Earning Conference Call details.
Regards,
Raj
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Thanks @raj1968 . The best part I liked is clear vision of 5+ years.
Near term growth triggers being 20 cr capex on increasing capacity of intermediaries coupled with efficiency improvements.
More longer term growth triggers through Tarapur capex. Best part is that management has learnt lessons from the past and have already got approval in place.
Overall, it gives good visibility and path for next few years. Amazed by the rate of re-investment of cashflows they are planning for growth of the company.
Discl: Personal views. Invested.
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FY21 concall notes
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Q4 Operating Margin 29%, Full year margin 31% due to operating leverage and RM prices
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Growth in all segments and all products.
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Ramped up all capacities, Capacity Utilizations are >90%
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Debottlenecking at API and expansion at Macrotech that can give growth of 15-25% till greenfield capacity comes. Spending 100cr in 2.5 years= 20cr at Macrotech (already under implementation from internal accruals) 80cr at new site. Asset turns of 2-2.5x are expected. 300-325cr revenue possible in FY23 after debottlenecking and expansion at Macrotech
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Macrotech - We consider it as part of NGL, will be merged in future
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Outsourcing objective is to make sure that we dont fall short of capacity. We believe in sourcing is better to safeguard margins but we dont want to miss out on business for lack of capacity. Partners are putting in investments only for us so we are looking at it as a long term association. Currently we dont outsource more than 3-5% and will take it to 15% and this will put pressure on margins. What we lose in % terms, we will make up in absolute numbers. We typically outsource only 1 step of one product to one supplier. If we need another step, we go to another supplier.
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Greenfield Civil construction by internal accruals. Will share info next year on how much debt is required and how much can be funded from internal accruals. There is some time before majot investment starts
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Market share of top 10 products , growth in FY22 and FY23- Gained market share last year and have been successful in retaining it. Dont anticipate problems in holding on to it. Expecting 20% growth in top 10 products in FY22. Top 3 were 47% and now 40%. Top 5 and top 10 percent will decrease because newer products are growing very fast, even as the top 10 are still growing. Market size of top 10 has grown by 2 digits (15-20%) and its happening in this year. On top of that we gained market share. We gained market share from small as well as large companies. What is driving the growth in molecules? We are working in developing markets where product penetrations are low. This penetration in India is driven by cooperative societies employing vet doctors, could be similar in other countries.
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Molecule sizes were in the range of 30-50cr few years ago. Market sizes have grown and 30cr has touched 80cr.
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3 years ago we had 250 customers and today 400. Can add more customers. We have seen customers used to buy 5-10kg, we serviced them even when we had standard packaging of 25kg. Now some of these customers are buying 500kg.
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New 4 products- These are a part of regular line-up now. We dont consider them as new any more. They are growing at good pace. 2 are high margin low vol, other 2 are lower margin , high value. Its a mixture and we dont see margin profile changing too much. Poultry market is one of the fastest growing.
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5 more products under development- Some are small sized, some are decent sized. Cant give the numbers (as there is no published data) but it will keep pace with our growth rates. Will 27 products be enough to fulfill the capacity by FY24? Difficult to say right now. We have to see how we will gain market share. At times it takes 1 year, at other times it can take 5 years. More products in next 3-4 years? Its a pipeline that we have to keep feeding.
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R&D spending- Pace of molecules addition is lower than in the past. Demand for existing products is very good and focus is on these. Developing products take lot of time and effort. Its a continuous process.
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3 pillars- Cost (are there more efficient ways of making the products, improve recoveries, by-products. Driving efficiencies in Purchase, inventory, manufacturing), Quality, reliability (help customers in documentation, service etc).
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Growth in Human API, We have seen spurt in human API business in last 1 year. Even though human API was not thrust area, we did gain market share. Focus is on Vet API- all pipeline is in Vet.
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Formulations are not a focus. We look at us as a pure API company
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Industry margins 18-25% and we have been and will be at the higher end of this range. We had a drop in FY20 because of under-utilised capacity. FY21 was very favourable because of COVID issues- many expenses were down and commodity prices were at all time low in July. Now oil has again shot up. Better to look at trends on half yearly or yearly basis. Going fwd we see margins will be alright unless in a year when a new capacity come up and runs at low utilization level for initial period. RM cost is normally 40-45%, and was at lower end in FY21 because of RM prices. Prices started going up from Feb 2021, some have gone up 50% from the lows in 2020. Passing on prices is not easy unless there is a big change. China dependence is 10% of imports, down from 15%. China is still lowest cost producer in majority products so cant replace it completely.
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Completely B2B business, we dont do tender business.
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EU cost of operations is too high, rendering NGL uncompetitive. RoW is a big market and we can grow.
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Mr. Rahul Nachane mentioned NGL would reach a turnover of around Rs 500 crore when company achieves full potential i.e. after completing Rs 80 crore capex and streamlining this new plant, could be in FY 2024
Disc: invested
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Here is the recording of Q4 FY 21 earnings call:
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Good show continues at NGL.
Stock might re-rate further.
Regards,
Raj
Disc: Invested
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Good numbers but Comparison with Q1FY21 doesnt make sense.
Q1FY22 Gross margins stood at 54.75% vs 70.92% for Q4FY21. While the gross margins are down, PBT is up due to lower other expenses and change in inventory.
| Jun21 | Mar21 | |
|---|---|---|
| Revenue | 75.86 | 71.77 |
| COGS | 34.33 | 20.87 |
| Gross margin | 54.75% | 70.92% |
| Other exp | 12.57 | 17.02 |
| (Increase)/Decrease in Stock in trade and WIP | -2.08 | 5.67 |
| PBT | 25.57 | 20.68 |
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Good analysis. Please consider the consumption of raw material to be as Cost of RM consumed and change in inventory. If that is considered then the there is an increase in RM cost by 21 % qoq and sales up 6% qoq so not as glaring is looking optically. The incr in RM Consumption is Rs 6 Crs qoq.
Q1FY22 concall
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Strong vol growth, operating leverage. OPM 31%
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Increasing demand, steady growth in all segments driven by increase in market share of core products.
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Growth is always 90% from volumes because normally prices are stable. RM fluctuation is absorbed by company
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All facilities running at 95%, near to full CU
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We did 100cr capex in last 10 years and now 100cr in next 2-3 years. When we are midway through this, we will evaluate the next round of plans. Capex plans on course. All these will take the company beyond 500cr revenues
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Debottlenecking of existing plants will come gradually. Normally debottlenecking adds 3-5% capacities
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Increase outsourcing (from 5 to 15%). Cant quantify as these are gradual. Outsourcing will reach 15% in 1.5 year, not in 1-2 quarters. We want to ensure quality and yield so outsourcing will take time.
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20cr capex in Macrotech will be completed in tmihe ongoing quarter Q2FY22. Trial production from October and intermediate capacity will go up. These intermediates will be used to make APIs. Turnover ratio is 2.5x for a product that has 5 steps of synthesis, and 2x for a product that has 7 steps. Additional 40cr consol sales will come. 80-90% utilization will take 1.5 years post commissioning.
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Tarapur 80cr expansion will complete by September 2023. All statutory approvals are in place. Construction will start post monsoons, in October. Civil construction will start with internal accruals. Requirement for debt may start in Q1 FY23.
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Two more pieces of land in Mahad and Ambernath. Decision to be taken up later
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ZLD facility capex is 10cr. By Dec 2021, 75% production will come from sites which are ZLD. Norms say that we can discharge to central ETPs but what happens is that these ETPs are not adequate to handle all the volumes.
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Intermediates grew sharply. Last full year was 16cr and Q1 itself did 10cr. It is the same contract as last year and it will even out during the year.
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US sales 6.8cr in FY21, and 3.1cr in Q1FY22. How is this shaping up? These are non-USFDA products. We have been able to develop a parallel market where USFDA is not involved. These are xxx(?)-parasitics which got registered and opened a new area for us. Its not a very big opportunity, max 12-15cr. There may be one more such products from out lineup.
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No price advantage in selling to any particular geography
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Examining NSE listing. Will be eligible after AGM because needs 3 year dividend track record. Will consider stock split
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Historically guided EBITDA margin 18-25% and now >30%. What costs will reduce margin to 25%? Industry norm is 25% and right now we are elevated due to COVID. These are good times in terms of profits but difficult times in terms of operating the business. The margins will reduce as expenses get restored.
- There has been drastic reduction in marketing expenses.
- Travel is also cancelled. Going forward, these costs will only come back.
- RM cost were at their lowest in Q1FY22 and have gone up to our normal levels of about 40%. Traditional range has been 38-44%. RM has regained all lost levels but wont harden beyond current level.
- Freight costs have gone up and any imported item cost have gone up 4-5% just because of freight. Pricing is FOB basis, we have been able to pass on the freight costs to customers.
- Last Q we had some insurance write-off and this Q is more normalized in terms of other expenses
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Poultry products scale up? 2 products were started. 1 is kept on hold due to capacity constraints and there are also some tax issues on that product because it is currently imported. There are some issues in tax which is affective its sales. The 2nd product is doing very well, slowly creeping along. It will be decent size in this year. These have the same set of customers so Existing marketing setup can be used
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3 products have market share >50% (incl 1 product at 60%). There are 4-5 where we are 35-40% and couple of them where we are 5-10%.
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How do we select the products? Based on 1) similar chemistry is easier to produce and get into market. 2) Customer requirement 3) Our own research on what is a good products. Has time come to target bigger molecules where we can get more scale? Yes in couple of years we might have to look beyond the niche molecules. Target is to launch 2 products per year for next 2 years. These will be mammalian products, not in poultry.
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The current molecules and the pipeline will fill up the Tarapur plant. The plant will have 6 API lines, of which 2 will be for existing molecules that need additional capacity.
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Can the recent market share gains sustain? Can the competition come back? Yes we are holding on to the market share. 3 simple factors that have been working- reliability, cost, superior quality.
26 Likes
95 percent capacity utilization, de-bottlenecking to add 3 percent and 20 crore capex could give about Rs 40 crore turnover. Looking at all these IMO, NGL will not see any meaningful growth for the next few quarters till 2023. Is this the reason for steep correction in stock price?
You are missing one vital point…outsourcing to grow from 5% to 15%…That should add 30Cr of sales.
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As per management, we can reach 500 to 600 cr of sales by 2025 that is almost 2X from current sales level. ( growth lever: about 100 cr (capex and debottlenecking and outsourcing).
Disc: Not Invested currently
Also, please don’t forget about Macrotech…That plant will start operations from this Quarter and should be able to realize its full potential in the coming year…
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More than 100 times returns in 11 years, how many companies gave these returns, I salute the management for consistent growth
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Until Tarapur Greenfield expansion in FY23. Growth is going to come from 5% debottlenecking + 10% out sourcing + 15% Macrotech backward integration.
However we can expect equity script upside if there is a stock split + NSE listing.
Disc - Holding
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Tarapur plant coming up in mid FY23
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The result is not as bad i expected. Gross margins held up but EBITDA margins contracted due to higher freight, fuel and travel expenses. The travel expenses increased due to normalization post COVID. So a part of these expenses will continue.
As per the presentation, Macrotech capex is increased from 20cr earlier to 28 cr. They had guided that this expanded capacity will start trial runs in October, and reach 2x asset turns in 1.5 years. So now we can expect 50-55cr additional revenue from this by FY23. Add some additional revenue from outsourcing.
I feel that Q3 will not have much revenue growth and margins will fall off from peak margin seen in Q3FY21
Discl: Exited in run up last few days. Looking forward to concall for more insights
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I actually expected bad results ,the result that way is good …good topline growth ,PAT impacted I think because of fully utilized capacity for which they are now outsourcing at higher cost ….I haven’t seen a better allocator of capital in micro and small cap space
the margin which NGL achieved in recent past was very high -even if stabilizes at little lower level its should be fine given the way its topline is growing -a conservative promoter when does a cautious optimistic capex after years of waiting knows for sure there is good headroom for growth in future - growth to come from existing category (their next set of 5-10 molecules getting traction ) ,new category (but will dilute margin ) ,new geography etc
NGL finechem qtr 2 investor PPT 111121 .pdf (964.8 KB)
Discl.- I am one of the top individual shareholder and hence my views may be completely biased
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Today’s concall link
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