Q1-2024(aug 2023) con call on astec life
(from godrej agrovet)
1…PERFORMANCE
There are 2 segments of the business.
A…Enterprise business
B…CDMO segment
A…Enterprise business
Poor performance was due to
A1 -Demand-supply imbalance and depressed realizations
in enterprise products portfolio in both domestic as well as global markets
=Topline and profitability were severely impacted due to sluggish demand, lower realizations and high-cost inventories of
enterprise products
A2 -High-cost inventories further impacted profitability
B…CDMO business
=Revenues grew 3.0x y-o-y led by new product development while profitability also improved
2…CDMO BUSINESS
=CDMO business in Astec LifeSciences expected to see 20-30% growth YoY.
=Capex plans include expansion in Mahad and new multipurpose plant.
=If you look historically for the CDMO business, we have been doubling our revenue, obviously from a smaller base, but we have been doubling our revenue year-on-year. So our revenue was close to INR 84 crores a couple of years back, last year we closed at INR 162 crores. And coming year,
we would like to maintain almost similar or closer to that run rate. So that is our guidance on
how it looks like.
= I think one of the key requirements for a successful CDMO portfolio is R&D, and I can definitely say that within 6 months of submissions R&D center, we are hand full with several projects And as you were aware that the new R&D center, which has come up, we are almost doubling
down our efforts on CDMO component of the business, which lead us to believe that we would
like to work on 20%, 30% growth at least year-on-year on the CDMO side of the business
=Some of these products have gone from the development piloting to commercial, which has
added to the revenue. But in other cases, we have also built the newer pipeline under the new
R&D center now, we are in a very good situation to double down or triple down on those pipelines.
=This cycle for CDMO, as you know, right from development or scale up to commercial take 3 to 4 years. So there has been a lot of activities that has been done over the
last couple of years to build this pipeline. And with the new R&D center coming up, this will only expedite that entire pipeline generation process. And we expect to reap benefits as we move forward in the coming years.
= On a small base, initially, we may double it once or twice. But on a steady state basis, we are looking at, when steady state is FY 25 onwards. We are looking at the 20% to 25%
increase in CDMO business because that will be our focus.
=And not only the focus on sales, but also focus on investments. Because whatever comes out of
our R&D center in terms of co-creation or working with some partners, it would require us to
put production infrastructure also in time to come. So we have a very aggressive plan.
=And I’m very sure that we are likely to make CDMO a significant part of Astec business in time to come.
Q: We have time let say in the next couple of 3-4 years. So in the
Astec LifeSciences, CDMO business will be bigger than the enterprise business?
Management : So that is our plan and hope, but I cannot say what will happen in future, like we could not
predict for the last 3-4 quarters, what has happened in the pesticides market across the world. So
I think that said that on a long-term basis, the answer is a very big yes.
3…ENTERPRISE BUSINESS
=Astec along with other companies in the market are facing similar headwinds of high inventory, there’s been destocking, which is
happening at the customer level.
=For some of the enterprise products, we believe that the bottom has already reached. We still see some muted prices on to enterprise products. On the others, we are still seeing that the
liquidation in the inventories and the market might take a few more months. And then the market
from the supply demand side could balance out.
=So overall, I would say that things have improved from the last few quarters. It might take you a few more months to achieve normalcy
we see it currently.
=Obviously, we were thinking of the downtrend, but the extent of this huge downtrend was unexpected. We have taken few steps to prevent further down trend
A…We have planned for diversifying our product portfolio with the new R&D center coming in, it has offered us enough flexibility now to experiment and put some of the new product at a much profitable.
B…We are heavily focusing on building sustainable margins from CDMO business and also trying to push some of the new products as soon as what
to mitigate this downtrend from our existing portfolio
C…While our focus primarily on the CDMO business, on the enterprise business, since we have a
very strong triazole platform, technology platform, and we are also investing heavily on some
of the other adjacent platform with the new R&D center. We’ll be strategically looking at molecules within that segment as well to work on and launch in the coming years. While the
focus is more on building the pipeline on CDMO, we’ll also take strategic bets within the enterprise segment.
4…HERBICIDE PLANT
=We will utilize this plant within 3 years and ramp up accordingly and with an asset turn generating 1.6 to 1.8 roughly in that range. We are very much on target or exceeding those targets on the herbicide plant.
5…CAPEX
A=The herbicides Phase I
Phase 1@INR 120 - 130 crores is what we are estimating. And we expect that to be commercialized by end of this year.
There’ll be 2 more capex.
B…Mahad
= We have some more ability to expand in Mahad. So we will set up another facility in Mahad, which will be very similar in size in capex as the one which we have already established.
C… But the big capex will
come – which will drive our CDMO, that will take a long time.
=I think we are still working out
what kind of multipurpose plant we have. But I think that should be finalized in 3 to 4 months’
time.
Disc…invested