My notes from the investor presentation and earnings call:
Business Moat
They are moving up the value chain quite fast. The moat is improving with their aquisitions on gene therapy, precision fermentation etc.
Their R&D investments would bear fruit in FY25.
With successful execution of a large PO worth $150 mln, they have proven their capabilities in the market to deliver high quality and large scale projects. This would enable more high value projects to come in future.
Revenue growth prospects
Current revenue growth will be subdued as they are undergoing operational deleverage. Also the previous year had a big purchase order that was executed.
In 2 quarters, this should turn around and we should see revenue and margins pick up.
Their oncology segment had seen a good growth and the run rate is expected to continue as they have order book well beyond Q4 (from earnings call).
Employee growth & review
Quite good employee growth in last 2 years. It is still close to 10% in last 12 months. Their R&D manpower has increased considerably.
Their employee review in Ambitionbox is quite good as well.
Product Portfolio
Product mix has improved considerably since FY18. ARV contribution has come down from 73% to 37% while other streams picked up, especially CDMO.
Capex
They have 500KL additional capacity coming live in FY24. Not sure if it is reactor capacity or fermentation capacity.
Almost Rs 2.5 billion is being spent between FY22-24 for CDMO R&D, CDMO manufacturing, FDF and APIs. About 60% of the capex is yet to scale up.
Margins
EBITA margins have dropped significantly from 32% in FY21 to 15% in FY24. The management attributes this due to higher upfront costs due to operating deleverage. The gross profit margins were however a little stable.
New markets
Venturing into new markets in South Africa. Won India NACO tender. However, the market size will be quite small compared to developed markets and the impact will take some time to realize.
Looking to monetize US/EU pipeline opportunity of ~US$ 80bn, majorly in non-ARV space.
More than US$35-40bn of drug brand value expecting loss of exclusivity in 2026-2033.
H2 Priorities
- Higher capacity utilization across network to support growth acceleration,
- Scale up of the new Animal health commercial asset and
- Continuous improvement initiatives
Investment hypothesis
I am expecting these to play out over next quarters.
- New capacity comes live and capacity utilization goes up
- Demand revives after destocking last year
- Operational leverage kicks in and margins improve
- CMO & CDMO pipeline picks up → higher revenue & capacity utilisation
- Share of revenue from innovations go up → higher margins, business moat
Disc: Invested
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