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Lot of tailwinds and improving prospects of high margin CMS business. 2 items to be closely watched which may impact margins and bottomline - 1) company’s commitment to reduce dependence on China’s imports from 20% to 10% by FY 2024 2) Goodwill which is approx 21% of total assets and 35% of total equity.
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I’m not able to understand one thing. The supply chain de-risking is one of the major strategic step for the company but throughout the AR the target date for reduction of China import dependence to 10% has been mentioned differently.
FY 2024
Coming Fiscal
June 2021
Disc: Invested from lower levels
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Good question. My guesstimate is one of these is copy paste from previous annual report and one is an error. Please feel free to join concall and ask the management directly. The concalls are actually quite good with retail investors getting lot of opportunities to ask questions. (I got to ask in both of last 2 concalls).
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Notes from a recent analyst meet
- GDS business update: Despite revenue growth in the GDS business, the segment faced mismatching in order book and raw material pricing impact which resulted overall lower margins. However this segment has serviced its customers well and led to better 16-18%margins in FY21.
- Prime molecules have done well for the company in 4QFY21 and will continue to have significant market share in its key molecule (Levetiracetam, Labetalol). While in the specialty segment management expect 15-20% growth in FY22.
- CMS segment: – Management is hopeful about the growth in the CMS revenue contributed by US, EU and Japan. As per management CMS segment is expected to grow at 20% CAGR over the next 5 years and plans to commercialize 3-4 molecules in the next 21 months. The segment currently has a growth of 28% and expected to grow at 40% YoY ahead.
- Raw material dependency on China: Currently ~15-20% raw materials are dependent on China, the company has been working on de-risking its dependency on China since last few years and is confident to de-risk the raw material import further.
- Capex for FY21 was at Rs 1 bn.
- Covid related impact: The company had faced supply chain disruption due to covid in the past, which is now normalizing.
- CMS pipeline products – Management stated that overall focus has been on biotech smaller companies, some molecules are doing well in therapies segment of cardio, anti-infective, anti-fungal etc and few of these molecules have significant potential
- Peptides - Peptide molecules are part of the CMS range, and the company has several such projects. Peptides will be initially manufactured at Unit 1, and Unit 3 may be utilised once optimum utilisation at Unit 1 is hit. The company may not incur further capex to manufacture peptides
- The company has announced collaboration with Jitsubo Japanese company for peptides, most of the technology developed since last 10-12 years. In the CMS space most of them are close to commercialization over the next 20-24 months. The company also planning to file DMF for GDS business in next 18 months. Apart from this no. of commercialized peptides would be about 100 $ 1-3 bn and expected to grow further.
- Unit III update: The capacity will facilitate larger volumes products, as the company will shift some peptides from unit I & II. New projects from CMS biz will be housed at unit III. The facility was commercliased in 4QFY21. EU shipment to commence from unit III.
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Neuland Labs - AR Summary 2021
https://drive.google.com/file/d/1yMwwlTiVpkpW3wp5jYA8rNmXsWtvvy-f/view?usp=sharing
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Insights shared by Neuland regarding their supply chain & vendor management-
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China +1 is yet to become a 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.
This has actually been beautifully explained by Aditya Khemka sir in his 1.5 hour YouTube video : https://youtu.be/GoKkmEOOfzw Pharma is not 1 market : it is 4000 different molecules and markets. In some markets we are beginning b to see china+1 play out. In some we have not.
In some, india has a cost competitive advantage and so we are able to take market share away from China.
In some we simply cannot compete with China and so china will gain market share.
As an example : laurus is not seeing any china+1 play out.
The more structural change to track is dependence on china for KSM is going down across the board.
Indian api makers are truly becoming attmanirbhar (or at least reducing china nirbharta).
Neuland, Divi’s many others are reporting reduction in depenence on China through backward integration and better supply chain management.
At same time, this is capitalism. China won’t go down without a fight. Others like Solara see fierce competition from China too:
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The related party transactions disclose that the company has signed a lease with the promoter group for office space for the duration of 5 years at the rate of Rs 79 per square foot with 5% increase each year.
But the prevailing rate in the Hyderabad area according to mindspace reit is much lower
Any thought on this by seniors?
Disc: invested for tracking purposes
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You will have to look for rentals area wise in Hyderabad. Within Hyderabad itself the rentals will have variation of 20 to 30% depending on the location.
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This might give some idea about the amenities provided in the Neuland’s corporate office in pheonix ivy,Jubilee Hills. Although exact lease rates are not mentioned.
Jubilee hills and Madhapur are within 5-7 km of each other and Madhapur is IT hub of Hyderabad.
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Yes, had looked for some properties for office space in the Jubliee hills area but could not find any property at around 79 Rs per sq feet. Most of the properties were in around the 50-55 Rs range. Also, the security deposit Neuland kept with the promoter group is 12 months rent which seems high considering other office spaces in that area (Less than 6 months deposit).
Not sure about the specific rates in the Phoenix Ivy Building. It might be higher than other properties in the Jubliee hills area.
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Worth writing to the management.
Your mail, might not change the decision, shall alert them to take such decisions in future.
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True such matters should be taken up with the promoters but the flip side is also that the level of disclosure is high because of which we are able to analyse the transaction details. The disclosure could also have simply been mentioned without giving area, rental or deposit details.
In any case matter should be taken up with the Company so that they should also be aware that investors are closely monitoring the Company.
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