Shilpa Medicare Limited (530549) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Shilpa Medicare Earnings Call for Q4 and FY '24. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nachiket Kale from Ernst & Young Investor Relations. Thank you, and over to you, Mr. Kale.

Good afternoon, everyone, and welcome to the conference call hosted by the management of Shilpa Medicare Limited to discuss the fourth quarter and financial year 2024 performance. The management is being represented by Mr. Omprakash Inani, Chairman of the Company; Mr. Keshav (sic) [ Vishnukanth ] Bhutada and Mr. Alpesh Dalal. The discussion will be led by Mr. Keshav (sic) [ Vishnukanth ] Bhutada with his perspectives on the business performance and strategic overview. He will be followed by Mr. Alpesh Dalal, Chief Financial Officer of the company, to give us perspective on the financial performance. After the management's comments, there will be an opportunity for all your queries to be answered. Before we proceed, I would like to state that some of the statements made on today's con call could be forward-looking in nature. A detailed disclaimer in this regard has been mentioned in the conference call invitation, which is available on the stock exchange. We have also published the results presentation prior to the call. I hope everyone had a chance to go through it. I would now like to hand over the call to Mr. Keshav (sic) [ Vishnukanth ] Bhutada to take this discussion forward. Thank you, and over to you, sir.

No, I think there is a small correction. So I'm going to draw this, Vishnukanth Bhutada here. So welcome to our call to discuss on the performance of the Shilpa Medicare during the fourth quarter of the year '23, '24. As always, I shall commence with the highlights of the operating performance and touch upon initiatives segments wise and Mr. Alpesh Dalal, CFO, will share perspectives on the financial performance by the company. Following our opening comments, we shall invite queries from the participant in order to address it comprehensively. I'll begin with the updates on the API business, which is the most important division for us. Building upon our strengths in developing and commercializing products, we're moving up on the value chain in our API business. For non-oncology API segments, we are exploring products, which have a high growth potential or can serve as an import substitute API. During the quarter, we have added 3 molecules in our portfolio, Methotrexate, Liraglutide and Teriparatide, which are at the validation stage and are likely to be completed during Q1 FY '25. We're also enhancing the capacity of one of our key molecules, Tranexamic acid from 15 metric tons to 25 metric tons per month with tentative completions in December '24. For another key molecules, UDCA, we are witnessing the significant improvements in volume pickup. And with the filing of our U.S. DMF and EU for the GMP, we feel that this molecule will have a significant improvements in the volume. We are progressing fairly on the polymer initiative as well where our focus is on innovator seeking quality products and we have already developed 1 product for the U.S.-based client and supplied them with the pilot and the validation quantities. On oncology APIs, we are developing almost 8 APIs, which will come at the plant level before FY '26. Our API CDMO services, which are growing with a great potential, which provides a significant growth opportunities in the coming years. Moving on our formulations. We launched successfully our first NDA product with our partner in the U.S. market under the J-code in the U.S. market by Amneal. Another significant product, which will be our innovative product NUD07 Phase III studies have been initiated and the recruitment of NAFLD patients. Fibrotic stage F2 and F3 for Phase III trials have been completed across multiple centers. Phase III clinical study dosing is expected to be completed by end of the Q1 FY '25 and study is likely to be concluded by end of Q2 '25. We also completed the Phase II trials of our another product which is a tropical lotion, SMLTOP09, for the treatment of androgenic alopecia. We are now starting the -- now planning to initiate the Phase III trials in July, August '24. Additionally, we have expanded our geographical reach by entering into emerging markets through our marketing partners for launching our approved products portfolio providing access to the private market and enabling us to participate in the local tenders as well. We have successfully completed the inspection by the AGES, Austria in January '24. Our Jadcherla facility has been issued GMP certification, which will facilitate continued supply to various countries of the European Union from this unit. For our Jadcherla facility, which has undergone a USFDA inspection in November '23, I'd like to share that we have submitted all compliance to the -- for the 10 observations that were received. We are closely working with the FDA to meet the expectations of the FDA in the current regulation. We're also [Technical Difficulty] some additional consultant for our GAAP reports, which was found out by the FDA during the November '23 inspection. Coming to the ODF, post U.S. launches of various ODF products, we're entering into the emerging markets where we have signed licensing and supply deals in the key markets and also exploring further partnerships. And in U.S. also, we are trying to launch even the Paracetamol film into the U.S. market under the ODF category. Our efforts to be introduced transdermal patch based offering on track. We have partnered for the rotigotine, which is the most complex product in Europe and the emerging markets. Clinical study is completed for the EU market and skin irritation study is completed on the Indian subjects and ongoing at abroad. Plan to complete in Q2 FY '25, followed by the filing in EU and emerging markets. Apart from this, we have partnered another 2 products for EU and emerging markets. Rotigotine, we are planning to take to the U.S. market also, which is used in the Parkinson's diseases. Speaking now about the Shilpa Biologics. We are monitoring the volume growth in high concentration product, piggybacking on the India approvals and launch for strategy extended to tap into the various international markets with this product. Also additional indications approval submitted to the Indian authority. For our NBE, recombinant albumin, the Phase I studies have been completed, and we are working for the substituting the data -- submitting the data to the CDSCO for pathway -- further Phase III pathway. For Aflibercept, CDSCO approvals for the Phase III has been received and manufacturing of CT batches will be done in the Q2. Additionally, our first biologics CDMO project for microbial fermentation has been moved to the second level, and we have signed a further 1 more CDMO project in the biologics. To conclude, we are working towards entering into the various markets and also having innovative products, along with the regular generics. I just draw my opinion and remarks to a close and ask Alpesh, our CFO, to continue this discussions with his comments on the financial performance. Thank you. Thank you all.

Yes. Thank you very much, sir, and good afternoon, everybody. I'll now provide the financial highlights for the fourth quarter and full year ended March 31, 2024. From a revenue perspective, we reported a steady quarter with consolidated revenues of INR 294 crores, registering a growth of 11% year-on-year and with an EBITDA of INR 72.5 crores as compared to INR 68 crores in the last quarter and INR 40 crores during the same quarter in the last year. So this is the sixth consecutive quarter where we have seen improvement in our sequential EBITDA. And this...

Alpesh, your voice is slow.

Hello, am I audible enough?

Alpesh, you increase your voice little.

Yes, am I audible enough?

Yes, sir, this is better.

Yes.

Yes, okay. Okay. So I was saying that this is the sixth consecutive quarter where we have seen improvement in our sequential EBITDA, thus reflecting improved business mix and continuous endeavor to rationalize our costs and increase our operational efficiency, right? And this enhanced EBITDA has also translated into an improved profit after tax, with quarterly PAT of INR 24.5 crores as compared to INR 4 crores during the previous quarter, and that's against a loss of INR 8.1 crores during Q4 of last year, right? Now I'll quickly take you through some financial highlights for the full year of FY '24, where our revenues for the period stood at INR 1,160 crores, reflecting an increase of 9% compared to FY '23. And EBITDA was at INR 252.5 crores, registering a growth of 111% over the previous year. So previous year, our EBITDA was at about INR 119 crores, 120 crores, INR 120 crores, and this is more than doubling of EBITDA there. And on the other financial parameters, our net debt as at 31st March was INR 912 crores. And our CapEx -- net CapEx that we have incurred has been INR 172 crores, majority of which has been in our upcoming aluminum manufacturing facility to the tune of roughly about INR 150 crores. During the year, we also generated operating cash flow of INR 172 crores. So we have been moving in the right direction as far as controlled financial performance is also concerned. An another important development, I'm very happy to report that we have recently in the month of April, raised equity funding of INR 500 crores through QIP issue and this has been to -- this has been subscribed to by some marquee investors, and this QIP issue has helped us in deleveraging our balance sheet and also provide us the requisite growth funding to enable our future growth and the further journey ahead. With those closing remarks, I would like to now open up the session for Q&A. Over to you.

[Operator Instructions] The first question is from the line of Rahil Dasani from Mittal Analytics.

Am I audible?

Yes, sir.

Okay. Okay. So first of all, I needed to understand the balance sheet, that is the goodwill, the intangibles and intangibles under development. These are very significant, approximately INR 500 crores. So last few years, the overall P&L has been hit. But now that it is getting better, any plans to write down the goodwill and take a hit in any one year? And if I'm not wrong, the intangible under development and intangibles are related to R&D. So why have we not expensed this? What sort of judgment has been taken here from the management to include it in the balance sheet? That's the first question.

So answering the question, as far as the goodwill is concerned, goodwill basically is acquired goodwill when we have acquired certain entities and as a matter of process under Ind-AS, there has got to be an impairment testing done of the goodwill. So, on the impairment testing of goodwill we do have -- we do not have any charge that is required or that comes up and hence it continues. If in any impairment testing if you are required to write down the goodwill, we will do the same. As far as intangibles are concerned -- am I audible enough?

Yes sir, you're audible.

As far as intangibles are concerned, we have a very clearly defined policy where any product, any development, which is still at development stage and has a risk of development involved in it is charged off to P&L. Once the product development has been completed and we see a commercially viable path for the product, all the expenses incurred after that till the time the product is commercialized are capitalized and this is what we have been doing consistently. We have not had any situation where we have followed a different accounting policy because we had difficult years. We have been following consistent accounting policies, which have been very clearly laid down and laid out in each of our annual reports, also you can check out all those accounting policies in relation to R&D, what gets capitalized and what doesn't get, what gets charged to P&L. So we are following that consistently. It is not based on whether we are having a good year or a bad year that we keep changing our accounting policy.

Yes. So the next question around the Pemetrexed injection, what is the update for this product. It was launched in Q1 FY '23 in Europe. Since then, how have the numbers grown from there? Also, we were to launch it in April in the U.S. So what has been our offtake to Amneal in March and how have the sales grown from April and May?

Yes, sir, we can hear you now. The question was on Pemetrexed future.

Yes, Pemetrexed will be as expected, we have already mentioned that it has been launched in the month of April. And the number is yet to come. So currently commenting on numbers may not be possible. But yes, successfully, we have launched in the month of April. So once the quarter end is over, probably we'll be doing the number on this.

Yes, sir, but that is for the U.S., right? And we launched this product in Europe in Q1 FY '23, if I'm not wrong.

No, no, no, we have not launched in FY '20.

No, no. We had launched this product in Europe in Q1 FY '23.

Yes, yes, yes. That is there.

So that's what I'm asking, how have the numbers grown from there?

In the Europe and U.S., this is a totally different approach. In U.S., it is a 505(b)(2) J Code. In Europe, it is against generic, so it is not 505(b)(2) or something is there in that or there is no J-code specifications. It is normally, we're competing against generic.

Yes.

And we generally do not provide product-level sales details and all, right? So -- and this is like any other normal product that we have got, it is -- as Vishnu-ji was mentioning, it is not a differentiated product as it would get classified in the U.S., it doesn't get classified as a differentiated product in the EU market. So -- and for all the generic products we anyways don't provide product level breakup of sales.

Okay. Got it. My next question is on albumin. If you can go in a bit of detail from a scientific perspective and explain why a form of Navya size was able to crack it and considering the huge market potential and shortage, why other MNCs who are a lot more liquid with a larger R&D workforce not pursuing it?

No, I cannot comment on why other MNCs are not pursuing. I can comment on my this one, that we're pursuing this. We completed the Phase I and the Phase I study will be submitted to CDSCO and probably we will submit for the Phase III approval also. And the -- as you mentioned that the size is huge, the demand is huge. Why others are not pursuing and all, I think it's not possible for me to comment. But yes, it's a complex product, not easy to be developed, not easy to see that as the cost competitive against the plasma product, that is why we are putting up the huge facility of the fermentations also into the -- near to the Raichur, where we want to manufacture this particular product once we get Phase III approval. We have a commercial manufacturing capacity also for manufacturing this albumin.

Okay. Got it. Secondly, we had to register a DMF for the excipient grade and start selling it this year. So what's the capacity we have for the excipient grade? And since the plan is to start by July or August, can we expect increased excipient grade sales? Or will we only utilize the plant once the pharma grade is approved?

No, I think the -- on excipient grade, we are submitting the DMF for sure. But submitting the DMF doesn't mean that immediately the sales will start. People will use our excipient grade albumin in their formulation, put it for the stability because albumin itself is not a drug. Means it will not be used in excipient. They will use in various formulations. That formulation, then in that also Phase I, Phase III. So it's long-term process. It is not that the -- immediately, the sales revenue will come on that. But yes, the people will at least start using our excipient grade and we'll start giving them the development and the some pilot quantities.

We will move on to the next question, which is from the line of Vishal Manchanda from Systematix.

Sir, on albumin, could you kind of share some color on what could be the price differential between a recombinant one and a blood derived one?

The price difference currently setting is difficult because in a various market, the excipient grade and the therapeutic grade has a various pricing. Of course, excipient grade has a more -- much more value than the therapeutic grade. But in U.S., Europe, even therapeutic grades in India, therapeutic grades in ROW market, therapeutic grades has a different pricing. That is the reason why we feel that we have to complete, including the India pricing. So this is the reason why we have put the largest capacity on that. So that once we are competitive in India market also on a therapeutic grade, definitely we will be competitive in other markets. This is what our goal.

Sir, you would definitely be lower than the blood-derived albumin in terms of the pricing? Would that be...

Yes, our intention is that on only.

And it should be significantly lower, I mean to kind of get into -- get a market share here?

First of all, definition of significantly lower itself is questionable. But I can tell you that this is a shortages product. Once you have this quality of the product with the 99% purity -- plus purity and consistency of not having any impurities from the other blood derived products, definitely, our product will be little premium, not the more premium on this in the therapeutic grade also. So we are working all aspects. Keeping that into the mind only this product development has been taken and the facility has started building up.

Okay. So you'll initially target India and then go global with this product?

I think India and ROW for sure, immediately, parallelly, because we are using the EU RLD against this even in our India trials that will allow us to penetrate into the India and ROW markets. Of course, Europe and U.S. also parallel, it is there but once we are seeing this India now Phase I is completed. Now with this, can we go with the parallelly into the U.S. and Europe, that's still it is not decided, but India and ROW for sure.

And are there other companies globally who have either tried this recombinant albumin and successfully done that?

Excipient grade, yes, 1 or 2 companies are there. On therapeutic I think we have not heard anyone. No, we have not heard.

Okay. And sir, a second one on the U.S. You have a Para IV filing on a product called Lenvima and probably you are the first to file or Sun Pharma and -- you have it along with Sun Pharma. Could you share time lines on when this -- when potentially could be the launch of this product?

This is Lenvatinib. The -- we and the Sun are the only 2 filers for the first to file. I think I don't know more on this, but I think publicly probably it is known that the Sun has settled with them on this. But still, we are litigating. The litigation ongoing. So commenting on that will get -- pardon?

Shilpa Medicare has not settled yet?

No, no, no. We are not settled. So I think we are still continuing our -- and we fairly feel that we're non-infringing. So that still litigations are going -- on going on. And commenting on that on a litigation will be very difficult for me today on this. But yes, answering your specific questions, the litigation is ongoing. So what time is the launch, when it will happen? Still, it is very difficult to comment on that.

Understood. Understood. And just one final one. Would you be able to share what would be your total investment on the gross block on the biologics front, excluding Albumin just on the other biosimilars like Adalimumab and others?

Alpesh?

Yes. On biologics front, our total gross block for our biologics is -- I will tell you the exact number, it's -- just a second, about INR 450 crores.

[Operator Instructions] The next question is from the line of Aditya Sen from RoboCapital.

Sir, we have got a few products such as Aflibercept, albumin and Adalimumab in the line, and we believe they are of huge market size. So once we decide the products, do we have any aspirational market share in our mind while proceeding with the product that we want to achieve?

Normally, we are not doing direct marketing by ourselves, except for Adalimumab, we have done in India. But rest all markets, we partner with the strongest partner in that particular division in the various regions, so this is what we do. In India, it is known that we have partnered this Adalimumab with the Sun Pharma. So yes, and they are known for taking the bigger market share.

All right. So just to understand -- I'm new to this company, so just to understand how do we anticipate the incremental growth from the new products of Aflibercept, Albumin and Adalimumab, I understood but specifically about Aflibercept and albumin?

Yes, of course. That is the reason why we selected such a complex product.

All right. All right. And about the margins of our 3 segments, Formulations, API and Biologics. Can you please let us know how much margin we did in each segment? And any guidance going forward on all 3 segments?

Alpesh?

Yes. So basically, we generally don't provide segment level margin per se. But if you look at our standalone business, which is our Formulation business, right, you can get an idea about the margins over there, right, for our standalone business. And for our API business, we are typically operating at an EBITDA margin of about 25% to 27%. I cannot give you the exact numbers over there. But that's the range in which we operate.

All right, and for Biologics if you...

And I think guidance we are not providing.

Guidance we are not providing but this is the general thing.

Yes. And the last one, the Biologics margin, if you can.

Yes, Biologics basically see, it's at an initial stage. So there are not the entire costs get absorbed operationally in a full-fledged operation. So at this stage, it may not be appropriate to look at the margin profile of biologics separately.

The next question is from the line of Krishna Kansara, an Individual Investor.

First of all, congratulations on a good set of numbers. My first question is on the QIP money that we have raised around INR 500 crores, so as far as I know, our prepayment option is opening up in July this year. So can we expect the bullet repayment to happen in July? Because that will save around INR 45 crores to INR 50 crores of interest expense, which is huge. So when can we expect the debt repayment to happen?

So I think we need to wait till not July but till mid of August to make a partial payment. We're -- we have already planned to make a partial payment towards that NCD and of the QIP money that we have received, the QIP funding that has come in, a portion of that has been already kept in FD for the repayment that comes up, that we can make in the month of August. There's no repayment obligation but we are planning to make a repayment of a partial amount. So a significant chunk of the NCD will be reduced. We will be carrying some small portion, maybe we'll try and settle it out or pay it out in the next 1.5 to 2 years' time maximum.

Okay. So majority will be repaid in August?

Yes. Yes.

Okay. And sir, another question is on the imports alert. So how long will USFDA to issue the compliance certificate. I'm asking this because majority of our delta in, let's say, next 1 or 2 years is expected to come from formulation segment. So do you think that any risk would arise in future because of this? Of course, we have completed all the remediation expenses and -- but when will the final notification from USFDA is expected to come?

Commenting on the final when they will give it is very difficult. But yes, we're working. Now, we're at this stage where we are almost trying to complete this all, whatever their expectations are there. So that much I can tell you. And the risk mitigations and the delta, what we are thinking for the U.S. see like Pemetrexed, we have launched from the other sites. Another product we filed 505(b)(2) for the Bortezomib that also probably we have already shifted, and the review is going on that is from other sites. The another products, whatever we are doing -- pardon?

No, no, sir. Continue.

Yes. So any products which we feel has a risk mitigation, we already have 2 sites. So the -- whatever the largest chunk of our products, which are like a 505(b)(2) or very complex, we are parallelly keeping 1 more site also. So that is the reason why I think -- I don't think that any such risk we are carrying for this our future growth.

Correct. So sir, for Pemetrexed, we are using our own site? Or are we using some other company's site on contract manufacturing basis?

It's a CDMO site, another site we are using.

Okay. Okay. And sir another question on formulations. So what kind of products have we already developed in this segment, which we plan to monetize over a period of next 1, 2 years? I wanted to understand the potential sales number, which this formulation products can generate as a licensing fee in next, let's say, 1, 2 years?

Our policy is there to develop the complex products. So the licensing revenue will come always, it will be there every year. That is the reason why you are seeing that there is a licensing revenue. Until and unless somebody sees the potential of this molecule, nobody is going to give you licensing fees. So we are continuing to do such a complex project. So from that, how much revenue and all will come is very difficult to tell today. But the -- like Bortezomib 505(b)(2) what we are doing it. You can see the IMS data also. So currently, nobody is there in the subcutaneous RTU. We have developed that product and we already filed 505(b)(2) and the review is going on. The another products, what we have -- whichever the products we are trying to do it, either it should be a very complex product like Lenvatinib, first to file we have done it and we only 2 people were there. It's a $1.2 billion product. The settlement has not done with us. But we normally do the non-infringement or the complex or the patient compliance product we try to select in-house and try to see that the -- such unmet need is always scattered. Then only people will come here for the licensing and will be interested to launch not only in the U.S., Europe and other parts of the world.

Correct. Correct. So sir, if not the potential field, if you can just tell us the number, let's say, how many agreements have we currently already signed, if you can tell the quantum of that, that would be helpful?

It's a difficult now to tell because in ROW market if I am able to tell you. See in each product, there is a different agreements is happening. It is not 1 product, 1 company and 1 company and then we sign 10 products with them. We never do that. We specialize like somebody is specialized in onco, somebody is specialized in non-onco, so accordingly, we try to -- somebody is specialized into the OTC segments where we do our [ pharma ], the ODFs and the TDS. So accordingly, we work with the various companies. We have a flexibility of working such type of companies. And then licensing deal happens. But particularly telling about how many licensing agreements we have signed and all but we have signed a number of that, that much I can tell you.

We'll take the next question from the line of Harsh Bhatia from Bandhan AMC.

Just 2 quick questions. One, just from an accounting perspective, in the audited statements -- again, this is a standalone versus consol. Licensing and service income is INR 58.4 crores in the consol and INR 28 crores in the standalone level. And in the presentation, under formulations, it is somewhere around INR 32 crores, INR 33 crores for this quarter. If you can help us sort of better understand how are these numbers getting segregated? Maybe standalone is where the formulation-related licensing and service income is coming, and therefore, that is the difference. So maybe you can help us understand.

Alpesh?

Yes, yes. So Harsh, basically, the licensing income, what you see in the presentation that is provided for the formulation business. And we do receive licensing income in our other subsidiaries also foreign subsidiary where we could have done the deal. So especially in this particular year, there was some licensing income that was also received in the European territory in a separate subsidiary. So what you see here is basically a formulation business and not a standalone business. Yes.

Okay. Okay. Understood. And in terms of this new facility for Albumin that will probably come in this first quarter, ongoing to first quarter. Without getting into the numbers, the incremental OpEx part, do we feel anything incrementally that could come into picture? Obviously, I'm not sure to what part of the construction is done and to what part of the OpEx is there in the P&L. So if you could just help us understand qualitatively.

We completed almost all construction and the majority of the equipment at place. That is why we are starting probably next quarter, we'll start the trial batches. So the major OpEx probably will be -- CapEx will be completed by the next quarter. So another maybe INR 50 crores additionally, we may have to spend it. So this is what I can tell you.

And manpower cost is yet to come into picture?

That automatically will come, once we complete this and once we start the commercial production, that only it will be there more. But otherwise, it will be less of the initial days. That is why we have not provided any guidance. We are saying that the next year first -- after the next year, March only, we should be able to get some revenue from this particular site. Until then, the stabilization, the -- some of the batches, exhibit batches we need to complete that all work will be completed in this current financial year.

Sure. And sir, one last clarification. I think, sir, there is some confusion at my end that the metric rated sales, nothing has been booked in March because the product has been launched in April. So your shipments must have gone out in March, maybe I'm assuming. So it is fair to say that fourth quarter didn't have any Pemetrexed related shipment because the U.S. formulation has also shown an uptake, if I am not wrong?

Yes, there is -- you are correct. We have shipped this material in the month of March to the U.S. But the -- please note that we are here giving on a transfer price to the -- our U.S. partner. There is a profit share arrangements once the sale starts, there's a substantial profit share agreements.

Sure. So manufacturing is both...

Harsh, just to add on, the initial supplies related -- the initial orders, which were there have been shipped and have been booked in our U.S. sales for Q4. That's where you see the uptick also there. And as Vishnu-ji was mentioning that once we have the entire reconciliation done for the profits that are generated during the quarter, then the profit share related portion will get booked at that point in time. Sorry, go ahead.

The next question is from the line of Dheeresh Pathak from WhiteOak Capital.

[indiscernible] Slide 12...

Sir, I am sorry to interrupt, your audio is not that clear and we request you kindly use your handset.

I am using the handset, is it better now?

No that muffle -- it's muffled, sir.