Some notes from Q4’23 concall dated May 15th:
Financials:
-
For Q4’23: EBITDA margin is 52.98%, which is up by 751 bps. Better realization and lower R&D investment of about INR3 crores helped improve the profit margins.
-
For Full year FY’23: 29.71% year-on-year rise over the previous fiscal year. Growth was mainly driven by rise in volume coupled with better realizations. EBITDA margin is 49.82%.
Overall Business Outlook:
- Rifa-S offtake remained on the lower side during the quarter since this is largely a tender-driven segment. Several tenders continues to be delayed and that reflects in lower sales volume year-on year.
- Tenders are now opening up gradually, which is why there is a slight growth quarter-on-quarter. Otherwise, based on the inherent demand in the system, have continued the production of Rifa-S to build inventory to be ready once the tenders open up entirely.
Capex:
- Capex plan of INR200 crores, spanning over two-plus years is progressing as per plan. We have capitalized about INR16 crores while another INR20 crores is in CWIP and about INR10 crores of capital advances for the equipment have been given. Another INR30 crores or INR40 crores expected to be expensed by September 2023.
Breakdown of capex cost:
- R&D lab cost: ~9 Crs.
- R&D pilot suite (1&2)- ~33 Crs.
- Fermentation block 1 – ~80 Crs. (3 additional blocks may come subsequently however not part of current 200 Crs capex plan). Expected to be up and running by the end of next calendar year.
-
The new warehouse, R&D and API block is expected to be ready by September ’23. these new facilities will be compliant with global regulatory norms since we shall be targeting export markets in addition to the domestic market.
-
The last leg of our capex will be the new fermentation facility, which are expected to be ready by the end of the next calendar year.
-
Asset-turn/Top line projection from capex: Hard to give numbers at least at this particular stage – may be practical post few few quarters. We are more looking at in terms of how quickly we can get the ROI, rather than asset turnover.
-
Challenges in commercial scale-up of identified new products – it is possible that scale-up from pilot to fermentation is tricky, we’ve dealt with multiple products in the past, our team has dealt with multiple products in the past and we are confident enough to invest in the whole project.
Impact due to TB medication regimen change/market disruption (from Rifampicin to Rifapentine):
-
WHO recommendation for moving from rifampicin to rifapentine is a very recent development, It happened sometime during the course of last year. WHO will also go cautiously because they need to figure out, on the larger population side, how rifapentine is actually effective.
-
We consider a scenario where rifapentine is going to be the mainstay instead of rifampicin tomorrow, it really affects us very positively. First of all, Rifa-S that we currently supply to manufacture rifampicin is the same intermediate that is required to manufacture rifapentine. The second part, amount of rifapentine which needs to be given as per the new WHO treatment is quite significant. Also, ratio of conversion of Rifa-S to rifapentine is lower than that of rifampicin, which means we need more Rifa-S, to make that amount of rifapentine, vis-a-vis, rifampicin.
-
And, of course, not to lose sight of the fact that we are coming out with a API block, so we also have very much plans to manufacture rifapentine. Realistically speaking, we can expect rifapentine business to start in the next financial year or the API business to start in the next financial year or end of this financial year -
There’s a market locally for Rifapentine, because as in line with WHO, even the Indian government is moving from rifampicin to rifapentine. We believe that there is going to be a reasonably good requirement for rifapentine in years to come.
-
May not have much changes to customer mix even if market shifts from rifampicin to rifapentine. There will be things that we will do, but only in consultation and cooperation with customers.
Overall think this was very good call to clarify apprehensions on medication regimen changes and impact thereof on GTBL. Broadly, with reasonable certainty, its established now that Rifapentine is going to be the preferred treatment approach- both globally and domestically. Another re-assuring part is that management finally divulged the intent of venturing into manufacturing Rifapentine once new API block is ready. In that sense, not much of existential threat (which otherwise could be significant situation for 2 product, 2 client company) rather could significantly increase intermediate Rifa-S demand (as per management guidance)
Thanks,
Tarun
Disc: Invested
| Subscribe To Our Free Newsletter |
