Has anybody seen Ambit’s report?
Has anybody seen Ambit’s report?
HIKAL LTD FY18 Annual Report Notes.
- Sales Increased from Rs. 1033 cr to Rs. 1300 cr. Pharma grew by 23.30% to Rs. 752.8 cr from Rs. 610.6 cr. and Crop Protection grew by 29.3% to Rs. 547.3 cr from Rs. 423.3 cr.
- Exports increased to Rs. 911 cr. (70% of sales) from Rs. 661 cr. (65% of sales).
- R&D expense is Rs. 40 cr. (3% of sales).
- Total Capex done in FY18 is Rs. 117.5 cr. Pharma = Rs. 79.5 cr. and Crop Pro = Rs. 38 cr.
- Filed 4 CEPs for Europe - Pregabalin, Olmesartan, Celecoxib and Quetiapine.
Hikal’s CDMO business
- Contract development business was up 14% in value terms.
- Developed a process and delivered an intermediate to a US based biotechnology product development company going as food additives for a global FMCG conglomerate. Expect a repeat order of higher qty in fy 19.
- Business for the supply of a versatile chiral intermediate going into high value Prostaglandin API is also expected.
- Will supply an intermediate going into Phase 1 of the oncology product used for breast cancer developed by a biotech company.
- Our long term contract manufacture agreement with a European innovator to exclusively manufacture molecules grew significantly in terms of volumes, and is expected to grow further in the coming year. One of these is Anti-Epilepsy Drug and other is Nootropic Drug used for memory enhancement.
- We also exclusively contract manufacture for a US innovator two large volume molecules, a neuropathic pain reliever and an anti cholesterol molecule. Volumes incresed in FY18 and is expected to increase in FY19.
Hikal’s API business
- API business registered growth in high single digit, this is lower than expected. Growth was muted as some key APIs did not pickup in terms of volume due to pricing pressure in final market and lack of availability of raw materials from China.
During the 2nd half RM availability from China became a major challenge which affected margins.
This pressure of RM availability and pricing pressure is likely to continue.
- We file 3 DMF in fy18 - Butorphanol, Apixaban and Celecoxib.
- Intend to file 5-6 DMF every year.
- Initiated investment to convert our intermediate Panoli facility into API plant, it will cater to both generic API and CDMO.
Hikal’s Animal Health business.
- Have established relationship with 4 of the top 8 global animal health companies. In active discussion with remaining.
- Under an exclusive contract mfr agreement with a US based innovator we manufacture non antibiotic veterinary drug API that is used to prevent coccidiosis. We invested significantly last year to expand it’s capacity. This year volumes increased substantially we expect them to remain stable in FY19.
- Developed 2 APIs in this segment. Already filed DMF for one and earnings started from it. For the other we will be submitting our first US Vet Master File (VMF) in FY19.
Hikal’s Crop Protection
- Crop Protection achieved growth of 29.3% in FY18. Revenues increased to Rs. 547 cr. from Rs. 423 cr.
- ¾ from contract manufacturing and ¼ from own niche products.
- Sale of Thiabendazole, one of our legacy product showed stable growth. Expect to grow marginally in future.
- Our biggest success story came from Mahad plant in fy18. Successfully commissioned new state of the art plant to mfr an advanced intermediate for a key herbicide for one of our global innovator customers. We executed full scale commercial production of this complex and large volume on-patent product to fulfill the customer’s demand in the first year of commercialisation. Our customer who is impressed with the online delivery, quality and successful scale up of the product has increased the forecasted volume demand for the coming year and has also awarded us the exclusive supply contract for making the precursor of this product.
- An on-patent fungicide used to prevent late blight and downy mildew on vine, potato, fruits and vegetables saw increased volumes due to increased demand from innovator company. Increased forecast for next year.
- We mfr fungicide for Japanese Innovator. Sales were hit last year due to non availability of RM from China. RM availability stable this year. This year we will fulfill previous year’s order as well as current year orders.
- A fungicide used for control of Oomycete disease sae substantially increased volumes last year. Based on projections given, substantially increased volumes this year also.
- Two on patent herbicides for Japanese innovator saw multi fold increase in volumes last year, expect to achieve similar growth rates this year.
- Global Crop Protection market is expected to grow at 3% in calendar year 2018.
Some Pharma Industry Trends Highlighted in the AR.
- Prescription Drugs sales grew by 1.2% from 2011-17, it’s expected to grow at 6.4% from 2018-24.
- Within Prescription Drugs, biopharmaceuticals reported sales of $197 bn in 2017 representing 24% of entire market.
- In 2017 46 NMEs were approved up 109% from last year. It’s a record high beating 45 in 2015. Of these 12 (26%) were novel biopharmaceuticals.
- Oncology leads therapy area in sales and is likely to be 17.5% of Prescription Drugs and OTC sales by 2022, more than next three highest therapy areas combined.
Q1 fy19 result
aee04044-9ce8-48d5-acaf-8060a0d59911.pdf (2.7 MB)
Good set of numbers - both rev n pbt.
Crop protection business did very well.
As per guidance of 15-20%.
Here, H1 is comparatively slow. Also, company usually takes maintenance closures in Q1.
Subjective - inflection point is few qtrs down the line. Calendar yr 2019 should be very interesting with all new capex coming into play (bkwd integration n stuff as discussed in the thread).
Disclaimer: Invested. Added more in last 30 days.
2018 AGM Notes:
It has been one year since there has been certain notions that China will bounce back any time soon, but it’s taking longer than expected. Hence, a lot of production is looked from Indian chemical companies. For Hikal, it is beneficial in both pharma and crop protection.
Hikal follows dual sourcing of raw materials; from China and from India and Europe. The sourcing is getting more and more shifted in India.
The company earlier used to source intermediate material from China. But as it will start coming up with newer products, it will partially do backward integration for those intermediate goods and only basic materials will be sourced from China.
The company is planning to do capex worth Rs. 150-200 crores every year. More than 50% of the sum will be done from internal accruals and the remaining part to be done via debt. Expansion to planned in Panoli. The company claims to have a lot of land available at Bangalore facility as well as Panoli facility. 50-50 investment to be made in both pharma and crop protection.
It usually takes at least 12 months to build a facility.
Specialty chemicals is divided into crop protection and Biocide.
Last month, the Japanese did the inspection in-person. Last year, they just took the word of US FDA inspection. They are still really slow before giving out a contract.
Generally, when a contract is established, it is done for at least 5 years. The longest contract has been for 20 years with the pharma giant Syngenta, followed by one customer with a contract of 10 years, followed by another with 8 years, etc. Recently, the management had visited European customers to renew and renegotiate the existing contract at a higher price.
The company is targeting an EBITDA of 20%.
**Currently the capacity utilised is in the range of 75-80%. **
60% of the business is currently free from currency risk.
Other expenses this quarter was increased due to maintenance cost associated with the plant shut down that happened in a quarter this year. This obviously was a temporary thing.
Hikal Ltd 2018 AGM- 8/08/18
Compiled mostly from Q&A done by several shareholders. There might be errors on my end in listening so please confirm the data.
Identified few 100cr molecules in agro for both contract manufacturing and owned products
Many Japanese companies are interested in a JV together but they take a long time before giving big orders, usually several years
China shut down is positive for the Indian players, China is taking longer than expected to bounce and restart production. Most of the clients importing from China have burned their hands, it lost the shine at least as of now
No major long-term issues to the company after China shutdowns, the Raw material which they imports, always follow a dual sourcing approach. So, procuring supplies from local and Europe- lower Chinese dependence
Doing backward integration so that Raw-material won’t be in short supply. Only key RM would be manufactured, rest would be sourced
Already has the required land for capex. It would be half pharma and half crop-protection
Globally, Agro-segment is seeing a bounce back
Sees the Crop protection+ Pharma business as an asset especially in tough times when one segment has low traction
Unlike earlier years, taxation benefits are no more. A few years back was getting R&D expenses 200% rebate. No more benefits provided by government- taxes increased from 18% to 32% and likely to stay at higher levels in the near future
Due to better cashflows and credit re-rating, the current cost of capital is around 10%
Last year did 100cr of capex, going forward, will do 150cr-200cr capex every year. Half of which would be financed by internal accruals and rest by debt. Debt won’t build up because will also make repayments.
Chinese peers started setting up newer facilities but the Chinese Govt is very stringent now. Won’t give environmental leeway, unlike earlier times. This makes setting newer plants in China costlier. Hence, earlier cheap prices of products would be unlikely.
Opportunity size for Indian players would be huge even if some capacity in China goes online again. Indian pie of opportunity increased
Now customers are also laying more focus on Environmental Clearances, in addition to quality checks
Recently, Bangalore facility had Japanese regulatory inspection and company got best ratings.
The company foresees higher growth in the Japan market as currently, the base is small there. Japan market margins are much more lucrative
Contract manufacturing is done usually for 5 years tenure but as company ensures quality, have not lost a single client in past 30 years
75-80% utilization levels on a consolidated basis. Will need to do de-bottlenecking for increasing utilization further
Gross margins in pharma are higher than in crop protection as the initial investment in pharma is higher & further COGS is lower compared to crop protection business
Will follow 10/10 Strategy- Not more than 10% of revenues from a single client and not more than 10% revenue from a single product
In contract manufacturing business margins are protected from RM fluctuations and currency volatility.
Forex hedging is done on 60-70% of the business.
Compliance risks are always there. The company is always working to adhere to all the compliances all the time.
Gone are days of competing on margins, clients are ready to pay up for quality and consistency
Indian players are no more considered as only cost conscious but also quality manufacturers
Don’t want to be 15% margin 5000cr company, rather prefer to be 20% margins 3000cr company
Can anyone pls explain why the management is paying out dividend each year and on the other hand raising funds for CAPEX through debt
03-Sep-2018 Hikal (NSE) HIMALAYA FINANCE & INV. CO BUY 1779967 166.50
03-Sep-2018 Hikal (NSE) KACHOLIA ASHISH BUY 2000000 166.50
03-Sep-2018 Hikal (NSE) THE INTERNATIONAL FINANCE CORPORATION SELL 3982517 166.51
Request your comments on the below…how do you read
Vulnerable to adverse raw material price movement–The company’s operations remain vulnerable to adverse movement in raw material movement as the contracts are generally fixed price in nature with raw material escalation clause beyond the agreed levels. In the past, it has been able to get price increases as evident in FY2018 margins, which remained stable despite an increase in raw material prices owing to production issues in China.
Results luks gud !! Decent nos both qoq n yoy
Sharing my notes from Hikal’s Q2FY19 Earnings call.
- Pharma segment is export oriented business wherein, 50% of the sale is to US, 30% to EUr and remaining to ROW.
- Currently, we have 5-6 products in contract manufacturing & 8-9 products in generics business.
- We see increase in demand of our products due to slowdown in China supply.
- Seeing several contract manufacturing opportunities and we are working on getting the deals.
- Japanes authorities audited our Bangalore facility and have given us certificate (it had a minor observation), this has help open Japanese market for our products now.
- Japan we have 3-4 Products (API), it is a small market in terms of size but has higher margins.
- Growth Guidance: 18-20% for next 2-3 years, operating margins will be maintained.
- Out of the current growth 4-5% was on the back of exchange and remaining was volume driven.
- Going forward as well we have incorporated 4-5% of exchange growth and 14-15% volume growth in our guidance.
- We plan to do a capex of 250 Cr in 2 years. Have already spent 50 Cr in H1FY19 so far, remaining will be spread over H2FY19 and FY20.
- In past we have spent capex majorly in building infra but the capex going forward is of revenue generating nature.
- We plan to maintain 1.5-1.7 kind of asset turnover on the 250 Cr capex.
- Capex involves both building new capacities and some bit of debottlenecking to support the demand in existing products.
- Crop protection business is majorly a custom manufacturing business so one should evaluate it on an annual basis.
- Current margins were aided by better product mix and RM cost pass to customers which happened with a lag.
- We have also increased the prices of Gabapentin in line with market. It is 14-15% of total revenue.
- Reason for price rise is: Market has grown and few suppliers have left the market.
- 5-10% price hike in last 6-9 months.
- We have stopped covering/hedging our net forex exposure from last quarter onwards looking at the volatility in rupee.
- H2 is always better than H1 (split is usually 60-40)
- Panoli site has 30 Acres of land out of which only 30% is utilized.
- We are working on derisking our Bangalore facility by developing the Panoli unit.
- Currently we are at 70-80% utilization.
- Chinese supply might come back and stabilize but prices aren’t expected go down to where they were 2 years ago.
- To restart the supply Chinese players have to invest in environmental related infra and have meet quality norms which requires cost and so we don’t expect prices to go down.
- Even in India the government is now strict with environment related norms and overall the Chemical industry will be open Large & Mid size players only as the small players will go out of the market due to lack of such quality related infra.
- We will maintain 3-4% of R&D spend
- Added 30-35 scientists during the year.
- Some part of the R&D spend is on behalf of customer, we don’t charge them for it, we develop the product and sell that to make money for ourselves.
Please Note: These are my personal running notes of the concall and can possibly have error in listening, writing or interpreting while preparing these, please do your own due-diligence.
Hikal can be a good bet to play on China disruption and revival in crop protection industry as it operates in borh Pkarma (API) and crop Protection segment. But some key concerns:
- Working capital intensive business, required regular capex for incremental revenue (So low free cash flow per share)
- low return ratios
- High inventory days, forex & RM volatality
FY19 Q3 Results:
Investor presentation March 2019 - https://www.bseindia.com/xml-data/corpfiling/AttachLive/114a8bed-a359-41f2-9b3c-841a4611040e.pdf
Good detailed report by HDFC Sec on Hikal - https://www.hdfcsec.com/hsl.research.pdf/HSL%20PCG%20-%20Pick-of-the-Week_Hikal%20-%20150419.pdf
And here is another detailed report (Initiating Coverage) on Hikal by ICICI Securities.
Yes, this is another good report. I think given the size the company is at and the sweet spot of growth visibility of 15-20% for next 2-3 years with a high possibility of margin improvement along the way…company like this may attract lot of institutional interest