Marksans Pharma Limited (MARKSANS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Marksans Pharma Q1 FY '27 Earnings Conference Call 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. Thank you, and over to you, sir.

Warm welcome to Marksans Pharma's Q1 F '27 post results earnings call hosted by DAM Capital Advisors Limited. On the call today, we have representing Marksans Pharma, Mr. Mark Saldanha, Founder and Chairman and Managing Director; and Mr. Jitendra Sharma, Chief Financial Officer. I'll hand over the call to Mark to make the opening comments, and then we'll open the floor for questions from there on. Please go ahead, sir.

Thank you, Nitin. Good afternoon, everyone, and thank you for joining us for our Q1 FY '27 earnings conference call. We sincerely appreciate your interest and continued support for the company. Q1 FY '27 has been a very strong start to the year for Marksans. We delivered INR 841 crores of revenue, up 35.6% year-on-year, with our highest ever quarterly EBITDA of INR 213 crores and highest ever quarterly PAT of INR 159 crores, alongside our cash balance crossing INR 1,000 crores for the first time. We've been investing in our products, manufacturing capabilities, customer relationship and international presence for several years now, and we are increasingly seeing these investments translate into growth, profitability and cash generation. Europe has been a strategic highlight of the quarter. U.K. and Europe delivered the highest ever quarterly revenue of INR 356 crores, growing 74.7% year-on-year. Over the last several months in Europe, we have moved from our primary existing channels to building our own front-end presence across key regulated markets. During the quarter, we completed the acquisition of QliniQ B.V. in Netherlands, which contributed approximately INR 44 crores of revenue in Q1. Even excluding this contribution, the region grew strongly by 53.1% year-on-year. We then completed the acquisition of ABCnow GmbH, Germany, with consolidation commencing from Q2. Alongside these acquisitions, we have established Marksans Pharma Europe in Ireland and Marksans Pharma GmbH in Germany. Europe is becoming an important new growth market for Marksans, and we remain focused on progressively scaling our presence across the region. Talking about our other key regions. In North America, we delivered INR 377 crores of revenue, growing 15.1% year-on-year. This quarter saw a softer demand through the summer months, in line with the normal seasonal pattern. Price erosion in Rx portfolio remain in single digits. And in the coming quarters, we expect momentum to strengthen. We have also established our presence in Canada with product filings underway. In Australia and New Zealand, we delivered INR 88 crores of revenue, up 53.7% year-on-year. This was in line with our normal seasonal pattern followed a particularly strong -- following a particularly strong fourth quarter during the Southern Hemisphere winter. The underlying business remains healthy, and we expect momentum to build as we move through the year. The improvement in the company's profitability is equally encouraging. The benefits of operating platform we have been building over the last several years are increasingly visible in our profitability. Our focus for the rest of FY '27 is clear: carry this momentum forward, scale across geographies, accelerate new product launches, build out on the European market and continue improving the profitability and cash generation -- generating ability of the business. We remain disciplined in how we allocate capital and selective about our inorganic opportunities. We remain confident about creating a business that is scalable, resilient and positioned to deliver sustainable long-term value for all our stakeholders. With this, I hand it over to Jitendra, who will take you through the financial performance in detail.

Thank you, sir. Good afternoon, everyone. Let me take you through the financial performance for Q1 FY '27. Operating revenue for Q1 FY '27 stood at INR 840.8 crores, up 35.6% year-on-year from INR 620 crores in Q1 of FY '26. North America remained our largest market, contributing INR 377 crores, up 15.1% year-on-year and accounting for approximately 45% of consolidated revenue. U.K. and Europe delivered INR 356 crores, representing 74.7% year-on-year growth and approximately 42% of consolidated revenue. This was the highest ever quarterly revenue for the region. Europe also began contributing meaningfully during the quarter following the acquisition and consolidation of QliniQ, while the underlying U.K. business continued to show strong momentum. Australia and New Zealand delivered INR 88 crores, up 53.7% year-on-year. The sequential moderation was in line with the normal seasonal pattern following a particularly strong fourth quarter. The underlying business remains healthy, and we expect momentum to build as we move through the year. Rest of World contributed INR 20 crores during the quarter. Gross profit stood at INR 497.3 crores, up 38.9% year-on-year from INR 358.2 crores, while gross margin improved to 59.1% from 57.8%, an expansion of 138 basis points. Sequentially, gross profit increased from INR 465 crores with gross margin expanding by 478 basis points. The improvement was supported by favorable product mix, lower-cost materials held in the inventory and favorable foreign exchange. EBITDA stood at INR 213 crores compared with INR 100.1 crore in Q1 FY '26, representing 112.8% year-on-year growth. EBITDA margin expanded to 25.3% from 16.1%, an improvement of 919 basis points. Sequentially, EBITDA increased from INR 195.4 crores, while EBITDA margin expanded by 251 basis points. The improvement reflects the benefit of higher gross margin together with operating leverage. Profit after tax stood at INR 159.4 crores compared with INR 58.2 crores in Q1 FY '26, representing 173.9% year-on-year increase. PAT margin improved to 18.4% from 9.3% sequentially, PAT increased from INR 149 crores in Q4 of FY '26 with PAT margin improving from 17.4% to 18.4%. Moving to cash generation. We generated INR 185 crores of cash from operations during the quarter. After net CapEx of INR 33 crores, free cash flow stood at INR 152 crores. Our working capital cycle improved to approximately 132 days compared with approximately 159 days in Q1 of FY '26 and 138 days for Q4 of FY '26. R&D spend for the quarter was INR 23.2 crores or 2.8% of consolidated revenue compared with INR 12.1 crores and 2% in Q1 of FY '26. We ended the quarter with a cash balance of INR 1,058 crores compared with INR 711 crores at the end of Q1 of FY '26. While the net cash stood at INR 1,031 crores, this was achieved despite the payment towards the QliniQ acquisition during the quarter. With that, we would like to open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Ahmed Madha for Unifi Capital.

Congratulations on a great performance. The first question was on the line of the QliniQ acquisition. The disclosure suggested that the transaction was done on 1st June and was completed on 17th June. So the revenue recognition, can you give some sense how it has been accounted? And for the full year, how do you see the -- both the acquisitions as well as your organic efforts in Europe business panning out for FY '27?

Ahmed, the effective date for the transaction was 1st of April 2026. So we have consolidated the first quarter numbers in our June quarter consolidated financials. We expect QliniQ will do around INR 150 crores to INR 175 crores in terms of the revenue overall for the year.

Sure. And Europe geography as a whole, with 2 acquisitions and your organic efforts will -- how much the delta will be over and above the QliniQ number you guided for?

Yes. So obviously, we expect to grow from what QliniQ has historically done, and they had done slightly below EUR 10 million. We expect to end this year by around about -- between EUR 14 million to EUR 15 million, that's really about 40% above. So we do expect Europe to be somewhere around INR 180 crores to -- yes, about INR 180 crores. You can put it at INR 180 crores.

Got it. On the gross margin front, obviously, this was probably the highest gross margins to report maybe outside of COVID period will be the highest. So how should one think about it in terms of the product mix, obviously, you had low-cost inventory, which you have flagged out in your presentation, some of the high-cost inventory may be -- being -- you procured as of current moment with higher solvent costs. So how should one think of the gross margins and the pricing we are able to improve and so on?

So obviously, it's a very fluid situation. And you're right, we were sitting on good inventory, which we are depleting over time. We still have some inventory, but there are obviously other parameters within the war -- due to the war, which is having an impact like freight or some higher cost of raw material coming in. We do see -- we do believe that as and when this war does end, there will be -- it will go back to its normal levels relatively very fast. And so far, we are leveraging that inventory that we have. And yes, in terms of sustainability of that 25-odd percent -- yes, 59%, I think we should be around 55%, 56% gross margin per se.

Sure. And other thing is working capital has come down meaningfully. So there will be some sort of inventory unwinding that would have happened, I'm assuming. So is that the case? Or is there any other angle to it?

No, that's the case. That's the case.

Okay. Lastly, on the U.S. business, can you give some sense how does the order book look? The rest of the season, how do you see the growth acceleration to be?

Well, we do see -- the order book is still strong. So that's not a problem. But we do see contribution in this financial year coming from around the geographies. It's not -- even in the first quarter, if you look at it, it's not only U.S. that's performing. It is Europe, it is Australia, every subsidiary is performing. So this year, you won't see growth happening from all geographies, which will contribute. We do anticipate us -- I mean, we are still very much on our target of hitting INR 4,000 crores within the next 2 years. So I think we still stand by it. And obviously, we do expect contribution coming from all our subsidiaries. Unlike last year, where obviously, U.K. was underperforming and U.S. was accelerating up.

Yes. Sure. Just last question on the cap allocation. Obviously, we are now INR 1,000 crores plus cash. And the scenario is very different from, say, a few years ago, the direction has changed completely. So whatever acquisition we have made, the ticket size is relatively small. So how should one think about further cap allocation for current year also, should be making any meaningful large acquisitions? I'm just thinking on the absolute size, the cash, yes.

Yes. We are exploring those possibilities. Obviously, for us, Europe has just begun. We've just done relatively smaller target deals, but we do plan to expand within Europe as a geography. So we do -- we are actively looking at other acquisitions. Nothing concrete or no pen to paper, but we do believe the resources and the money sitting on our balance sheet will fuel our growth in terms of both organic and inorganic strategies that we plan to pursue.

The next question is from the line of [ Amit Vora ] from Integrity Ventures and Partnership.

Congrats on great set of numbers, first of all. I have clocked around 25% on the bottom line in quarter 1. So like, and also we have guided for FY '27 revenue growth of 15% to 20% and 20% to 21% EBITDA margin. So is there any plan to revise based on the upward side, or how should we look at it?

No, I think we'll stick with that plan because of the volatility that you see, the geopolitical scenarios that you see prevailing, surrounding us and pretty much all countries. So we do foresee that due to the continuance of this geopolitical uncertainties, I think, what we projected historically or before, we stand by that.

Okay. And the next question is on this quarter, our U.K. and Europe segment grow like around 74% Y-o-Y and 15% quarter-on-quarter. So how sustainable growth we can assume in these 2 markets?

I think there will be some -- we will be able to sustain it.

Okay. You are able to sustain it around 75% year-on-year basis. [indiscernible] Okay. And there was one more question. So I just wanted to know the timeline for Ireland and Germany and if it is to start generating meaningful revenue? Is there any specific -- yes.

So Germany, we expect some revenue to be generated soon, maybe early third quarter. And we do expect better revenue to be generated from Germany. And Ireland may take some time because product registrations. It's early formation of a company. We need a wholesale license. We need a distribution license, and we need product licenses. So that all registration is happening, but we are hopeful for next year to see some revenue in the next financial year, not this year. But Germany will see revenue this year in the next quarter, and Netherlands are already performing. So I think U.K. and Europe by itself will show a decent growth.

Okay. And sir, what about our Rest of the World segment, like, in the Middle East also we have one subsidiary? So how we are looking to grow the Rest of the World segment regions?

So we have two -- we have Middle East, we have Rest of the World in other markets besides the Western markets. Obviously, the other markets besides the Western markets are struggling a bit because of the war scenarios because of vessels unable to pass and the transportation becoming one of the biggest hurdles in those regions. So technically -- but we are still -- I mean, they don't -- to our good fortune, they don't contribute a lot, but these are challenging times for those markets.

The next question is from the line of Mihir Damania from Fident AMC.

So my first question alludes to a slide in your presentation, which says that you want to become a top global consumer healthcare company by 2025, 2030. What will it take for you to reach there versus where you are right now?

Sorry, Mihir, I didn't get you very clearly. Could you repeat that?

Yes. So on Slide 38 of your presentation with this growth road map, Strategic Vision FY 2030, you alluded that you want to become a top global consumer healthcare company by 2030. So where -- what are the things you need to do which are not there currently to get there? What would it take for you to reach?

Yes. I mean, we are working in that direction. This is all about creating brands. So consumer -- when you talk of consumer health, we are looking at OTC, we look at brands. So we are looking at expanding our portfolio, where that is concerned. So a lot of work will go into that. But yes, I mean, we will be pursuing that -- we would have to invest some resources also accordingly to that. But nevertheless, I think we are confident of moving in that direction.

Got it. And second one is more on the regulatory side. So you have 3 USFDA plants globally. When do you expect the next USFDA inspection to kind of take place because that -- considering a chunk of your revenue, large chunk of revenues comes from the U.S. and your 3 locations, when do you expect the next USFDA inspection to kind of take place?

There's no definite time lines as such because they can come any moment, although one of our plants was recently audited less than 12 months back. But again, they can come any time based on our filings, based on so many filings that we are doing, they can visit any time. So it's difficult to put a time line on that.

The next question is from the line of Deepesh Sancheti from Maanya Finance.

Congratulations, first of all, on a great set of numbers. I mean, completely unexpected and excellent numbers. Just wanted to understand, in your last year con call, you mentioned that Q1 is generally a weak quarter. So does that mean that we have more stronger quarters coming in for the Q2, Q3?

Yes. From a revenue standpoint of view, the answer is yes. And I think from an EBITDA point of view, we will hit our expected margins that we have presented to that level, yes. But revenue, definitely, the Q2 will be better than the Q1 and Q3 will be probably the strongest.

Right. And I just wanted to understand also with your European acquisitions. Sorry, are you saying something?

No, no, no. I'm waiting for you.

Okay. I'm saying about the European acquisitions. Now we've done 2 in Germany, one Netherlands, one Ireland. Do you think for covering the entire Europe, will we need more acquisitions? Or these will be enough for the start?

So we have done -- in acquisitions, we have done only 2. One is in Netherlands and one is in Germany. So I think these give us a good launching pad into these countries. And if we look at our history, we have always grown on what we've acquired and we've grown very well on what we acquired. But yes, to answer your question, we would need more acquisitions, and that's where we have a decent corpus with us to close any inorganic strategies that come our way, obviously, making sure that it is worth the valuation. So -- but we do plan to expand countries within Europe. That said and done, M&A is unpredictable and time lines are not fixed.

Right. And sir, what is your U.S. strategy, especially after Mr. Trump has mentioned that you will no longer be -- I mean, you'll have a 200% duty after 2 years. So what is your long-term U.S. strategy? Are we going to ramp up our production in U.S.? How are we going about this?

That's always a possibility. There are different possibilities, but I think we have to cross the bridge when we arrive at it. So we basically -- I would not put much weightage on what he says because it may change pretty much within 2 days or 3 days or whatever. So I think we'll wait and watch. And 2 years is a long period of time for anyone to preempt a change happening right now, especially the way the U.S. is shaping up. So I think a lot of things may change. And again, depends on elections, depends on political scenarios prevailing in that country. So we have to just see how things unfold. But that possibility of ramping up is always there with us, and we always keep that as an option.

Right. So we do -- so what is your U.S. strategy as in -- I just wanted to understand since you're having so many acquisitions in Europe, and is this -- I mean, is this a long-term strategy to maybe -- if there is any problem in U.S., then we have a European market also, is that what is there on our mind? Or this is just a general acquisition-led growth?

No. We had always focused -- we had always mentioned in the previous calls that we would like to expand our geographies. We historically focus on the market, we consolidate, we grow the market once the growth is happening and it's on an autopilot mode, we then look at expanding our footprints in other geographies. And this year, we had earmarked for Europe by itself. I mean, coincidentally, the geopolitical scenarios are different or are happening parallelly. But we had earmarked this year for expanding, like I said, our footprint into different geographies, and Europe was identified as a market with potential, and that's where we went into Europe. But our U.S. is still our important market. It's still giving us decent revenues, and it's still a potential market for growth.

The next question is from the line of Vishal Manchanda from Systematix Group.

With respect to the gross margins, I think you have posted the highest ever gross margins this quarter. So is there scope to kind of push this higher?

No. That's -- I mean, everyone would love that. And we always try to be innovative and approach situations differently. But no, I don't think -- that's being unrealistic. So I think, like I mentioned, 55% to 56% range is more comfortable looking at the geopolitical scenarios that are there with the war, with the crude, with everything, with the transportation and everything that goes on.

Okay. And would you be able to share what volume of your sales was manufactured in India? And is it very different from the other quarters or previous years?

I think we do about 65% to 70%, 70% being on the higher side, but 65% to 70% coming from India.

Okay. And you kind of -- the backward integration plans are on shelves, right, is not active -- you're not pursuing actively there, right?

No, we are not pursuing it actively, but we have developed some IPs related to DMFs, but exploring the CRAMS business model, but we are not pursuing it actively because again of what's happening around.

Got it. And just if you could give an outlook with respect to which geography that you think is likely to kind of do better in the near term for you?

I think unlike last year, I think this time, all our markets and all the geographies that we are in will do fairly well. So each of our subsidiaries will contribute to helping us achieve our objectives and goals that we've set out.