Absolutely, returns on re-investment should be very high for this company, Very judicious about the money they borrow. In spite of the size of the company they have achieved leadership position in few products.
I hope they would be able to negotiate prices in future
2 Likes
My notes from the concall. I have reorganized the topics. There could be some errors in noting down.
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Top5 were 54%, top 10 were 77%. Market opportunity of top 10 is large and we are not in monopoly. We are 50% in top 6-7 products… Top 10 market size would be 400-500cr. Top 3 contribution 41.8 earlier, fell 3%. New launches… Only 1 poultry, other in farm animals. Market size is 30-50cr. We don’t hunt for very large molecules. The products where market size is 100cr, there is lot of competition. Launching 3 pdts this year, 3 more in next year. We hope to expand the basket to 27-30 over the next 2 years. These 6 will have 200-250cr potential market size.
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Gross margins held but higher freight, fuel and travel expenses hit EBITDA margins from 30% to 21%. Some costs have come back, is there more to come? Costs are back to normal other than travel costs. RM costs are higher but should normalise. Maintenance cost is normalized. Right now EBITDA is about 23% for us. On the downside it might go down another 5% from here. But if prices normalize, it can move back up very fast. Is it possible that margins will be under pressure for 4 quarters? Personal feeling is that this should definitely normalize (RM should soften) post April-May. Commodity markets are recovering. There are some products where we are paying 4-5 x prices because of supply demand imbalance, this is not sustainable for industry. We dont see margins getting depressed due to freight/RM/outsourcing/expansion/travel expenses because higher revenues will take care of these.
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Inventory… Finished 9cr, 22 cr semi finished, 23cr rm. Decided to stock items where delivery time is long.
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Passing on freight… Takes 4-5 months to pass on. We took hit of freight.
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Macrotech will be for intermediates… Margin addition, backward integrating. Insourcing where volumes are high and it makes sense to manufacture. Gross margin over few years 56-60%. This will continue in this band.
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Capex at Macrotech increased from 20 cr to 28cr, tarapur increased from 80 to 100cr. This is because steel/cement etc costs went up. Earlier estimates were tentative. Starting construction at Macrotech in Dec. Decided to make macrotech zero liquid discharge
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Quarterly revenue run rate 78-80cr. Can go to 100-110cr within next 2-2.5 years due to outsourcing plus macrotech, excluding the Tarapur capacity.
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Newer geography, newer products but big capacity will come only in 2 years so will we have capacity constraints? Increasing outsourcing which will stabilize by May June. Macrotech is starting in December. Thirdly debottlenecking. We see growth continue over 2 years. Don’t see a situation that we are not able to meet orders.
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US market : we addressing non usfda registered market. Don’t expect large traction. Only 2 customers and 2 products currently. We will work on a strategy. Still seeing enough opportunity in emerging market. Eventual USFDA plant? Not a priority.
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Other expenses went up 4cr QoQ. Delta from Energy 60L, outsourcing 1.5cr, freight 75L.
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Risk of product ban: mostly in antibiotics. We don’t manufacture these. Haven’t heard anything for products that we make.
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Overstocking in Europe? It’s growing slow in single digit, while others at double digit. No overstocking issue seen
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New products… We are set for next few years when for new capacity
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Vet formulations is not a thrust area. We are doing this for couple of customers, more like a service. Havent made any investments here for last 5 years. The big number on this last year. The seasonality causes some ups and down. Sustainable number = 7-9 cr on annually
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Outsourcing cant be on a short term basis because vendors have to make changes to the plants to make intermediates.
19 Likes
Completed the expansion work at Macrotech Polychem Private Limited (Subsidiary of NGL Fine-Chern Limited) and now the plant is fully operational from yesterday i.e. 14th December, 2021.
3 Likes
Management point of view on the current capex for Macrotech " basically Macrotech expansion is to increase the intermediate manufacturing capacity
because we have adequate capacity for making the APIs right now and making intermediates ourselves helps to increase margins for every product, because the more you make yourself the better off it is"
If the processes are stable, we should see margin expansion from next quarter.
4 Likes
I keep thinking more about NGL and whenever I go through my past notes etc, I feel that this has been a spectacular journey. One of the rare journeys of 10x growth in 10 years with a tiny equity capital of 3 Cr and little debt. It’s amazing the way the business quality has evolved in recent years - market share gains and leadership in several key products (the company is a global leader with more than 50% market share in top 5 products) and they are now increasing market share in other products too (details in recent concalls)!
Importantly this growth has been on the back of higher volumes vs price rise seen in human/pharma APIs. In many of the concalls the co has several times mentioned that there hasn’t been much price change and always maintained that there is no China factor involved…rather they have been able to penetrate Chinese markets and are selling there too.
Its a delight to go through the concalls and hear the clarity the management has on the business and what they want to do. Infact our first VP Management interview done way back is an amazing read and good to see the consistency the management has had 
And the business has become more diversified while delivering this growth - 3/4 plants today, 400 customers vs 250 3 years back etc. Co has even addressed the risk of ETP etc by having ZLD at their key plant and now upgraded other plants too to ZLD.
Also, good to see that such a small company has done a timely acquisition and also trying to do outsourcing to meet higher demand. And now they would be doing a 100 Cr capex over next 2-3 years which is equivalent to the capex done over last 20 years with an aim to probably double the business over next 3-4 years.
Ayush
PS: Just thought of penning and sharing these thoughts.
Disc: Same as before. Invested in family and client acs.
57 Likes
Time and again MPCB (Maharashtra Pollution Control Board) has been issuing notice as warnings and also closure of Macrotech Ploychem subsidiary, This seems to be a real dampener, don’t know how serious and critical this issue is and what if the Govt cracks the whip on them.
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@Ayushmit -what a brilliant pick of yours -the first VP interview (brilliant one) and your regular insights in VP or otherwise helped me a lot to build my convictions over time .
NGL promoter is a great allocator of capital to say the least !
7 Likes
@ayushmit What are your views on ngl at current valuations, I feel it is reasonably priced, but the volumes are a worry for me.
1 Like
Topline has grown, but due to the work in progress of new plants, margins have reduced.
Although, Macrotech is operational its not contributing to the revenue as of now.
When is the concall?
Disc : invested
nice thread on current result/conf call
https://twitter.com/ValueEducator/status/1491354629652680704?s=20&t=Ch5JN6Gl493bdLgxfQl3Ag
7 Likes
Q3FY22 concall notes, regrouped a bit
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Increasing penetration of pdts. Vet API grew 25% yoy, 37% for the 9M FY22. Reached full year FY21 number in 9 months. APAC is largest contribution, grew 37% in Q3 yoy. Europe and India in Q2-Q3 havent done well. Europe is slowing down for sure, no major growth in short time. As pandemic impact reduces, we can see traction post July 2022. India had some disruption in 3rd wave, and some seasonality. EU and US sales go eventually to unregulated markets, so profitability is more or less same across geogrpahies.
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Challenging macroeconomic factors- Chemical commodity prices at ATH in a very short time span, power and freight costs went up, impacting the margins. We have taken very limited price hikes. Gross margins have been 55-57%, but currently at 48-49%. API price can be passed on with a lag because customers want us to hold on to prices. Our strategy is to gain market share at this point, because soon margins will increase again when RM prices cool off. Chemical prices have peaked in Oct-Nov and are now coming down. We expect margin normalization in Q1 FY23.
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Not increasing prices alone doesn’t work to capture market share (it also has to do with service, documentation, consistent/reliable supply, quality)…we are increasing prices on number of products. The major issue was the very abrupt and sharp increase in RM prices. We cant change prices on contracts where we have committed to supplies. Over long term, we HAVE to pass on the prices, there no question about it. We will definitely pass on the increase BUT we can always partly increase the price, and partly absorb to remain competitive. That becomes a strategy of how we want to play in each market and what customers we want to retain.
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What if RM doesn’t come down over longer time? We WILL pass on the price hikes
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Some chemicals went up by 3x. Now they are at 2x the normal level. Overall mix is affected. Freight cost had gone up 8-9x, now at 5x, we are changing contracts to FOB and pass on the price. Gas prices are at 2x, no softening in prices.
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Are we carrying lot of high price inventory level? No we are trying to cut down on inventories. Sales have gone up 6-8% but inventory is flat.
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Pricing gap has to be maintained (narrow 1-1.5%) wrt competition because customer can switch fast in B2B. This gap has been maintained.
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Will Macrotech help in reducing the RM fluctuation? We are already backward integrated. We are already manufacturing these intermediates, this expansion at macrotech is to add volumes.
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Can we grow 20-25% before Tarapur comes online? Yes definitely doable. Q run rate 80cr to 95-100cr before Tarapur comes up. Some will come from Tarapur/debottlenecking/outsourcing.
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Completed macrotech expansion. Commercial production from macrotech in Q1. It can give 50cr contribution by FY24.
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Achieve outsourcing of 15% by end of FY23. Tested and considered multiple facilities. We already added 5 vendors and hope to add 5 more in future.
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Near term growth- debottlenecking and process improvement
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Tarapur on course- started civil construction- capex 100cr, 50% expansion of NGL ex of expanded Tarapur. Plan to complete by mid 2023, start production in H1FY24. Asset turns will be 1.75-2x because EHS cost have gone up so it wont be at historic level of 2-2.5x.
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We hold land in Mahad and Amberghat. We will look at planning ahead (get EC in advance) when we look at 5 year planning.
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All new products are in commercial production. Molecules status 22 (commercial)+3 (pilot)+2(R&D) so 5 pdts will get commercialised in FY23. These 5 have a fairly large market globally but its early to say how much we can capture. Over next 3 years, we plan to increase from 22 to 30 products, this will be enough to reach full capacity at Tarapur.
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Growth in products for 9month- top 5 have grown 21%, top 10 grown 26%, so number 5-10 have grown more than top 5. Remaining products have grown 18%. Going forward we see traction for smaller and newer products.
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We have 400 customers, so our average customer account is 1<cr. Top 5 clients are 21.5% of sales. Top 10 customers are 33%. Out of top 10 animal health companies of world, we supply to 5. Will current clients will pick up our new products?
Discl: Not invested anymore, but interested
19 Likes
Yes, their greenfield and brownfield expansions look good. Their margin is constantly getting hit because of ever rising raw material cost and difficulties in passing that on to their customers. But the concall sounds bullish. They expect the margins to go back above 50% from FY2023 Q1 . Is re-rating still left in this or is it better to sit out till their prove their point? It seems to have reached 2000 levels as well.
1 Like
Thanks for your views on the company, very useful.
I don’t track the company in detail, so please excuse if this is already covered, but would be great to have your views on the below:-
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How is the RM prices/margin profile situation panning out for the last month? Would there by any effect of crude prices/any disparate raw material prices affected from the same?
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Could there by any reason for 2021 to be viewed as an year with exceptional circumstances - for eg stocking up of APIs or higher competition pricing making it easier to compete? Are there risk areas in terms of API pricing being affected/and hence revenues coming down even in full capacity?
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Any indications of demand scenario in the end use industry for the APIs?
Have briefly studied company last year, was very impressed with clarity of promoter, but did not invest and study in further detail as decided to not invest because of valuations at the time.
Discl : Tracking, not invested
1 Like
Hi
Raw materials…
a9ffef50-5660-4dc2-81b9-3f4921ac747e.pdf (4.2 MB)
Rgds
D: Invested & txn in last 30 days.
4 Likes
NGL earning presentation Q4 and FY22:
Revenue growth of 17% in Q4 and 23% in FY22.
Margins impacted by rising commodity, freight and fuel. Costs are expected to remain at elevated levels in the near term.
High customer retention, strong demand in key markets.
Robust demand in fy22 in anthelmentics and anti parasites, top 5 products continued to gain market share.
Product portfolio: 22 APIs( 18 vet,4 human),4 intermediates,10 finished dosage forms.
Leadership in top 3 products of vet API(>50% market share), gaining market share in next 4 products.
5 molecules in pipeline having more than 5 step synthesis manufacturing, will lead to new margin accretive products.
90% capacity utilization during fy22(excluding Macrotech expansion). Completed 26cr expansion in Macrotech during the year, approvals are in place and validation batches initiated.
Greenfield capacity expansion at Tarapur at estimated capex of 140cr(debt+internal accruals), undergoing civil construction, expected to commercialize in FY24.
Increased inventories(56Cr vs 38Cr in fy21) due to new products development and change in product mix.
discl: tracking
14 Likes
PBT to sales has been declining for the last 3 quarters due to higher RM and freight cost. In the previous earnings call, management stated that new pricing cannot be applied to old contracts, company also said new contracts would have prices increases reflecting macro environment. Looks like majority of the business is old contracts
IMO, NGL is not alone, we should expect depressed margins from Chemical and Pharmaceutical companies that have higher share of exports.
2 Likes
Q4FY22 Concall Highlights
Jan & Feb prices has peaked and now due to Russian war further increased price, we don’t see them coming down until the war settles down in next two quarters and we see demand also softening, because the client of our clients are farmers.
Tarapur expansion costs increased from 100cr to 140cr due to inflation. 100cr internal accruals rest is debt.
New 5 products to get into commercialized 12-24M, will be same EBITDA as existing products and would be involving a 5 stage synthesis. Should have 300cr TAM , we will start with 10-15cr initially and expect to get 10% market share in 3 year period.
Volume growth 6% growth yoy for the FY.
Macrotech will give 40-50cr output , margin is same previous units. Start seeing better utilization this Q2 & Q 3FY and due to higher inflation fixed asset turn over would be 1.5-1.75x
Its difficult for players in regulated markets to come into unregulated market due to their cost structure.
Will start passing on prices in 1 to 1.5 months , we are selling APIs to pharma companies who supply to farmers so he also needs to be able to pass on prices.
We have not explore CDMO business opportunity yet.
We have finite shelf life of 3 months , so we don’t build inventory much.
We have 15% RM sourcing from china rest is from domestic .
Poultry API witnessing strong traction –sold 6 tons in FY22. The TAM is 300tonnes. Expect 100% growth in this molecule.
Matured products will be outsourced and it will be continued even after new capacities come up.
Top 5 products will have more than 50% marketshare and these will contribute to 50% of overall sales. Of all top 10 products all of them are matured , expect 20% volume growth even in the matured products.
Top 3 products have only 3 manufacturers currently in the world and all of them are in India.
11 Likes
Some notes that I took from concall:
Capex:
- Macrotech 26 Crs. brownfield expansion completed. Still need to get site approval from customer, though its backward intermediate site only. Need to have 5 batch run for yield measurement, next there are stability tests to be undertaken. Expect to have reasonable utilization Q3’FY23 onwards. Broad ~2x asset turn resulting into 40 Crs. - 50 Crs.
- Backward Integration - 5 to 7 steps already being done. Macrotech will support further backward integration.
- Tarapur Greenfield - civil work commenced in Dec’21. Capex price escalation to 140 Crs (significant RM cost escalation). Will result into 50% capacity addition. Expected to contribute 200 Crs,. 80 Crs debt+ 40 Crs internal accruals. Expected to be completed by Sep-23. Land availability for future capax post current expansion will not be possible. - will be maxed out on land availability.
FY’22 and Q4’22 Result specific:
- Growth details - 23% by value term at FY’22 Level.
- Margin compression due to RM price, Fuel, freight escalation. Expected to remain high for next 2/3 quarters. To normalize later in the year.
- Previously fuel prices peaked by Jan’22 however went up again due to geo-political war. May remain elevated for next 2 Quarters.
- Price pass-on only with a time lag of 90 -120 days.
New Growth avenues:
- 5 new products over and above - 2 are large volume commodity product, competition is with China. 300 Crs world wide market. Expected to have 10/15 Crs during Year1.
- Will take time by 2+ years. Similar margin to current portfolio
- Poultry API ~300 Ton market world market. Expect to have 10% MS by next 3 years.
- intend to launch 3 new products each year
Misc Comments:
- Top 3 products are all India manufactured, no China competition.
- Outsourcing just to have asset light model, is compressing margins.
- regulated market players may not be able to get into unregulated markets.
- Have not explored CDMO.
- Pivoting into FOB billing to navigate the freight cost escalation. Have adopted partially.
- Feedstock - 15% is import, rest is domestic
- Margin guidance at 18% - 25%.
- LatAm growth is significant ~60%.
- US revenue - buys only twice a year. Next turn by July.
- ~10% outsourcing achieved. To take this to 15% by FY23
- China +1 unfolding: Market is 10:1 between China and rest. Gradual shift happening.
Disc: Invested
Tarun
20 Likes
Listed today at NSE
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