Numbers are bad.
After seeing Sequent and Lasa numbers, i was expecting a decent set from NGL , but cost of materials consumed as reported by NGL is higher than previous quarters. Needs to be digged more.
Sequent Scientific operating margins remained strong and even Lasa is expected to be profitable going forward.
Employee Benefit Expenses are also increasing.
isn’t that cause the new capacity is not being utilized yet fully? that’s probably the reason the margins are optically down
NGL has been delivering very decent numbers for many qurters while this qtr was one of the weakest. My analysis: GM has remained at 55-56% range while EBIDTA has taken a hit due to higher fixed cost but not commensurate increase in sales.
In smaller companies, slight change in topline can make the result look abysmal. Decline/shift in sales by 5-6 crore can make P&L look very different. A lot of times such things are a result of one time events (voluntary/forced plant shut down, higher channel inventory, late revenue recognition (produced but not shipped) and take care of itself. However markets are unforgiving in the short term unless reasons are given (in lot of mirco caps, no one knows what happened). I have learnt it the hard way that if one is invested/is investing in microcaps there is no other alternative but to go through such topsy turvys and stay put as long as the core thesis is not violated.
Discl: Invested with small allocation. I am a SEBI registered investment advisor and views expressed here are not mean as investment recommendation.
Dear Ayushbhai.
What is your view on Q2 result. Requesting you to share your views.
Hi Samir,
The drop in the margins are surprising for me. I hope its a temporary blip as in past. Possible reasons could be - Co had mentioned about lot of filling and compliance etc at the time of AGM, before they can start selling from the new facility…maybe the increase in costs have happened while they haven’t been able to do more sales.
Regards,
Ayush
@ayushmit
Hi Ayush,
If you at all attended AGM, can you tell me if they justify the high pays and increase YoY?
Thanks Ayushbhai.
I thot to to ask you since the dust after result seems to have settled in 2-3 days.
Better to have a view when the dust settles.
Hi Paresh,
Question was asked about the proposed increase in salaries - management had clarified that its an enabling resolution and the salary + inventive will be capped at 8-10% of profits.
Regards,
Ayush
Transcript of Concall. Our Valuepikr friends are in full force, doing great job. Kudos.
https://www.bseindia.com/corporates/anndet_new.aspx?newsid=7451c322-4b92-40bf-841b-075ea68f200b
Can someone please share insights about rent part of the related parties transactions. From 2015-16 onward Mr Rahul Nachane and Mr Rajesh Lawande are withdrawing rent expense and which is in increasing trend on yoy basis.
Rent Expense 2015-16 2016-17 2017-18 2018-19
Rahul Nachane 18,00,000 25,35,000 27,25,125 29,29,514
Rajesh Lawande 18,00,000 25,35,000 27,25,125 29,29,514
36,00,000.00 50,70,000.00 54,50,250.00 58,59,028.00
YOY increment 41% 8% 8%
Nupur Remedies Private Limited 18,00,000 18,00,000 22,50,000 40,50,000
YOY increment 0% 25% 80%
Total 54,00,000.00 68,70,000.00 77,00,250.00 99,09,028.00
Thanks for sharing the concall and really appreciated the VP edge during the Concall … WHAt I make out after reading the concall ( Disc: this is my perception may not be the exact view of management )
Management is saying that there are doing R&D 3 to 4 product during the year but they have come up with 4 product in last two years ?? ( IS this HAJMOLA TIME ).
Out of 22 products 10 products carry 60% sale so 12 contributing to 40% … But which product are making high Top line contribution ?
Management is getting more remuneration through Nupur route ? is that justified I don’t know
Regards
disc: Invested
Please read AGM update by Ayush in the same thread. There are some details about Nupur remedies and rental paid there of.
I small think variations are a part of any production but this is a step to improve further. Variations can arise due to purity levels of different chemicals, extent of reactions, temperature, pressure etc etc. Automation can be implemented to do more measurements, monitoring and so on. Sometimes many things are not possible to be retrofitted/implemented on an existing plant, but you can plan them in detail in a new setup. As you can read, quality is a core focus area for the management and I will see this in positive light that they keep working on continuous improvements.
I think you misunderstood the above point. What they mean is that the molecules that were launched before 2007, they have a high market share. Think of it like this, as you spend more time in a molecule, you understand the processes better and increase efficiency. You can keep reducing your costs and pass them on to a customer to gain market share from existing molecules. So in older molecules, they have mastered the process and are lowest cost producers. In molecules launched later on, this process is still ongoing. They will eventually get there in many of the molecules if they develop more efficient processes.
This is regards to the next plant after the new Tarapur one. So what they said is when the Tarapur reaches 40-50% utilization (which will correspond to total revenue of 200cr for the company), they will start the work for the next plant, which will take 2-2.5 years to get ready. So as you rightly said, management is realisitic about the utilization levels ramp up.
May not be far fetched I would say because these are generic molecules and many times some of the molecules are in allied chemistries. At least there is no reason not to trust the management on this. Here are my notes about the management comments on R&D. (these were saved in my notes, dont remember where it came from but probably AGM)-
“We have grown from 4 – 5 people to 30 people currently. We have 3 PhDs working with us. Last year, R&D spent was 2.5% of sales (not every expenses is reflected as R&D spent) and this year we plan to further increase it to 3.5% of sales. The R&D team works on adding new products, improve processes and reduction in wastage of old projects. We believe that quality of R&D spending is more important that quantity (no of molecules developed). We are spending judiciously on R&D.”
well coined reply but my understanding is that he production parameter like humidity pressure temperature are controllable attributes in order to manufacture any product in automated process . Only uncontrollable parameter which I agree with you is the quality of the raw material or purity of the chemicals , which is well tested before putting in to agitating / mixing process . Because the raw material can be sourced out from different vendors .Every production process has well documented process sheets and the variation should be within permissible limits . They narrated that they rework so in that more resources in terms of time money and manpower is used so it add to the more cost of the production .the question arises how much quantity they rework . in my opinion it leads to squeezing of the profits .
Regarding the second point I may be not fully agree with you as the market share of the company is shirking and they are saying they are faster coming back .you can see this in their quarterly returns
(data from screener )
Quality is ongoing process of improving over the processes I agree with you even in the older molecules processes can be improved but it has a limit . because it can leads to high quality products but unfortunately unfeasible for the market being high priced products .
Regards
Disc - I have bought NGL fine chem in last 30 days. I am not a SEBI registered analyst. This is not a buy or sell recommendation. Please do your own due diligence.
One of the things that had kept me dis-interested in the company for quite sometime was lack of presence in the US market. When I started reading/listening conf calls about/of Sequent, few things became clear =>
Further, I managed to listen to Q2 FY20 conf call conducted by NGL & the thing I found the most interesting is the following =>
For products launched prior to 2007, we are the leaders with market share of 40-50%.
For products launched between 2007-2012, we have market share of 20-40%.
For products launched after 2012, we have < 20% market share.
So it is clear that company is focused on becoming lowest cost manufacturer & then become leader in those particular molecules. Further, it is focused on backward integration. The management talked more about throughput, efficiency & R&D in efficiency than inventing new molecules.
All of the above characteristics remind me of another big company in pharma space - Divis!
Of course it will not become next Divis as opportunity size, company size & margin profile is much different but underlying operating principles are quite similar.
The only thing that needs close watch - is growth rate/ambition & execution to achieve it.
I would request all members to put a statement when that link is shared. That would improve quality of thread for everyone.
@aashav23 Thanks for sharing the link. Appreciate your effort, but generally find that many friends are just pasting link to BSE/NSE disclosure without giving any context. Just a message so that we can forum more reader friendly and useful.
Numbers are only getting worse
Other expenses and employee benefit expenses are hitting hard on margins while there is no rise in revenues
The cost of materials has increased drastically at 46% of revenue in Q3’FY20 vs 38% in FY19
Any specific raw material which has suddenly become costlier?
Company seems to have low pricing power to pass on the increased costs - Will it be passed on with a lag?
