Overall Growth in sales was 22%. Volume growth was 2-2.5%. Rest was value growth which was partly due to price increase and partly due to high margin products.
Export 80%. Domestic 20%.
Going forward focus will be more on the complex and high margin products.
Capex
Rs. 350 cr planned cape to be done in next 18-24 months.
Asset turnover from this new capex estimated at 1.5-1.75 times.
This capex to be done at Panoli site for both pharma and agro chemical.
In new capex CRAMS and Own Products in 50-50 ratio.
Capex will be done for high value products with lower volume but higher margin.
10-15% estimated growth in next 1 year and there after 15-20% estimated growth when the effects of capex kicks in.
50 bps EBITDA improvement expected in next year.
China situation:
30% of raw material is currently sourced from China, plan to reduce it further going forward.
Availability of products from China has improved but rates not declining as of now.
Passing on the increased cost to customers.
Due to environmental issues in China, agro chemical business is moving to India.
Selling around 1500 tonne of Gabapentin. It forms around 20% of sales right now. Itâs being sold to over 70 customers. No other product contributes more than 7-8% of sales.
Top Ten customers account for 75% sales in Pharma and around 80% sales in Agri.
All forex positions open as of now. Free float is around 30%. If it goes above 30% then we will do hedging.
Pharma:
It was 59% of sales in FY19. 50% CRAMS and 50% Own products.
15-17 products currently selling in CRAMS and 12-13 products in Own.
Increase interest by Japanese for Generic Business, got approved by Japanese agency in May 2018.
In Pharma 8-9% was volume growth and 25% value growth.
Agri:
80% CRAMS and 20% Own products. 10-11 products currently selling in CRAMS and 5-6 products in Own.
In Agri volumes were flat yoy and 19% value growth.
Gross margins in Agri were lower in Q4 due to change in product mix. They should not be looked on quarterly basis but rather yearly basis because of change in product mix in different quarters. Margins in Agri were good on yearly basis.
Good insights in the annual report.it seems like investments in R&D are bearing fruits- especially in crop protection.
In crop protection, they have developed process for entire molecule for one innovator and a derivative for other innovator.some success in generic space too.
Success in developing intermediates which were earlier sourced from china is also encouraging.
In pharma R&D there is not much this year but hikal has expertise in pregabalin which goes off patent this year-this could bring in good revenues from now on.
Sitagliptin is other such molecule but 5 years to go off patent.
A friend had attended Hikalâs AGM. Sharing his notes with due permission from him:
Pharma has 2 plants â Bangalore and Panoli. Panoli has 1 unit (with 300 employees) while
Bangalore has 2 units (with 800 employees in 1, and 80 employees in 2). In Pharma for FY19, API has had a 22% growth while CDMO has had a 25% growth. Closely working with an European innovator in the anti-epilepsy and Nootropic areas across multiple products. The focus of Pharma this year is increased cost awareness and new capacity building
⢠Crop Protection has 2 plants â Mahad (with 240 employees) and Taloja (with 300 employees). We have upgraded Thiabendazole and we will have more volumes this year. Working with a global innovator for an on-patent fungicide and will get more volumes due to new markets being entered. We are working with a Japanese innovator for a broad-spectrum fungicide and expect significant growth in volumes. We are also manufacturing Biocides for residual herbicide and algaecide. The focus of crop protection this year is operational excellence while new capacity comes on stream in the later part of this year.
⢠Hikal imports 30% raw materials from China. We have had an import of 589 cr and export of
1106 cr in FY19. Our R&D expense usually is 3-4% per year, spending 45 cr in 2017-18 (3.5%) and 54 cr in 2018-19 (3.4%). Our R&D pipeline is to get 8-10 new molecules per year (across DMF/launch/registration), with each molecule with a minimum potential of Rs. 50 cr. For this year, 30-40% (of these 8-10) have a revenue potential of at least 100 cr and 1-2 molecules of these have a potential of 200 cr at least.
⢠We expect sales of 2500 cr soon. We are targeting 20% growth for the next 2-3 years starting FY21 (expecting 10-15% growth in FY20 due to capacity constraints). 2500 cr sales target is our immediate internal target as well. Our goal is to be either a No. 1 or No. 2 in global manufacturing for the products we manufacture.
⢠Our dividend policy is approx. 20-25% of earnings.
⢠We have a unique process for manufacturing Pregablin that nobody else has. We are getting a lot of traction for manufacturing of Pregablin via this manufacturing process (which is low cost). Pregablin has gone off patent in last July last week and we are growing substantially. Although Gabapentin and Pregablin are prescribed for doctors for similar conditions, Gabapentin will continue to grow for us and we donât see any cannibalization from Pregablin (due to entirely different cost structures and other reasons).
⢠We see a lot of potential in biocides. We are launching new products in FY20-21. Biocides will increasingly form a significant part of crop protection in the long term.
⢠We have a first launch molecule in FY20 (Pregablin). We have bigger launches in FY21 and FY22. Even bigger launches in FY23 and FY24. We are very excited about the future pipeline and potential and we are all gearing up towards it in terms of capex, capabilities, personnel etc. For all new molecules, we are doing backward integration.
⢠There are a lot of operational excellence initiatives undertaken in FY20 and the emphasis in FY20 is to improve efficiencies so that we are ready for growth starting FY21. We have had a high level of automation and digitization in FY19. We have built capabilities across flow chemistry, enzymatic chemistry, complex technology, complex generics etc. We have tight control on inventory management and trying to move away from sourcing in China to sourcing in India.
⢠We are undertaking de-bottlenecking for Pharma in our Panoli and Bangalore plants. We are also investing in new capex there which will be ready in the next 18 months.
⢠We will obviously target to move our EBITDA margins to beyond 20%, but we will have to see the progress of the launch of new molecules over the next year or two, and then we can talk better about moving EBITDA margins beyond 20%
⢠We are planning a capex of ~350 cr over the next 2 years. Complete ramp-up of new capacity (being added now and being added over the next 2 years) being added will happen over next 3 years. Ramping up pharma is much easier than ramping up agrochem (due to registrations).
⢠We have more and more molecules launching in Japan. We have an active objective to diversify into more products so that there is no single product or client dependency. We are also targeting specialty launches in FY20 and expect free cash flow from FY21.
⢠We are not facing any conflict of interest from any player (domestic/global) after launching our own new molecules. Conflict of interest arises if you are formulating as well. We havenât faced any conflict of interest complaints from our customers so far.
Hikal Limited: Ratings assigned to enhanced amount
Favourable demand and realisations for existing products supporting revenue growth and margins, Reputed and diversified client base, Dominant position in Gabapentin API segment, Healthy coverage indicators and capitalisation structure are the credit strengths.
Significant Debt funded capex and high working capital intensity are the credit challenges.
Revenue down 20%. Temp Shutdown at Mahad due to flooding and at Bangalore Pharma site for expansion on Pragabaline capacity. Most/Many callers bashed management for not disclosing the shutdowns, one caller even called the management response as stupid
Guidance: Single digit growth for full year FY20 will require double digit in H2. No clear comment⌠âH2 will be 5-10%. We have target to do 400-450cr each in Q3 and Q4. Some material already lying as finished goods. Impact of de-stocking in crop protection was 40-50cr, pharma impact of de-stocking+ planned shutdown was 40-50cr. Destocking will completely recoup in Q4. We expect normal operations going forward.â
Q- Where is the de-stocking de growth coming from? Multiple customer were pushing back. Its a 1-2 Q impact, not more than that. More in US and partially in Europe.
Guided for 15-20% in FY21, 2500cr revenue by FY22 . Still on track if the capex comes onstream. Target to improve margins based on higher margin products. Q2FY20 margins are bottom. What gives confidence of double digit growth in FY21 in uncertain world of environment? Risk of zone shutting down in India doesnât exist. We have 5 sites and can de-risk to large extent.
Pragabalin launched in aug in US, launched in Europe last year. Supplying to Europe CIS, Japan. Gabapentine caters to different set of patients, different indications. Both will remain and both will grow. People had de-stocked Gabapentine ahead of launch Pragabalin. Pragabaline capacity increased was reason for shutdown Bangalore plant. Gabapentine revenue 30% of Pharma? Top 5 are 70% of pharma and this will come down.
Revenue split- 80% is exports and 20% is domestic.
Debt is 683cr (380 Long Term) and Cash flows have been 150-180 cr. Plans to bring down debt levels? As ramp up happens debt will start to come down. Have to spend on capex upfront to drive growth. Generated 158cr cash in H1FY20 vs 98cr in H1FY19.
80-85% CU overall. Adding 10-15% capacity
300cr immediate capex under way (Phase 1) over 18 months of which 100cr has been spent in 6 months. EC is done for all plans so can start selling as soon as plants are ready ICRA report has bigger number of capex, that includes Phase 2 number as well. ICRA gave A1 for even higher debt.
100 spent till sept, its work in progress. Will start in Q1 and Q2.
Bangalore expansion of pharma for 150cr will add 15-20% capacity
Asset turns 1.5x so 450-475cr revenue after ramp up in 2-3 years
Looking at better higher margin product mix
Current tax rate 32.5%. MAT credit is available to will continue under current regime for this and next year
Fully insured for the floods. Working with insurance company
Positive- Successful USFDA audit at Bangalore and Panoli
Thanks for the update. I attended the call as well today and your notes pretty much capture all the discussion points.
I think the stock price reaction today is on account of the inadequate disclosures from the management about the NGT order and the plant shutdowns due to floods and maintenance. Had these shutdowns been disclosed appropriately the shock element could have been managed properly and panic reaction avoided.
The custom duty disclosure was another point which was not well taken by the investors. Itâs a significant amount (15 crs) and proper disclosures should have been made when the notice was received from the authorities. The management has stated that they are in discussions with the customers on how to recover this amount. If at all any amount is recovered then it is a positive. However, I would not keep any hopes tied to it.
If one is to believe the management and assume that there was no malicious intent in withholding of information, then this could be a good opportunity to accumulate the stock in a staggered manner at this price. A more conservative approach would be to sell on any rise, watch the coming qtrs and then act accordingly. I am inclined to give them a benefit of doubt.
Just my thoughts. Not to be construed as investment advice as I have a vested interest.
I just listened to the recording of the call. Mgmt started the call almost not knowing they have to disclose these information in timely manner. After a good amount of roasting from analysts , atleast in the closing comments, promised to correct the lack of disclosure here on in. It was just bizzare that for a company that has good regulatory track record in business front has fluffed the lines so bad with investors.
On other point of catching up the growth guidance, in next 2 quarters ,again felt management didnt give a convincing answer. Essentially they said there will be 5 to 10% growth for whole year. H1 has had 1% growth. So to even have 5% growth, runrate is 473cr for Q3,Q4. While at same time, mgmt said they will do between 400 & 450 and kind of went back & forth on this.
Benefit of doubt, I will probably give them a pass for now. But they got to learn from this debacle of the quarter result.
Disc : Not invested. Planning to nibble in at these lower levels
Totally agree with the above point. I think it was completely unacceptable to not disclose this important info.
I am also inclined to give them the benefit of doubt. My reading is that they are not in the âchorâ category and have had a decent track record in terms of capital allocation, delivering results etc. But I would rather wait for numbers to show up. The problem is that after such an incidence there is a trust deficit and I think the stock will remain under pressure till some positive news comes or Q3 results are in line with earlier expectations. As @aruncph mentioned, I am not convinced about the H2 reply either. They just kept agreeing to whatever the analysts were asking. I would be surprised if they cross 450cr revenue in Q3.
Pregabalin Capsules are indicated for management of neuropathic pain associated with diabetic peripheral neuropathy, for the management of postherpetic neuralgia, for adjunctive therapy for the treatment of partial onset seizures in patients 4 years of age and older, for the management of fibromyalgia, and for the management of neuropathic pain associated with spinal cord injury. The product should be taken only as prescribed. Pregabalin Capsules and had U.S. sales of approximately $5,497 million for the 12 months ending March 2019, according to IMS Health
Dec 19, 2019
The FDA issued a warning that serious breathing difficulties may occur in patients taking gabapentin (Neurontin, Gralise, Horizant) or pregabalin (Lyrica, Lyrica CR) who have respiratory risk factors.
âOur goal in issuing todayâs new safety labeling change requirements is to ensure health care professionals and the public understand the risks associated with gabapentinoids when taken with CNS depressants like opioids or by patients with underlying respiratory impairment,â Throckmorton said.
âHowever, we do not want to unintentionally increase opioid use by turning prescribers away from this class of pain medications,â he added.
So Q3 was not too bad. They managed to touch 400cr despite problems at Taloja till end of October⌠So for 9mFY20 sales are 1128cr vs 1132cr last year. In order to do a 5% growth for full FY20, they need to report 540cr topline which looks unlikely to me. Last year Q4 was 457cr. I would be satisfied if they can touch 500cr in Q4. The Bangalore MPP pharma plant has started production with expanded capacities, but on the flipside, there will be disruptions for RM supply
FY20 Crop protection division recorded sales of 620 crs as compared to 650 crs last year, a degrowth of 4.6%
FY20 Pharmaceutical division recorded sales of 887 crs as compared to 939 crs last year, a degrowth of 5.6%
Despite the lower sales and full operating costs in the 4th quarter, EBITDA margins improved to 18. 6% as compared to 18.4% in the corresponding quarter of the past year
Positive about the prospects of both businesses going forward. The pandemic has led to additional inquiries from customers who are looking to de-risk their current supply chains. We are confident that we will be able to capitalise on these opportunities for future growth
Maintained the dividend for the financial year 2019-20 as compared to previous year and have proposed a final dividend of Rs. 0.20 per share
