Sharing my AGM notes below:

1. Xanthine derivatives:

• Only non-Chinese integrated player in caffeine. Product quality and reliability [supply chain] has made us the leading caffeine provider in the world
• End-usage: 70-80% FMCG, 20-30% pharma
• Margin expansion in last two years due to good demand environment (both pharma and FMCG) and availability issues in China due to plant closures
• Seeing softness in prices now, RM prices have decreased. New capacities have come up in China. We see some correction in margins
• Our customers are inquiring on how we can work more with them and asking us to become China independent. Hence, moving Cyanoacetic acid in-house for which we were dependent on China earlier
• Backward integration effects will start in later part of the year, which will fetch us premium over Chinese players and allow us to make reasonable margins
• We are looking at further debottlenecking by 30-40% (in addition to recent expansion of 1000 MT) in the same facility or by acquiring some land parcel. Will be able to conclude the decision this year and then in next 1-1.5 years can implement it
• There are smaller players in the Xanthine space, companies have different niches. We are focused on couple of products caffeine, theophylline etc. It’s not so easy for new players to enter, takes 2-3 years to get the necessary approvals/ certifications
• Overall, Xanthine should contribute 30%-60% of the business [in medium-long term]

2. CDMO/CMO and intermediates:

• Commercialized 16 products, 12 under development for CDMO. Working with 14 innovators/big pharma companies. These projects are 100% with innovators
• Facilities for CDMO/CMO and intermediates are shared currently
• CDMO/CMO is a higher margin business (didn’t reveal exactly how much)
• New R&D centre will exclusively focus on CMO/CDMO opportunities and better meet the needs of innovators
• Hydrogenation plant to be commissioned in Q2FY24. It’s a state of the art facility, includes 9 reactors and will handle high pressure hydrogenation reactions
• Expansion at Vapi: Adding a new block which will have reactors with capacities of 3kL to 28 kL. To start in Q1 of FY25. Will help in establishing manufacturing processes/pilot which we can scale up further (likely in Atali facility)
• Atali: 350 Cr investment in Atali is not for CDMO/CMO alone. It’s for both intermediates and CDMO/CMO
• Atali: Current phase 1 investment in infra development (warehouses etc.). Pre-spending more funds. So revenue to capex will remain little bit low. In future, with new blocks coming in, it will improve. New blocks will be in the same facility. Phase-1 will include 56 reactors with ability to handle 30kg to 1000kg, total capacity of 400 m3. Construction in progress in full pace. Phase-1 to finish by FY25.
• Atali: Another advantage is that we won’t have to change sites for regulatory reasons, will be able to cater to customers for 10 years without changing sites. That’s why we have opted for a large manufacturing site
• Answer to “why would innovators want to work with you vs large firms like Lonza, Wuxi:” Aarti’s expertise is in developing commercially viable process/commercialization
• Pretty confident that this is a very growth area

3. APIs:

• Focus on R&D and early stage development
• Backward integrated for most APIs
• Didn’t face much price erosion, dedicated blocks for oncology and steroids
• Target of developing 40 new products every year
• Plan to aggressively build capacities

R&D/Chemistry skills

• R&D spend was ~40 Cr last year. This year will spend ~50 Cr
• Chemistry work: We are able to offer very difficult reaction capabilities to customers: Boron, lithium, carbohydrate, hydrogenation, cryogenic reactions

Others

• We don’t discharge even a single litre of water
• Plan to continue using green chemistry to improve ecological products; intend to develop eco processes without compromising on quality
• Have changed to enzymatic routes from synthetic for some of the reactions
• 30-40% energy requirements will come from new solar project they have set up
• Long-term EBITDA growth target 12-17%. Focus is on bottom line not revenues
• Ganesh Polychem: produces complex polymers, end usage for dialysis… Another product… Have kept this business due to pharma end-usage. Have a captive manufacturing plant, also give some RMs to them. Have undertaken a project to debottleneck and optimize costs, will take 18 months

Disclaimer:

• Some of it is from memory and not verbatim. Please correct/add if I missed something
• I am invested and biased

i did some high level calculation here… They should do 1,000 cr topline in Q2FY24 ie. 30% y-o-y growth…given the TTM PE of16x, i expect the stock to move higher by from these levels…

• they have now intergrated loan products and SIP ++ lot of other products, that could boost topline additionally

any thoughts?

Nowadays(September-2023) there are news about FII buying into Vikas Ecotech through QIP…but the news articles have limitation…it only talks upto 52 week rather than the whole picture from history.

To me these news articles seem to be just a recycled PR show/ Advertisements, Since the managements doesnt evoke trust.

Disc – Not invested.

You’ve made a valid observation regarding the D/E ratio. In my personal view, the urgency to raise funds likely stems from the D/E ratio. Despite a robust sales growth of approximately 40%, it’s noteworthy that debtor days have decreased. This suggests that there wasn’t an artificial inflation of sales figures leading up to the IPO. Given the impressive capital efficiency with a RoCE exceeding 25%, it’s reasonable to suspect a high D/E ratio, although this is purely speculative without concrete evidence.

In an ideal scenario, the advisor could have recommended securing Private equity funding to reduce the D/E ratio and consider going public after a 5-year period. This approach, in my opinion, could have helped mitigate the general skepticism often associated with SME IPOs.

As for establishing a competitive advantage, it’s likely that this will develop over time. Building a strong distribution network and establishing a recognizable brand presence are key steps in achieving this.

Mr.Raj,
A company correcting 17% at the opening is not something to not talk about?
My previous question received ample replies and they made sense. So i went back to the dawing board with the new information. Few days later, the 17% Correction out of nowhere. You dont think its important to talk about this? One liner or not, how does a company just fall 17% if the valuations are good and acceptable?
Can you explain this Mr.Raj?
Its a Legit question. People can ignore it, but that does not rob it of its legitimacy.

Also, you did not disclose whether you are invested or not. It would help me and others understand whether your views about my questions polluting the thread could be biased. Kindly do so.

I am here to learn and ask, can you provide an answer? You seem like a veteran.

Also, i heard you, read you comment. You can delete it right away. You addressed it to me, so job done. No need to wait 24 hours.