ANURAS — earnings call
The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.
Prepared remarks
Moderator · Conference Operator
Ladies and gentlemen, good day and welcome to Anupam Rasayan India Limited Q1 FY23
Questions and answers
Moderator · Conference Operator
The first question is from the line of Ankur Periwal from Axis Capital.
Please go ahead.
Ankur Periwal
My first question on the overall demand outlook globally given the slowdown that we are seeing across Europe or US while in your numbers, there is still a continued growth both in Europe, Anupam Rasayan India Limited July 25, 2022 Singapore as well as Japan as you highlighted.
Any updates on your talks with the customers in terms of incremental business order?
How should one look at that space?
Vishal Thakkar
If you look at what even Anand bhai in his opening remarks mentioned that because of the last year's performance and support that we have seen, our customers have been revising the volume demand that they have been offering to us and what it means to us is that the demand is robust.
We are looking at a high growth from our existing molecules as well as from the new molecule that we are planning to commercialize.
This is definitely reassuring to us.
As we mentioned in our presentation and also in our media interactions in the morning, we have taken up a 3-pronged growth strategy here, where we are expanding our current product portfolio to increase the volumes and revenue, we are working with a lot of innovators where they are yet to launch a new product which is under patent and we are working to develop intermediate as well as active ingredients for them.
That's something very strongly reassuring and we feel very proud of that.
On the other side, we are looking at commercializing all our LOIs and contracts that we have signed last year which will further give us growth over the next few years.
As we had mentioned in the last call as well that fluorination is also playing a strong growth for us and we had mentioned last time as well that our hypothesis of the demand that we can cater to in fluorination was validated by a very large global consulting firm and they have also come back and said that we would be able to target anything between $220-260 million of revenue in the medium term, all from pharma, agrochem, and polymers.
So, Ankur, we are very satisfied and excited to look at this growth journey and continue this growth trajectory that we have had.
Ankur Periwal
Just a clarification here.
Earlier, we had been highlighting a 25% to 26% plus revenue CAGR from let us say 3- to 4-year growth perspective.
With Tanfac coming in and the revenue potential which you highlighted, $220 odd million worth of revenue, will there be an upward bias to that number or in other words, the core business will continue to grow at maybe 20% to 25% CAGR and Tanfac-led opportunity will be a top-up to it?
Vishal Thakkar
Yes, Ankur.
There are 2 things I can say.
One is the natural buoyancy that we are seeing in our old molecules and over and above the pharma and the new molecules are also driving it.
So, yes, there is a strong upward bias on the growth trajectory that we can see here.
I would tend to concur with you on that observation.
Ankur Periwal
Lastly, on the pricing side.
We did mention that the 6 months' contracts with most of the customers are in place, and Anand bhai did highlight that this is not only RM inflation but the overall cost inflation which is getting passed through.
Until now, the commodity prices were in an upward trajectory and hence the higher inventory helped us out.
Theoretically speaking, if there is a sharp correction or let us say a decent correction in the RM prices there, will that be taken care of in terms of our contracts with the customers or there could be a one-time inventory hit?
How should one look at it?
Vishal Thakkar
Ankur, I think in the past also we have mentioned, and I want to really share this with you that the way we run our business is where there is a strong contractual relationship with our customers and our customers know what kind of inventory and at what level we have held them, and they Anupam Rasayan India Limited July 25, 2022 are completely aware of it.
All the price revisions that we see are in line with that assumption.
If you look at it from an inventory side, we do not have a price risk as well as we do not have volume risk.
We know that they are going to offtake in this timeframe and we are comfortable and the customers have clearly communicated to us that we would be acknowledging the cost at which we have acquired.
So, there is no price or volume risk on this.
When I am holding this inventory, my customer is also paying for that inventory holding cost as well.
As Anand bhai was mentioning in the carrying cost or the price that we discuss with the customer, the carrying cost of inventory is also part of that calculation.
So, to that extent, Ankur, we do not feel any reason for us to have that inventory correction that we see.
Yes, the only thing that the inventory cost can do or the RM prices can do is higher inventory holding or a lesser inventory holding in terms of value.
That may happen but beyond that, we do not see that happening.
Moderator · Conference Operator
The next question is from the line of Vidit from IIFL Securities.
Please go ahead.
Vidit Shah
Just a few clarifications on the current capacity utilizations and growth factors.
What would be the capacity utilization of the existing plants in the first quarter?
Vishal Thakkar
Our current capacity utilization would be in the range of 80% to 85%.
However, I will have to just highlight a couple of things.
1) The business that we are in, what we tend to do is also to see there is enough room for our growth.
2) We are planning to invest in our capacity expansion as we had mentioned.
3) There is a strong room for us to do value engineering, which again gives us a potential to grow from the same capacity.
So, fairly, we are looking at a comfortable situation in terms of manufacturing capacity.
Yes, we need to expand and which we are undertaking now for our future growth after a year or two.
Vidit Shah
Currently, your CAPEX is Rs.
250 crores that you mentioned for the LOIs worth Rs.
2,600 crores.
In terms of those LOIs, what are the LOIs that have already started contributing to the revenue and how much of LOIs revenue can we expect going forward to value engineering and after the CAPEX is made?
Vishal Thakkar
Two things.
If you see, there were 6 molecules that were there of which two we had anyways supplied in the last financial year as well, two we will be commercializing this year, and two more we will commercialize in the next year.
Also, when we say we need the capacity, this capacity is required for the full volume ramp-up.
Initial part of it can be serviced from my current use of the capacity as well and hence when we are saying that around Rs.
450 to 500 crores of revenue that we are expecting on an annual basis from these contracts, should be ramping up in another 2 to 3 years' time.
Vidit Shah
Would you say the same for the 6-7 fluorination molecules as well?
That would also take around the same amount of time to ramp up to the $220-260 million that you mentioned?
Vishal Thakkar
What we mentioned about the fluorination molecules, let me just delve a bit on that.
We have identified around 14 new molecules which we are looking at commercializing in the next 2 to 3 Anupam Rasayan India Limited July 25, 2022 years' time period, and this on a potential basis as we had mentioned that we are looking at $220- 260 million of revenue on an annual basis when they are fully ramped up.
That's the kind of number we are looking at for now, but yes, it will take time in terms of launching and also ramping up.
This year, we are looking at commercializing five of them and they will have their own trajectory as we go forward.
And when we are suggesting that we will continue the growth journey and growth momentum, we are including this also in our plan.
Vidit Shah
Roughly, would you be able to share what the 5 molecules' potential could be at full ramp-up?
Vishal Thakkar
I would put it as a basket rather than try and identify 5 and say so.
But if you see our presentation also, we have said that 14 molecules are what we are commercializing with $220-260 million.
So, the five will be in the similar proportion.
Vidit Shah
Just last question on your tax rate.
For the last couple of quarters, we have seen a tax rate of around 33% to 34%.
The tax rate was roughly 26% to 28% earlier.
What has led to this rise in tax rate and what can we assume for FY23 and beyond?
Vishal Thakkar
FY24 onwards, we should be looking at roundabout 25% to 30% which will be depending upon our MAT and other credits that we will take up and that will be the case here.
We would want to keep it at that level.
Moderator · Conference Operator
The next question is from the line of Rohan Gupta from Edelweiss Financial Service.
Please go ahead.
Rohan Gupta
Sir, a couple of questions.
First is, in your presentation, you have mentioned that almost 7 molecules in FY23 will be in the list of within $10+ million which was close to 4 molecules which were in FY22. If you can just share all these 7 molecules which you have, where you have a growth visibility or the size visibility of $10+ million, they include four of the last year or they are the new molecules which you are expecting?
How do you get this kind of visibility that for the year they will be $10+ million?
Are they from the same set of customers or they are coming from a new set of customers?
Vishal Thakkar
First, a clarification answer.
The 7 molecules include the four as well.
Additionally, there are three.
That's the way to see it.
Basically 4 + 3, total 7 will be there.
Yes, these are all molecules from my existing product portfolio itself which is growing and in terms of our confidence that we can see this is basically as you know, every year we have a discussion with our customers on their volume.
Based on their volume projections, we are able to say that this is the number that we can see because these are the volume forecast and the price forecast that they have mentioned to us.
Rohan Gupta
Just on a ballpark number, if I assume that each product is $10+ million, then almost close to Rs.
700-800 crores plus revenue should be contributed by these 7 products itself even if I just take that 10 million also as a base case, almost at Rs.
80 crores minimum.
So, at least Rs.
600 crores kind of revenue should be coming from these molecules itself.
That is the kind of visibility Anupam Rasayan India Limited July 25, 2022 you will have.
I am sure that the growth and overall revenue also will be driven by many more such products.
So, just wanted to understand that when we are talking about the growth trajectory of the company and the guidance of 25% if you are looking at, does this consider all these kind of developments or this is over and above that all those developments which you are factoring in the numbers when you are guiding?
Vishal Thakkar
When we are guiding, I think the guidance also there is a strong upward bias in terms of our growth numbers.
So, what we have done in the last couple of years is the kind of a growth rate that we will be seeing here.
When we are suggesting this kind of a growth rate, we are taking into account various factors as we mentioned in terms of what our clients and customers have provided in terms of offtake guidance, in terms of our conversations and our commitments that we have seen from our customers in terms of commercializing the new molecules as well, and that's where we come from when we are guiding these numbers.
In that sense, we are having a far more comfort and visibility in terms of our revenue.
I will want to just share it again for my benefit that the kind of business that we are in, it's a more contractual-driven business where we have a long-term relationship and long-term demand that we work with our customers, which gives the management in the organization to have a longer term view in our business development activities.
We have a strong visibility in terms of revenues – not only visibility, but visibility and stability both put together which really helps us in focusing on developing newer businesses and not worry about repeating the same business because when I start my year, I don't start with a zero revenue.
I practically start with 80% to 90% or 100% of my revenue of the last year.
Also, my customers are giving me a visibility for the year and that includes a part of the growth as well.
So, I am really worrying about only my growth which we have wanted from 2 or 3 years going forward.
That's where we really see ourselves in this business.
I hope I have answered your question.
Rohan Gupta
Just one more clarification.
You mentioned that roughly 93% of the revenues last year came from almost top 10 customers.
Just wanted to understand a little bit more in terms of the customer concentration.
Would it be possible for you to share top 3 customers?
Are we completely dependent on 2 to 3 players for our large part of the revenues?
Would it be possible to share revenue from top 3 customers?
Vishal Thakkar
Let me try and see how much I can expand on this.
If you see my top 10 customers as we said this is the number, but you have to also look at that 24 molecules are there in it.
So, it is not only 1 customer and 1 product.
We do 1 product 1 customer, yes, but 1 customer many products.
That's one thing.
Second is, 93 is more a statistical number in this case because it is only a quarter number.
In a quarter, what happens is that if there are delivery schedules which have been preponed or postponed by our customers, that happens.
But if you look at from an annual basis, we would be seeing a number around 80% to 85% which we have seen in the history also and I can only confirm that prime concentration of top 3 is also not significantly high.
It will be in the proportionate range that we have seen.
Rohan Gupta
Sir, you mentioned that in fluorination, you have the agency which you have hired has given you some $250-260 million kind of addressable opportunities in the product portfolio and basket Anupam Rasayan India Limited July 25, 2022 which you can ramp up.
In this $250-260 million opportunity, you have mentioned that close to 14 products you have identified in fluorination chemistry and 7 to 8 you will be launching in this year – these 14 products, this $250-260 million revenue opportunity is for those products or it is the total universe which they have given you and then you will be part of this?
And what kind of revenue potential from these 14 products in the fluorination chemistry which you are planning to launch can be?
Vishal Thakkar
I will narrate how we went about estimating this business and also then how we are seeing it.
If you see, fluorination is a chemistry which we have been working on for the last 5 to 6 years and here we were working on the fluorination through KF.
With Tanfac, we are now able to commercialize the products which we could not commercialize which were based on HF.
What we are right now talking about is newer commercialized products.
We have done the R&D and the pilot development of all these products largely in our R&D plant and in our facilities and also have conversations with our customers.
When we acquired Tanfac and when we launched the plan for commercializing these products, we went to this agency and said that these are the scope of products that we are looking at to commercialize and please validate that for us.
We believed this is the kind of an exciting opportunity and potential that we have and we asked them that could you revalidate it for us and that's where they came back and said the addressable market of these 3 segments in the fluorination for this is $5 billion but of which they are saying that what we have been focusing on the molecules and the molecule series that we have been focusing on is $220-260 million.
So, for us, we would be expecting to look at these kind of numbers in the near term to longer future.
If you see the slide #11 in our presentation also, that's what we are trying to say.
That is the revenue potential for Anupam.
Moderator · Conference Operator
The next question is from the line of Krishna from JM Financial.
Please go ahead.
Krishan Parwani
My first question is basically on the 6 months' pricing.
I just wanted to check whether it is done for all the customers or not.
And just a follow-up on that, what kind of inventory levels that are expected for this year and the next year?
Vishal Thakkar
One is that a significant contractual revenue has been moved to 6 monthly one.
That's what I can say on this.
And in terms of inventory, we have seen the downward trajectory of the inventory days and we should be able to see a significant inventory days reduction by the year-end.
Krishan Parwani
Vishal, I didn't catch that answer of 6-month pricing.
Whether it is done for all the customers or not?
Vishal Thakkar
It has been done for the significant part of it, not all but significant part of it.
Krishan Parwani
When we say significant, that is 70% to 80% or 50% to 60%?
Vishal Thakkar
Around 60% to 70%.
Krishan Parwani
The second question is on the CAPEX guidance.
What kind of a CAPEX guidance do we have for FY23 and FY24?
Anupam Rasayan India Limited July 25, 2022
Vishal Thakkar
FY23, I can give you.
FY24, I would wait for a minute.
On FY23, we would be looking at around INR 250 crores of CAPEX that we would do.
Krishan Parwani
I understand FY24 is something that you would like to wait, but just to understand, would that be in a similar range or could it be higher?
Vishal Thakkar
Ceteris paribus in the similar range but I would not want to commit for now because as we go, the world is dynamic right now and there are a lot of things happening.
So, I don't want to make any commitments or guidance on that for now, if it's okay with you.
Moderator · Conference Operator
The next question is from the line of Bhavya Gandhi from Dalal & Broacha.
Please go ahead.
Bhavya Gandhi
Sir, I just wanted to understand what would be our debt levels in FY24 long term and short term.
Vishal Thakkar
That's a bit of a crystal ball gazing to make an answer for that.
FY24, I can't say.
What I can say is today and what we have said for the last year.
Our debt levels are similar to what we had in the year ending FY22. For FY24 we don't have any guidance to give for now.
But we would definitely see there would be a reduction in our long-term debt that anyways would happen as we have our cash flows which will service the debt.
But right now, we have no guidance for that number.
Bhavya Gandhi
Our margins look very extraordinary, but from an ROCE perspective, we are still struggling.
We are somewhere generating 10% to 11% ROCE.
Can you just throw some light over there?
Maybe I understand high inventory levels and all those things but beyond that because last 3-4 years, I continuously see a drop in our ROCE levels.
Vishal Thakkar
Let me address it in a little broader way.
One, when we started our CAPEX plan 5 years back, our revenue was around Rs.
340 odd crores and we did a CAPEX of roundabout Rs.
800 crores.
If you look at that kind of a revenue and whatever kind of EBITDA margin that we would see, that would significantly have impacted our ROCEs.
Before that, our ROCE was in the range of 30% to 35% plus but that brought the ROCE down.
Of that 800 also if you see, there was roundabout Rs.
200 odd crores of CAPEX which was largely into non-revenue generating like additional land, additional infrastructure, and others.
That led to our lower ROCE but as we see in the last 3 years, my ROCE and ROE both matrices are seeing an upward trajectory now and we see that as we fully sweat our assets and use our non-revenue generating assets like the civil infrastructure which we have created when we expand and when we see the land being utilized, this number is going to significantly go further up.
So, we should be looking at roundabout 14% ROCE this year is what we are targeting.
Bhavya Gandhi
If you could just throw some light about our competitors.
Who remains our competitor in the CDMO business?
Vishal Thakkar
I would not want to get into that competitor kind of a conversation, but if you really see that, this business is not where we are competing with each other in the country.
This business is a very large potential for India as a total.
If I were to see competition, then probably we are Anupam Rasayan India Limited July 25, 2022 competing with Europeans to a large extent because my customers are moving their demand from Europe to India, and that's more coming not because they are switching off from them alone but there is additional volume which comes to India and there is some bit of moving from Europe to India as well, but this is such a large business.
If you see India's specialty chemicals market and the segment that we are in, there is a humongous opportunity for each of us.
I don't think either of us are competing with each other, be in terms of molecules or be in terms of this.
Actually, as an industry, we are growing.
I don't see that I need to take business from my peers.
I don't think that's happening for either of us.
Moderator · Conference Operator
The next question is from the line of Rohit Nagraj from Centrum Broking.
Please go ahead.
Rohit Nagraj
Sir, first question, again dwelling a little bit on the fluorination part – the 14 molecules that we have identified.
Here, where are we currently in terms of the R&D or pilot stage?
When can we expect the first commercialization happening?
When we are talking about $220-260 million, is it a yearly potential or is it for a period of time?
Vishal Thakkar
The first thing is terms of R&D and others.
If you see that 5 molecules we are looking at commercializing this year.
That's the kind of readiness that we have.
In terms of most of the molecules, we have a large part of R&D done, i.e., a bit of a pilot or validation process happening in few of them.
Second question that you had asked was the potential.
Yes, it is the annual potential that we are talking about.
On an annual basis, we should be looking at this kind of revenue when we fully ramp up these molecules.
Rohit Nagraj
Just one clarification.
Here, are we talking only about fluorination chemistry or probably we have something else in terms of our chemistry knowledge that makes us probably a better fit than other competitors?
Vishal Thakkar
The molecules that we are talking about here are all fluorination molecules.
This part – when we are talking about this conversation and when we are talking about the slide #11 of our presentation.
That we are talking about, only fluorination.
But 2 or 3 things I want to add here.
One is that we as an organization have been able to demonstrate to our customers – existing and potential customers – that we are partner of choice; we are reliable high-quality technologically driven suppliers to them and we would be preferring to be part of their supply chain rather than their supplier in a more narrower manner, and that has led them to show that kind of a confidence.
If you see in terms of these molecules what we are talking about, these are all strategic molecules, very high value niche molecules and which have very high value accretive molecules.
That's how we are seeing this in terms of our relationship with our customers.
Rohit Nagraj
Just a couple of bookkeeping questions.
First, in terms of Q1 with 25% growth rate, how much was from the volumes and from pricing?
Vishal Thakkar
Our growth rate was fairly divided between volume and price, both.
Rohit Nagraj
And FY23 guidance in terms of revenue and EBITDA margins?
Anupam Rasayan India Limited July 25, 2022
Vishal Thakkar
As we have mentioned about our revenue trajectory which we have seen in the last 2-3 years is what we will be looking at.
I think this quarter's number also reflects exactly what kind of a revenue growth.
What you mentioned was my consolidated revenue with other income but if you look at my operational revenue, we should be able to see a similar kind of a growth number.
2) In terms of EBITDA margin, yes, we have a good healthy EBITDA margin; however, if I were to guide or if we were to suggest that, we would look at 26% to 28% on a conservative basis.
There is an upward bias on that, but I don't want to mention that for now and say that.
We would be looking at 26% to 28% at least in terms of EBITDA margin is where I would leave it for now.
Moderator · Conference Operator
The next question is from the line of S Ramesh from Nirmal Bang.
Please go ahead.
S Ramesh
The first thought is you had taken a board approval for a QIP of Rs.
800 crores.
What is the status of that and what is the rationale for such a large fundraising exercise?
You already say that you have about Rs.
200 crores of cash.
I would like to understand what the thought process behind that.
Vishal Thakkar
This is only an enabling resolution.
There is no firm plan as of now in that activity.
As and when we have anything firm, we will come back to you, but as of now, it is only an enabling resolution.
S Ramesh
The next question is on Tanfac.
You have invested about Rs.
300 crores as we understand for 25.8% stake.
In terms of the investment, you have made for the process improvement and capacity augmentation in Tanfac, what is the amount of investment that has gone in and how much of that has gone from the Anupam balance sheet?
Secondly, how do you see the JV share of Tanfac Industries moving, say in the next 2 years given your plans to use their products for Anupam as well as expansion within Tanfac?
Vishal Thakkar
Ramesh, just a clarification here.
We have used 150 crores – 154 crores to be precise – in acquiring the stake here for reaching to 26%.
And expansion that would happen as and when that happens in Tanfac, that would come from their own balance sheet.
Today, they also have cash and they have an independent board who would decide, though we are part of them and we are the management shareholders there.
But that would not be moving from Anupam's balance sheet.
It would go from the Tanfac's balance sheet on their own strength that they will do the CAPEX there.
There is not anything much that would go from Anupam's side.
S Ramesh
In terms of the original thought process behind the Tanfac acquisition, you were planning to take 51% stake within Anupam Rasayan, right?
And you are trying to invest Rs.
300 crores.
What has changed and how does the current stake change your ability to use their production fluoride for Anupam and your own ability to influence their investments in HF derivatives which is a big opportunity you are looking at?
So, where do you go from here, from this 25.8% and the value you would derive from that investment?
How should we read that?
Vishal Thakkar
Two parts to your question.
Part number 1 is about the stake that we have acquired and 2 is our ability to look at the synergies from this acquisition.
First is that when we did the acquisition of Anupam Rasayan India Limited July 25, 2022 25% stake of Birla, that triggered an open offer – I will come to why it triggered and then what we did about it.
That triggered an open offer for up to 26% of the stake.
When we ran the open offer, we got around 0.8 odd percent of shares of the company and hence we ended up with 25.8% in terms of our share holding of the Tanfac.
So, when you remember it is 25 plus 26, it would be in this context and hence if it was the total, then it would have been around 300 odd crores of amount but open offer only offered so much to us.
Now, coming to the synergy and our ability to have that synergy.
The reason that we triggered an open offer primarily was because there was a change in management control.
This whole relationship originates from a joint venture agreement between TIDCO and Aditya Birla Group and where we are replacing Aditya Birla Group in this joint venture and hence the management control comes to us, which triggered the open offer because if you technically look at it, it was 24 point something only.
So, we have gone for an open offer of that size.
We went ahead because of the change in management control.
And because we have a management control, our ability to synergize and create synergies is intact either we are at 26% or we are at 51%.
S Ramesh
One last thought in terms of your capital expenditure of Rs.
250 crores and your ability to capitalize on the fluorization opportunity.
In terms of the benefit from this CAPEX, how much would that be in terms of adding to capacity in tonnage?
How much would that improve your process capability?
And how much of CAPEX are you planning for monetizing this fluorination opportunity this year?
Vishal Thakkar
This CAPEX is principally for the monetization of the LOIs and that's where we will be and that would help us generate to satisfy the LOIs that we have signed.
Because if you look at it, we are looking at an additional revenue of around Rs.
450 to 500 crores and that will be generated through this capacity addition that we would do.
Fluorination as of now, we are not requiring the CAPEX right away because these are the molecules we are commercializing from our existing plants where we have a capacity.
So, we do not see too much for now.
Moderator · Conference Operator
Ladies and gentlemen, due to time constraints, that will be the last question.
I now hand the conference over to the management for closing comments.
Vishal Thakkar
I once again thank everyone for joining this conference and we would want to take this opportunity to thank each of you who have shown tremendous confidence in the management and have stood by us in this kind of a volatile environment and for that we thank each of you and hope that we live up to the expectations of each of our stakeholders including customers, employees, and our shareholders.
Thank you all of you for coming and hope you have a good evening.
If you have any further questions, please feel free to reach out to E&Y for any followups or any clarifications.
Moderator · Conference Operator
On behalf of Anupam Rasayan India Limited, that concludes this conference.
Thank you for joining us.
You may now disconnect your lines.