I am evaluating this for investment but above came as a surprise but unable to validate this from BSE filling etc
If this happened, I would count as major negative as simply siphoning out the cash.
Can you help me wit more info on this.
Thanks
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Explains company history, Vitamin D related process and items, industry, product prices etc.
80% business is animal feed size, 20% is on human side
Highlighted the challenge of volatility in prices on animal side which is as high as 300-500% sometimes and not just 10-50%. Indicated that we are at the low price cycle.
Also, one of the major buyers on animal feed side is facing technical challenge in his plant and hence is not buying - this will impact results of last qtr and needs to be monitored.
Product volumes expected to continue to grow but prices subject to demand supply dynamics on animal feed side.
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Q2FY21 average VD3 500 (animal grade) converted price is INR 1878 v/s INR 2607 of Q2FY20
If that’s the case that d3 prices have fallen around 25 % yoy then q2 results declared yesterday seem to be good. Results attached.
4abbf743-f86c-445f-b955-b8ae35f0a970.pdf (3.5 MB)
Concall today at 11 am
5388f3b9-256d-4912-8164-cebc89359ae5 (1).pdf (1.1 MB)
Investor Presentation
a7207c1f-440f-4715-9847-688bc2b2dd23.pdf (840.7 KB)
Important points to be noted post Q2FY21 results and subsequent management concall :
– VD3 (Human & Animal) contributed 71 % to Q2FY21 revenues and 84 % to H1FY21 revenues.
– Human VD3 business has seen a sharp jump in Q2FY21 contributing 69 % to overall Q2FY21 VD3 revenues. For H1FY21, human VD3 business contributed 56 % to overall VD3 revenues.
– Company is almost working on 100 % utilisation as far as human VD3 capacities are concerned.
– Company has embarked on a brownfield expansion for increasing its human VD3 capacities by 25-30 % which will get commissioned by Q4FY21. Company sees immediate absorption of its increased human VD3 capacities in the market.
– Company is currently working at just 30-40 % of available Animal VD3 capacities as demand for Animal VD3 has taken a severe hit due to Covid pandemic. Both, volumes and pricing are affected due to pandemic.
– Company has tied up with few North American companies to sell and market Astaxanthin & Omega-3 Fatty Acid in Indian market.
– On insistence of one of the big customer, company is building capacity to manufacture Vitamin K1. By Q1FY22 company should start manufacturing the product post which there will be testing and approval from customers.
– In Q2FY21 company has completed backward integration project at its Dahej plant to manufacture cholesterol. From Q3FY21 company will start using inhouse cholesterol coming out of said backward integration project. By FY22 company plans to use completely inhouse manufactured cholesterol as RM for producing VD3 and there will be no external dependence on that.
– Cholesterol currently forms 45 % of total RM cost for the company and the said backward integration project will generate savings of ~20-25 % on cholesterol purchase cost which basically means from FY22 onwards company should see ~300 basis points expansion in profit margins because of said backward integration project.
– Company plans CAPEX of ~150-250 cr over next 2 years. Funding will be via internal accruals and debt.
– Company is actively looking at avenues to monetise its real estate assets and use the funds raised out of that for its future expansion plans in nutraceutical/pharma API business.
– Assuming steady-state Animal VD3 prices at USD 18-20 and Human VD3 prices at USD 2000, company derives similar margins from both the product segments. At the said steady-state product price assumptions, EBITDA margins of 25 % are achievable on a steady-stae basis.
– Company is actively looking at listing its shares on NSE.
Discl. - Invested
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Fermenta Biotech latest credit rating report. Rating reaffirmed at Care A-, Stable outlook.
Key Points
- The company’s business can be classified majorly under four segments which are Vitamin D3 API, specialty APIs, biological enzymes and biotech based environmental solutions.
- FBL also completed its backward integration capex during Q2FY21 (for manufacturing Cholesterol in house). This has reduced supplier concentration risk to large extent.
- Company is one of the three players globally to obtain a Certificate of Suitability from European Directorate for the Quality of Medicines (EDQM) for manufacturing of Vitamin D3 API.
- Vitamin D3 API segment contributing around 78% of the total sales in FY20.
- The company has established presence with around 69% of total sales derived from export markets in FY20.
- the customer concentration risk is moderate with around 51% of sales from top 10 customers in FY20.
- Company’s pricing ability is constrained on account of competition from China. Lucrative profitability in FY19 was owing to increase in vitamin D (animal feed) prices during that year. Owing to decrease in animal feed prices, the PBILDT margins of FBL declined to 25.90% in FY20 compared to 39.41% in previous year.
- In H1FY21, FBL overachieved healthy PBILDT margin of 27.38%. This is mainly due to improved sales realization in Vitamin D (human consumption). In H1FY21, company recorded revenue of Rs.190.74 crore compared to Rs.170.06 crore in H1FY20. This is mainly owing to improved demand for Vitamin D product for human consumption post COVID-19 outbreak. There has been significant improvement in OTC sale of Vitamin D products. The company has witnessed improvement in sales volume by 35-40%.
- The company’s revenue from operations declined by 26.73% to Rs.305.22 crore in FY20 compared to previous year. Decrease in revenue from operations is mainly on account of decline in Vitamin D3 (for animal feed) prices coupled with low volume orders from one of the major customers. As a result, the sales contribution from Vitamin D3 declined in FY20. The animal feed prices were impacted in H2FY20 owing to major outbreak of African swine flu which impacted consumption leading to price decline.
- During FY19 and FY20, FBL constructed a plant to manufacture cholesterol (key raw material) in a multi-synthesis plant. The trial production commenced in June, 2020. The plant is completely operational now and 50% of company’s raw material requirement is fulfilled in-house. Going ahead, company plans to manufacture 75% of total cholesterol requirement in-house thereby improving the profitability margins.
- The key raw material to manufacture Vitamin D3 is cholesterol (manufactured through wool grease which is derived from sheep wool). The supply of cholesterol is an oligopolistic market with few players like Dishman Netherlands B.V. and Maypro Industries LLC. In the past, company’s operations have been adversely impacted owing to unavailability of raw materials in timely manner. Prior to FY19, the company was largely dependent on aforementioned suppliers. However, post setting up manufacturing plant for cholesterol in FY20, company’s dependence on external suppliers has reduced in H1FY21.
- The demand in animal feed is derived from export markets. China is the major supplier in animal feed grade segment and the industry is characterized with intense competition, low entry barriers and volatile commodity prices.
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Key Takeaways from Q3FY21 Concall and Investor Presentations :
(1) For Q3FY21, Vitamin D3 business (both, Animal & Human) contributed 68 % to consolidated revenues. For 9MFY21, contribution from Vitamin D3 business was 79 % of consolidated revenues.
(2) In Q3FY21, Human D3 revenues witnessed a YoY growth of 227 % whereas Animal D3 revenues witnessed a YoY degrowth of 72 % in value terms. For 9MFY21, Human D3 revenues witnessed a YoY growth of 73 % whereas Animal D3 revenues witnessed a YoY degrowth of 22 % in value terms.
(3) As far as product pricing is concerned, Human D3 products witnessed an average price increase of 6 % YoY whereas Animal D3 products witnessed an average price decrease of 15 % on a YoY basis.
(4) Growth in Human D3 business was purely volume driven (95 % volume driven and 5 % price driven)
(5) Exceptional Human D3 segment growth that company has registered in 9MFY21 is a combination of two factors –
(a) Covid-related pent-up in demand and
(b) company is accepting more orders from new customers because of increased capacities as also expanded capacities that are commissioning in next two quarters.
(6) Human D3 capacities will be increasing by ~25 % by March2021 via new CEP-certified plant in the same Dahej location and they will start reflecting into revenues from Q1-Q2FY22.
(7) On Animal D3 side, company has adopted an asset-light strategy and has established a strong foundation preparing for the next wave of uptick in demand which might emerge once world opens up and animal food consumption rebounds. Instead of investing on its own in Animal D3 capacities, company has established an arrangement with a contract manufacturer in Germany who has 2x-3x company’s pick-level capacities (atpresent company is operating at just 25-30 % of own Animal D3 capacity) ; since Animal D3 segment is such that there is high volatility in demand and supply and when upcycle happens one has to be prepared to gain maximum by serving demand to the maximum ; this arrangement will go a long way in establishing Fermenta as a formidable player once Animal D3 upcycle starts.
(8) Backward integration benefits will start kicking-in from Q1FY22 in the form of improvement in margins (company expects atleast a 20 % saving in cholesterol cost – its key RM)
(10) In December2020, company had acquired a 52 % stake in USA-Texas-based entity named AGD Nutrition LLC for INR 10 cr. (~1.3 mn. USD) to establish front-end presence in one of the largest target market for its products – USA.
(11) AGD Nutrition LLC posted a CY2020 (Jan-Dec2020) revenue of 6.6 mn. USD (~INR 48 cr.) with an EBITDA margin of 6 % and PAT of 0.27 mn. USD (~INR 2 cr.). This topline of CY2020 has to be looked at in backdrop of COVID-related lockdowns as also severe effect on Animal D3 demand in USA because of major consumption areas shutdowns. For CY2019, AGD Nutrition LLC had posted a revenue of 7.87 mn. USD and for CY2018 it had posted a revenue of 8.82 mn. USD.
(12) AGD Nutrition LLC is a debt-free entity as on date.
(13) As said above, main purpose of AGD acquisition was to improve Fermenta’s presence in US market which is the largest target market for any peer group. Company plans to grow its marketshare 2x-3x in US over coming years.
(14) Management has guided for maximum 1-2 mn USD investment in AGD over next 1-2 years. Company is looking at establishing third party manufacturing set-up in USA for human D3 (B2B) business (much on the lines of third party contract manufacturing set-up established in Germany for Animal D3 segment).
(15) Over next 5-10 years, company’s vision is to emerge as one of the most admired pure B2B nutraceutical company. Company is actively looking at all options of –
(a) setting up own manufacturing set-up for this,
(b) doing manufacturing via third parties,
© having a partnership model wherein manufacturing is outsourced and company adds value to the third party manufactured products and then sells it.
(16) FY22 will see launching of Vitamin K1 via company’s own manufacturing plant and launch of Vitamin AD2 Premix as also further progress on Astaxanthin & Omega-3-Fatty-Acids already being launched in association with MNC companies.
(17) Company will not be making any fresh investment in real estate and is actively looking at monetizing existing land assets that company owns
(Land Assets Owned –
South Mumbai-Worli – Ceejay Tower – 10,000 sq.ft.,
ThaneOne, Ghodbunder Road, Thane (W) – 1,86,000 sq.ft. already developed out of which 55,000 sq.ft. company is using for self and 1,31,000 sq.ft. is leased out to prominent IT companies,
Another 5.5 acres freehold land adjacent to ThaneOne with a potential to develop 8,50,000 sq.ft. ,
25 acre land in Takawe, Pune.)
(18) Company had given ICD (Inter Corporate Deposit) worth INR ~22 cr. to DK Biopharma Pvt Ltd wherein company was not wanting to divert its focus on main business as also wanted to have hold of a promising product – Cholesterol extracted from Fish Oil. DK Bio has successfully implemented the project and started manufacture of Cholesterol from Fish Oil in commercial quantities. Fermenta has started selling the same in aquaculture market and management believes, going ahead into FY22, company will see rising contribution from this product to its revenues.
(19) ICD worth ~11 cr. is still remaining to be paid back and as soon as full repayment is done, Fermenta plans to enter into contract manufacturing arrangement with DK Bio for the said product wherein Fermenta will procure Fish Oil from South America and use DK Bio’s set-up for manufacturing cholesterol from that Fish Oil and then sell the manufactured cholesterol in aquaculture market.
(Above concall takeaways posted from other group. I myself attended the concall but there were not many participants from reputed institutions. Seems this company is not covered by many known names. In shareholding also, only Quant AMC owns 71k shares.
Just to add to these notes from my side ; company has decided to apply for NSE listing. Will NSE listing improve coverage of stock that’s to be seen.)
Disclosure - Tracking Position but looking to invest more.
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There was recently 2:1 issuance of shares with record date of 13th Feb21. Any idea about that?
Does it make sense to invest now or after that shares issuance is settled assuming one want to invest
Last quarter Animal D3 revenue expected to be lesser
one due to covid
and second possibly due to bird flu
I expect even March quarter to be similar
only from Q1 FY22 --tailwinds should support
That seems to be last year in 2020 and not recent as currently there are no bonus or splits announced by the company. It is already currently trading on ex- basis only after considering the said issue.
Finally some research coverage happening for Fermenta. But, there seems to be continuous selling by someone in the market which not letting price rise.
Any reason for declining PAT and profit margins
Seems to be an interesting development. After rising demand for human D3 due to Covid, company gets a breakthrough in the process to manufacture a promising drug for treatment of Covid-19 :
FBL pioneers the development of patented ‘orally active’ therapeutic for COVID
16 April,2021 05:25 PM IST | Mumbai |
FBL pioneers the development of its patented enzymatic route of synthesis for Molunpiravir an investigational ‘orally active’ therapeutic alternative for COVID 19
“With the more we understand of COVID 19 the less we fear it and it is through this understanding that we can potentially create impressive therapeutic developments” says Mr. Prashant Nagre, CEO, FBL as he expounds further on the experimental antiviral drug Molnupiravir. Developed at Emory University in Atlanta by Drug Innovation Ventures at Emory (DRIVE). It was then acquired by Ridgeback Biotherapeutics, who later partnered with Merck & Co. to further develop the drug as they are encouraged by preliminary data from a Phase 2a trial of its COVID-19 oral antiviral treatment Molnupiravir. Molnupiravir, originally developed for the treatment of influenza, is ‘orally active’ unlike other potential options of treatment for COVID-19 viz. Remdesivir that are in the injectable format.
Fermenta Biotech Limited (FBL) today announced that it has successfully developed and filed patent application(s) for novel biocatalytic technology of manufacturing Molnupiravir. The patented enzymatic route of synthesis possesses the technological advantage of being efficient and environment-friendly, with higher yields and lower solvent use as compared to existing reported manufacturing processes. Biocatalysis is defined as the use of natural substances that include enzymes from biological sources or whole cells to speed up chemical reactions. FBL has also optimised these enzymatic steps to achieve a commercially viable technology and believes this process will be substantially cost-effective vis-à-vis chemical synthesis currently followed. Developed by FBL’s R&D team by utilising its proprietary CAL B Lipase immobilised enzyme platform allows for a cost effective biocatalysis which may create a highly affordable therapeutic alternative for the fight against COVID 19.
Studies for testing the efficacy of Molnupiravir in the treatment of COVID-19 are underway worldwide. The primary efficacy objective in the treatment of COVID-19 was a reduction in time to viral negativity, which has important public health implications for the control of the pandemic’s spread globally. Emerging data from a recent US Phase IIa study shows promising results on this parameter. Additional studies are underway to further supplement these results.
In further conversation with Mr. Prashant Nagre, CEO, FBL, “At a time when COVID-19 treatment is the need of the hour, we are proud to have developed multiple pathbreaking routes to synthesise Molnupiravir in a short span of time. FBL is now looking forward for engaging with industries and other agencies to be able to contribute in the best manner possible for making this product widely available, subject to clinical trials and approvals.”
About Fermenta Biotech Ltd. (FBL):
Founded in 1951 and headquartered in Thane, Maharashtra, Fermenta Biotech Limited (FBL) is a pioneer in immobilised enzyme technology with the mission to contribute to the emerging transformation of Biocatalysis.
The enzyme manufacturing unit in Kullu, Himachal Pradesh and the Department of Biotechnology (DBT) approved R&D facility in Thane have consistently developed and sustained FBL’s leadership in providing advanced enzyme technologies. FBL is a pioneer in the development and production of fermentation-based Penicillin G Amidase enzyme (PGA) and commercialised immobilised enzymes in India. Further, FBL also manufactures CAL B Lipase for a variety of applications from pharmaceuticals, fine chemicals, food and fragrance, leather as well as the biodiesel industry.
Additionally, FBL is one of the leading manufacturers of Vitamin D3 globally. For more information about the Company and its businesses, please visit our website www.fermentabiotech.com
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