Vimta Labs Limited (524394) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Vimta Labs Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Manchanda from Systematix. Thank you, and over to you, sir.

On behalf of Systematix Institutional Equities, I welcome you to the Q1 FY '27 Earnings Call of Vimta Labs. We thank the Vimta management for giving us an opportunity to host the call. We have with us the senior management of the company represented by Ms. Harita Vasireddi, Managing Director; Mr. Satya Sreenivas Neerukonda, Executive Director; Mr. Siva Rama Krishna, Chief Financial Officer; and Ms. Sujani Vasireddi, Company Secretary. I'll now hand over the call to the company management for opening remarks.

Thank you, Vishal. Good afternoon, everyone, and a warm welcome to our Q1 FY '27 earnings call of Vimta Labs Limited. Please note that the investor presentation and the financial results are available on the company's website and stock exchanges. Also, anything said on this call, which reflects our outlook for the future or which could be construed as a forward-looking statement must be reviewed in conjunction with the risks that the company faces. This conference call is being recorded and the transcript, along with the audio of the same will be made available on the website of the company as well as on the stock exchanges. Please also note that the audio of the conference call is the copyright material of Vimta Labs Limited and cannot be copied, rebroadcasted or attributed in the press or media without specific and written consent of the company. From the management, we have with us Ms. Harita Vasireddi, Managing Director; Mr. Satya Sreenivas Neerukonda, Executive Director; Mr. Siva Rama Krishna, myself, CFO; and Ms. Sujani Vasireddi, Company Secretary. Now I request Ms. Harita Vasireddi, Managing Director of Vimta Labs Limited, to provide you with the update for the quarter ended 30th June '26. Thank you, and over to you, ma'am.

Thank you, Siva. Good evening, everyone. Thank you for joining us today. I'm pleased to report that Vimta delivered a resilient and steady performance in the first quarter of FY '27. Total income stood at INR 1,129 million, representing year-on-year growth of 13.7%. This is despite a mixed demand environment across certain services. While revenues remained broadly stable on a sequential basis, the quarter reaffirmed the strength, diversity and adaptability of our service portfolio, enabling us to navigate the near-term headwinds while sustaining healthy profitability. Our Pharma Contract Research and Testing services delivered a consistent performance during the quarter. Revenue remained broadly stable on a quarter-on-quarter basis. However, the divisions recorded strong year-on-year growth, supported by improved inquiry inflow and sustained customer engagement. Our clinical research operations, which faced challenges in the previous fiscal year have begun to show encouraging signs of recovery with healthy inquiries and orders inflows during the quarter. This provides a positive foundation for improved performance in the coming quarters. Further, the Environment division has been integrated with the Food division, given its relative scale within the overall revenue mix to enable more efficient management and operational alignment. Consequently, the Environment business will no longer be discussed as a separate division going forward. The Food Testing business witnessed a decline in import and export-related sample receipts, primarily due to ongoing global challenges. The business has responded proactively by sharpening its focus on domestic market, thereby mitigating the impact to a certain extent. The Electronics and Electrical Testing business remained stable during the quarter with the manpower-related challenges faced earlier now addressed. With intensified market outreach, we are encouraged by the opportunities emerging in this market. India's continued emphasis on electronics manufacturing, quality certification, defense indigenization and infrastructure development creates a favorable long-term environment for testing and certification services. In addition, the 15.19% year-on-year increase in India's FY '26-'27 defense budget allocation is expected to support higher demand for testing and qualification services for defense electronics and related systems, further strengthening the growth outlook for our Electronics and Electrical Testing business. On the demand front, inquiry levels continued to improve across both domestic and international markets. We are also witnessing an increase in the size and complexity of opportunities under evaluation, reflecting Vimta's growing relevance among customers and the increasing preference for specialized testing and research partners. Utilization levels remained healthy across major service areas. The infrastructure we have built over the years continues to be deployed effectively, while our disciplined approach to capacity addition supports optimal capital efficiency and sustainable growth. A milestone during the quarter was the progress achieved in our Biologics initiative. We successfully secured our first order for Biologics services and operationalized the facility, marking an important step in expanding our capabilities in high-growth Life Sciences segment. From a profitability standpoint, operating margins moderated on a quarter-on-quarter basis, in line with expectations, largely due to higher facility-related expenses, the impact of new labor laws and appreciation of the rupee. Despite these factors, margins improved on a year-on-year basis and our EBITDA margins continue to remain significantly above industry benchmarks. This reflects the structural strength of our business model, the depth of our operating discipline and our continued focus on efficiency and execution excellence. Looking ahead, we remain confident about the medium- to long-term opportunities across our service portfolio. Positive inquiry trends, healthy demand visibility and deeper customer engagement across markets reinforce our confidence in the growth prospects of the business. At the same time, we remain firmly committed to prudent capital allocation, strong governance, regulatory compliance and industry-leading quality standards. In conclusion, despite near-term softness in select segments, the quarter underscores the resilience of our diversified business model, the improvement in demand conditions and the strong foundation we have built to deliver sustainable long-term growth. With that, I would now like to hand over the call to Mr. Siva, who will take you through the financial performance for the quarter.

Thank you, Ms. Harita. A very good evening to everyone. Thank you for joining the Q1 FY '27 earnings call. I will now begin by presenting an overview of our financial performance for the quarter ended June 30, 2026. Following that, we'll open the session for questions. I'll start with the financial highlights for the quarter. Total income for Q1 FY '27 stood at INR 1,129 million as compared to INR 993 million in Q1 FY '26, up by 13.7% year-on-year. EBITDA stood at INR 411 million in Q1 FY '27 as compared to INR 354 million in Q1 FY '26, up of 16% year-on-year. EBITDA margins for the quarter stood at 36.4%. PAT in Q1 '27 stood at INR 210 million as compared to INR 189 million in Q1 FY '26, a growth of 11.4% year-on-year. PAT margin for the quarter stood at INR 18.6 million. On the balance sheet side, we continue to have a net debt-free balance sheet with cash and cash equivalents of INR 628.2 million. Turning to our investment plan. We have slated a budget of approximately INR 80 crores of CapEx spend for FY '27 to primarily focus on strengthening our analytical capabilities and expanding select service offerings. However, I would like to emphasize that our capital allocation philosophy remains highly disciplined. Planned investments will be phased based on business visibility, customer demand and project level requirements. With that, we can now open the floor for Q&A. Thank you.

[Operator Instructions] The first question is from the line of [indiscernible] Gupta from Trinetra Asset Managers.

I wanted to ask that our last quarter we decided that the goal for this year for revenue will be around INR 500 crores. So I wanted to ask if we are on track for that? Also, second question is that last quarter, our utilization levels were about 38%. So I wanted to understand what is the number this quarter for the same?

Yes, we are on track with respect to our growth momentum that we have built during the last few years. So we are confident that the same momentum can be maintained in this year as well, barring the impact that the global challenges in the Middle East that everybody is facing. Except for that, I think everywhere else, we see that there are very good tailwinds in the industries or markets that we are operating in. Coming to the second question of yours, can you please elaborate which particular utilization are you referring to?

Yes, ma'am, the new facilities that we had was quoted about 38% utilization?

Maybe there's some confusion on that number. I wouldn't have quoted that number. For us, I would like to reiterate for anybody who's joining us for the first time here that Vimta Labs defines its capacity 3 dimensionally. One is the lab infrastructure, the space, the building, et cetera. The second one is the equipment and third one is people. So people and equipment, we add as and when needed. Infrastructure is built for slightly medium term. So therefore, we wouldn't really define capacities as percentages at any point of time, especially when it comes to new capacities that we have created in terms of building.

The next question is from the line of [indiscernible] from Molecule Ventures.

Am I audible?

Yes.

Yes. So my first question is on our Biologics vertical. So you mentioned in your opening remarks that we have already secured our first order in that new vertical. So could you throw some light on this customer and the nature or the size of the order?

That is highly confidential. We are not permitted to do that because of the agreements that we signed with the customer.

Okay. Any idea on the size part of it? Or maybe if you can tell us from which country is this customer?

This is domestic.

Domestic customer. Okay. And any idea on the size part of it?

I will not be able to disclose that.

Okay. Okay. Fair enough. And as investors, what kind of time line should we keep in mind, particularly for this new Biologics segment, let's say, in terms of client onboarding and actual commercial revenue coming in?

The commercialization has begun already in Q1. The client is onboarded in Q1.

Right. I understand that. But we were in the discussions with a few other clients as well. So my question is more on -- from that part.

Can you repeat the question, please?

Yes. So in the last quarter when we spoke, you were in discussions with a few clients, and I understand that one of those clients have been converted. My question is on the conversion of the rest of the clients, what is the time line that we as investors can keep in mind?

Difficult to answer that question because the conversion depends on the stage at which the project is.

The next question is from the line of [Disha] from Sapphire Capital.

Am I audible?

Yes.

A couple of questions. So firstly, you mentioned for our operating margins, we saw some impact due to our facility-related expense and in general, the raw material pressures. Do we see these margins going down further? Or this level is something we can sustain going ahead? Or do we see pressure going ahead as well?

So we expect that the margins will not go down further because we are expecting the business to grow in the coming quarters.

Okay. And what would be the contribution for export revenue this quarter?

About 40%.

Okay. Okay. And just on your pipeline, you mentioned we're seeing a healthy pipeline, both in terms of the domestic and the international market. Could you just elaborate a bit more on which key geographies are you seeing the most traction in?

We are seeing good traction both overseas and domestically. In overseas market, particularly the U.S. market.

And which segment are we looking at for these orders?

For us, overseas is all Pharma services.

Okay. Okay. And this Food segment, you mentioned, we saw a decline this quarter because of the geopolitical challenges. What will be your strategy for this division? How are we planning to grow this for this year?

So the strategy was fine-tuned last year itself, wherein we decided we will put more energies and efforts into gaining progress in the domestic market. So these efforts began in the last quarter itself and actually the last quarter of the previous year. And we see good results there, and we are able to offset the challenges faced by the decline in import-export-related samples through these efforts. So going forward, we will continue these efforts. And meanwhile, hopefully, the global situations will also improve.

Okay. Okay. Fair enough. And you mentioned a CapEx of INR 80 crores for FY '27. Could you elaborate a bit more on where -- which segment is this CapEx for, when it will come online? Just a bit more color on that.

The CapEx that we have taken is very typical that we do every year. I think only a portion of it is remaining for the Biologics [indiscernible] that we have set up. So that is around INR 10 crores. The rest INR 70 crores is for routine operations for the various business units that we have.

Okay. So only INR 10 crores is remaining for the Biologics, right?

Yes.

The next question is from the line of Yuvraj from ChrysCapital.

I actually have 2 questions, one on CapEx and the other on customers. So on the first question with respect to CapEx, I just want to understand that we are outlining INR 80 crores of CapEx guidance for FY '27, and we have already committed around INR 18 crores as per the Q1 investor presentation. So is it right to assume that we will be committing INR 62 crores of CapEx in the remaining 3 quarters?

Yes, I'll answer that question. See, Yuvraj, what you have seen in the presentation, INR 18 crores is the outflow, which is mentioned in the presentation. Having said that, yes, our commitments for the current year will be INR 80 crores, including the INR 10 crores for Biologics.

Okay. Understood. And at the current level of gross block that we have, how much top line can it support?

I will answer that. I think we are looking at maintaining or even bettering our growth rates, right? So we think that aspiring to that, the facilities that we have created in the last couple of years, we will be able to be good with that for over a period of at least next 4, 5 years, okay? And also the CapEx investments that we have every year, that will continue. Typically, we tend to use the depreciation amount of the last fiscal for the current year CapEx. So that will continue.

Okay, ma'am. And my second question is on customer concentration. Would you be able to give us some color on what is the contribution of top 5 customers and top 10 customers?

That keeps fluctuating quarter-to-quarter. Sometimes the shift is maybe after a couple of quarters because we do projects and projects from certain customers are there in a particular quarter or in a particular year and may not be there in the next quarter or year. So it's not really relevant. What is important is our retention rate of the customers. Our retention rates are upwards of 90%. So very healthy retention rate.

[Operator Instructions] The next question is from the line of Ajith from Vittae.Money.

All right. Yes. So you just mentioned the retention rate is at 90 percentage. So this include the incremental business from the existing clients as well?

Yes. When I say retention rate, I'm only talking the count. I'm not talking the value of business.

All right. Okay. Not based on the value, only based on the count, right?

Value will vary depending on what projects we do for each one of them.

All right. Great. So you also mentioned that almost 90% of the pharmaceutical companies that you are currently dealing with, because of the addition of this Biologics facility, does it give any kind of a cross-selling opportunity?

Absolutely. And that's one of the main reasons we backward integrated into that service.

The next question is from the line of Aditya Khetan from First Assetz.

I had one question. Could you help us understand your strategy around emerging therapeutic areas such as GLP-1 drugs, Biosimilars or [indiscernible] gene therapy? Are you like into any of the emerging areas which are into the GLP drugs or Biosimilars?

Yes, we are. But see, we are not -- shall we say we are product agnostic. Whatever the current industry trends are, we have the scientific capabilities to address the requirements of those particular products that are in the industry.

And one more thing is what is the current capacity utilization of your laboratory?

So I answered this, I will repeat. Capacities are measured in 3 aspects for us. So equipment and people, we add as we need. So there is not really a lot of spare capacity sitting anywhere unless it's a new segment that we are building or a new service that we are building. Infrastructure wise, we have created the infrastructure to help us in our growth for at least -- when we created it, it was at least a 7-year plan, okay? And we created this 2 years ago. So with that mathematics in place, we are good for the rest of the upcoming 4, 5 years.

So that is like -- what percentage of it is being utilized approximately?

You mean the infrastructure?

Yes.

Infrastructure, see, we have built about 200,000 square feet. In that, I think we have occupied at least 16%, I would say, approximately.

[Operator Instructions] The next question is from the line of [Sai Surendar], an individual investor.

I have few questions. How do you see the business in the next 2 quarters?

As I mentioned in my opening remarks, the inquiry trend is quite positive quarter-on-quarter. So with that positive inquiry trend, we are quite hopeful that the upcoming quarters will be better.

Okay. Is the demand from Pharma or Food Testing still strong?

Pharma, strong. Food, the import and exports have been impacted because of the war situation because the cost of import and export have gone up for the businesses. And I think that is taking its toll on the whole trade between India and other countries with respect to food commodities. But Pharma is okay. Now Pharma, actually the tailwinds are pretty strong in Pharma for India and also globally.

Okay. When we expect a meaningful contribution from U.S. business, madam?

Can you repeat, please, a little more louder? When you -- can we expect meaningful contribution from U.S. business?

Meaningful contribution from U.S. business?

Yes.

I think it's quite meaningful right now at 40% overseas exports. And out of the whole 40% overseas, U.S. is the largest.

[Operator Instructions] The next question is from the line of Vishal Manchanda from Systematix.

In your response to the previous participant, you said you have been seeing certain tailwinds in the Pharma business. So can you share some color as to what these tailwinds are?

This also, I think I've shared in some of my earlier calls, this shift we have been seeing for more than a year now. The Indian pharmaceutical industry is moving away from simple small molecules. Their pipelines are now busy with more complex kind of molecules. And usually complex molecules is a positive sign for CROs because outsourcing tends to be more because the knowledge of the CROs is quite helpful for the companies in tackling their complex molecules. So that is one thing. The other thing is the global R&D pipelines. There has been a continuous shift from small molecules to large molecules. And what I read recently is that 40% of the global R&D pipelines are now large molecule pipeline. And India has realized that that's a good future product portfolio to have. And I'm sure they want a piece of this pie as well. So we see Indian companies also aspiring for those kind of products, and we see the planning and R&D work beginning in that aspect. In addition to that, if you see the number of biotech companies that have proliferated in India over the last decade, I think they have more than doubled. So when there is such a proliferation, big, small micro-sized companies, usually, the R&D pipelines are also growing. So all these things are very positive tailwinds for a CRO, I would say.

Okay. So ma'am, with respect to the Biosimilar Analytical business for the filings, the biosimilar filings, does that come into your Pharma Analytics business?

Biosimilars, yes, we support even Biosimilars.

Okay. So -- and the new vertical that you have set up on the Biosimilar front, that's more to do with the small-scale manufacturing and not with the filings basically? The filings would be part of the Pharma Analytical business?

Yes. But it would start here. Product development and process development is what we offer under CRAD. So the whole -- whatever filings business is there, it would start from this process. And then we also have capabilities going forward, which is to help on the analytical characterization side or bio [indiscernible] side or if the molecule goes into clinical phase, then we also support on biological, including the trial.

Okay. Would you kind of have a number as to how many ANDA filings or biosimilar filings put together you would be supporting in any given year? Is that -- is there a trend to that? Like is that number growing? Or maybe the number is not growing, but the complexity is growing?

No, I don't have that number. I'll try to get it on the next time if possible.