Jubilant Pharmova Limited ($530019)

Ladies and gentlemen, good day, and welcome to Jubilant Pharmova Limited Q4 and Full Year FY '26 Earnings Webinar. [Operator Instructions] Please note that this webinar is being recorded. I now hand the conference over to Mr. Pankaj Dhawan. Over to you, sir.

Thank you, Inba. Ladies and gentlemen, would take. From the management today, we have Mr. Pawar Bhartia, Managing Director; Mr. Arjun Bhartia, Joint Managing Director; Mr. Harshesh Sing, CEO, Jubilant Radiopharma. Mr. Chris Freddy, CEO, CDMO Sterile Injectables, Mr. Arun Kumar Sharma, CFO; Dr. Tushar Gupta, Head Corporate Strategy; and Mr. Anuj Mohnot, Head FP&A. I would like to remind you that some of the statements made today on this webinar could be forward-looking in nature, and a detailed disclaimer in this regard has also been included in the earnings presentation. Now I invite Mr. Arun Sharma for the opening remarks.

Thank you, Pankaj. Good day, ladies and gene. In Q4 FY '26, revenue grew by 19% on a year-on-year basis to INR 2,290 crores on the back of growth in Allergy Pharma and degenerate, CDM was starting business. EBITDA increased 2-plus year-on-year basis to INR 363 crores. EBITDA margin decreased year-on-year by 272 basis points to 15.7% due to shortage in supply of spec products being radiopharmaceuticals under adoption of costs this year in Montreal. Normalized PAT stood at INR 9 crores. Normalized PAT decreased year-on-year due to increase in depreciation and interest costs. Overall, for the full year FY '26, revenue grew by 4% to INR 8,280 crores on the back of growth across all business units, particularly CDMO steel injectables. EBITDA for the year grew by 8% to INR 1,326 crores due to improved performance across all segments, except the radiopharmaceuticals. EBITDA margins decreased year-on-year by 99 basis points to 15.9% due to lower production at CMU [indiscernible], particularly in the second half. Normalized PAT for the year grew by 7% to INR 442 crores due to improved operating performance of the business. Going forward, we expect growth momentum to further spending in FY '27. In terms of EBITDA margin, which has been a story of 2 halves as production at CMO [indiscernible], we expect EBITDA margin to start strengthening from H2 FY '27 onwards. With this, we have come to the end of opening remarks. We are now happy to move to Q&A. But before we do that, we would like to show you our Line 3 and 4 at a Spokane facility through a video. As you are aware, we're expanding our manufacturing capacity by investing in the state-of-the-art isolator fill-finished lines at smoking U.S. and on Montreal, Canada. This certified our tons technology positions us to capture high view biologic market, and CDMO Sterile injectable business. Please enjoy the video. [Presentation]

[Operator Instructions] We take our first question from Shrikant Akolkar of Nuvama.

I hope I am audible. I have a first question on the CDMO business, we have done very well. So can you please provide some update on the Line 3? And if you can talk about the 10-plus molecule pipeline that we have with how many of them are the biologics, how many of them are the small molecules and when the commercials will start?

Evening. Thank you for the question. So specifically for Line 3, we have approximately 10-plus products, as you mentioned, across multiple formats and vial sizes, undergoing tech transfer as we speak. Specifically commercial production, as to your question, will commence in late FY '27 subject to FDA approval of these products. Of this mix of these 10-plus products, approximately 80% of them, the majority of them are these complex biologics. And just to divert a little, the value of these complex biologics is customers they have tighter aseptic processing windows, stringent environmental controls, specialized billing capabilities, all of these create durable long-term relationships with the customers because they create high switching costs, and there's more value with these high complex biologics. As a result, we are commanding pricing premium for these products. And to your question, we expect to reach peak revenue in Line 3 in 1.5 to 2 years earlier as projected and achieve an $80 million to $90 million, specifically for Line 3.

Understood. And you also have mentioned about 1 large oncology product, so is that the commercial product? And also it seems like biologic, but if you can talk more about the product, that will be great.

Yes. As I mentioned, thanks again for the follow-up question. As I mentioned in the video, we're happy to share that we've onboarded one of the world's largest oncology products. It is a commercial product. And we are happy to -- that is 1 of the 10 products and our multiple customers we have on line 3. Specifically, just to go a little further to your question, we expect to reach full utilization of Line 3 once these products do go commercial. And as I mentioned earlier, peak revenue attainment of $80 million to $90 million 1.5 to 2 years, 2 years earlier than originally projected. Thanks again for the question.

And my second question is again on Radiopharma business. So I heard that there will be the cost pressure in first half FY '27. So can you please talk about the kind of cost pressure that we will see in the first half? And what will change in the second half in terms of cost and in terms of growth?

Thank you for the question. This is [indiscernible] speaking. The difference between the first and the second half of the year for us is the availability of stock for our spec cool kids business driven by manufacturing at CMO Montreal. We're manufacturing product now at that site, and we expect it to release mid- to end Q2. That's going to give us uplift in Q3 and Q4 where we're going to be at a regular run rate. But in the first half because we don't have those specced sales we will see a reduction in revenue in our highest margin products, which creates the margin pressure that you're talking about.

Understood. And any guidance for FY '27 for the consolidated business, how should we think of the growth because it is a heterogenous business at the consol level, any guidance?

Look, we expect that the business will grow in the sort of low double digits, and we expect margins to remain in the 38% to 40% range.

Our next question is from Vishal Manchanda of Systematics.

My question is on the API business. So you have been trying to kind of get opportunities around NZs or maybe tie up with innovators on the API front. If you could share if there is any progress on those lines.

Vishal, thanks for your question. This is Tushar. So yes, you're right, we have been trying to get customers on boarded on the custom manufacturing revenue, as you mentioned. So we are making progress, and we expect the custom manufacturing revenue mix to drive the utilization and profitability going forward. As we speak, we are maintaining our EBITDA margin at 15%, but in short to medium term, you should expect that to go up driven by customer manufacturing revenue.

Have we onboarded any innovator clients? Like if you could share a number as to how many innovator clients or how many products we would have got from innovators? And what's our current capacity utilization on the API business?

So I think as of now, we can't share the number and the names given the confidentiality agreement that we work under. In terms of utilization, I think we do have good capacity to accommodate some of these large pharma customers on custom manufacturing, but that's the only information I can share for now.

And this would improve our overall margin in the business, and we should see revenues kicking in FY '27.

You should see revenues peaking in FY '27 and the additional revenues will also drive the margin profile for the API business.

And on the Discovery business, is there an improvement in the overall macro environment? Do we see -- do we expect this business to get stronger because we were earlier actually more excited about the Discovery business than the overall all other segments within the growth.

Thanks for the question again. So if you look at our FY '26 numbers, our Discovery business grew 15% to now north of INR 650 crores, and the margin also grew proportionately. EBITDA also grew proportionately. I think in the short term, we expect some competitive intensity in the large pharma customer segment, right? However, our demand condition in the biotech is expected to improve, right? So You can imagine there is a patent cliff in the industry, and as a result, money is flowing into the Discovery segment to drive the Innovator pipeline. But yes, Biotech segment is expected to improve, large pharma will see more competition, but I think overall, we are on track to deliver our FY '30 vision for the CRO segment.

Sorry. Sorry, you said you're on track to?

We're on track to deliver the FY '30 vision for the CRO segment.

Okay. Got it. Got it. And 1 on the generic business, should we see sustained growth there and margin expansion?

Yes. So if you look at our generics business, revenue grew by 13% this year, and margin grew by 250%. So we're now double-digit EBITDA margin in our generics business. I think looking forward, we expect again, the sustained progress towards our 2030 vision. So you should expect the margin to be close to 15% of revenues to be in line with what we committed for 2030 as part of our vision.

[Operator Instructions] We received a text question from Gaurav [indiscernible]. I'll just read it out. The question is, since there are multiple business heads, CEOs, all independently running their own segments, be it Radiopharma, CDMO SI, CDMO allergy immunotherapy, how is the capital allocation decided at the group level to ensure each segment gets a fair share of the resources?

Gaurav, thanks for the question. In terms of capital allocation, we have a ROCE threshold that we look at. First and foremost, any capital investment has to cross the ROCE threshold for us to invest. In terms of the investments that we have in the immediate future, in the near future, they've pretty much all been spend out to investors. We don't foresee any CapEx over the next 2 years other than the investments we've already spent out, which is basically Line 3, Line 4, Line 4 and PET manufacturing. These are the 4 large buckets of investments that we're going to be making. We have very, very good economics and very good return profile. And at this point, we don't foresee any investment for the next 12 to 18 months over and above this. But if and when it comes to us, we look at it from an ROCE lense, and if it's accretive to us from an ROCE lense, then we go ahead.

Thank you. next question is from Vinay Jain of Karma Capital.

I hope I'm audible.

Yes.

Yes. So firstly, hearty to see again a good sort of ramp-up coming through in the CMO line. I had a couple of questions on, firstly, the Montreal plant. So -- if you look at -- we have given the spoken numbers. So that means that at an EBITDA level, Montreal would have had a loss of -- EBITDA loss of close to INR 150 crores for the year. So just wanted to guide part on to how are we looking at, firstly, the business turning around from Montreal, especially with line sizes coming through? And at the same time, how do we look at eventually like loss reduction and turning profitable on that front?

Hershit, would you request sort of that, please?

Thanks. And vine, thank you for the question. [indiscernible], we look at Montreal, right, the last year, including exceptional items, it was about a INR 200 crore loss based on the run rate for that business, we expect that the next financial year will look similar to the last financial year. The site is in production, but the way we book it has to be on sell-through. We expect to see a meaningful reduction in that in that P&L through cost cutting that will take place this year. which will be impacting next year in '28, right? So '28, you should see a meaningful reduction in losses. We're going to start to see revenue from Line 5 come in, in FY '29, right, as we start the media fills there.

Okay. So loss reduction in FY '28 can be like then hopefully breakeven in FY '29?

I don't think we're guiding on specific numbers for '29 at this stage.

Got it. Got it. And 1 question on the Radiopharma pipeline. So they're also a couple of things. So MIBG, again, there seems to be some delay in terms of filing and subsequent approval and launch time lines? And also on launches for -- which were planned for FY '27 now seems to have gotten pushed to FY '28. So can these like, again, MIBG coming through and the set of product launches which you are expecting in FY '28? How are we looking at FY '28 as a whole for the Radiopharma business, both from a revenue and profitability perspective because we've just guided that this year as well, we are looking at a low double-digit revenue growth with margins in that 38% to 42% range? So just wanted some color on FY -- how we're looking at FY '28 as well.

Thank you for the question. And let me break it into its 3 parts, right? The first part is MIBG. Right now, we continue to expect that we will file MIBG's NDA in the second half of FY '27. It's important to realize that this is a full NDA, not a 505(b)(2) or any NDA. And to that extent, we have to be really careful and thoughtful to make sure that we position ourselves for an easy regulatory path post approval. For now, we have high confidence in both our supply chain and the regulatory path that we have chosen here and continue to be on target for an H2 FY '27 filing. When we talk about the rest of the pipeline, right, while 1 product in FY '27 got pulled out, I think what we have to recognize is we've taken the entire pipeline out of CMO Montreal and put it in a third-party CMO network. More CMOs don't have comfort or experience with radiopharmaceuticals and particularly the [indiscernible] agents used specific to radiopharmaceuticals. Having said that, we have good confidence with the [indiscernible] batches we have now seen on a couple of our pipeline products that we're going to see an acceleration in the area. We expect that the key pipeline products will see exhibit batches this year for the 2 other non-MIBG pipeline products. Moving to FY '28, for the third question that you asked. As we look at FY '28, I think there's 3 things I would think about. Number one, we've got a depressed FY '27 because in the first half, our highest margin products are in short supply. That issue will be alleviated in FY '28, and therefore, you should see a return to a more regular impact, right? Just to give you a sense, the revenue impact from -- the revenue impact in H1 is about USD 14 million on that spec. So it's a pretty big number, right? Number two, [indiscernible] fill continues to expand rapidly, both in market size, market share and in price. And so we continue to have a lot of faith that, that business will continue to grow in the range that it has been growing, the 30-plus percent range. Finally, as we think about our pipeline landing, the first year of NDAs is normally ramp years. So you should expect to see an investment in sales and marketing as we ramp those NDAs towards their peak potential. I hope that answers your question. I can't give specific numerical guidance, but I hope that answers the question.

Just a follow-up on this. So MIBG, again, because of the open up status, we could expect an accelerated approval to come through?

That is correct. We will have an accelerated review for MIBG because of its orphan drug designation.

Got it. That was helpful. And again, a feedback to the management, we -- hopefully, we continue with this quarterly, if not quarterly, maybe half yearly sort of a con call. Helps everyone better understand the company. Thank you. Thanks so much.

Our next question is a text question from [indiscernible] of Incred Asset Management. His question is, can you talk about capital structure, free cash flow generation and how return on equity will improve? Quantify CapEx for FY '27 and FY '28, and whether there will be deleveraging in the next 24 months?

Thanks for the question. FY '26, we have done a CapEx of INR 1,668 crores. In FY '27, we are looking at a similar CapEx to FY '26. The key projects include opening Line 4, where we have done almost $200 million CapEx and $34 million is sailing there. Montreal Line 5, the CapEx is going on, 27% has been done [indiscernible] is around branding there. Ted formats also growing in CapEx once go down, in fact the pending there. The CapEx cycle is going on that anticipated as planned. Once this CapEx side is over, and once we end up in FY '27 and our Line 3 comes in commercial production, we can see a lot of free cash flow coming in from commercialization of product at Line 3 and [indiscernible] revenue coming in on Line 4. Once these Line 3 and Line 4 revenue starts coming in, you can see positive cash flows coming into the system, and that will help in a overall term the system. And as regard debt, our net debt, we have committed to achieve net by 2030. And you can see this reduction in net debt from FY '20 onwards. And we still committed to our vision of getting net debt 0 by FY '30. Hope that answers your question.

We'll take next question again from the line of Mr. [indiscernible] from InCred Asset Management. [indiscernible] wants to understand, the Line 3 tech transfer revenues and its contribution or impact in revenue and EBITDA in FY '26, and whether it will sustain in FY '27. Requesting Chris, if you can take that.

Thanks for the question. So the answer is yes. We expect to generate approximately $60 million to $80 million in revenue from Line 3 as we move into FY '27, predominantly coming from the tech transfers of the products that I mentioned. Margins will be similar to FY '26 for the overall Spokane business, including Line 1 and Line 2, and this is due to the full cost being realized specifically for Line 3. Thereafter, from that point forward, however, we do expect to see the margin improvement as each as Line 3 reaches full utilization and those costs are fully absorbed across the Spokane lines. What I will say is we are the success for that and the continued acceleration is due to those 10-plus products that I did mention earlier, including 1 of the world's largest oncology products that we onboarded specifically on Line 3. Thanks for the question.

[Operator Instructions] We take our next question, that's a follow-up from Shrikant Akolkar of Nuvama.

Just a follow-up on [indiscernible]. This is a rare disorder drop. Just wondering if it will be eligible for the priority review voucher according to the U.S. government plan?

Shrikant, thank you for your question. At this stage, we are speaking with regulatory consultants about that. There is a previous I-131 MIBG product approved in the market by the name of AZEDRA. That product is discontinued and does not have any impact on our commercial standing. However, its previous approval does muddy the water on our ability to get a priority to view about [indiscernible]. I hope that answers your question.

Yes. Yes. That is very helpful. Second follow-up on MIBG, how should we think about the approval? Because you said it will be potential escalated approval. So how are we thinking of the approval time lines? And the commercialization, are we going to do the launch on our own or we are thinking of licensing this out to other partners?

Thank you again, Shrikant, for your question. First, on approval time lines, an accelerated review suggests a 6-month review should there be no gaps in our filing. In terms of your second question, we expect to launch this product ourselves. Our deep downstream capability with radiopharmacies as well as our deep commercial capabilities and our experience many years of supporting physicians, our AP program gives us a unique ability to bring to market MIBG, and we think we are the best positioned commercialization vehicle for that asset.

Okay. And 2 more questions. One is on RUBY-FILL. So we have seen a very strong performance this year. And we keep reading about the increasing installations of [indiscernible] in the U.S. So can you please explain how does that work, that we you have installations done than how should we think of the incoming revenue for next 2, 3 years? And is there additional costs that you have to incur when you are doing a lot of installations in the U.S.

Thank you, Shrikant, for the question. First, on RUBY-FILL and its growth. I think it's important to realize that RUBY-FILL is in a very good place because the market is growing at roughly 10%. And together with the market growing, our market share is also growing. The reason that's really helpful is because it means that all boats are floating and you're able to create a positive pricing momentum and there's positive reimbursement momentum in the U.S. market as well. So we feel really good about RUBY-FILL. Now to your second question, RUBY-FILL is what I would think of as a razor blade model. Once we install the [indiscernible] system, in my analogy, the razor, then every 6 to 7 weeks, we are delivering a generator, and that is essentially an annuity that we get every 7 weeks. We are not disclosing pricing or revenue at the generator level on this call. Finally, with regard to resourcing, RUBY-FILL has 3 kinds of resources around it. There is a sales structure, of course, there is a support structure in terms of engineering and break/fix as a support structure in terms of clinical applications and clinical guidance training and reading of scripts, et cetera. Some of those scale like break/fix with the infrastructure, others like sales do not scale. But everything benefits from scale because most of it is on a geographic model. So as you get more density in geographies, you get more efficiencies in the supply chain and in the support infrastructure. Understood.

Last question on Allergy business. Would it be possible to provide the split of the U.S. and non-U.S. business in the allergy?

U.S. and non-U.S. business.

Thank you for your question. This is [indiscernible]. Speed of U.S. and non-U.S. about 90% is U.S. and 10, about 8% to 10% is non-U.S.

Okay. And can you talk about the drivers for this business to grow the U.S. business -- the U.S. allergy market is somehow capped at a certain level so there's a limit for the U.S. business in allergy to grow. So if you can talk about both the segments, U.S. and non-U.S., what are the drivers, and how we are taking care to grow going forward?

Shrinkant, this is [indiscernible] here. So the energy business in the U.S. is growing at about 3% to 4%, 5% maybe. And we are in that business in the U.S. gaining share. So our revenues are growing a bit faster than that. That's the limit to which that business in the U.S. is growing. The drivers for growth is obviously higher share that we are gaining of expanding into non-U.S. markets. So our share in Europe is very low. And we are making a concerted effort to grow that number. And also, we keep exploring other adjacencies in the Allergy business, which are not the same product, but similar products, which go into the same channel. And so our business developer is always looking out for products, which go into the same channel to see if we can leverage our sales force, our front-end sales force and grow our revenue further.

Just 1 follow-up on the Allergy business. So if you see FY '25, we did about 3% growth, but FY '26 has been 12% growth. So what really changed in the structure of the business or what really worked in FY '26?

So for FY '26, major driver is the growth in the non-U.S. markets or higher sales, higher volumes in the non-U.S. market and -- plus a little bit of higher share in the U.S. market.

Okay. Would you quantify how big the covered market for us will be in the European region?

I'll have Punkaj circle back to you on this 1 on the exact size of the European market.

Our next question is a follow-up from Vishal Manchanda of Systematics.

My question is on radiopharmacies that you're setting up the [indiscernible] pharmacies. So are we on track for commercialization next year?

Thank you for the question. Our PET pharmacies, which we are standing up the first of them should be commercialized next year, the first 3 of them. We will see a couple that may go over into the next year, but we're just working through qualification time lines. And we're a little dependent on when the FDA comes in to be able to approve the sites. As you can imagine, since these are GMP sites, we need to ensure that the FDA comes in for a PI in order to start commercial production, which gives us a little bit of variability.

And any time lines as to how long they can take to reach their full potential?

We are contracting all of our cyclotrons now. We expect that in market, we will need to earn doses. And if we look at other cyclotrons and how they've been ramping up. They've taken about 3 to 4 years to reach peak.

Okay. And on Radiopharma, what percentage of your revenues are dependent on the Montreal facility?

I don't think we're disclosing at that level of granularity on this call, unfortunately.

Okay. And just on the 2 questions on the financial side. What is our net debt today? And what would be the tax rate going forward?

So net debt is [indiscernible] from what [indiscernible]. And like I said in earlier answers also, we see this net debt going down from FY '28 onwards, when we have Line 3 and Line 4 going in revenue and EBITDA there. And what we committed for FY '30, we still committed to that, and we'll try to net debt to zero by FY 2030. Second question on the tax rate. See, here, our tax rate is around 33%. We have some unshielded expenses due to which debt is higher at 33%. it's share continue to go down as absolute PBT continues to go. So going forward, towards our largest improved by like Line 3, Line 4, we will see this tax at going down [indiscernible].

[Operator Instructions] We have next question from [indiscernible] of InCred Asset Management. His question is, sequentially, there was no material impact seen in radiopharma revenues, whether the lower production impact will be profound in H1 FY '27?

[indiscernible], would you like to take that.

Let me just make sure I understand that question. You broke up slightly. The question is there was no material impact in second half, sequentially, should we expect more in the first half. Is that correct?

Yes. So the question is there is no material impact on the revenue side. So going forward in the first half of FY '27, will the lower production have a profound impart?

I think the answer is in the margin mix here. In the -- as our revenue increases, it is driven primarily by our RUBY-FILL franchise, and that revenue does not have the same margin, as I said earlier, as our specced franchise. To repeat my earlier comment, we expect that in the first half, we will see a revenue impact from [indiscernible] of approximately USD 14 million. That is a very high-margin business and that's the first half impact. In the second half, we expect that to be normalized.

[Operator Instructions] As there are no further questions from the participants -- actually, we just got a question, so I'm going to go back to the participant, that's Shrikant Akolkar from Novama.

Yes. Just because there was a time. So just on the consol level, this year, we have done about 15...

Shrikant, we can't hear you. Could you please repeat your question and hold the mic a little closer to you.

I hope I'm audible now.

Better.

Yes. Okay. Okay. So I was just wondering for the full year FY '26, we have done about 5%, 5.5% margins. So how should we think at the consol level, the performance on the top line and EBITDA?

Shrikant, you're talking about FY '27?

Yes, sorry, '27. I mean the EBITDA margin, not the EBITDA. Sorry.

Thanks for the question. So we expect growth momentum to further stand in FY '27. In terms of EBITDA margin, it shall be a story of 2 halves as the production at CMO Montreal stabilizes, we expect EBITDA market to stand in, in H2 FY '27. H1 FY '27 EBITDA margins have been temporarily impacted by the supply shortage of spec products. So you can see, like H1, we can see a little lower margin, but H2 will see a higher parts, which will be a representative of margins going forward in FY '28 onwards because that will be a normal EBITDA margin once our Montreal production comes on street and it is back to normal. I hope I answered your question.

Yes, partially, just if you can quantify if some numbers and what can be the difference between the first half and second half margin. And I can tell you why because the CDMO business will see commercials probably in the fourth quarter. So that may be, I think, high margin. But in the first half, we have this Montreal issue. So just in any quantity -- sorry, you go ahead please.

Yes. See, I'm not supposed to say the exact margins, but as you are asking it again and again, so I can see. H2 margins would be in the range of 70% to 80%. So that should give you an idea that how will FY '27 out going forward from there on.

Thank you. That brings us to the end of the Q&A session. Ladies and gentlemen, on behalf of the leadership team, I would like to thank you for your time and for your continued interest in Jubilant Pharmova Limited. Should you have any follow-up queries that were not addressed, feel free to reach out to the Investor Relations team. Thank you, and have a good day. Bye-bye.