch similar kind of products almost in a year where I think there will be around 7 to 8 kind of launches, both I and UniChem put together will be there. And some of the product approvals are already received for source changes, some products are still in pipeline. So that journey is going on. They are also working very hard on, let's say, cost reductions on API and those are also filed with the FDA and somewhere it's on CD30 and somewhere on the past basis. So it may take some more time to get those kind of approvals, but that journey is going on, yes.

But on your base, then would it be kind of -- can you expect a 20%, 30% kind of a consistent growth for the next few years?

It maybe around 15%, 16%, 17% kind of growth is possible, but currently looking at portfolio.

Sure, sir, sure. Sir, one more question, sir. You mentioned about material costs going up significantly. So maybe if you can just quantify a bit on the kind of gross margin impact that one can expect in the coming quarters? And is this, I mean, fluctuating or is it going up directionally? Some more color, sir, would be helpful.

Gone up, then came a little down, then again, a little because of petroleum prices going up, somewhere supply chain disturbances, some product going down, somewhere going up. Overall, if you look at last financial year, let's say, we have grown in terms of turnover, but I overall, let's say, material cost to sales was down by around 2%. This quarter, when you look at we have grown by around 21%, and my material cost has also moved up by 21% -- so overall, let's say, we have improved the EBITDA margin by almost around 2.4%, but largely, it has not come from overall, let's say, material cost savings on material cost. It is just savings on material cost is 0.14%. Largely, the EBITDA improvement has come. The turnover has moved up, so personnel cost to sales has gone down by almost around 1.41% and overall manufacturing cost to sales overall to the revenue has gone down by almost around 0.91%. And on consolidated basis, if you look at material cost is down by almost around 1.35% Personnel cost is down by almost around 1.5% manufacturing and other cost is down by around 19%. So overall, let's say, EBITDA has improved on a consolidation basis almost a 4.49% for the quarter.

But sir, my question is more like going forward because you said in July, August prices are going up again. So do you foresee the margin pressure in the rest of the quarter?

No, no. No margin pressure. I would see that your sales -- compared to sales growth, material cost will come down.

Okay. That is good to know. And sir, any other cost, you also mentioned shipping and container and logistics costs. So all that is baked in your guidance, right?

Yes, we have taken that into account, but you say freight rate somewhere has gone up by 3x. Like say, South American market from I think containers freight was almost around 3,000 is almost around 9,000 to 10,000. And that too availability is difficult. As far as U.S. shipper containers were available at around 7,000 to 7,500. Now it is almost 12,500 to 13,000. Even European containers, which was 3,000 now is almost around 5,500. So everywhere rates are moving up.

Taken into account.

Got it, sir. And just one more question, if I can. Sir, on the India business, can you share the sales force and what are the expansion.

We are almost around 7,000 people, medical reps around and expansion plan is already completed. So that 7,000. I think in the mid of the year, we may include around almost around 200 people more in some of the new divisions, which we'll be launching in the current year. But that will not increase significantly the number, just around.

The next question is from the line of Mohit from Oculus Capital.

Sir, my question is regarding your associate company, Lyka Labs. We invested in this company in FY 2022 and then invested through primary also until FY '25. Now this company's revenue has not grown and even the EBITDA has become negative. So any plans to revise this company? What is happening there in the localized injection? What are we doing there?

They are building up 3 different kind of businesses. One is for animal health business. There are a lot of injectables, which goes in animal health. They have done good work in terms of building that business. they have started the critical care business in terms of directly selling to the hospitals and all. Earlier where most of the business was coming on from P2P supplies to the other pharma companies. That business is coming down and their own promoted business is now moving up. So that is the second business. And third, they have a lot of products relating to IVF. So that part has also started doing well, and they have added almost around significant number of field force in the last 2 years. And that is they are incurring the cost. Some of these are around breakeven and some of these divisions is still below breakeven. And therefore, that cost is also a part of their overall. So overall, I think we are hopeful that Lyka will do well in time to come.

They are on the right.

Sir, just one suggestion. At the time of the results, if you guys can give some press release mentioning what is happening there because it is very difficult to find out what that company is doing that is also a listed company. So if a press release can be given with the update what is happening there that will be very helpful.

I think this year, we have given the press release

The next question is from the line of Shilpa from Wealth.

My question is in regard realization or supply of API from.

Supply to UniChem is hardly any.

Because I think one product they have given the order now because that source change has approved. So there is no -- one is their overall cost reduction has been good as far as their own captive production of A. So that has also resulted in overall some margin improvement there. And also their European business is doing well. So that business improvement overall in the margins and Brazil, which were incurring losses now is coming positive and that business is also expected to improve. So these are the things which are resulting in the better overall margin. And as they start, they have whole program of filing new products in all these markets like Europe Australia, New Zealand, Canada, and all those. I think these all these registrations start coming in, the business profile of this company will also change because currently, it's mostly the U.S. and the market where the margins are always under pressure. So these markets, once the product mix -- overall market mix improves, the profitability of UniChem will also improve.

Okay, sir. So in this quarter, rupee depreciation impact is not as such, right?

Rupee depreciation is also there. If you look at overall turnover, let's say, out of, let's say, 21% growth, 5% increase is only on account of rupee.

Rupee depreciation.

Because dollar has almost gone up by almost around 11% compared to last year's first quarter. But that has also resulted simultaneously that our material cost has also moved up. But that is helping in the margin. But material cost has also moved up because that's a lot of your contains are also in dollar terms and those costs has also moved up. But that is only for that 25% because material cost to sales is almost around 25%. So 25% of that cost, your depreciation cost has gone, but the rest has come in terms of.

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

Sir, the EBITDA margin guidance for FY '27.

At the beginning of the year, we gave the EBITDA margin guidance of around 22% on a consolidated basis. I think because of better performance, overall EBITDA margins may remain around 23%. So I'm improving the guidance by 1%.

Sir, the raw material fluctuations are the rupee could to offset [indiscernible] depreciation benefit is much more than the raw material price fluctuation and hence, it should result in better gross margin.

Material cost to sales is 25%. So out of that also, there are a lot of Indian ingredients and other ingredients which are imported one. There are a lot of other costs, which is also related to your dollar terms. Let's say freight are in dollar terms, a lot of testing materials and a lot of those things are in dollar terms. There are a lot of machine parts, which are of imported machines and testing equipment and all are also relating to dollar terms. So the maintenance contracts and other things are also linked that way. We have a huge amount of sales force in international markets. So their salaries are also going in dollar terms because of promotional markets and all kind of things. So there are -- it's not only the only materials are impacted, it's other things are also getting impacted. promotional markets, we have -- we are running a lot of nontrading offices in various international markets. The cost of that is also going up because of dollar. So it's overall, but yes, in spite of, let's say, increase in the cost and all, overall because of depreciation, it is to the extent of your margins and some of the Indian cost, that cost is not moving up. And therefore, you see that there is a significant improvement in your overall manufacturing and other expenses. sales has moved up, but that cost has come down.