SMS Pharmaceuticals Limited (SMSPHARMA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to SMS Pharmaceuticals Limited Q2 FY '25 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantees of future performance and involve risk and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. Today, we have with us Mr. Vamsi Krishna Potluri, Executive Director; Mr. Lakshmi Narayana Tammineedi, Chief Financial Officer; and Mr. Thirumalesh Tumma, Company Secretary and Compliance Officer. I now hand the conference over to Mr. Vamsi Krishna Potluri, Executive Director. Thank you, and over to you, sir.

Good afternoon, and a warm welcome to you all for joining our Q2 FY '25 earnings call. I hope everyone has had an opportunity to go through our financial results and investor presentation, which has been uploaded to the stock exchange and our company website. I'm pleased to report that solid and sustained demand for our products reflect our success in capitalizing on growing market opportunities. Our strategy of a diversified API portfolio is delivering favorable outcomes with the benefits to our investors. We are expanding our market presence and reinforcing our position as a trusted partner for complex and profitable API. Now coming over to our financial performance in Q1 (sic) [ Q2 ] FY '25 and H1 FY '25. In Q2 FY '25, I am pleased to report an 18% year-on-year increase in revenues from operations, reaching INR 196.75 crores. This growth was driven by healthy volume growth across our portfolio. Sequentially, revenue from operations was higher by 20%. For the first half of FY '25, revenue from operations reached INR 361.2 crores, reflecting a 20% year-on-year growth, led by our strategic focus on expanding volumes in key APIs. In terms of margins, our Q2 gross margin stood at 30%, showing some decline yearly and sequentially, primarily impacted by rising raw material costs due to geopolitical tensions. For the half year, gross margins were stable at 32%. Additionally, we faced pricing pressure amid broader industry challenges. Though we are optimistic about stabilization in the near future despite these headwinds, our EBITDA margins held steady at 16% for Q2 and 18% in first half FY '25, thanks to our ongoing focus on operational efficiency. Our PAT rose to INR 14.1 crores in Q2, up 20% year-on-year, with PAT margins remaining consistent at 7%. For the first half of FY '25, PAT reached INR 30.58 crores, making a robust 45% year-on-year growth, primarily driven by better performance and lower financial costs. This improved PAT margins to 8.5% from -- for H1 FY '25 compared to 7% for H1 FY '24. Now coming to our segmental highlights. Our revenue growth was led by robust growth in ARVs and anti-inflammatory segment. I am pleased to report that ARV has rebounded strongly, which aligns with what we communicated earlier. Ibuprofen sales have continued to -- continued on the solid growth trajectory, supported by an expanding customer base, deeper engagement with existing clients and optimize production process. We maintained our leadership position in the anti-diabetic segment. Our other therapeutic categories continue to do well and are characterized by our consistent influx of new customers. On the operational front, I'm proud to report that we've received the EDQM certificate for our Vizag facility to supply ibuprofen to Europe. This reflects our commitment to quality and compliance with global standards and pursuing market leadership in our select API globally. Our backward integration and capacity expansion projects to support long-term growth is progressing as planned. We are on track to achieve commercialization by Q4 FY '25. We anticipate sustained growth in our key API, supported by an expanding customer base for the rest of the year. This positions us for a strong performance in the second half of the financial year, keeping us on track to achieve our outlook for FY '25. Thank you. We are ready to answer any questions.

[Operator Instructions] The first question is from the line of [ R.V.G. Krishna ] from [ Sri Venkateswara Enterprises ].

Thank you for the quick summary and the update for the quarterly and financial results. Sir, I just wanted to know what would be the growth driver for the company in terms of the -- in terms of increasing the profit, along with the INR 150 crores CapEx plan, which you have mentioned? And what would be its role in increasing the revenues?

Yes. Thank you for your question. So with respect to the CapEx, as briefed, I think the CapEx expansions plan will be completed by Q4 this year. So once the CapEx plan, which we have taken up, is for backward integration of key materials for critical -- some of our critical products, definitely, this is definitely going to add more value at the bottom line level by pushing our margins a little bit. In order to combat the price pressures, some of these products, where we become more vertically integrated, so these sort of give us some respite in terms of the pricing pressure. And these will make sure that we are keeping our margins intact.

[Operator Instructions] Next question is from the line of Deep Gandhi from ithought PMS.

Sir, another question related to one of your product, which is ranolazine. Is it better now? I was talking about one of our specific products, which is ranolazine. Sir, can you please talk about what is the global market share of this product in terms of volume and value? And what is our market share in this product? If you can talk about.

Is it ranolazine? What is the product again? I couldn't...

Yes, sir.

Okay. So this is part of our JV product. So with respect to market share, we have around 40% market share globally. And we have good presence with some of the key manufacturers out of India who are manufacturing this for the generic market in the U.S. And obviously, we have 2, 3 critically big customers in Europe. So this is part of our JV project with our partners, Chemo.

Sure. What will be the volume market share of this product? If you can also -- what's total volume size of this product globally?

This is -- so this is like a -- it's like a 60-metric ton product. And obviously, it varies here or there. And I think in terms of volume, we will be at 30%, 35% in terms of global volume.

Sure. Sir, how has this product market grown over the last 3 to 5 years?

It's sort of consolidated, to be honest with you. It is sort of consolidated. And actually, it's not growing as we anticipated. It's sort of consolidated too many players in the market. The prices are more or less coming down. There's a lot of price pressure on this particular product. And volumes also have not increased significantly. I think maybe, if I'm not wrong, I think it's flat or even there is a slight decline also in terms of volumes.

Sure. And sir, who would be our top competitors for this product out of India? Any -- some of the top competitors?

I probably you would not like to answer that question because we are probably talking about this company. So I would not like to name the competitors on the call. If there is anything, you can probably write to us, and we will definitely respond to you.

Sure. Sir, just one last question. You mentioned that the volumes have been flat. What about the pricing? How has been the pricing in the last 3 to 5 years for this product?

Again, as I told you, right, there's been a lot of price pressure. So definitely, there's a pricing erosion of around 10% year-on-year on this product, approximately.

[Operator Instructions] Next follow-up question is from the line of R.V.G. Krishna from Sri Venkateswara Enterprises.

Sir, as you have mentioned that you're about to expand your new product line. May I know the current status? Because in the last investor con call, you mentioned you were about to launch -- in process of launching some 15 new products.

So this major CapEx expansion that we are doing is for our existing products. Some of the key starting medicals, we are actually planning to manufacture in-house. So apart from this, we have segmented around 25% of our CapEx for new products. So new products are still in the pipeline phase right now. They are still not in the pipeline, a few on the validation phase. So they are not fully commercial yet. And these products will not be commercialized now because we have some patents associated with them. So I think it will take 2, 3 years for them to commercialize.

Next question is from the line of [ Shaurya ] from [ Ahuja Partners ].

Am I audible?

Yes. Go ahead.

Sir, I wanted to know what would be your capacities post CapEx in Hyderabad and Vizag?

So Hyderabad remains the same because we are not doing any CapEx there because it's a small site. Our volume for Vizag site will be reaching around 3,000 KL.

Okay. Volume.

Yes, volume.

And what is the current utilization level?

So right now, the utilization level is at around 60%. I think maybe by -- we are anticipating it to go up to 75%.

By when?

By FY '26.

By FY '26.

Yes.

And do we have any growth -- what are the growth plans for '26, like top line and margins?

So again, as we already indicated in the last call, right, I think we are anticipating around 15% to 20% crore on the top line, and bottom line around 12% to 15%.

12% to 15%.

Yes.

Okay. And margins will remain around 20%?

Margins will be around 18%. See, right now, we are already at 18%. I think it will be in that same range, 18% to 20%. It depends on product mix and volume. So we're increasing the volumes on high-volume products. So I think it's sort of -- will remain in that range, 18% to 20%.

[Operator Instructions] Next follow-up question is from the line of R.V.G. Krishna from Sri Venkateswara Enterprises.

Yes. Sir, just wanted to check on the update of the backward integration of certain raw materials, which you're trying to do.

I indicated in my speech, I think by Q4, we will be completing the CapEx for -- the vertical integration CapEx. So I think we will be commercial -- fully backward integrated by end of Q4.

So how positive that will be an impact on the reducing of your products? And will that increase your margins?

More than the margin -- the margins is a significant factor. Apart from that, dependency on like another country or different manufacturers will reduce significantly, especially for some of our key products. So in current geopolitical situation, we don't know what will happen and how it will impact. Getting it manufactured at our own site will give us that leverage and confidence to our customers also that they will not have any supply issues. So that was our main target for initiating this vertical integration -- but obviously, definitely, there will be paring on the cost as well. The profitability will definitely increase by around -- close to around 5% to 8% to what we currently have.

Ladies and gentlemen, that was the last question. I'll now hand the conference over to Mr. Vamsi Krishna Potluri for closing comments.

Thank you, everyone, for joining on this call. We are committed to delivering exceptional value to our customers by driving innovation and achieving sustainable success. Our strategic approach ensures positive outcomes for our stakeholders while uploading -- upholding that dedication to sustainability. Please reach out to our IR consultants, or us directly, should you have any further questions. Thank you again for your time today.

Thank you very much. On behalf of SMS Pharmaceuticals Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.