Neuland Laboratories Limited (524558) Earnings Call Transcript & Summary

I now invite the next speaker shareholder, Mr. Sri Hans Kumar.

My name is Sri Hans Kumar, and I'm a shareholder from Hyderabad. First of all, I would like to congratulate the management for conducting this 38th AGM. My doubts are, what is the composition of our business, that is GDS, CMS and this one more thing, the base? What would be the revenue generating from these units going further? We have 3 world-class plants with 7 production blocks, and what is the utilization of this plant? One more thing is 75% of our revenue is coming from exports, so due to this Dollar appreciating, what would be the impact on our revenues? Are there any plans for the foray into formulations business? One more thing is our results are always volatile. Every quarter it's very fluctuating. Could you put some light on the coming quarter? One more thing, as a shareholder I would like to visit the plant. If it's possible, could you arrange it? Thank you very much.

That was the last speaker shareholder. Over to you, Chairman, sir, for further proceedings.

Mr. D. Sucheth, Vice Chairman and CEO, shall address the questions from the shareholders as well as questions from the shareholders on chat box. Company secretary [indiscernible] the questions from the chat box. Sucheth.

Once again, a very good morning to everyone, and thank you for all the shareholders who've asked the questions. Thank you for all the good wishes from the shareholders as well on the organization. We, as management, really appreciate it. I will answer the questions in the sequence they were received, and I request [indiscernible], as well as Deepak as [indiscernible] if I've missed everything or anything from the questions to feel free to prompt me. Mr. [ Praful ] question is that, one, is you would like to see 1,000 Crore revenue company as well as 100 Crore profit organization going forward. I think our goals are very similar, to see a company that continues to grow consistently, both in terms of revenues, profits as well as margin expansion. In terms of environment controls, as well as ESG, our shareholders can be rest assured that today ESG is the top priority in the organization, both in terms of our environmental impact, the carbon footprint, the steps we are taking for water conservation, our waste treatment equipment. As all our shareholders will know, all our facilities today are zero discharge facilities. That means we have complete capabilities to treat as well as disposal of waste in a very safe manner completely with our in-house capabilities. We don't depend on external agencies to do that. We are taking a similar approach to our carbon footprint as well as water conservation. We have set up detailed key metrics that constantly measure our impact that we are having on the environment, social, as well as our governance system so that we're continuously improving. We will be more than happy to share more details with our shareholders if there are any specific questions, but we are releasing a sustainability report and have uploaded the pertinent information on our website as well. There was a follow-up question on whether we can do more business in India, and why is it that 75% of our business comes from the export markets. I think from our point of view, our strategy is to grow our footprint globally, including India as well. Our efforts are constant in terms of constantly identifying customers in India making products that can be launched in India as well as overseas. We expect that the business will grow overseas and India as the overall company grows. I think, hopefully, those were the questions from Mr. [ Praful ]. Moving on, I think Mr. [ Bharati ] had a couple of good questions, one on gender diversity, which is a good question, Mr. [ Bharati ]. I think our goal is to increase gender diversity. In fact, it's a key metric that we've identified. It's a key goal for all our leaders across the organization. In fact, we've also identified all the positions within the organization that are gender neutral positions, and we're constantly looking at ways of improving our gender diversity. We've set up specific targets within the organization to achieve and key milestones, and we continue to monitor them. I think, on a lighter note, between Harsh and myself, Harsh has 2 daughters and I have one daughter, so at home definitely the gender diversity index you're doing really well, and we hope to do the same in the organization as well. Again, there was a request. I think I've answered the question on ESG. There was a similar question from Mr. [ Bharati ] [indiscernible], so I won't repeat myself. In terms of the physical meeting, we would like to do a physical meeting and a hybrid meeting, depending on the conditions next year. Our shareholders can be rest assured that we would like to do a physical meeting as much as our shareholders do. We enjoy those interactions and the opportunity to meet with our shareholders, so that's definitely there on our agenda. Mr. [ Kamal ], thank you for your comments on the constant return that the organization has given to our shareholders as well as investors. We strive to continue to the same in the future and even better than what we have done in the past. In terms of 2023, though they're ongoing challenges, especially in terms of supply chain because of the Russia-Ukraine conflict, a sharp increase in certain raw material prices, as well as some supply disruptions. Our shareholders can be rest assured that the team is relentlessly working towards maintaining continuity of supply, identifying alternate sources of raw materials so that we do our best in terms of trying to keep the margins under check, constantly working with our customers to partner with us on overcoming the short-term disruptions in supply as well as price variability and volatility. So far, I would say that the team has done a reasonable job, and we expect that this performance and our focus on protecting our margins, as well as overcoming temporary disruption in supply for the rest of the year, we take all the steps to do to predict the performance of the organization. Apart from that, there's a question online about our focus from Mr. [ Shake ], about how we are focused on building specialty capabilities and whether we intend to get into large molecules. I think, as of now, there is no immediate plan to get into biologics, but we do continue to focus on specialty molecules as well as large molecules, such as peptides, to augment our margins and improve our revenue growth. We believe that the market for these products, both on the generic side, as well as the contract manufacturing side, is a pretty large market. We would like to make sure that we continue to consolidate our performance both on the generic side as well as the contract manufacturing side when it comes to small molecules as well as peptides. We continue to be excited about the market, about the demand that our customers continue to put on us. Earlier, the Chairman spoke about the feedback that we're getting from our customers and the loyalty that we enjoy with our customers. I think that's going to be the cornerstone of our growth where we can constantly orient Neuland towards the needs of the customer and constantly take steps to continue to meet those needs of our customers, both on the generic side as well as the contract manufacturing side. Yes, the year-on-year growth was not satisfactory, even from the Neuland management perspective. The Chairman elaborated on the issues that impacted the performance. What we have done since is that we have identified those issues, we've taken steps to mitigate those issues so that the performance of the organization continues on a consistent trajectory and that we're able to demonstrate the same in FY23 as well. We do see that volatility from quarter-to-quarter, I think that's just the nature of our business mix, both on the generic side as well as the contract manufacturing side. Based on the orders that we received from the customers, as well as the demand for the market, we do see the variability in our product mix from quarter-to-quarter. Though we may not be able to do much about the quarter-to-quarter variability, as management we are definitely aware of the variability in performance from last year to the year before, but are taking the steps so that the company can continue to grow consistently going forward. Apart from that, the composition of the GDS as well as the CMS business, today we're about 65% GDS and 35% CMS. The rate at which the CMS business is growing, the CMS business has shown a constant growth of more than 25% year-on-year. At this rate, we do expect that the CMS business and GDS business, including [indiscernible] is a small part of it, but the larger numbers come from CMS and GDS, and we expect that to contribute about 50-50 to the overall business. Though we see that the CMS part of the business we continue to grow in terms of size, our emphasis continues to be equal, both on GDS as well as CMS, in terms of the number of products, the number of DMFs that are being filed, the number of people working on these projects. I think in terms of the Dollar impact on the revenue, I would let Deepak answer that question more specifically. I think that covers most of the questions that have come.

Good. Thank you for that. I think today, among the 3 units I would say that Unit 1 and Unit 2 are about 70% to 75% capacity utilization based on the product mix. I say that with a caveat because capacity also constantly evolves based on the product mix as well as the capacity elevation actions that we take from time to time. One of our key strategic priority is to forecast the capacity for the next 5 years and take steps to make sure that we're elevating capacity in time so that we don't get into a position where they're constrained on our capacity. We've done that over the last 3 years consistently, and we've been able to constantly meet the demand of our customers on an ongoing basis. This will continue to happen. Just to summarize my response, I think Unit 1 and Unit 2 are about 70% to 75% capacity utilization. However, both the capacity and the utilization will change on the product mix, and it will change based on the capacity elevation actions that we take. Unit 3 is about 40% capacity utilization as we speak today, so we'll see that a lot of the growth will come from Unit 3 going forward. Even in Unit 3, we do have plenty of scope to improve both our capacity as well as capacity utilization. We do have all the statutory clearances in Unit 1, Unit 2, as well as Unit 3 for our ongoing manufacturing as well as any future needs from these facilities. Thank you.

Please communicate on CDMO segment and growth prospects in FY23 with commercialization and volume uptick from the same?

Sure. I think I would prefer that Harsh answers that question, and anything else that you would like to add to what I've said so far.

Good morning, ladies and gentlemen. I think, from a CDMO business perspective, the CMS business, as we call it, as both the Chairman and Sucheth had indicated, the growth prospects are very promising. I think the growth rate of the CMS business over the last several years has been fairly consistent. In terms of the opportunities for us, today there are several new molecules, which are going into drugs which have either been recently approved or are likely to be approved in the coming years across multiple therapeutic indications, such as CNS, antifungals, cardiovascular, et cetera. There are some drugs which are also going into rare diseases. These are all opportunities which we believe Neuland is in a very good position because we have completed the development and the scale-up of the API, and we are waiting for the commercial launch. Or, in some cases where the commercial launch has already started, we are waiting for the volumes to pick up. Ultimately, in the CDMO business, the one risk that we always carry is that the success of the drug is something that we are not really in control of, and, therefore, we must also be wary that the volumes of the API could be largely dependent on the success of the drug. That will directly have an impact on the growth that we have for the CMS business. I think today what excites us compared to where we were 5 years ago is that we have a fairly diverse portfolio of molecules in the CMS segment. These molecules have a fairly long patent life. It seems like the growth opportunities are increasingly attractive for Neuland, so what I would also like to say is that more and more pharmaceutical companies are recognizing Neuland as a serious player in the CDMO business, and they are wanting to work with Neuland. I think that's what I would like to say in terms of the prospects of that business. Maybe just another quick comment about the growth of CMS business. I think although we have been seeing consistent growth in the CMS business over the past several years, FY22 has been a flattish year for us. I think, with regards to that flattishness, I would like to highlight the comment that the Chairman had made in the opening remarks where one of our oldest CMS molecules had gone off patent, and that created almost a revenue erosion of almost 20%, 25% this year. Despite that 25% revenue erosion, the CMS business still grew by 5% this year. That 5% growth was because new molecules entered our portfolio and contributed and actually compensated for that revenue drop. Having said that, I'm also happy to share that our portfolio doesn't look like it has patent expiries up until 2030 and beyond, which means that we don't expect any more molecules to have significant volume erosion in the coming years, and, therefore, the growth is likely to continue. Those are the few comments I would like to add. Thank you.

I think there was one question with respect to the exchange impact on the Neuland financial performance. As you all know, we are [indiscernible] industry and roughly around 75% to 80% of our revenue comes from exports. That's a good news for us. Last year we have seen that Rupee has depreciated around 4% to 5%. This year also we are seeing Rupee depreciation continues upward of 7% to 8%. It's good news for us because we are net exporters, and we continue to see tailwind coming in for us, and that is helping us to improve the financial performance. Overall, Neuland is gaining the export and also from the exchange variations, which we are seeing volatility in the current scenario. We see that this trend is going to continue for another quarter or so. Hopefully, after that the things will be much more stable, but it is going to help us overall.

I think just to close things off from mind, I think there have been a couple of requests from our shareholders that they would like to visit the plants and might have some follow-up questions. I think we would be more than happy to host a visit for our shareholders to the plant and talk a little bit more about the business and the developments within the business. Please contact Ms. Sarada Bhamidipati for that and we will make the arrangements. Hopefully, in the next shareholders' meeting we can report the feedback that we received as well.

I would like to thank all the shareholders for taking time to join this meeting. E-voting facility will remain open for the next 15 minutes to enable those eligible members who have not cast their votes and would like to exercise their vote. The results will be announced within the stipulated time lines, and the same will be intimated to the stock changes and upload on the website of the company and NSDL. Now with your permission, I and other Board members would like to take leave from the meeting. I wish all the numbers a healthy and safe future. Thank you.

Dear members, since the time allowed for e-voting has elapsed, the meeting is concluded. Once again, thank you all for your participation.