Hi All,
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.
Regards,
Yogansh Jeswani
Disclosure: Invested
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.