Thanks for sharing @bhaskarbora67 . I think with recent 10-year deal getting signed and upcoming capex is taking this company into new orbit. This capex will help them scale up pharma and crop protection verticals (contract manufacturing and proprietary products).
Recent note from ICRA is very interesting in this regard.
https://www.icra.in/Rationale/ShowRationaleReport/?Id=101766
China+1 is yet to become reality .
India API exports as a share of China API exports have sequentially fallen from 45% to 10% in last 9 years.
And from 25% to 10% in last 1.5 year, except for a minor uptick when China had cut exports.
Any data available on Hikal’s key clients and dependency on China for raw material?
list of clients available on company website, investor presentations and ARs. past concalls by the management have a lot of information on raw material linkages, etc.
Hikal Q1 Highlights
Revenues 460 Cr , down 13 % QoQ (535Cr), up 30 % YoY(353cr) but that was the Lockdown quarter so YoY not very meaningful.
Profit Before tax 68 Cr vs 80 Cr QoQ - Down 15 % so slight margin contraction
PAT Flat at 50 Cr, due to adopting the new tax regime, resulting in lower tax
Segments
Pharma Revenue 274 vs 298 Cr, PBT 48 vs 50
Agrichem Revenue 182 vs 234 Cr, PBT 32 vs 48 - Major decline of 33 %
Need to understand the reason for the sharp decline in Agrichem margins at a time when most other Agrichem companies are reporting much better results on the back of inflation in Agri commodities.
The tone of Jai Hiremath’s note in the investor ppt for Q1 is a bit less optimistic than the Q4 one, and has lesser amount of details and forward looking business level projections.
Industrial oxygen shortage led to the decline in Agro division as one of the products was impacted+typically in Hikal’s business H2 is stronger than H1.
Concall tone was really bullish- Hikal 2.0. Let’s see if the journey is smoother and better than 1.0
Disclosure: invested.
@Worldlywiseinvestors True that! Hikal 2.0 is more like Hikal 3.0. This is a management that used to devulge information on a need to know basis and now you see better disclosures. Their con-calls were more like analysts interrogating the management and now they have so much to share. When there’s genuine business momentum even a conservative management can sound excited about the future
Disc: Invested
Could you please explain how agri inflation effects Hikals margins? And Which peers are reporting better margins due to it? As far as I understand margins will keep will keep improving as the ratio of newer molecules to older molecules increases. And ofc as volumes pick up. Thanks🙂
The comment was more directional with the thought process like this. Agri Commodity inflation means better ability of farmers to invest in cropcare and hence better demand for Agrochem products. For a while the reverse was true, there was subdued demand, and hence pricing power. As the demand increases, the overall prospects of the Industry will improve. UPL has shown better margins. Of course Hikal is B2B, so there is a lag in the pricing positive impact to reach them.
And I saw the clarification, the Oxygen crisis led to the impact on some production resulting in lower revenues and hence profits, leading to optically poor margins for the Agrochem segment.
I figured as much but didnt want to assume anything as i wasnt sure as to how much of the inflation benefit trickles down the value chain to companies like Hikal. Thanks for clearing that
Blockquote
Hikal Q2FY22 - Investor Presentation
-Post Covid 19, innovator and generic companies are further looking to diversify their supply chains.
-Improved TAX rate and improving finance cost led to disproportionate growth in PAT.
-Despite the challenges faced by Mahad, crop protection business did well.
-Commissioned new capacity for Pharma business in new facility in Bangalore.
-Expect to face some challenges in raw material due to volatility and supply chain issues.
-Enquiries are increasing quarter on quarter from global innovators.
-We stand by our guidance of, mid teens topline growth and 50-100bps improvement in EBITDA margins.
-Trying to make up for the lost revenue from MAHAD. RM prices have risen dramatically, trying to pass on with a lag effect. Uncertainty also with the availability, we will be able to minimise the issue.
-Longterm contract of fungicide for USA(one innovator) is already signed and execution is underway.
-Plan to accelerate the growth of the Biocide business.
-H1FY22 capitalised 120 crore, 175 crores in H2FY22. 300 crores in FY23.
-Expect the business to grow over 2-3 times in next few years. (Pharma CDMO)
-Margin: Any new molecule that we are launching, margins will improve YoY. Once things stabilize, we are quite confident that margins will start improving YoY. H1 there was a hit due to input cost volatility.
-Delta margins will come from new products, will be launching in next few quarters. Also running cost improvement projects for older molecules.
-Power and Fuel costs are going up.
-Value is growing faster than volume in crop protection, 29% volume growth as compared to H2FY21.
-75% of our crop protection business is in Custom Manufacturing, we have long term contracts for on patent products. We have a very few generic products in crop protection.
-Mahad business contributes to less than 20% of crop protection business.
-Capacity utilisation: 85% utilisation. Debt is 629 crores, 616 crores as of March.
-Big Benefits of capex will be seen FY24 onwards. In FY23, we will put in more capex in crop protection. FY23 we will be launching the product and validating, and FY24 the real impact will come in.
-Pharma CDMO will grow by 2-3 times over next 4-5 years.
-Animal Healthcare-R&D of the molecules, we are starting to design the plant and will start to construct the plant from next year onwards.
Courtesy @Worldlywiseinvestors
Hikal Con Call Notes Q2FY22
Business:
· Revenues increased by 26%: Rs.469 crores in Q2FY22 vs Rs.372 crores in Q2FY21
· EBITDA increased by 30%: Rs.91 crores in Q2FY22 vs Rs.72 crores in Q2FY21
· PAT increased by 63%: Rs.44 crores in Q2FY22 vs Rs.27 crores in Q2FY21
· Higher operating leverage
→ Pharmaceuticals:
• Flat revenue at Rs.280 crores in Q2FY22 vs Rs.279 crores in Q2FY21
• EBIT at Rs.37 crores in Q2FY22 vs Rs.50 crores in Q2FY22, de-growth of 25%
• In terms of new products we have a heavy pipeline and continue to see a strong traction for our customers in both the businesses to support the future growth plans.
• In Q2 received the manufacturing license for the production of APIs at the Panoli site. This is in line with our strategy to diversify the manufacturing footprint by having two independent sites to manufacture APIs.
• Over the next several months we’ll be validating several APIs for launch in the next financial year from the Panoli site.
• Commissioned new capacity for our Pharma CDMO business in our Unit 2 facility in Bangalore. This is primarily for our development pipeline in our CDMO business.
• Receiving significant traction in our Animal Health business post the signing of a long-term contract several months ago.
• The margins will improve going forward which will be driven by new product launches & molecules. (product mix change)
• In the pharma space, we have: 7-8 products are under CRAMS and 10-12 are already commercialized and 7-8 products are in the pipeline at various stages.
• We are very strong in the anti-diabetic portfolio and that will be our next wave of products that we are launching. They go off patent in the next 4-5 years and we are getting a lot of traction with our customers on these molecules.
→ Crop Protection:
· Revenues grew by 105%: Rs.190 crores in Q2FY22 vs Rs.93 crores in Q2FY21
· EBIT at Rs.34 crores in Q2FY22 vs Rs.8 crores in Q2FY21
· Shutdown of the Mahad Facility for 27 days in Q2FY22 due to heavy rains led to substantial impact on the revenue & profitability.
· Despite the challenges faced by the flooding, the crop protection division did well to recover last quarter.
· Launched higher value & higher margin products.
· We currently have about 4 products on the CRAMS side and 2 proprietary products under development. These are already launched products or to be launched and the ramp up is pretty fast as compared to pharma.
Management:
• CEO: Sameer Hiremath, President of Business Development & Strategy: Anish Swadi CFO: Kuldeep Jain
• Putting significant efforts over the past few years on developing alternate sourcing partners and backward integration of certain raw materials. This will help us in the medium term and we do expect disruptions in the short term. Over the next several months, we expect the situation to normalize.
• Capex for MPP facilities is on track across both our businesses for new products to be launched in a staggered manner over the next several quarters.
• In terms of our outlook for the year we stand by our initial projected growth in topline at a CAGR of high teens.
• New long-term contract for a fungicide with the US-based crop protection company is on track.
• The biocides business falls under the specialty chemicals umbrella. The beauty of the. biocides business is that we utilize our own crop protection business to manufacture these products so we have biocides which go into various aspects like paints industry and they are also used in the crop protection industry.
• Capex for First Half: Capitalized almost Rs.127 crores. Capex for Second Half: Rs.175 crores (Total: Rs.302 crores). Estimated Capex for FY23: Rs.300 crores
• We’ll be maintaining Asset Turns of 1.5x going forward.
• We expect the Pharma CDMO business to grow over 2-3 times over the next 2 years.
• We will maintain our leadership in the old molecules.
• Capacity Utilization: 85%
• Sales Break up: Domestic- 30%, Export-70-%
• The big benefits will start coming from FY24 onwards.
• In FY23, we expect to put in more capex on the crop protection side.
• There will be some impact in FY 23 due to the gestation in fillings & validation for the molecules.
• On the Animal Healthcare business: The project is in 2 parts, number 1 being the R&D of the molecule which is currently under development and is progressing well. Now they are moving into the second stage of the project and beginning with designing the plant and the construction will start next year. The plant will become operational from FY24 onwards. This will come under CRAMS.
• We’re covered for insurance for Mahad.
Risks:
• Shutdown of the Mahad Facility for 27 days in Q2FY22 due to heavy rains led to substantial impact on the revenue & profitability.
• Global supply chain challenges coupled with a steep increase in input raw material prices continued to pose a challenge for the industry going forward.
• We were hit by the disruption in logistics.
• Experiencing an unprecedented increase in raw material prices and non-availability of input raw materials.
IFC plans to invest US$ 50mn in Hikal
As per IFC disclosure, “IFC proposes to fund up to US$50 million to part finance the Company’s multi-year capital expenditure plan. The Project will be located at the Company’s existing manufacturing facilities in India including in Mahad (Maharashtra), Taloja (Maharashtra), Panoli (Gujarat), Jigani (Karnataka) and Pune (Maharashtra).”
Hikal plans to invest over ₹ 600cr over FY22-23 across both crop protection and pharma segments. It has ~₹ 625cr debt by end-1HFY22 with ~₹ 400cr long-term debt. Fund infusion shall certainly help in paring part of its debt as well as provides credibility. Positive for Hikal
–Emkay Global
Disc:invested
There was an incident of chemical dumping at Surat where some people lost lives.
This article mentions HIKAL as originating place of that chemical.
Surprising that they can select anyone without any background check to dispose the hazardous waste !!
I think this is second such incidence involving the company.
Previously also MPCB had banned it when one of the tanker was found dumping hazardous waste in the locality.
The company went to court against MPCB and blamed the subcontractor.
I had thought this may be just local political rivalry rather than anything significant.
So, this time they chose a place far away from the plant.
And still got caught !
