SMS Pharmaceuticals Limited (SMSPHARMA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to SMS Pharmaceuticals Limited Q2 and H1 FY '26 Earnings Conference Call. This conference may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as of the date of this time. These statements are not guarantees of future performance and involve risks 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 Tammineed, Chief Financial Officer; Mr. Thirumalesh Tumma, Company Secretary and Office Compliance Officer. I now hand the conference over to Mr. Vamsi Krishna Potluri, Executive Director. Thank you, and over to you, sir.

Good morning, everyone, and thank you for joining us on today's call. We appreciate your continued interest in SMS Pharma and the time you've taken to be with us this afternoon. I expect you had a chance to review our financial results and other investor materials uploaded to the stock exchanges on our website earlier. I'm happy to share that we've delivered another strong quarter. Our PAT grew 80% year-on-year to INR 25.3 crores, the highest ever in a single quarter, strong revenue growth and margin expansion. The performance reflects our continued focus on product mix optimization, backward integration and achieving economies of scale. One of the key drivers of our performance this quarter has been the backward integration projects that we commissioned in the previous quarters. Operations across key intermediates have now stabilized and utilization levels have improved significantly. Let me take the moment to talk about our backward integration model because it is central to our long-term strategy. Over the past 12 to 18 months, we've invested close to INR 150 crores to build in-house capabilities for critical intermediates across our API portfolio. This investment strengthens our cost competitiveness, improve supply chain reliability and ensure consistent quality. Importantly, it reduces the dependent on external suppliers, particularly from China, giving us better control over input costs and delivery times. In today's environment, where global customers are actively seeking dependable non-Chinese source. Our backward integration capabilities provide SMS a distinct and sustainable advantage. It has strengthened our value proposition to existing customers and is helping us expand customer base in the regulated markets. Alongside backward integration, R&D has been a key pillar of strength. Our R&D has delivered strong outcomes over the past few years, with successful product launches that continue to see a strong demand and an expanding presence in regulated market. A good example of how R&D translates into value creation is a joint venture with Chemo, a leading Spanish multinational. Through this collaboration, we leveraged our R&D strength to develop, scale up and manufacture first-to-market APIs. While Chemo drive sales and marketing across Europe and other regulated markets. This partnership has already yielded significant success in the Anti-diabetic segment where we were first to market in Europe and established a leading position. We are strengthening this capability further with a dedicated team of over 100 scientists today. We plan to double our R&D strength over the next 2 years. To date, we have filed over 120 DMFs and aim to add around another 30 more in the next 24 to 36 months. Moving on to our financial performance. In Q2 FY '26, revenue grew 23% year-on-year to INR 242.4 crores, supported by strong demand and market share gain across key APIs. For the first half of FY '26 revenue from operations reached INR 438.4 crores, reflecting a 21% year-on-year growth. Gross profit rose 30% year-on-year to INR 76.8 crores with margins improving to 32%, driven by backward integration, product mix, economies of scale and stable pricing environment. EBITDA for the quarter stood at INR 48.3 crores, up 54% year-on-year with margin expanding to 20%. PAT for Q2 was INR 25.3 crores, up 80% from last year, with margins at 10%. For the first half of FY '26, frac grew 50% year-on-year to INR 45.8 crores supported to higher volumes, improved margins and lower financial costs. Let me now touch upon our segmental performance. We continue to maintain a balanced and diversified product mix across therapeutic areas and inflammatory and ERB segments remain key growth drivers, while Anti-diabetic products, our largest therapeutic category, which also recorded steady growth. Our segments such as Anti-epileptic and Anti-erectile dysfunction and emerging molecules have shown healthy traction. Our largest Therapeutic category together accounted for only 24% of the revenue from operations, underscoring our focus on maintaining the diversified product portfolio. Now coming over to an update on our CapEx. As mentioned earlier, we've commenced our INR 280 crores new CapEx program it remains on track for completion by November 2026. It will enhance the capacities for existing APIs and build capacities for new product pipeline. This includes a INR 30 crore outlay for acquiring land for a greenfield project. Investments have also begun in R&D for the peptide initiatives with commercial operations targeted to begin in FY '29. Together, these initiatives provide a clear path for growth over the next 24 to 30 months. We enter the second half of FY '26 with a strong momentum. Our priorities remain clear: maintaining growth across key APIs improving profitability through backward integration and scale and driving further diversification with our business. We are confident of achieving our FY '26 targets of around 20% growth and 20% EBITDA margin. This translates into a net asset turnover of 1.5x among the best in the industry. Our growth will continue to be driven by the completed backward integration, strong R&D capabilities, advanced plant engineering and diversified product portfolio and price stabilization in key APIs. Thank you. We are now ready to answer any questions.

[Operator Instructions] First question is from the line of Sucrit D.Patil from Eyesight Fintrade Pvt Ltd.

I have 2 questions on -- as more players enter the API and [indiscernible] space, what is SMS Pharma doing to build a strong edge not just through approvals or capacity, but something more deeper like we are working or thinking that growth over the time and makes it hard for our competitors to copy your model? That's my first question. I'll ask the second question later.

Thank you. So again, SMS Pharma has been in the market. [Technical Difficulty]

Ladies and gentlemen, the management line has been disconnected. The management line has been connected.

Yes. Sorry, I think the line for dropped. Yes. So just to answer to the previous question, so the competitive advantages like SMS has been in the market in almost 30 years. And we had some very strong APIs such we are having a global position -- global leading position. I think the reason we were able to achieve that status because of our backward integration, non dependency on external sources. And most of the APIs we are vertically integrated and strength on manufacturing and the cost competitiveness of the product. I think this is what separates SMS in some products compared to our competitors. And definitely, going forward, we would like to add more products to this category and remain more competitive going forward. This probably is our biggest strength there.

My last question is about margins and cost planning. When API prices come under pressure or costs go up, how do you make sure the balance sheet stays stable and doesn't slip -- just curious to know if there is anything in your planning, like posting process tweaks or any tech is helping the company stay efficient without cutting any corner.

So definitely, I think coming to margin improvements. As you see, I think though we are doing a CapEx expansion, our ROCEs have been quite well established. And since last quarters, if you monitor, it's been increasing our EBITDA margins and EBITDA numbers are also being improved. The only reason how -- why it's being improved is because of backward integration and definitely tweaking in process and making sure we continuously improve existing process to make sure the cost of the product is constantly coming down. [Technical Difficulty]

Ladies and gentlemen, the management line has been disconnected. The management has connected.

Apologies, I think there's some technical disturbance from our side. I think that's being sorted out. So hope I've answered the previous question or I can repeat it, if you want me to.

I think the participant has been dropped. The next question is from the line of Akhilesh Rawat from [indiscernible] Private Limited.

So I have 2 questions. My first question is on CapEx. Like on the INR 280 crores CapEx plan for completing by -- completion by November 2026, could you update us current progress on cash and so far also, what revenue and starting contribution business in the first couple of quarters after [indiscernible].

Can you talk a little away from the phone, we are getting a lot of echo.

Okay. So actually, I want to ask you regarding the CapEx plan, like which you mentioned in the investor presentation that there is INR 280 crores of CapEx in -- which will complete by November '26, like what's the progress so far? And how much cash you have spent? And also what revenue and EBITDA margin contribution do you expect in the first couple of quarters and after commissioning?

So again, also with respect to this, we've just started this project. So again, it will take one year for the project completion. As mentioned in my speech, I think this project that we are doing is to expand the capacity for existing products and also to build another block new pipeline products coming in and a few other ancillary requirements. Also, of course, we are also purchasing land for a greenfield project as well. So this will be committed in November '26 and we are anticipating revenues coming in from FY '28.

Okay. And my second question is about like the customer concentration, like as H1 financial year '26, the largest customer is contributing 24%. So what visibility do you have on orders for renewables from the top 2, 3 customers for H2 financial year '26? And what steps are you taking to improve receivable days and reduce the working capital cycle?

No, no, I think you've got that wrong. It is not a single customer. What we mentioned was our largest therapeutic category accounted for 24% of the revenue, not a single customer. So it is a therapeutic category that accounted for 24% of the revenue. So what we are trying to say is we are diverse. Even a single product is not crossing 50% or 60% contribution. So it is a diverse portfolio that we come across, which is not a single customer.

Okay. Okay. And like what about the receivable days and working capital reduction part?

Could you repeat that, please?