Hi Parth ji, from what I understand basis numbers and mgmt. commentary up to Q3’22 results, they have been facing a lot of headwinds in growing sales as well as maintaining margins (EBITDA) to the 40%+ levels committed by them.
Their sales have grown in mid to high single digits since 2020 and that too has been largely driven by an acquisition (SSPL) they made in 2021.
Operating margins have dropped from ~46% in (2020 and 2021) to 28% (9M FY 23).
Reasons given by mgmt:-
On weak sales growth
- High competition faced in US market for nutraceutical enzyme they sell there (end product slowdown leading to higher RM inventory with suppliers in turn leading to price cuts)
- Their probiotic based enzymes which showed good numbers initially are not doing as well now.
- Their B2C products (like one for mitigating Covid fatigue) initially did well in US, but are slowing down now.
- Even SSPL business (tablet effervescents) is now slowing down now as demand for paracetamol, Vit C tablets tapers.
On margin compression
- Increased competition in US market leading to margin pressure.
- In 2021 & large part of 2022 RM, fuel, logistics cost were high (now stabilizing a bit)
- Large manpower costs, at times write-offs related to their subsidiaries.
- R&D continues to be a key focus area capital allocation wise.
Overall, my personal opinion is that it is kind of a positive that the company is attempting multiple things to one again trigger growth – R&D efforts to find/customize more molecules; pursuing product registrations in different geographies (esp Europe); attempt to build a B2C brand and so on. So it is kind of firing multiple bullets kind of thing, few of which might work in future. But yeah, hard to foresee which ones.
Disc: Not invested.
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