Poly Medicure Limited (531768) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Poly Medicure Limited Q1 and FY '27 Earnings Conference Call. [Operator Instructions] Today on this call, we have with us the senior management team of the company, represented by Mr. Himanshu Baid; the Managing Director, Mr. Rahul Gautam, President, Strategy and Corporate Development. I now hand the conference over to Mr. Himanshu Baid. Thank you, and over to you, sir.

Yes. Good evening, everyone, and I welcome you to our quarter 1 FY '27 earnings call. I sincerely thank all of you for being here today. Before I come to numbers, I want to give you a glimpse of our Strategic Vision 2030, and we're calling this as a PolyMed 3.0. As you all know, PolyMed initiated operations in 1997 with an IPO of INR 2.65 crores using which we set up our first plant. In the next 25 years, we remain good and slowly build our leadership in our core infusion therapy business by taking building global quality products. During this period, business grew from zero to almost INR 7 billion in revenue. In 2021, PolyMed started 2.0 journey, which we call the inflection point in our history of the company. We did our first institution fundraise, which resulted in multifold expansion of capacity. We also entered into high-technology segments like cardiology, critical care, orthopedics. During this period, we also started our inorganic growth journey with acquisition of PendraCare. Revenue during this period almost went up by 2.75x to INR 1,875 in FY '26. Starting FY '27, we have initiated PolyMed 3.0, a phase we are calling Ascent. During this period, we have set a goal to double our revenue by FY '30 by unlocking value by organic and inorganic expansion, leveraging technology to scale high complexity verticals globally and deepening direct customer access, especially in international markets. I believe we are at a point of time in our journey where growth should happen exponentially, led by high technology, high-margin segment. Given the strength of our balance sheet where we continue to have strong liquidity, we believe this audacious goal is truly achievable. I'm really excited about this phase, which I believe will truly make PolyMed a global medtech MNC out of India. On the leadership front, we have already initiated actions to achieve our PolyMed 3.0 vision, appointed Indranil Mukherjee as our CEO for India and APAC. Leonardo Rocha as CEO for Brazil. Indranil has joined the company on 1st June 2026. Leonardo has joined the company on 1st August 2026. We also brought in Abhimanyu Hooda as Head of Renal business in India to augment sales and also build a strong capability in this segment. I believe our leadership reinforcement will help us to put a strong position to deliver on our aspiration. Moving on to financial performance of the company and Q1 financial results. On the financial performance side, let me start with the stand-alone performance as this remains core for our group. Stand-alone revenue for Q1 was INR 231 crores, up 12.3% with domestic at INR 146 crores, giving a growth of 16.2% and international at INR 281.8 crores, giving a growth of 10%. Gross profit for Q1 was 71.5%, showing significant improvement due to better product mix and impact of price hikes implemented in Q1 and inventory gain. I expect that our gross margin should continue to reflect on historic margin trend of 68% to 69% in the near term. We have guided a stand-alone EBITDA margin of 25% to 27% for FY '27, but we have delivered 28%, 100 bps higher than the guided range. Absolute operating EBITDA was INR 120.8 crores, up from 18.8% on a year-on-year basis. This was despite employee cost rising almost by 29%, driven by 35% increase in minimum wages in Haryana with effect from 1st April 2026, increase in headcount impacting increment for FY '27. Now on the consolidated picture, consolidated revenue was INR 525 crores, up 30.3%. Of that INR 72.3 crores came from acquisitions. So on organic basis, revenue was INR 453.1 crores, up 12.4%. Within International, Europe grew 43.8% to INR 187.3 crores. And importantly, it grew 17.6% organically, reflecting improvement in the performance in the region. As you know, last year, Europe was a laggard. And this year, as we have added some customers, on-boarded new customers, we were able to come back to our original growth or planned growth of 17% to 18% as we had forecasted in the beginning of the year. Rest of the World grew at 30.3% on a reported basis, but only 4.0% organically. The reason for low growth was 32% de-growth in the Middle East due to ongoing West Asia crisis. Customer demand in the region is intact, given the current logistics and infrastructure bottlenecks, we are unable to meet that demand. We are hopeful that once the situation improves in the region, we will return to normalcy. Our order book is pretty strong for Middle East, but currently, we are unable to ship the products. Consolidated gross profit was INR 385.6 crores at a margin of 3.4% margin, up 495 basis points. The better margin profile of the newly acquired business is helping improve gross margin. Consolidated operating EBITDA was INR 126.7 crores, up 17.7% at a margin of 24.1% with our guided range -- within our guided range of 23% to 25% for the year. Infusion Therapy grew by 11.1% to INR 259.2 crores, led by strong domestic growth on back of rising share of higher value-added products and price increases. Internationally, we have started to witness a strong recovery in the business despite 32% degrowth in the Middle Eastern markets. Orthopedic contributed INR 49.2 crores, which reflects the consolidation of Citieffe. Cardiovision grew INR 2.9 crores to INR 28.6 crores led by PendraCare acquisition together with genuine scale up of domestic business. Others grew by 18.5% to INR 149 crores constituting the balance. The one soft spot was renal. It degrew by 3.8% to INR 43.2 crores. The renal business was impacted by continued pricing pressure from Chinese players in India, but we made a conscious choice to raise prices to push the raw material price increase rather than different volume at any cost. Temporarily, important development -- based on application filed by the company, the government has initiated antidumping investigation into imports of dialyzers from China and Malaysia, and we have claimed for injury margin of 20%. And we hope in the next few months, we will see some decision taken by the government to protect local industry. On the balance sheet front, the liquidity remains strong and with a cash of about INR 855 crores, which is the reserve we have set aside the strategic initiatives. And let me connect this to our forward-looking guidance for FY '25. Before this, I would also like to point out that company has been now pushing hard on developing new medical devices. And for that, we have also initiated a lot of clinical studies. And as a support, government of India has also granted an aid of around INR 3.3 crores for undertaking clinical studies of some new critical devices which we have just recently developed. On the guidance front, on the consolidated basis, we are guiding for revenue of INR 2,300 crores to INR 2,400 crores, including the full year consolidation of PendraCare and Citieffe. We are maintaining this guidance after quarter 1. On a stand-alone basis, we maintained revenue guidance of INR 1,900 crores to INR 2,000 crores with the domestic business expected to grow over 20% and international business growing by over 15%. Stand-alone EBITDA margin is expected to be between 25% to 27%. Currently, in the first quarter, we have done 28%, but still we think that maybe for the first quarter, the margin was slightly higher because of price increases we have taken and some inventory correction. But hopefully, we should be in the higher range of 25% to 27%. The consolidated EBITDA margin expected to be in the range between 23% and 25%. This quarter, we've done 24%. So we are pretty much in the range. And hopefully, we can maintain this. We expect to spend between INR 200 crores to INR 225 crores in the CapEx for FY '27. In summary, this is a quarter where the strategy started converting into numbers. The high technology, high complex segment we invested in through PolyMed 2.0 are now generating the value we anticipated. I remain confident in the direction of the business for the year FY '27. Thank you very much for your trust and time. I will now hand over to operator, and we'll be very happy to take your questions. Thanks, again, everyone.

[Operator Instructions] First question comes from the line of Bhavya Gandhi with Bajaj Alternate Investment Managers Limited.

Hope I'm audible.

Yes, sir. You are.

Just wanted to understand on the stand-alone business, we are looking at an absolute revenue of closer to INR 350 crores to INR 400 crores, whereas in Q1, we have grown closer to 12% on the stand-alone business. So if you can just help us tally the number in terms of absolute revenue INR 350 crores to INR 400 crores, where exactly are we planning to get there? Yes, that is question one.

So you mean incremental growth of INR 350 crores to INR 400 crores, that's what you mean?

Yes, yes.

Yes. So I think our quarter 1 tends to be the lowest if you look at the history of the business, and it tends to grow as we go into the financial year. This year, because we've also taken a price hike, right, at the beginning of the financial year to account for the increase in raw material prices, the beginning of the year was slightly slow, and we recovered some of the revenue in later part of the quarter. As that momentum continues, we believe that we should be able to get to much better numbers in Q2 onwards and still achieve the guidance that we've given.

Got it. Fair enough. And sir, second question is regarding the inorganic acquisition. We have closer to INR 850 crores in terms of cash. If you can throw some light what exactly are we looking out for? Are we going to utilize the entire amount of INR 850-odd crores, or how is it? That's the question.

So basically, we are looking at expansion organic and inorganic. And as we have done a very small acquisition in Brazil recently, we are trying to put our presence there, and we have -- Board has also allocated some funds for Brazilian market where we can expand the direct sales presence. And of course, we are looking at technologies around three critical businesses in cardiology, oncology and orthopedics and we're looking at adjacent technologies. And wherever we find an opportunity, we will look at that. And some of the funds are also allocated for the CapEx to be done at two plants, which are under construction at this moment. And one is coming in Faridabad and then one in Noida basically in the medical device.

Okay. Got it. Would you like to share some asset turns for the CapEx that you're planning?

The asset turns for us if you look at the remain between 1.2 to 1.4, and we expect on a balance sheet similar kind of asset turn to continue.

Our next question comes from the line of Siddharth Negandhi with CWC.

If I look at our India growth ex of Renal, and I'm assuming all of Renal was India, then that is 27%. But overall infusion growth was much lower, right, around 11%. So what was the one that drove -- what was the therapy that drove India growth, if you could give us some understanding? And on the disruption that you've seen in ROW exports, right, given that this is really at some level, an essential product, have you seen the resumption of exports in Middle East, or are you still envisaging this to continue until the conflict settled? And the third one is do we expect further RM cost impact in Q2 versus what we've seen in Q1, given your inventory levels? I know you've taken certain price increases, but how should one think of gross margins in Q2? Yes, these were my three questions.

Thank you for these questions. Let me take the fist one, which is the segment which have driven the growth for us domestically, right? As you rightly said, our infusion therapy business has grown at about 11%, and this reflects the performance both domestic and internationally. On the domestic side, infusion business has actually grown 20% plus for us in this quarter. The other segment which have grown for us is obviously cardiology, critical care, 2 segments which we have recently initiated and those are contributing to growth quite meaningfully in this quarter. Your second question...

So on the second question, the supply chain on the shipping still are disrupted right now. If you look at the shipping schedule, shipping schedule is still disrupted for Middle East, and it's still hard to find containers which can go to Middle East ports. So still the disruption continues. Hopefully, in coming weeks, we may something easing out. But on the demand side, we see still it's an entire demand. We have orders from customers. We are piling up at the port. But unfortunately, the ships are not calling, so they are stuck up at the port. So that's the issue. On the price side, I think currently, as crude stays where it is, I think we don't see a major impact on raw material costs, but minor few percent here and there, but more or less, I think probably we have almost seen that peak off.

Right. And just on the acquisition, any update in terms of how the integration is going? How are you thinking of any integration in terms of cross-sell or the movement of some of that production back to India? Just some updates on that?

Sidharth, I think we are quite happy with the way how the integration process is going on for both the acquisition that we've done. We have clearly identified areas of benefit that both the companies see with each other. We have created a group which is continuously following up on all these synergies. This includes across the cost items as well as on the R&D side plus the sales velocity that we're trying to increase. So on an overall basis, we are very happy on the part of moving the manufacturing process to India. We are currently working with both PendraCare and Citieffe on that part. Given this is a regulated sector and any such process change needs regulatory approval, some of these processes currently are at the regulatory approval stage.

Got it, Rahul. So have we already started seeing some cross sales synergies, or is that going to be more later in the year?

I would expect some of this to start playing out from next financial year onwards because all of these -- given medical devices is a regulated sector, any new market that you want to open up, like even for India, if you want to bring those products into India, we need to the approval from the CSO and that process is on. So I would expect that to start visible from next financial year onwards.

[Operator Instructions] Our next question comes from the line of [ Rakhsha Srivastava ] from [ Narnolia Financial Services. ]

Am I audible?

Can you speak a louder, we can't hear you.

Participant has left the queue. Our next question comes from the line of Bharat Shah with VCS Capital Private Limited.

The hunger for the growth is annunciated in PolyMed 3.0. So the first question is, you said, you want to double the turnover and margins to be the industry leading margins. And the growth will come both organically as well as inorganically. So when you say 2030, I presume it is March 2030. So 4 years, right?

Yes.

Okay. And that means doubling will mean about 18% compounded growth in the 4-year journey. How much of that is counted as organic?

So, if you see in current avatar company does around 80% organic business and 20% inorganic business. And I think we'll probably continue at a similar run rate.

Okay. So about 14%, 15% domestic -- sorry, organic and 3% to 4% comes from acquisition.

So that's a trajector basically.

Sure. And by industry-leading margin, I presume much better than what we have outlined for the current year. But what kind of margins should one assume on that?

Bharat, this is Rahul. If we look at the margin profile of PolyMed today, we are already the flag bearer in terms of profitability across the industry. I think we have the ability to improve our margins even now, but given we are focusing on growth in the near term, we want to keep the margins in the similar range. Currently, obviously, margins have been between -- we guided for 25% to 27% margin. We expect that we should close this year with upper end of that guidance range. And as the scale happens, we should be able to increase that margin as well. But given we'll be reinvesting back in the business from a modeling perspective, assuming a similar kind of margin will be a reasonable assumption to take.

So similar margins but not lower, right?

Yes, that's right.

Okay. And Himanshu, I'm just trying to understand when we look at somebody like [indiscernible], which is doing a lot of cardiology-related business, the scale up as well as the margins, the scale itself has happened at a pretty rapid pace. And the margins also are quite impressive. So I was just wondering what kind of opportunities retain until around because this kind of margins and the record scale up in the business, what are your own thoughts and your observation?

So Bharat bhai, [indiscernible] started cardiology business around 15 years ago. So it's not something that they started new. They started this business almost 15 years ago, developing products and PolyMed was never in that space earlier. And of course, we still had great margin profile between 25% and 27%. And we have started only two years ago, and that's how we are building it up, taking developing products. As I just told you, given a grant of INR 3.3 crores. So clinical studies in India, because these are -- a lot of these are import substitution devices. So that's been our focus. And as we move up, again, regulatory pathway is very important because that needs time, and it cannot be sidelined with the product, and you can start selling tomorrow. So it's all about regulatory pathway, clinical studies. So we're building this up. And I think in the next 2, 3 years, you will see a lot of new products coming from our portfolio on cardiology side. And I think that's a journey we need to take. But let's not forget that we have our global excellence on infusion and vascular access, and we will continue to build that globally also. So we have a cash cow. We have a product which works very well for us. So we'll continue to build there, but we'll also continue to invest in this new area of orthopedics, cardiology and critical care that will help us to actually grow business in India and internationally in the near future.

And just one last thing. Last year in many ways there's been a bit of a tumultuous kind of a year where many imponderables kept coming in, many of them outside your control in the external environment. Today, as we stand and armed with some of the acquisitions that we have done with the plants and the capacities in place and some of the new categories established. When you look at the 2030 Vision that you have spelled out, what are some of the very positive points you carry in your mind, and what are still some of the challenges that you visualize?

Bharat, it's a wrong question, but I'll try to answer in a short time. So one is, I think on the opportunity side, India happens to be the best opportunity in my view because now PolyMed brand is very well known. Today, we are present in almost every corporate hospital in the country or every important hospital. So most important thing will be to deepen that relationship with those hospitals and start working more aggressively in putting more products out there. So I think that is #1 priority. Number two would be Europe where we continue to expand our business and continue to go as a go-to-market direct strategy. We're currently present only in Italy. So we want to go in maybe 3 or 4 geographies, we want to go direct. So that's a very important part of the strategy. And as we just hired a CEO in Brazil, so we'll also put a strategy there to go to directly with more new products, the newer range we have today. So currently, our distributors only sell our existing products. For new product ranges, we will want to go direct. And so that is on the product side, market side. So -- and product side, anyways, we are going to launch 25, 30 products a year. So that's already in the pipeline, is already happening. I think challenges is probably the geopolitical risk, which I see. U.S., uncertain because of every day, there is a new situation which is coming up. Middle East, hopefully, the war kind of settles down so that the markets resume, and we are able to resume the flow. And also the logistic costs, which have actually gone up substantially 2, 3 times in the last 6 months, I think they will have to come down for India to remain competitive in exports. So these are some of the things which come to our mind, Bharat.

Next question comes from the line of Deepak with Sundaram Mutual Fund.

Am I audible?

Yes. Please, go ahead.

So congratulations on delivering a resilient set of numbers. I had a couple of questions. So first, on the acquisition. Sir, would it be possible to call out, let's say, in euro terms, what was the Y-o-Y growth of PendraCare and Citieffe and EBITDA margin for this quarter?

Deepak, I'll have to separately touch base with you on that. I don't recall that number immediately.

Okay. And sir, second, if I look at our exports growth ex of acquisition, in Q1, roughly as per my calculation, we have done somewhere around 10% to 11%, which denotes that in 9 months going into this year, we would have to clock more than 15%. So just wanted to know your thoughts around what will drive this organic export growth in the next 9 months? And what's the growth outlook for the renal segment since in the PPT, you mentioned that we are facing some competition due to Chinese dumping?

See, on the export front, I think for us, Europe, again, because we have done some new customer acquisitions. So that seems to be the growth market for us this year. And Southeast Asia is also doing very well. So I think these are two markets I'll call out for the moment. U.S., yes, we are growing, but we don't know what's going to happen. If we have 100% tariffs tomorrow or today night, I don't know. So it's a pretty fluid situation regarding U.S. But these are the 2 important geographies will continue to grow. And I think once the situation in Middle East improves, I think we will see probably maybe more than -- maybe more than 20%, 25% growth from Middle East. So currently, [ everything ] is stalled and all the orders are still lying at ports or in factories. So I think that is something we are looking at. And so export growth should happen. There is no reason it should not happen, and we are pretty confident. And we have almost 25 new products in pipeline for CE marking, which should come sometime between now and next 3 to 4 months. So that would also add to the bucket -- basket for increasing the basket for exports. And the second question...

Renal segment growth outlook.

Pardon me for that. So on the renal side, I think we had a de-growth of around 3% in the first quarter. But I think again, we have -- as you have -- maybe my earlier comments, you must have heard about government opening an antidumping probe because we were pushing the government to look into the pricing, which was dumped by Chinese. And most of the Chinese companies are importing to India zero duty using ASEAN FTA. So I think even [indiscernible] yesterday, there was a minister meeting, and we have also flagged that issue again to the Minister, Mr. JP Nadda. And with this antidumping probe getting evaluated right now and with the engineering margin of 20%, we think that something will happen between now and end of the year. So that's number one on that front. But secondly, we have hired Abhinav, which you must have heard in my opening comments. He comes from a strong Renal background and probably that will also help us to turn around and work with distribution partners in the country and outside the country to grow that business. So hopefully, year-end, we should end with a growth of around 15% to 18% in the business, maybe close to 20%, depending on how it goes, but we are pretty confident of this growth even in spite of all the challenges we face today.

Okay. So that's very heartening to hear. And sir, lastly, if I look at our gross margin, this quarter, we have reported multi-quarter high gross margin. I understand that you also mentioned that we have taken some price hike, which could have helped us to reach in this sort of gross margin. So let's say, on a steady-state basis, at least in the near term, let's say, the 9 months of this fiscal year, how should we look at the gross margin? Should it normalize to that 68%, 69%, or will it continue to clock above 70% rate?

See, basically, on a stand-alone basis, we should see between 67% to 69%. This is what we have called out also earlier. And also on the, let's say, consol basis, we should see further maybe 200, 300 bps improvement because PendraCare and Citieffe have operated on a higher gross margin. So they probably, at the end, consolidated numbers should look between 71% and 72%, whereas stand-alone should look between 68%, 69%.

Next question comes from the line of Rashmi Shetty with Dolat Capital.

So again, on the margin front, on the consol level, overall gross margin, you said it is in the range of 71% to 72%. But on the consol level, our other expenditure and personnel cost for this quarter is pretty high. So on an annualized basis also, it would be a similar run rate of around 24% of sales in the subsequent quarter?

Yes. So Rashmi, as you mentioned, our guidance for consolidated EBITDA is between 23% to 25%, and we are maintaining that guidance. As you rightly noticed, the people costs and other expenses are higher in case of our acquisition, that's reflective of the nature of the business, plus the fact both the business are currently scaling up. And that's why our consolidated EBITDA margin guidance is lower than our stand-alone EBITDA margin.

Okay. And on sales front, our -- if you just compare organic and inorganic sales for this quarter, inorganic is around INR 73 crores in the export business. So what I understand that given whatever CY '25 sales you have given for the acquired companies and if you convert it into the euro-INR currency, then we have not seen -- we are just integrating, right? We have not seen any major growth in the acquired companies, that is in the inorganic company's sales. We have not seen the pickup yet. Am I correct on this part?

Yes. So basically, you have to break it down into two parts. PendraCare and Citieffe are two different entities, both having their own set of growth journey. For PendraCare, as we had highlighted in our last call as well, they had over-indexed exposure to Middle East of about 20-odd percent. So that business is actually currently not growing. In fact, we witnessed a de-growth over last year as well. Citieffe is growing as per expectation in mid- to high single digits. And as the synergies kick in, we should be able to increase that further.

Okay. So in the coming year, what is the kind of growth we are assuming in case if Middle East problems get resolved for FY '28 from the acquired company?

Yes. So I think on a long-term basis, as we have called out earlier in our acquisition calls as well, these assets on the stand-alone basis have the ability to grow in high single-digit revenue growth. With the synergies that we want to drive in through product development, cost reduction as well as through sales channel expansion, we want this to go into the mid-teens as an aspiration basis, assuming the current geopolitical situation resolves itself over the course of next few quarters.

Okay. So is it better to assume that from next year onwards, when the sales pick up and when things get resolved, we will be able to see the overall EBITDA margin, including the acquired companies to expand at least 100 to 150 basis points?

We haven't given any guidance like this at the moment. So Rashmi, I won't be able to comment. But directionally, as these businesses scale up and the synergy benefits kick in, we expect the margins of these entities to improve, which will reflect in the consolidated EBITDA margins as well.