Mega Lifesciences Public Company Limited (MEGA) Earnings Call Transcript & Summary

Hi. Good afternoon, everyone. A warm welcome to everyone to the first quarter 2025 financial performance of Mega Lifesciences. And thank you, everyone, for your participation. We have with us our CEO, Mr. Vivek Dhawan.

Hello. Good afternoon. Vivek here. Thank you for joining.

We have Mr. Thomas Abraham, Chief Financial Officer.

Hello.

We have Francis Rego, Senior Vice President.

Hello, good afternoon.

And myself, Manoj Gurbuxani. So for today, the way we will conduct this call for the upcoming 1 hour, we will start with the brief synopsis of the financial performance for first quarter 2025. And thereafter, we will have our CEO's insights on the financial performance for the first quarter and the future outlook. And then we will open the forum for the Q&A. We would request when you raise your questions, please let us know the company you represent and your name while you are raising your questions. So thank you. So going by the agenda, I'll first give you a brief of the first quarter 2025 financial performance. So on an overall basis, the first quarter 2025, our revenue has been at THB 3.2 billion, representing a decline of 14.1%, which is coming from the Maxxcare business in Myanmar. Going by the segments, the branded business for first quarter 2025 was at THB 1,984 million, reflecting a growth of 2.8%. The branded business is doing well. If we normalize the impact of the decline in Myanmar for the branded business and the currency impact, which is coming because of the appreciation of Thai baht to USD on a Y-o-Y basis, the Mega We Care business, in fact, is growing for other markets at low double digits. The distribution business for first quarter 2025 declined by 33.5%, which is fully attributable to decline in distribution business in Myanmar. And this is the reason also why the overall top line is declining at 14.1%. Going now on the gross margins. The gross margins for first quarter 2025 have remained healthy at 52.5% of the operating revenue as compared to 46.8% for first quarter 2024. And the improvement in gross margin is mainly coming because of the segmental mix and also improved gross margins of Maxxcare business. Branded business gross margins have remained healthy and stable at 65%, a marginal improvement as compared to last year when the gross margins were 64.3%. Distribution business gross margins also have remained healthy at 29% as against 25% last year. The overall SG&A cost has remained stable at THB 1,064 million, flat, representing 33.2% of the operating revenue as against 28.6% of the operating revenue last year. SG&A expenses as a percentage to revenue is looking higher, which is primarily on account of decline in Maxxcare business. Otherwise, in absolute terms, it has remained flat. The reported net profits have been at THB 450 million, very similar to last year at THB 478 million. So in spite of decline in the Maxxcare business, the decline in net profits is marginal, which is mainly happening because of the growth in branded business. The adjusted net profits have been at THB 486 million, similar to last year at THB 494 million. Similar reason, in spite of decline in the Maxxcare business, we have been able to maintain our adjusted net profit for first quarter 2025, which is mainly happening because of the growth in Branded business. Our operating cash flows are healthy at THB 398 million, representing 88% of profits. We continue to remain a net cash company with a strong balance sheet. We have spent close to THB 270 million on CapEx for first quarter 2025, which is mainly arising from capital advances we paid for acquisition of land in Vietnam. And a small portion has been spent towards manufacturing operations in Indonesia, Thailand and Australia, which is mainly coming from capacity expansion in our manufacturing facilities in Indonesia. The CapEx -- the future spending, we will be spending close to THB 515 million, which is mainly coming from capacity expansion for our Indonesian manufacturing facility. This is apart from the $3 million to $4 million CapEx we spend every year as maintenance CapEx. So this is a very brief the synopsis of first quarter 2025. Now I'll request our CEO to provide the insights on the financial performance and the future outlook. Thank you.

Thanks, Manoj. I think Manoj has covered most of the performance historic last quarter. I think the challenge all of you will observe is distribution. And as you know, distribution is a Myanmar focused business, large part of it comes from Myanmar. If I'm not wrong, somewhere between 80% or more was there in the old days. And a lot of it was also consumer business. So with licensing difficulties and all that, the consumer business has dropped significantly. Pharma is still good. And the focus for us also and going forward as well, I think with the condition in Myanmar, unless things change and the pharma business is what we are -- also our focus remains there is to get licenses and to keep doing business. And that's stable and delivering profits. So -- but we are not expecting major growth out of Myanmar. We are not projecting double-digit growth there, which we had earlier. So we have to wait and see as long as we can continue to do our pharma business and continue to make profits that we were making before, we are in good shape. And we have done all the corrections in terms of cost reductions, manpower reduction, everything has been done. And if we can maintain our pharma business where we were, our margins and profit should be maintained. And then we are ready for expansion. We're also looking at some opportunities in Myanmar to build -- to look at build a manufacturing site as we had done before. It's a part of our thinking at the moment if nothing is finalized so that we can produce locally, supply locally and make imports and licensing much easier. That's part of the plan. Nothing is confirmed yet. As and when we do, we will get back to you. So this is something we have discussed in the Board, but no plans and no numbers have been put behind it. But in the long term, we are evaluating that, number one. Number two, Indonesia business is progressing well. There's growth rates happening from local production. Production has doubled and gone to 2x and nearly going further beyond that in this year. Things are in place. Our factory is getting ready. We hope to have it ready by the end of the year. Hopefully, next year, we could -- in the first quarter or later by second quarter, we should operate the new plant. We are also building a warehouse there as our requirements are growing and production is growing. And many new products are also getting registered, import-only ones as well through the new plant because of that. So those also will get launched. So some good things have happened. We have just launched our first brand, Gofen in -- Gofex to call in Indonesia, one of the first in the country. And we have a Softgel [ line ] also we are building that for future supplies. So these are some interesting things happening in many countries that we are working on. And Indonesia, we are committing and putting efforts and resources behind building that country to become a sizable both consumer health and pharma business to contribute to the future. I think in our earlier presentation, we have given 2030 at somewhat $50 million is our projection, if I'm not wrong. So we are -- we believe we are on track to get there in the next 5 years. The other project that we have in hand is Vietnam. Overall, Vietnam business is doing fine. The consumer health side is doing well. EUGICA, we had bought, is doing well and many new products are being launched. At the same time, looking at the Vietnam government, we had mentioned with the facilities and the plan in the country, localizing production being there for the last 30 years. It's something that we have to do, and we have got a land, which is not very far from Ho Chi Minh, reasonably sized, I think 40,000 over acres -- 40,000 square meter over facility, land area. And we're going to build, design is done and hopefully, June, July, we should be finalizing the construction. And next year by 2026 end, we should have the plant ready there. But production can only start in a year's time after that permission. So it's a longer gestation. It's a long-term investment as pharma plants are looking at the growth in Vietnam and for us, looking at really growing and being a serious player there. It's a long-term commitment to Vietnam, we believe in the future of Vietnam as well. So that's what we are doing. That's the second -- third project in hand. Other than that, Thailand, we have done all the expansions, and we are also doing some more new dosage form we are working on in Thailand, which we are evaluating to build in our Thai facility at the moment. So a lot of interesting new projects are also working out -- working in our Thai plant. But otherwise, production has picked up and things are looking good. Our pharma business has become sizable now, as we mentioned in the past about 35% around that range. OTC, but we also -- we put OTC our consumer health, we are pharma, but we put them in the Consumer Health division for Mega. That's about 15%. And I think our Nutra or the vitamin complementary medicine, as we call it, a lot of them are drugs various kinds of probiotics and all that, that's about 50%. So overall, 50%, 15% and 35%, approximately in that ratio. And progressively, we've got -- we launched some 36 products, I think, this year between pharma and Nutra put together, pharma -- and we've got about 120 products in pipeline, and that's also progressing well in registration, some very interesting new areas that we are working on. We went into some new areas last year, inhalers, ophthalmic area. We launched a few products in the new category. We are also working on them very seriously to expand our reach and category. So put that together, I think we are on track to deliver what we had promised in 2025. I think based on 2019 profit, we had made a plan that we'll double our profits in 2025, which is very close. We are already very there. Maybe there's some impact because of the taxation, I understand. Our BOI privileges will get over in '25, so that may have some impact on the bottom line. But if you look at it in equal terms, we are there. We are very close. We are there, and we will deliver on our earlier plan projection. So on a longer-term basis, we are there. I mean, quarter-wise and year-wise, there may be some variation because of the nature of our business, delay in registration, launches. This is very common in the pharma business. So we are working on a 5-year -- next 5-year plan at the moment. The company is going through a disruptive thinking model to do many, many new things, invest in the future. And hopefully, we'll look at another doubling in 5 years or more. So we will get back to you in the -- I believe, by the quarter 1 next year with our plan, but somewhere in that vicinity, we expect to grow our business and become bigger. Again, we go out and build strong brand Mega We Care around the 32, 33 countries we are in. And our focus is only Southeast Asia, Sub-Saharan Africa, a few countries in Latin America, the new ones, Peru, Colombia, et cetera. And a few of them in CIS, Ukraine, Uzbekistan, we are working on. So that's about where we are focused on, and we want to really go out and go deeper, stronger in those areas and build them into serious branded businesses. One of other concerns we may have, I think, in the past in Nigeria, but I think Nigeria has turned around the corner and that big hit was something that none of us could control. We did everything we could. But now we are better prepared with local lines and all the other facilities [indiscernible] flying in hand, which we can correct prices. And things are turning around. I think first quarter, we have made a profit. So I mean, this is -- that was only once in what, 10, 20 years, we had a bad year in Nigeria, but 20 years, 15 years, we have done well in the country, and we hope to get back to normal Nigerian business. Otherwise, profit also first quarter is good if you look at 33% decline in distribution and the brand growth. The brand growth, we are reporting 2.8%. But as I understand, if you look at the dollar was very strong in the first quarter. So it also has an impact on growth. Real growth is a higher single digit, not lower single digit. So brand is growing at a high rate. And that's why our bottom line is still looking good at THB 450 million, adjusted is THB 480 million. So I think overall, business is in the right direction. And we believe that with more focus and building our brand in the markets we are in, we should be able to deliver on the growth that we have promised in '25, that higher single-digit growth, and that bottom line that we have also discussed earlier. So from my side, I think that is probably all unless I have missed something that I should tell you so that the common questions and answer and then we can take some of your specific queries if there are any. Nothing else. I mean the rest is standard Natural Health Food, [indiscernible] Wellness We Care. They are all parts of our -- basically, they are -- we report them for various reasons to separate them to be -- to look at them individually. But actually, Natural Health Food is our branded business under Natural We Care, which is also a line extension of natural, preservative-free, color-free, healthier products for mother and child and elderly. So we just report it for the purpose of keeping it as a separate entity. Wellness We Care is a mega social enterprise, which also helps to bring our brand image, and we do a lot of work with doctors, pharmacies, our own people and helping them on improving health condition. And as you see every day, NCDs and growing noncommunicable diseases in every country, government not being able to afford hospitals having difficulty paying for all these medication and surgeries. I think one of the future lies also in prevention and Mega being in that business, it's a very important part of our offering that we make in countries we are where we say we care for your wellness and we help people to stay healthy as long as they live. So it's an initiative and we spend money there as part of our social enterprise. And our Wellness Foundation also is doing something in that area. So we educate people in every country. So I think that's about it from my side. Please, the floor is open to you. We are here to answer questions as many as we can. If there's anything we miss, we are always available, I think, to answer them any time at your convenience. Thank you so much.

The first question is Indonesia factory progress and the plan to breakeven.

Breakeven, as we mentioned in 3 years. I think 1 year -- next year or next of the next following year, we should break even. We're getting close already. We're very close this year, as I understand, and probably next year to bump -- the thing is to bump production up because of the limitation while we are building, we could not bump it all up. But next year, if things are good, our [indiscernible] packers and all machines get installed, capacity goes up. Most likely within next or the year after that, we'd start...

EBITDA basis...

Next year? EBITDA basis this year, otherwise, factory -- so maybe a year or 2. And by '30, we are talking about what $5 million something that we had put on a [ $50 ] million. So something -- that's the profit we are looking for. So by next -- within '26 -- '25, '26 year, we should be very close to getting there. Factory is progressing very well. It's nearly -- the building is done, but there are some little requirements by the new FDA, they have asked us to build some new areas to join both the factories, which is going to take a little longer. But plus/minus 2, 3 months, we are there. I think we have planned first quarter next year at the most maximum second quarter.

And then the culture in Indonesia taking supplements. What is your plan to grow Indonesia market?

Supplements, we do a few of them. We also have herbals made locally there in the country. And there we buy locally and sell. We also have a herbal range, Mega has a herbal range also we are registering that is not Jamu, but that is international herbs from saw palmetto to other herbs, we are also building on that. But I think our focus largely also is OTC drugs. So we are registering a few of our OTC drugs, GoGaz, Gofen, et cetera. So we are building on those areas, OTC drugs more than pure vitamins and herbal, which we have some selected areas. We have picked some areas to play, not every area, and [ bring ] the drugs and the OTC consumer health areas and some in the supplement as we call them, not supplement, but specialized areas in medical nutrition, in probiotics for diarrhea, et cetera, kids health. So we are picking certain areas where we want to play and build on, and that's work in progress.

I have a few questions. Let's start with the situations in Myanmar. Yes, we have seen a very declining from distribution sales in -- actually distribution sales, of which are mainly from Myanmar, right? My question is that when will the deterioration effect from Myanmar to be like fading? When will Myanmar to be like reset to the new low base? In your opinion, probably like I think -- yes, I know it's a very difficult question, but just to be sure about...

I think by fourth quarter, it should probably reach the bottom, right, this year. And already what we are doing is the pharma is being largely -- we don't separate the 2 out. Unfortunately, we don't do that at the moment. But pharma is also coming down, but good thing is we are protecting the margin, right? We are also growing some of the other areas and protecting, the large profitable businesses are protected. That's why our profit in pharma remains strong. As there's a decline in certain consumer big decline, pharma also, there's some decline because of import permit restriction. And number two, also demand, right? If 50% of the market is fighting a war and you cannot reach those territories, then also the market size also shrunk. Market size has shrunk and income has shrunk. So both put together in that market we are playing, we are still doing quite well at the moment, right? That's the key. And our margins are being protected with that kind of size. So that's the big thing. And we believe by the end of this year, whatever decline has to happen in the fourth quarter, you'll see, it cannot go further below that. And we should see if things get better, things improve, countries improve and the war goes away, then hopefully, they will also get a little bit -- elections are coming up, they want to look nice. So all these things happening and the China trade war goes away, then mining, all these things that Burma is a big supplier of minerals to the Chinese in that side. So maybe there will be some focus. If the other wars go away, they will focus on solving Myanmar problem, right? So we are hoping after election, other things, a little improvement should happen, and it can't get worse than that. That's the whole thing. That's what we understand. That is what our thinking is, shouldn't get worse than this, we can maintain what we have. And then with future 1 or 2 years election with all this, there should be some improvement. We are not saying there will be major improvement unless something else -- something drastic happens, but it should come to an end point there. It can't go below that.

Yes, I agree. I asked this question because we have seen the very strong recovery of the owned brand business for Mega, right? So negative effect for Myanmar has been fading, fading and fading. So we would see a very strong recovery on your core earnings. That's my...

Yes, that can be possible, but let's wait and see. We don't want to make any predictions on that. We don't want to get out in that area because this is again making assumption, right? Till the fourth quarter, it'll remain. So we are -- but we are very confident the branded business from all other markets, the way it is going. And if that happens, we can still go above single digit. We should be in very good health. The real thing is that if we go this 5%, 6%, 7%, 8% of branded business and the baht dollar doesn't go up and down to 30% and then 35%, then we are in good shape.

Okay. Let's move to branded business. We look at your MD&A, right? The branded business sales in Africa is very strong, 14% growth, right, in the fourth quarter. Other countries up about 6%, right? So could you give me more color on that about should the growth is sustaining in the second quarter of this year?

Don't just go by quarter-to-quarter, Africa becoming 14% and 18%, but they will be on an average that 5% to 8% growth that we are talking about. Sometime in a quarter, Africa even as a small base goes up. But if Asia grows 4%, 5% on a big base, like [indiscernible] said, the amount is phenomenal, right? The volumes -- it has a big impact on the bottom line because your production quantities are much different. 5% of 75% is a large number, right? And 14% or 15% is also equal so units grow, volume grows, business grows, bottom line improves. They're very different. So I think both are in different stages. There are certain new launches, certain new countries, things are happening. Nigeria is doing well, is growing. And we are bullish. We are putting in efforts in Africa anyway. So that is the market we want to grow. In the next 5 years, as I said, this should become -- both grow, will not become 50%, but it definitely become a larger part of our business and a profitable part of our business contributing. I mean if you look at all of Ethiopia, [indiscernible] [ peace ] is there, countries improve, oil exports are going on and all these things get better, Nigeria, 250 million, 100 -- and this is a 700 million, 800 million people market, right? But all the disturbances are there, but a lot of them are getting better. If you go to Ethiopia, better airport, better road, better building, a lot of things are happening around the country. So if they all get a little bit better by the day in the next 4, 5 years, countries improve. Mega has strong brands. I mean, we really, really are building some good brands in those areas. Also, we do pharmaceutical but brands also. So put that together, I think we should have -- I believe and if you think of it, we should have a good chance to become a good player there because we have people, we have team, we have product approvals. We have a brand we have built for a long time.

Okay. You mentioned about high single-digit growth, be my apologies. What about high single digit, what is for top line or branded revenue growth or bottom line growth?

I'm talking only about revenue growth.

Revenue...

We are only reporting revenue growth, right? So we said 2.8% if it's not adjusted to dollar. Without dollar adjusted, brands grew 2.8% in the first quarter. But actually, if you look at it, it's more, it's 5-point something because of the dollar -- about 7%. So that is what is the real growth if you don't -- if the dollar connection is not that. I'm only talking about that, that if we can continue to grow that 7% between 6% to 8% average, nothing is exactly 7%, but 6% to 8%, we should be able to deliver our bottom line. That is what I was saying. And we did that in the first quarter, 7%. It's only because the baht rate, it looks 2.8%.

Brand revenue growth without FX effect. Okay. My last question in Indonesia, you talked about the new manufacturing facilities, right, coming next year. Should we be concerned about additional cost burden from new commercial run of the new manufacturing or any fixed cost we should concern -- and when -- how far we go for like bottom line breakeven in Indonesia? You mentioned about EBITDA breakeven probably fourth quarter this year, right? But what about...

Approximately this year, if not next year, for sure. And next year, we are looking at -- not next year, I would say, '26, '27, we are looking at bottom line breakeven in Indonesia. And growth -- I mean, the thing is we are already running the plant and the plant was small, so it's tight. With this coming up happening, we have some extra manufacturing space to build capacity also, but we can then produce more. We can double the units out of this -- out of the new plant. That's how we are putting machinery, like other things in there. So the good thing is today, we are limited. But if we had more, we can probably -- also we're getting new products to register new products as well. So we need the capacity, right? So shouldn't add to the cost that much because the number of people and all may not change, running costs may not change dramatically because, yes, it will run this plant and that one will -- probably the old one will not run. So minor increase, but also it should probably get adjusted with higher outputs. That is what we think. There will be some increase, but with higher output, it should get adjusted.

I may have one last question on tax issue, right, without BOI, is there any mitigation plan to mitigate without the higher effective tax rate?

Yes, mitigation [indiscernible]. Manoj?

So we always look forward for applying for the BOI tax incentives, and we are working towards it. But this year, the first quarter, the tax rate has been at 15.6%. But quarter 2 to quarter 4 of this year, the tax rates will be close to 20%. On an average for the full year, it will be in the range of 18% to 19%. But as the privileges come in, in future, we can go back to the effective tax rates, which have been at historic levels. But this year, you can expect tax rates to be in the range of 18% to 19%. Any other questions from anyone? Yes, [ Min Lin ], You can ask your question, please.

Yes. I want to ask about my last question. The third question, can you walk us through the process of selling product in other countries like Nigeria or maybe Myanmar? I want to know about the FX impact.

Generally, we import into the country, store in our own warehouse and we correct the price in local currency to the latest rates in the market. And generally, we are also ahead of the market. We are selling in at plus some percent. And then when we collect in the local currency, we convert it to dollar. In Myanmar, it is converted immediately to dollar. In Nigeria, we had old time, sometime receivable and the time to convert it take longer. But that also, we have now got a model, right? We have local lines and we convert money into dollars and thereby reducing our exposure in the market. That's all. We correct the prices. But if the exchange rate goes from NGN 400 to NGN 1,000, that NGN 500 is a big jump. But if NGN 1,500 becomes NGN 1,560 or NGN 1,420 or NGN 1,600, it's a very small NGN 100 change, it is equal to NGN 100 over NGN 1,500 is how much, is about what, 5% -- 4%, 5%. So it's not much. We don't have a big, big issue there. That's how we manage the price. We correct the selling price to the market rate and we convert it. That's how we manage.

Min, you can call Khun Manoj or Francis or me, we will explain in detail. And can you please let me know which organization you're from?

I'm from Alpha Absolute, it's a private fund company. Yes, I can call you later. And can I have more detail on the Indonesia market. The reason I asked about the culture in Indonesia is that I heard that they take supplement and drug different from Thailand. In Thailand, we tend to use vitamin or drug. That is not from herb -- not much from herb, but I heard that in Indonesia, they tend to eat supplement or drug with herb. So that's why I ask that is it difficult to make marketing in Indonesia? Or any plan that you can involve the culture into your product?

I think every country is different. Vietnam eat a lot of hubs. Philippines eat a lot of different vitamin. So when we go to a country, we have to follow the drug regulation, right? Every country have regulation. You cannot mix herb with drug. You cannot mix herb with vitamin. Some country, you cannot do that, some country, you can do that. So our objective is very different. We are -- we make what is scientifically correct. We sell herbal medicines as herbal drugs. So we don't sell magic a little bit here and there. In Indonesia, there's a culture called Jamu. It's a local medicine like Thailand has Thai traditional medicine. Also, we have many Thai traditional medicine, so many, also very big, but very cheap. So in Indonesia, you also have Indonesian traditional medicine, you also have vitamin supplement and you have vitamin supplement with herbs also mixed some of them. So there are different categories. So we don't -- we have products in the vitamin supplement category, some, but that's not our biggest business there. That's one part of our business. Our business is pharmaceuticals, a, largest over-the-counter drugs, self-medication medicine. Two, and number three is vitamin supplement, herbals, et cetera, et cetera, which we register and market in the country as allowed by the law, right? So they are all different categories. The culture in Indonesia, we are not competing with the low-end Jamu large volume across the country category. We cannot do that. It's locally made. The law is all for local production, only for Indonesians. Only Indonesians can manufacture and sell Jamu medicine. So it's very different. But international herbal products, German herbal products, this product, et cetera, we can sell, we also sell.

Any other questions from anyone?

All right. Thank you, ladies and gentlemen. It's been good to talk to you today. And if there are any more queries, questions, things you want to know, please contact our colleagues, my friends here, we'll be happy to answer them. I look forward to seeing you again next quarter. Thank you so much. Have a good day. Bye-bye.