Hikal - Pharma & Agrochem

[pikrohit]

Q4FY20 call notes. There could be some errors so please verify/add

2500cr revenue target in FY22 pushed to FY23.
* Adjusted for COVID, revenues would have been flat. Low utilization in April, 60% in May, 80% in June.
* Gross margin improved substantially 2-2.5%? Product mix sply in Q4, EBITDA margin improved inspite of lower sales. EBITDA margin didnt increase as much as gross margin? Fixed costs have remained same inspite of lower sales. New products and efficiency measures (costs cutting and Increasing automation) will improve margins from this year.
* EU/Japan demand to shift out of China? Higher inquiries from customers who are planning to de-risk supply chain. we have a good footprint with environment clearances in place. We will also look at improving product mix towards higher margin products. Are things really happening or is it just a story? Lot of good things are said but on-ground implementation is yet to happen.
* RM- 30-35% comes from China. Target is 20% over 2 years. There were initial issues due to logistics. Non-availability of some RMs. domestic sourcing of key RMs wherever possible
* Additional capacity in Bangalore that came in H2, started contributing. Both facilities got re-certified by the USFDA.
* 3 new DMFs in generics.
* Successfully developed API for Favipivir (for COVID) at pilot scale and currently supplying test batches to many clients. Commercialization by Sept-Oct. Difficult to guage revenue potential currently because Clinical trials are still ongoing.
* Reduced gross debt by 16cr from 661cr (FY19) to 645cr (FY20). Net debt down 48cr from 629cr to 581cr (FY20). Not opted for moratorium. WC days improved from 120 to 110, improvement of 47cr. Just in time inventory policy is gone at least for few months and customers want us to maintain stock. Net CFO before exceptional item was 219cr (FY20) vs 115cr (FY19). Adjusted CFO=204cr. FCF= 61cr(FY20) vs -12cr(FY19). We have the same debt today as we had 10 years ago but today we are 2-2.5x bigger. We are in growth stage so need capex. This business is capex intensive. Many times companies dont want to wait, they want to see free assets.
* Capex commisioning was planned for Q2/Q3, now pushed by few months to end of FY21. Already spent 158cr out of 300cr, rest to be spent in FY21. Capex will start contributing from FY22 and can get fully utilized by end of FY23. Products are already lined up, DMFs have been filed and customers have taken trial batches. Asset turns ~1.5x. Existing products will take up 40-50%, rest will be new products. We are also looking for Contract manufacturing opportunities so cant fill up the full capacities.
* Many cos have given good outlook on crop protection while Hikal Q4 was muted? There was inventory correction from some of our major customer. We expect it to be over this year. 80% of crop protection is from exports. 20% is from domestic. Growth is expected from FY22, given the COVID uncertainty this year.
* Pharma- We have legacy molecules like Gabapentin. Gross margins dont show contribution from new gen diabetes molecules. We have launched some products and are in small qty, expected big delta from FY23. Legacy molecule contribution will go down in next 3 years. US is 45-50%, EU is 20%, Japan is 10% and growing rapidly. Some new molecules in CV have big market in India and some products will be launched.

• Pharma has 9-10 products in Custom manufacturing and 14-15 in own generics. Every year we add 1-2 in CRAMS and own. Crop protection has 11-12 in CRAMS and 5-6 own. We try to do few and try to be leaders with no 1 or 2 in those molecules.

• Pharma CDMO Pipeline has 4-5 intermediates (which are coded so we dont know the end use, and can go in multiple products) at any time, of which 1 in phase 3 and 3 in phase 2.

• Agrochem CDMO Pipeline has 2-3 products. These are early stage products. Commercialization in agrochem takes longer because product registrations are country by country, its not pan EU like in pharma. Generics pipeline has 1-2 products

• 32% revenue is from generics, and 68% ie 936cr from CDMO. Blended margins are only 18%. CDMO margins cant be below 25% (Suven and divis do 35-40%) so does it mean that generics margins are very low? What are margins in generics, is it 8-10%? We dont give the split. We do have some legacy molecules that are low margin so we are replacing them with higher margin products incl generics.

[soundar]

Hikal Q1 Results:

Pharmaceutical:

• Sales up by 5% to Rs. 213.7 crore as compared to Rs. 203.9 crore in the corresponding period of the previous year
• Recovery in operationsled by improved volume off-take by customers
• Commissioning of additional capacity enabled to meet higher demand Post relaxation of Nation-wide lockdown, the operations ramping up steadily at Bangalore and Panoli facilities

Crop Protection

• Sales lower by 30% at Rs. 139.1 crore as compared to Rs. 199.3 crore in the
  corresponding period of the previous year
• COVID-19 pandemic lockdown impacted the global customer’s operations during the quarter leading to deferment of volume off-take
• Repeat local lockdowns in Maharashtra (Taloja & Mahad Site) further impacted the production schedule which were already disrupted due to Nation-wide lockdown

https://www.bseindia.com/xml-data/corpfiling/AttachLive/d36bf4cb-3dcc-4219-a597-515be32ee99f.pdf

Disclosure: Invested - Do not recommend buy or sell. Not an investment advisor and Investors are advised to do their own due diligence.

[Shivkumar]

link to the concall transcript after the Q420 results here. The management is slow in putting up information like this.

disclosure:holding

[Shivkumar]

Link to the latest Annual Report here

Management commentary should be read with the concall transcript to gauge the roadmap for future growth. Everything depends on execution. For the past four years the management has mostly delivered though it is not much evident in the stock price.

[soundar]

FY20 Annual report notes:

• Revenues 1507 crs 5.2% down, adjusted NP 94.6 crs 8% down - operational interruptions at Mahad and Taloja facilities due to curtailment of water supply and severe flooding, planned shutdown for capacity expansion at Bengaluru
• Pharma:
  • Sales 939.1 crs 5.56% down due to destocking at the customers end, planned annual shutdown at Bengaluru for expansion
  • EBIT margins 14.38%
  • Expanded capacity fully operational in Q4 and expect to see upward demand
  • Added new customers in Japan, Korea, LA, Russia and Eastern EU
  • DMFs: Filed 3, has already generic and to be generic products, 2 antidiabetic drugs and one antimalarial drug for a client
  • Successfully reduced cost and improved throughput for Vildagliptin and Venlafaxine
  • CDMO: 2% growth, confident of growth in the business and are focusing on expanding our capabilities in continuous manufacturing and flow chemistry
  • Animal health: will commercialise several advanced intermediates for a new generation ectoparasitic API that belongs to the isoxazoline group
• Crop protection:
  • Sales 650.5 crs 4.63% down - inventory correction by several clients, water logging at Mahad, water supply issues at Taloja, along with the demand disruption due to Covid
  • EBIT margins 16.06%
  • Commercially launched one key molecule in the biocide segment and have a pipeline of products at various stages of development
  • Planning for the registration of 3 new products in India and developing bulk formulations for Indian companies
  • Successfully commercialised a novel insecticide product belonging to the Neonicotinoid class, registration for the product was done in FY20 for India
  • CMDO: 2-3 early stage projects
• Capex: Spent 158 crs of ~300 crs planned, will spend remaining in FY21, capacity will be 40-55% for existing products and remaining for new products with ROA 1.5
• R & T: ~250 scientists, spent 52 crs / 3.46% of sales
• RM cost reduced to 52% from 54%, 35-40% RM procurement from China, established partnerships in India to manufacture key raw materials, developed in-house processes to manufacture critical raw materials for some of the products
• Wealth from Waste initiative across all sites to generate saleable products from by-products and waste
• Salary: Promoters: 8.4 crs, Board 1.23 crs, CFO 1.33 crs, 1629 employees with avg salary 5 lakhs, auditors payment 0.6 crs
• Not much RPT, Security deposit 7 crs and lease rent 0.38 crs
• Tax disputes 32 crs, Exceptional item on import duty 15.34 crs, Compensation received from customer 19.7 crs
• Most significant customers accounted for 227 crs
• Debt 647 crs interest rate 10-11% for Rupee loans, Cash 63 crs
• Inventories 312 crs, receivables 340 crs, payables 200 crs
• CFO 284 crs, FA 158 crs

Disclosure: Invested - Do not recommend buy or sell. Not an investment advisor and Investors are advised to do their own due diligence.

[soundar]

Hikal Q2:
✓ Revenue of Rs. 372 crore; YoY growth of 16%
✓ EBITDA* of Rs. 71 crore; YoY growth of 22%
✓ EBITDA Margin* of 19.1%; Expansion of 90 bps
✓ PBT* of Rs. 42 crore*; YoY growth of 68%

➢ Pharmaceutical sales up by 34% to Rs. 279.3 crore as compared to Rs. 208.2 crore in the
corresponding period of the previous year
Increasing trend in customer demand provides a positive outlook on the business
A strong top-line growth YoY was driven by increased volumes in the newly commercialized
products and commissioning of additional capacity enabled to meet higher demand
Continued recovery in operations resulting on better utilization of production capacities

➢ Crop Protection sales lower by 18% at Rs. 92.6 crore as compared to Rs. 112.8 crore in the
corresponding period of the previous year
The revenues were lower than planned, as a major long term contract manufacturing
customer deferred the shipments worth Rs. 40 Cr. from Q2 to Q3 due to COVID-19. The
annual sales of the Crop Protection division will not be impacted.
Delay in completion of capital expenditure projects due to the adverse impact of COVID-19

354191bf-2569-45f1-8fa6-7cb1749c925f.pdf

[Worldlywiseinvestors]

Hikal Q2FY21 Concall

-Return ratios to improve further, aiming to take ROCE till 22-24%. Topline target our 2400 crores is deferred by 1 year (From FY22 to FY23). The current ROCE is at 14%.

-EBITDA margin moved up by 90bps to 19.1% as compared to 18.2% (excluding covid expenses). Higher sales and efficiency led to EBITDA margin improvement.

-EBIT margin at 17.8% in Pharma business this quarter vs 12% last year. Sales were at 279crores as compared to 208crores. Favipiravir API sales to start in the next few months.

-Panoli facility will be upgraded from intermediate manufacturing to manufacturing of API next year.

-Crop protection was lower by 18% due to deferment of the order by one of the long term customers. The deferment was to the tune of 40croes, and this has been shifted to Q3FY21. There will be no loss of revenue in this line of business this year, expect to make it up in the next 2 quarters.

-EBIT in crop protection business was at 7.8 crores in Q2FY21 vs 21.8 crores last year. EBIT margin of 8.5% vs 18.9%.

-D/E has improved from 0.71 to 0.65 times.

-Working capital days at 110 days in FY20 vs 129 days in the H1FY21, due to finished inventories going up.

-CFO will be used for debt repayment and capex.

Capex

-Work has resumed on all the sites.

-Several projects to be commissioned from Q1FY22 onwards.

-200 crores of capex has been incurred and the remaining 100 crores of capex will be done in the next 6 months.

-Pipeline

Crop Protection

1. 3-4 products under CRAMS under development and 2 proprietary products of our own.
2. Crop projects have already commercialized or will commercialize in next few years.
3. Crop product development cycle is shorter than pharma.
4. Crop protection revenues breakup: 70% custom and 30% own product.

Pharma

1. 4-5 products under crams pipeline.
2. 3-4 products our own (Proprietory/generics)
3. Pharma projects are between Phase 2 and phase 3.
4. Revenue split: 50% Crams and 50% our own

-Asset turnover of 1.5-1.6x expected in the new Capex and looking at a payback period of 2.5-3years. Already running at 80%utilization levels

-All the new products that we are launching this year have better EBITDA margins

-Competitors make 25% EBITDA margins, ours can be similar in next 4-5 years

-In Pharma, we are strong in 2 segments CNS and Anti Diabetic.
Pharma business ROCE is currently at 10-12% due to ti infra costs and other costs. Older molecules that had asset turns of 1x and constitute 75-80% of the pharma business, 15-20% is from newer molecules. Newer molecules will be of higher asset turns.

-150 crores of capex each in both Pharma and Crop protection.

-In the crop protection business we are launching higher-margin products with newer technologies, only 1 or 2 players apart from us will be making these products. ROCE is at 20%. Assets of this business are fully depreciated (600 crore plant)

-50 crores will be the maintenance capex and Gross Fixed assets post the completion of capex will be at 1400 crores and expecting some more capex (not as high as 300 crores) in the near term. As we will run out of capacities.

-Top 10 customers in the Crop business contribute to 75% of the business and the top 10 customers contribute 65-70% in the pharma business.

Let’s see if he can walk the talk this time. Has been a story of disappointment for the last couple of years. Valuation wise looks attractive as it has been a value trap for nearly a decade now, can the tailwinds alter the trajectory given the poor base rates?

Disclosure: Tracking

[Shivkumar]

Hikal_Earnings_Call_Transcript_Q2FY21.pdf (247.1 KB)

Copy of earnings call transcript from November 5 made available today.

[Shivkumar]

f4d5c461-a349-4a69-bf60-465de98a9157.pdf

good results

management is walking the talk. Pl read the transcript posted above with the results.

disclosure: holding.

[Shivansh_Bansal]

Hi all,

The sheet which was shared by @kunal_patel has helped me to keep track of this company and keep a note of all the major developments taking place, Thank you.

while filling the sheet and updating it with the new quarter results, I noticed something which is extremely surprising and I think which deserves some attention.

in the Earnings presentation of HIKAL (Q2FY21) which I extracted from Tijori Finance.
I noticed that the presentation mentions that 40 crores of revenue for the CROP PROTECTION SEGMENT has been deferred to Q3FY21 because of COVID and that is what is understandable

but on looking at the Q3FY21 Earnings presentation, it is surprising to see that the company nowhere mentions the increase in revenue because of the 40 Cr deferment in the last qtr and mentions the growth has been witnessed because of the strong enquires and new products in the pipeline.

if we were to understand it completely, It helps to look at the revenue being reported.
in Q2FY21, Crop science Revenues were 92.6CR (lower due to deferment) which is okay
in Q3FY21, Crop science revenues were 194 CR (higher due to deferment in the last QTR)

The important observation is that if HIKAL is realizing the revenues in the next QTR because of some deferment in the previous QTR, aren’t they supposed to mention it clearly in the presentation

is this what is expected out of a reputed organization or am I missing something material while making this observation?
Kindly let me know senior VP members, your input is valuable.

                                    Q2FY21

                                    Q3FY21

I have also added a graph as per my understanding, according to which the growth for that QTR has remained flattish only, and it’s being shown as a 25% growth because of new products where it’s just the deferred revenue being realized in Q3.

LINKS:

ER-Sep20.pdf

ER-Dec20.pdf

Looking forward to a reply from the other readers, Thanks for your time
Please let me know if this observation is correct or I am missing something

[rajstock]

Exactly, I too noticed the 40 Crs discrepancy and have put on hold planned investment in HIKAL. We may have to wait for Q4 results to see the trend

[Shivkumar]

why not email a query to the company secretary. usually they revert back, as per my experience. You could also contact SGA Consultants, the investment agency appointed by Hikal with the query. The contact person is: Jigar Kavaiya. He is reachable on jigar.kavaiya@sgapl.net

In the past when transcripts of concall were not uploaded on the exchanges, I contact them and the did needful was done after a few days.

disclosure: holding

[rajguleria]

Hi All
Did we get any clarification on the 40 Cr. deferred Revenue from Q2 to Q3 & Why management didn’t put that out clearly , the price action of last several months is hinting at something which an avg. retail investor doesnt know ?
Any inputs from the long term investors or those tracking this Co. will be beneficial as i have recently started tracking it and these Qs raised in the earlier posts caught my eye and hence seeking any new info. ?

[aswinv]

Stock is up 15% today. I looked hard but couldn’t spot any news / specific reason. Last 6-7 trading sessions have seen huge volumes that has moved the stock >50%. Does anyone have any idea what’s driving this?

[d.investor]

Hikal has largely under performed it’s peers and is still trading below 2x cmp/sales, it had also developed Favipiravir API which is in high demand due to second wave and Hikal is also expected to give a good quarterly result.

The stock is also coming out of a long term consolidation phase.
dic. Invested and biased. Chart copied from trading view.

[d.investor]

Hikal signs a 10-year multi-product deal with a leading global pharmaceutical innovator company. The development will start this year and commercial supplies will commence post successful development and plant commercialization estimated to be in FY24 onwards. Management’s execution remains to be seen.

[bkasal]

Hope now you got why up. Was insider trading?

[Shivansh_Bansal]

Hikal released the press release for Q4FY21, they have acknowledged that the orders which were deferred in H1 due to Pandemic were executed in H2. The power of valuepickr shouldn’t be underestimated at all. This is in reference to my previous post.

It’s good to see how the management has become more transparent with us.
Cheers

Disclosure: Invested.

HikalPressReleaseFY21Q4.pdf

[bhaskarbora67]

Hikal Q4FY21 concall highlights – Strong product pipeline with heightened enquiries for CDMO, 15-20% top-line growth with 50-100bps margin expansion guidance, sizable capex in progress
Business and Financial Highlights – Volume growth aids top-line, favourable product mix, cost optimisation benefits margins
• FY21 revenues – Growth from volumes, price largely constant
• EBITDA margin expansion to 20.5% – Due to Higher volumes, favourable product mix, cost optimisation initiatives
• Q4 – Strong performance in newly commercialized CDMO as well as own generic product
• Gross debt – ₹ 610cr (₹ 646cr)
• Net D/E – 0.61x (0.71x), Net debt/ EBITDA – 1.8x in FY21 (down from 2.9x in FY17)
• WC – 112 days
• RoE – 15.2% (10.7%), RoCE – 16.1% (12.5%)
• CF from operations – ~₹280cr
• New production block completed – Unit II in Bangalore, new QC lab, FDA inspection at the site soon
• Enquiries converting into concrete businesses
• New technology/ Chemistries ventured over the past 2-3 years – Enzyme chemistry, flow chemistry, high potency (looking and evaluating)
• Hikal – Only into advanced intermediates, N-1/ N-2, not into generic/ me too molecules
10-year multi product deal with a leading global pharmaceutical innovator Company – Medium to long-term growth opportunity
• New contract in Animal healthcare vertical – development process started
• New MNC client – development of 10 molecules
• Partner funding entire capex
• Committed to buy certain minimum volumes
• Niche molecules, margins similar to current margins
• Asset turnover – ~1.5x
• 1st year development of molecule and then capex will be frozen, so no idea as of now on capex
• For regulated as well as non-reg markets – shall require US and European regulatory approvals
• To manufacture from existing FDA approved facility from Panoli
• Plant will have space to add new lines adjacent to the existing production lines
• Payback – 3-4 years
Pharmaceuticals – Capacity augmentation to support new product commercialisation
• Q4 revenues – up 31% YoY ₹ 298cr (₹ 226cr), EBIT margin – 17.0% (14.6%), EBIT – ₹ 51cr (₹ 33cr)
• Revenue breakup FY21 (FY20) – CDMO 41.2% (54.0%), own products – 58.8% (46.0%)
• FY21 ~19% YoY revenue growth – Increased volume growth in own proprietary generics and CDMO products
• Outlook – Healthy pipeline of new products which will be supported by new capacities which have come on stream from the capex incurred over last 12-24 months
• Filed two DMFs – Favipiravir and Sitagliptin Phosphate Anhydrous
• Business excellence initiatives – cost and capacity improvement enabled to meet increased market demand and maintain margins
• Favipiravir API – supply in domestic and US markets, drug for mild Covid, debottlenecking current capacity and catering to the demand over the next 2 quarters
• Enzymatic process DMF filed for Sitagliptin Phosphate Anhydrous – has generated strong interest in various regulated markets
• CDMO – pipeline healthy, looking at some early-stage molecules, targeting in Europe, US, and Japan markets
• Expect higher wallet share from existing and new customers
• Opportunities in diabetes and CNS segments
• CDMO and generic API – 50:50
• New CDMO gross margins – more than 50%
• Overall capacity utilisation – 90-95%
• Animal healthcare vertical – expect to earn ~₹ 400-500cr over the next 4-5 years
• CDMO – 7-8 products in pipeline, prop – 4-5 products in pipeline
• Some commercialisation by end-FY22E, ramp up in FY23/ 24E
• Current portfolio – 10-12 CRAMS with steady revenues, 14-15 proprietary which are growing
• Pipeline – 7-8 products in pipeline, 3-4 DMF filings
Crop Protection – New products to drive growth
• Q4 revenues – up massive 54% YoY ₹ 235cr (₹ 153cr) on the back of strong volume growth of existing products and commercialization of a new product from newly built facility in Panoli, EBIT margin – 20.3% (18.2%), EBIT – ₹ 48cr (₹ 28cr)
• Revenue breakup FY21 (FY20) – CDMO 69.0% (76.7%), own products – 31.0% (23.3%)
• FY21 ~7% YoY revenue growth – Orders deferred in H1FY21 due to pandemic were executed in H2FY21
• Outlook – Expect this positive momentum to accelerate in FY22 based on a healthy pipeline of projects at various stages
• New capacities have come on stream through the capex incurred over the last 12 months
• Developed and commercialised a new Fungicide (CDMO) for a company in Japan, already started supplying, significant scale up expected in FY22E
• In late-stage discussions with a leading US-based Crop Protection company
• Current portfolio – 10-11 CRAMS, some older molecules still growing due to included in newer formulations, 9-10 proprietary products
• 2 large proprietary products currently under commercialisation
Capex – Phased out capex over the next couple of years to aid capacity enhancement
• FY21 cash capex – ₹ 160cr, CWIP – ₹ 250cr, 50% each in pharma and crop protection, ₹ 100cr to be capitalised in 1HFY22E
• Capex of ₹ 350cr – large part to be completely by 1HFY22E
• Ongoing capex – Commissioning in Q1, Q2, this capex to start contributing from 2HFY22E onwards
• Capex – incremental ~₹ 200cr spread over the next 1.5 years
• Maintenance capex FY22E – ~₹ 50cr
• Expect to reduce working capital over the next 2 years, currently keeping higher inventory due to exigencies
Guidance – 15-20% revenue growth accompanied by 50-100bps margin expansion
• 8-10 new product addition per annum, with 50%+ gross margins
• Tax rate – to come down to ~26% from FY22E
• 5-year period Agrochem – ₹ 2,000cr revenues
• FY22E revenue growth – 15-20% YoY
• EBITDA margin – improvement of 50-100bps per year over the next 2-3 years

[ricky_]

Following are the 3 products that Hikal have patents :

• e-isomer of 1-(4-methylphenyl)- 1-(2-pyrid yl)-3-pyrrolidino prop-1-ene
• amino methyl cyclo alkane acetic acids
• gabalactam

Things to find out

• What are the future prospects of these products and how are they going to affect Hikal’s revenue in future