Deepening its roots in the market
• Beta Drugs reported better-than-expected revenue in H2FY24, though EBIDTA and PAT missed our estimates due to ~INR 4 cr operating loss in the newly launched cosmetological division and higher raw material prices related to platinum-based products.
• Revenue for H2FY24 grew 35% YoY, which is in line with the guidance given by the management during the H1FY24 call.
• The growth in revenue in H2FY24 was mainly driven by the exports business which grew by 121% YoY, while the branded portfolio and CMO business jumped by 23% YoY. Its API business rose by 27% YoY and its dermatology business increased by 23% YoY in H2FY24.
• The company remains confident of achieving its guidance of doubling revenues to INR450cr by FY26 and EBITDA margin of 24-26%.
• We have revised our earning estimates upward by 7% and 13% for FY25 and FY26. We expect a revenue and PAT CAGR of 27%/45% over FY24-26E. We roll over our valuation to FY26. Our revised TP stands at INR1600 (20x FY26E EPS). Retain ‘BUY’.
H2FY24 performance below expectations:
Revenue during H2FY24 grew 35% YoY and 9% HoH to INR154cr (vs est. INR140cr). EBITDA grew 3% YoY but fell 17% HoH to INR27cr (vs est. INR36cr). EBITDA margin contracted 537bp YoY and 569bp HoH to 17.6% (vs est. 25.6%). PAT grew 11% YoY but fell 17% HoH to INR17cr (vs est. INR23cr). The financials were impacted due to higher raw material prices and a loss in the cosmeceutical division while revenues were better than estimates.
Healthy growth in base business:
Beta reported 28% growth in CMO business to INR140 cr, while its branded portfolio jumped by 20% to INR82 cr in FY24. Its API business rose by 25% to INR21 cr in FY24. The growth in CMO business is led by the addition of new clients and expansion of the product portfolio, while the branded portfolio continues to see strong traction in the market.
Exports to see a faster expansion:
The company reported a healthy 64% rise in exports to INR46 cr in FY24 on the back of geographical expansions and new product registrations. Beta has received EU-EMA approval adding to other approvals received including ANVISA, INVIMA, and PICS which will help its presence in Russia, Belarus, Armenia, Kazakhstan, and Georgia. The company has 53 new registrations in the international market including 8 in South East Asia, 28 in LATAM and 17 in Middle East & Africa. The company also initiated exports of API in non-regulated markets. Export revenues are expected to show a strong growth over the next 2-3 years which will help drive EBITDA margins with higher contribution to total revenues.
Dermatology – A growing story
The dermatology segment has continued to do well during FY24 and registered a growth of 66% to INR 7 cr. The company currently outsources its production but may also think of its own manufacturing for which it earmarked ~INR30cr Capex (to be spent over 2-3 years), with a peak revenue potential of INR100cr. The cosmeceutical division has achieved a milestone of INR1cr sales/month during April’24 and expects to record sales of INR15cr in FY25 which would help it drive profits for the company. This segment is a growing story and is expected to contribute well to the total revenues going forward.
Valuation and view:
Beta is one of the fastest growing scaled up companies in the Indian branded Oncology pharma market. It has shown a strong growth over the years with a bright future ahead. H2FY24 faced some pressure on the EBITDA margins due to higher raw material prices and a loss in the cosmeceutical division but the management expects a recovery in the margins in FY25. We remain positive on the stock on the back of its growing exports segment with new approvals in international markets, new client additions, and a strong pipeline of products. We revise our FY25/26 PAT by 7%/13% and roll over our valuation to FY26, with a revised TP of INR1,600 (20x FY26E EPS).
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