Can Dolphin🦈 Offshore give extra miles to Deep?

Q1 (Standalone Revenue): Considering the bid pipeline and the current order book that we have, what kind of numbers are we looking for FY ’25 in terms of top line, and bottom line internally as a target?
A1: We are anticipating a minimum 25% growth year-on-year in Deep Industries itself. So the way our bidding pipeline is increasing and the conversion that we are expecting out of this bidding pipeline can definitely help us in growing 25% CAGR. (Estimated revenue for the current FY ~ 440-450 Cr)

Q2 (Standalone Margin profile) : what should we consider to steady state operating margins?
A2: State operating margin should be in the range of 42% to 45% EBITDA.

Q3 A (On Dolphin) : All right and that is just for Deep Industries. And sir, for if we add Dolphin as well, that should add another INR80 to 100 Crs, if I am not wrong?
A3 A: Correct

Q3 B: What was the revenue contribution for Dolphin in FY ’24?
A3 B: Dolphin in FY ’24 is negligible. So – since its major asset is under refurbishment, it has contributed around just INR8 crores in this year.

Q3 C: What kind of operating margins are we looking at for Dolphin?
A3 C: Dolphin, we are looking operating margin of more than 50%.

Part 1:
Now clubbing Q1 & Q3 A: FY 25, Projected revenue of the company
Deep: Rs 450 + 25% incremental revenue or conservatively 20%, then Rs 550 Cr
Dolphin: Rs 80-100 Cr ~ conservatively Rs 50 Cr
Total FY25 (P) Revenue: Rs 600-650 Cr

Part 2:
Q2 & Q3 C: Estimated EBITDA
Deep: Rs 550 X 42% = Rs 230 Cr
Dolphin: Rs 50 X 50% = Rs 25 Cr
Total FY25 (P) EBITDA = Rs 255 Cr (~ Minimum Rs 250 Cr)
And Maximum Side ~ 300 Cr

Big price correction in recent weeks. Now available at 860 levels ~40% book value.

Sterling & Wilson the famous Solar EPC player now jumps in to Electrolyser manufacturing with foreign collaboration.

It is intersting to note that Sterling has gone for forward integration as Solar energy is the starting point to produce Green hydrogen with Electrolyser.
Reliance has 40% stake in Sterling & Wilson. And Reliance already has tie up with other companies to produce electrolyser. Reliance has also received PLI approval for electrolyser

Q3FY24 Concall notes:

• Guidance – 3000 Cr revenue in next 2 years, operating leverage to kick in further, effective tax rate to be 25%

• Revenue growth of 22% due to market share gains and new product launches

• Gross margins at 53.5% up from 50.1% last year

• EBITDA margin of 22.7% in Q3, led by operating leverage, consistent cost optimisation initiatives, and a reduction in raw material costs.

  • Third of Margin improvement has come from RM softening and remaining from operating leverage

• Moderate price erosion in US markets for Rx but overall gross margins increase due to lower RM costs

• Teva facility update –

  • ramped up to 3.6B units pa and ramp up to 6B units to happen by FY25

• Filing first DMF for APIs for backward integration

• Capex for 9M was 160 Cr, 80-85 Cr in Teva facility out of that. 200 Cr more to be spent in Teva and other facilties in FY25

  • Management expects Teva facility to churn 600 Cr revenue
  • Teva plant is yet to breakeven and management expects it to provide operating leverage

• OTC vs prescription splits

  • In UK, split is around 60-40. So, 60 is OTC and 40 is Rx, and our US is about 75-25.

• As per management OTC does not go through same price volatility as Rx and contracts are higher gestation

• Market split –

  • US – 257 Cr 18% growth
  • UK + EU – 251 Cr 34% growth
  • Aus + NZ – 48 Cr
  • RoW – 29 Cr

• Management says UK market is mature while US market is relatively new for them and has higher scope to grow

• US and UK market growth drivers

  US market is huge. This is just the tip of the iceberg. So, I think double-digits on a low base is the least we could do.

  Growth will continue being robust in UK for the next couple of years. Again, sheer strength of our product pipeline and product launches that have been planned. We’ve been filing them for quite some time. So, we’ve been investing on all the filings, everything of that stuff. So, obviously products, product launches are happening on a quarter-to-quarter basis and we are able to penetrate. But it’s also the product mix which is basically also giving that growth in terms of that specific market. And products that were not able to penetrate into certain accounts, we’ve actually broken into those accounts.

• More focus on bottomline with launch of new products which are more niche

  New products are little niche products, high value products, great bottom lines. They are not, they will not be driving the top line, but as a basket collectively, the top line will basically, will grow. We are planning only 34 new filings in the next two years in UK itself, and these are all products where you would see amazing bottom lines being generated. So, you will see, while the cycle, the life cycle of every product is limited, while you may see a price erosion on A product, you will see gains on a B product or on a new product that has just got approved based on, and we have to foresee that, and hence we have gone into molecules which can basically – is more focused on bottom line than top line.

• Red sea issues related to freight cost and forex remain key risk