Key Takeaways from Q3FY24 Concall –
a) Sucheth Remarks: We are investing in people and infrastructure to deliver on our long term plans. Company is doing expansion by adding new manufacturing facility. Employee cost increased compared to last couple of years.
b) Saharsh Remarks: Business is seeing increasing interest from customers with exciting pipelines ahead and as the quality of business grows, company is gaining better visibility of future and planning accordingly.
c) Generated FCF of 129 Cr in 9 months have utilized partly 39 Cr to reduce debt and CAPEX investment of 68 Cr for enhancement of capabilities. Working capital cycle has reduced from 137 days to 118 days in 9MFY24.
d) There is Product and customer stickiness; Top 5 Products in CMS contributes 91% and Top 5 customer contributes 95% to revenue. Company has majorly 5 customers in CMS business|
e) Company have done CAPEX of INR 68 Cr in 9MFY24.
f) CMS – We see strong interest from customer, led by increasing interest from customers with large pipelines which further solidify’s Neuland position in CDMO market.|
g) Unit 3 operating leverage continues to play but as a matter of fact Unit 3 was operating at lower utilization levels for 4 year period before it picks up.
h) We expect FY25 to be a moderate year of growth with some normalization of margins due to higher operating expense due to ongoing investments but effective FY26 we have better visibility of growth and aspire to grow 20% CAGR for next 5 years.
i) The new capacity coming up will be the scale up of existing molecules and new ones yet to be commercialized from the capacity we are creating for FY25.
j) In the past based on our experience whenever small biotech company got acquired by large big pharma, this opened new doors of opportunities to expand our business with new company.
k) There are multiple factors which comes into play to make sure big pharma sticks to old CDMO partner is a) How complex the molecule is? If the complexity is high, customer stickiness will be high and b) if you are closer to NDA and you have validated the process at your side and your site is registered to the NDA there are less chances of changes while if molecule is going thru Phase I or II then the risk of losing partner is high.
l) On the biotech funding on the molecules which are driving growth for us in the CMS sector are all coming from companies which don’t require funding and are cash-rich. But we can see impact in molecules which are in Phase I or II but that’s also temporary.
m) Supplier or CDMO partner switch is not easy and depends on the complexity of molecules and may take minimum 2 years to change the API partner and can go upto 5 years based on regulatory approvals.
n) Current EBITDA margin is very favorable and won’t be sustainable. Note: Based on Management comments it appears 23-27% is the fair range of margin for Neuland given the product mix.
o) Regarding Peptides we have 3 molecules in GDS of which 1 we are expecting to file DMF and the other 2 in FY26. Also, in Management expectation GDS molecules also has very high potential compared to CMS molecules.
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