The positives i could relate to during my last check were as follows -
new ceo - with good turnaround history at previous company
new r n d head - good history at previous entity
new cfo - from previous arun kumar group company. Ideally would have preferred a new face
new mid level management - as seen on linked in , they are actively hiring guys from api companies esp hikal / etc. would love to see hiring from divis / dr reddy / auro.
It would take a while for company to develop new products. Debt is on higher side considering the scale and capacity company has.
P.s - Have a tracking position. Waiting to buy to some better results. Expecting that in FY 25 onwards.
The company has failed the investors and it seems it still has a long way to go. Aurore also decided to forego the merger offer as the turn around, at that point of time, looked difficult.
And it still looks difficult. Current quarter will also be bad.
It is one product where there is over capacity.
Also, in Aurore Shri Arun kumar holds stake. And Aurore management initially agreed for merger as they knew AK.
On digging deeper, when the merger was in process, they came across the extent of actual rot and issues. That was the basic premise of calling it off. So i draw reference from there. Infact Aurore itself is sitting on Multi Cr losses on account of Molnupiravir inventory (write off?), merger would have made sure that they sink.
For Dec (month) 2023, they have done ~20 Cr, quarter will not be good. They right now do not have people.
Lets hope they turn around some time.
No positions.
The company expects to get back to historical 20-22% EBITDA run rate by the end of the next financial year, with Q3 being a one-off situation(Pondicherry plant fire incident) and a strong Q4 with INR400 crores of revenues anticipated.
The company is aggressively looking at improving gross margins and EBITDA per KL, network optimization, andOPEX reduction to get back to historical levels, aiming for 20% to 22% EBITDA margin by Q4 2025 with the reset strategy in place
The focus is on balance sheet improvement, and a rights issue has been announced to reduce debt, aiming to double EBITDA from Q4 FY '24 to the exit run rate in FY '25
The rights issue approval is up to INR450 crores, primarily intended to reduce bank debt, with the ideal working capital cycle time targeted between 130 to 150 days, and the company plans to use the rights issue proceeds for debt reduction, aiming for a debt-to-EBITDA of under 3, ideally 2.5
The company has diversified its product customer base, especially in ibuprofen post-COVID, to an emerging market play
The company plans to shrink corporate operations between Bangalore and Chennai and close down its Hyderabad operations, with the CFO, Raghavendra Rao, moving on from Solara, and the company in the process of restating the critical role
One-off impact(100CR) details part of disclosures, willing to discuss further; gradual gross margin expansion expected from Q1 of next year.
Solara Active Q1FY25 Concall Summary Business Updates
The Vizag facility has been mothballed and being converted to a new facility for the CRAMS business
The company will be incurring costs for this which will be there only till Q2 and not be present in H2
The guidance for revenues for FY25 stands at around Rs 1400 crores
The business has been re worked to its earlier model of major revenues coming from regulated markets and long term contracts that were in place earlier
The company has reduced debt by around Rs 160 crores including money from rights issue and also free cash that the business has generated
Participants
Systematix
Motilal Oswal
Macquarie
KSA Securities
DAM Capital
QnA
Currently the Vizag facility is a multipurpose plant but it will be retrofitted to become a CRAMS facility and a High potent API facility
As of H2 the gross margins will get back at the 48% level
The Bio Security Act in US is relevant only for biological space and not the API & CDMO space
By mothballing the Vizag facility the demand supply situation has normalized and there is no excess inventory on ibuprofen now with the Pondicherry facility supplying now
The capacity for ibuprofen at Vizag is 3000 tons, which in future can be expanded to 9000 tons. This facility will be kept for the future
The past issues have been taken care of from the rights issue. The free cash generation will be higher than earlier stated guidance
The key is how many of the RFPâs for CRAMS will get converted
FY25 will be a year for stabilization with revenues at Rs 1400 crores and debt to EBITDA getting lower
I am seeing arbitrage opportunity between Solara active price and SolaraPP price almost 10% as Solara Active price is around Rs.800 and SolaraPP price is approx 495 +243.75 remaining amount to be paid = 738.75.
First clear trigger is lowering debt. At the start of FY25 they were at 3x Net Debt/EBITDA and so far theyâve reduced it to 2.5x. This is from the proceeds of the rights issue that management has also subscribed to. Arun Kumar (promoter) is leading the company now and so management is taking an active role in operations and financials. If Net Debt comes to 1-1.5x and pledges are released itself will lead to a big rerating.
Now coming to growth: FY25 guidance is 1400-1500 crores sales. 230-260 crores ebitda. Q4 ebitda guided at 80 crores. H2 expected to be better than H1. Even on a low base in FY24, FY25 will post decent growth. No revenues are coming from the Vizag plant as it is being retrofitted to make it fungible. Vizag should come online in Q1FY26 and should have 3 quarters of operations next year. Vizag will have limited Ibuprofen production. It will be used for higher margin polymers custom synthesis contracts. So next few FYs might bring both top line and bottom line growth due to changing product mix + operating leverage. Management said they would guide for next year in Q4.
Revenue guidance for FY25 reduced from 1,400 - 1,500 CR to 1,350 - 1,400 CR.
EBITA guidance for FY25 maintained between 230 - 260 CR.
Q3â25 gross margins at 56% which is the improvement of 500 basis points
Vizag Facility
Total Capex - 500 Cr.
Facility to be assigned for CRAM business ~ 300 Cr
Rest of the facility to be retrofitted with about Rs. 100-125 Cr capex to be made useful for Non-Cram(Generics) business. Ibuprofen where there is a price pressure the infra for this product at Vizag facility will be retrofitted to produce another product. Detail announcement about this to come later
CRAMS Business
Has not been growing as expected. Management wants to add focus and resources to this business. That is the reason for demerging it into a separate entity
Demerger process typically takes 9-12 months
Revenue for this business FY24 has been ~ Rs. 120 Cr with 25% ebita margin. Vision of the management is to achieve ~ Rs. 500 Cr revenue with 25-30 ebita for CRAMs business
There will be 100-150 scientist hired for CRAM business. Current R&D is common between CRAM and Non-CRAM business
Current Capacity of about 700 KL which can be easily doubled
Rs. 200 Cr of debt transferred to balance sheet of the CRAM business entity
Management want to have focused management bandwidth to this part of the business
Regulated market share in revenue about 76%. Management wants to continue to focus on upselling the high margin products in regulated/high value market
Company have close to 95 DMF whereas currently only 30 products are sold in the market. This provides the room for growth
For next 3-4 years perspective Revenue growth of low double digit is guided whereas focus to be remained on higher margins
For next 3-4 years perspective on Ebita margins management suggest to expect about 20% margin for next 5 odd quarters. Subsequent to that the Ebita margins can potentially improve to 22-23%
Even for the Non-Cram business, the focus is going to be on not letting the dilution of gross margins and management expect to not dilute gross margins more than 100-150 basis points due to demerger.
Management wants to focus on more free cash flow repaying the debt and making the company debt free
Stock trading at less than 2 times revenue. next 3-4 years look promising. Managementâs strategy appears in the right direction. Lets hope for the best.
Thank you for updating.
As management guided for low double digit revenue growth, I was surprised with this guidance as company will do around 1350cr topline this year without vizag facility. As they are going to spend Rs.500 crs on vizag facility and management guided about 1 times asset turn for the same. We can get good boost in topline from this facility onlyâŚthis facility alone can boost their topline by 30% so how should we read their guidance?
Didnât figure reason for the drawdown in last 7-8 session⌠results werenât so bad⌠currently trading below 1.8 price to book⌠revenue drop wasnât good but management stated they are looking to drop biz wen they are price challengedâŚwhich is good gross margin is given priority
Possibly due to the demerger news, revised guidance, trade war threats, etc. Randomness in the stock price is part of the market. The business however is pivoting towards margin accretive products, which remains unseen by the market.
Vizag facility 700 kl starting capacity which can easily be 2xâŚmarket is heavily discounting in my humble opinion⌠wonât be suprised if becomes 10x in 3 yrsâŚwhole entity including crams & polymers biz cheers
