GRANULES — 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
GRANULES PHARMACEUTICALS INC. · Management
Granules India Limited
Operator · Conference Operator
Ladies and gentlemen, good day, and welcome to the Q4 and FY '21 earnings call for Granules India Limited hosted by InCred Capital.
(Operator Instructions) Please note that this conference is being recorded.
I now hand the conference over to Ms. Rashmi Sancheti.
Thank you, and over to you, ma'am. ───────────────────────────────────────────────────────────────────────────────────── Rashmi Sancheti - Yes.
Good evening, everyone.
I would like to welcome the management of Granules India, and thank them for giving us the opportunity to host the earnings call.
We have with us today Mr. Krishna Prasad Chigurupati, Chairman and Managing Director; Ms. Priyanka Chigurupati, Executive Director, GPI; and Mr. Sandip Neogi, Chief Financial Officer.
I shall now hand over the call to Ms. Richa Singh from the Investor Relations team.
Over to you, Ms. Richa Singh. ───────────────────────────────────────────────────────────────────────────────────── Richa Singh - Thank you, Rashmi.
Before we proceed with this call today, I would like to take this opportunity to remind everyone about the safe harbor related to this conference call.
Today's discussion may be forward-looking in nature based on management's current beliefs and expectations.
It must be viewed in conjunction with the risks that our business faces and cause future results, performance and achievements.
With this, I would like to hand over the call to Mr. Krishna Prasad, Chairman and Managing Director.
Over to you, sir. ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD Thank you, Richa.
Good afternoon, ladies and gentlemen.
Thank you very much for attending our Q4 earnings call.
Unfortunately, our CFO, Sandip Neogi, is suffering from COVID and is not able to join us today.
Instead, we have Krishna Raghunathan, our Vice President, Finance and Accounts, with us today.
When we met last time for the Q3 earnings call, the COVID situation looked like it was improving.
But unfortunately, it turned out to be worse than we can imagine even in our wildest dreams.
We as a country, and all of us at Granules are facing a huge challenge and I'm grateful to all our employees for braving this situation and managing to keep their operations going without any disruptions.
I wish that you and all your families continue to stay safe.
We faced a lot of challenges during Q4 with regards to shortages of certain raw materials, drastic increases in prices of some key raw materials and general price increase across the board, including logistics.
There was a huge global disruption in the supply of para-aminophenol, the key starting material for paracetamol due to a major manufacturer in China shutting down temporarily.
The situation is slowly improving as new capacities are coming up in India, and the Chinese company also will start operations shortly.
Granules India Limited
The next question is from the line of Anil Sarin from Centrum Wealth. ───────────────────────────────────────────────────────────────────────────────────── Anil Sarin Centrum Wealth Management Limited - Executive Director & CIO-Centrum PMS Congratulations on an actually elevated margin despite the PAP problem that you might -- that you have been facing.
I wanted to know -- is there a way of quantifying the revenue loss on the paracetamol front? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD Paracetamol front, it's about INR 40 crores loss just on paracetamol. ───────────────────────────────────────────────────────────────────────────────────── Anil Sarin Centrum Wealth Management Limited - Executive Director & CIO-Centrum PMS Okay.
And to extent that... ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD But for revenue loss, Anil, it's also a loss in profitability.
So even though we were able to get some high prices, but we were not able to pass on the full price increases to our customers.
So the impact of -- loss of profitability is a little more than loss on revenue.
It's not proportional. ───────────────────────────────────────────────────────────────────────────────────── Anil Sarin Centrum Wealth Management Limited - Executive Director & CIO-Centrum PMS Okay, I get it, but that makes it all the more commendable.
That -- I mean you were saying that this is a reduced profitability, but what one is seeing is actually a good gross margin.
So one can only imagine the gross margin would have been higher still had this PAP, the raw material problem, not being there.
Am I right on that? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD It would have been higher.
But again, I would say not in sales proportion.
It would have been higher definitely.
Granules India Limited
The next question is from the line of Tushar Manudhane from Motilal Oswal. ───────────────────────────────────────────────────────────────────────────────────── Tushar Manudhane Motilal Oswal Securities Limited, Research Division - Research Analyst Sir, just as a clarification, so you said FY '22, 20% to 25% margin range?
Or if you could please repeat? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD For the current fiscal, we expect that the growth -- the EBITDA also will be around 25%. ───────────────────────────────────────────────────────────────────────────────────── Tushar Manudhane Motilal Oswal Securities Limited, Research Division - Research Analyst And the scope of passing on the raw material price hike to the customers, how do we see that changing? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD Let's say, products like paracetamol, where the cost has gone up by 200%, there is no way everything can be passed on to our customers.
Customers, we are actually partners, so we would like to share some of the losses and not expect just one person to bear the entire thing.
So we can partially pass on the price increases. ───────────────────────────────────────────────────────────────────────────────────── Priyanka Chigurupati Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. And I'd just like to say that we do have an element of B2C and B2B.
When it comes to B2B, we work more closely as partners, so there is a scope for a little bit of an increase of pass-through of cost.
But when it comes to B2C business, it's not possible at all to pass on any price increases.
So that -- and we have seen a significant cost increase in a lot of our products, so passing those on to the B2C customers Granules India Limited
The next question is from the line of Abdul Puranwala from Anand Rathi. ───────────────────────────────────────────────────────────────────────────────────── Abdulkader Puranwala Anand Rathi Financial Services Limited, Research Division - Research Analyst Sir, my first question is with regard to the U.S. launch.
So in the last 6 to 9 months, we have got a couple of approval for MUPS products, potassium chloride being one of those.
So sir, what is the status on launch of this product?
Have you already launched this in U.S.?
Or is it planned and... ─────────────────────────────────────────────────────────────────────────────────────
Sorry to interrupt, Mr. Puranwala.
Sir, there's a disturbance coming from your line, sir. ───────────────────────────────────────────────────────────────────────────────────── Abdulkader Puranwala Anand Rathi Financial Services Limited, Research Division - Research Analyst Yes.
Is it better now? ─────────────────────────────────────────────────────────────────────────────────────
Yes, sir. ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD Granules India Limited
The next question is from the line of Ranvir Singh from Sunidhi Securities. ───────────────────────────────────────────────────────────────────────────────────── Ranvir Singh - Congratulations for good number despite the challenges.
So my question is around the guidance you've given earlier of having PAT growth of 20% to 25% during '21 to '23 on CAGR basis.
So are we still standing with it? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD If you take a 3-year CAGR, yes, Ranvir.
But if you just see this year, we are saying it's going to be around 20%, '22 versus '21. ───────────────────────────────────────────────────────────────────────────────────── Ranvir Singh - One year growth you're saying, '22 will be... ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD Yes.
CAGR, yes; 3-year CAGR, we expect will definitely do -- yes, we are very confident of 20% to 25%. ───────────────────────────────────────────────────────────────────────────────────── Ranvir Singh - Okay, okay.
And any ballpark number on revenue growth in '22? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD '22, we see about 15% to 20% revenue growth from -- over '21. ───────────────────────────────────────────────────────────────────────────────────── Ranvir Singh - Okay.
Okay.
And just for clarity, you said that 1MUPS product has been launched.
So that potassium chloride has been launched? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD Priyanka? ───────────────────────────────────────────────────────────────────────────────────── Priyanka Chigurupati Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. We don't want to get into -- I don't want to get into product specifics at this point, Ranvir. ───────────────────────────────────────────────────────────────────────────────────── Ranvir Singh - Granules India Limited
(Operator Instructions) The next question is from the line of Kunal Dhamesha from Emkay Global. ───────────────────────────────────────────────────────────────────────────────────── Kunal Dhamesha Emkay Global Financial Services Ltd., Research Division - Senior Healthcare Analyst The first question is related to the para-aminophenol.
So our guidance of 25% EBITDA margin, does that assume significant deflation in PAP prices in, let's say, quarter 3 or quarter 4?
Or does that assume similar pricing, which we are getting on PAP right now? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD Quarter 4, we are optimistic that the prices are going to come down.
And yes, it's based on a little optimism for Q4. ───────────────────────────────────────────────────────────────────────────────────── Kunal Dhamesha Emkay Global Financial Services Ltd., Research Division - Senior Healthcare Analyst Sure.
And secondly, when we say we are partnering with some of the local players for PAP.
The contracts that we are entering in right now, are those kind of a fixed price contract in terms of we'll buy at certain price because they will also be incurring CapEx or maybe for us and maybe 2, 3 other players.
So are we entering into a fixed-price contract with them on PAP?
Or it will be a market-based price at which we'll buy PAP from them? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD Granules India Limited
The next question is from the line of Mitesh Shah from ICICIdirect. ───────────────────────────────────────────────────────────────────────────────────── Mitesh P.
Shah ICICIdirect.com, Research Division - Research Analyst Just looking at your guidance about the 20%-plus CAGR for next year, then the FY '22, you're expecting 25% kind of margin?
So are you expect that from the FY '23 onwards your -- is the raw material pricings are coming down or it's normalizing?
Can we achieve the FY '21 kind of margin in FY '23? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD Yes, 25% EBITDA is what we always plan.
I've been saying that is what we are optimistic about. ───────────────────────────────────────────────────────────────────────────────────── Mitesh P.
Shah ICICIdirect.com, Research Division - Research Analyst Okay.
And the -- about your INR 1,000 crore CapEx plan for next 3 years.
So I believe that major CapEx would be coming in FY '22, right?
Can you give any guidance about that? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD Not major.
FY '22, we expect to spend INR 400 crores in '22.
And the rest of the INR 600 crores is spread over '23 and '24. ───────────────────────────────────────────────────────────────────────────────────── Mitesh P.
Shah ICICIdirect.com, Research Division - Research Analyst And the new domestic capacity coming -- raw material capacity for paracetamol, is it sufficient that -- largely to replace the Chinese player? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD Definitely, I wouldn't say replace, it will be close to the capacity of the Chinese player, which would make sure that there's enough raw material around.
But there will also be the Chinese player coming back.
So there's going to be, I mean, I would say, lot of surplus material in the market. ─────────────────────────────────────────────────────────────────────────────────────
The next question is from the line of Praful Bohra from Systematix.
Granules India Limited
The next question is from the line of Darshit Shah from Nirvana Capital. ───────────────────────────────────────────────────────────────────────────────────── Darshit Shah - Sir, on the PAP side, you said one of the largest Chinese customer is shifting.
Sir, can you just let us know how much production is coming up in India over next 1 or 2 quarters, you said? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD You're talking of India, you said, right? ───────────────────────────────────────────────────────────────────────────────────── Darshit Shah - Yes, yes. ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD Yes.
I think it could be close to the total capacity what the Chinese supplier had.
And it could be somewhere around, I would say, 35,000, 40,000 tonnes per annum. ───────────────────────────────────────────────────────────────────────────────────── Darshit Shah - Okay.
And the Indian players like Sadhana Nitro and another (inaudible) group company, Valiant Organic which are coming up.
So are we in talks with them for supplying PAP to us? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD Yes, yes.
This is a priority thing.
We are on top of it.
And again, we have short-term plans, medium-term and long-term plans for the whole thing. ───────────────────────────────────────────────────────────────────────────────────── Darshit Shah - Okay.
Got it, sir.
And sir, on the margin guidance which you have given, and on FY '22 what you are saying is probably we might end up doing 20% PAT growth over FY '21.
But sir, that -- I mean, if the margins are going to fall from 26% to 20% this year, I mean, I don't know, I mean, the revenues have to grow quite a bit to kind of outpace the PAT growth over FY '21?
I know, I mean, either you're conservative on the margin side this year?
Or probably -- I mean, there is some kind of mismatch I see. ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD Not a great mismatch.
Margins wont fall to 20%.
EBITDA margin will remain at 25%.
There maybe a few Granules India Limited
The next question is from the line of Tushar Bohra from MK Ventures. ───────────────────────────────────────────────────────────────────────────────────── Tushar Bohra - Commend the management for a steady performance in the -- in light of all the troubles on the PAP side.
Sir, a couple of points.
First, just on the gross margin, just wanted to quickly clarify.
Is there any positive one-off on the gross margin side for any of the other products?
Or if I may, if -- once the paracetamol situation eases out, do we expect that the gross margins actually should be higher if there is no one-off in the other parts? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD There is to some -- I won't say one-off, but one of the reasons for gross margin increase is also buildup of inventory.
As Priyanka mentioned sometime ago, we've built up a lot of inventory in India and in the U.S. and as you know, the overheads on the inventory makes a difference, that adds to the gross margin a bit.
So that's one of the reasons.
And also, overall, the product mix and the new launches have made a little positive contribution.
And to answer your question, we'll have to see how things go.
As of today, it's a situation, but it is a very dynamic world in B2C marketing.
So we are trying to be a little conservative. ───────────────────────────────────────────────────────────────────────────────────── Tushar Bohra - Fair enough, sir.
Second, on the U.S. business itself, on the new launches, how have they performed, any qualitative or quantitative comments in terms of market share or what has been better than expectations and so on? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD Priyanka? ───────────────────────────────────────────────────────────────────────────────────── Priyanka Chigurupati Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. I'll take that question, Tushar.
I think we have been able to launch every product that we have worked on launching.
We still have a couple of launches that are still -- sorry, it's a couple of approvals that are still pending launch.
And again, it's all because we do want to take a conservative approach when it comes to COVID.
We want to make sure that we line up our supply chain well ahead of being able to launch into the market.
But in terms of all the products that we have launched, we do have a decent market share.
And I think we'll continue to keep growing the market share as we go forward, but not at the cost of profitability.
So we're not in the game of just slashing prices and getting into the market. ───────────────────────────────────────────────────────────────────────────────────── Tushar Bohra - Yes.
But if I read your -- the bunching up of new launches combined with the ANDAs that you're also sort Granules India Limited
The next question is from the line of Mohit Mandhana from Fidelity. ───────────────────────────────────────────────────────────────────────────────────── Mohit Mandhana - Sir, I have actually same question which one of the other participant asked on FY '22 guidance.
So what we are saying is 20% revenue growth.
And we are seeing our margins -- EBITDA margins go down from, let's say, 26% or so to 24-25%, in that scenario, how can our PAT growth be 20% in FY '22? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD It depends on the product mix, Mohit.
If the product mix changes, the margins also will change in certain products.
But like I said, we can have a very detailed working on this, and we can interact, definitely. ───────────────────────────────────────────────────────────────────────────────────── Mohit Mandhana - Okay.
But (technical difficulty) ─────────────────────────────────────────────────────────────────────────────────────
Sorry to interrupt, sir, your voice is not audible.
Granules India Limited
The next question is from the line of Mithun Soni from Geecee Investments. ───────────────────────────────────────────────────────────────────────────────────── Mithun Soni Geecee Investments Limited - Research Head & Fund Manager Yes.
Just -- most of the questions have been answered.
One question on paracetamol.
So you -- how much of the cost increase would have been passed on this quarter?
And how much more price increase you will still need to take in Q1?
And also, if you can just give broadly the trajectory of how do you see the volume ramp-up as well as the margin impact for Q1, Q2, Q3. If you can just give some ballpark idea? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD Look, first of all, passing on any more increases, it's not possible.
The market is already -- I mean the prices have gone up so high.
I don't think the market can absorb anything more.
So that is ruled out.
And we did pass on some increases last quarter, but not the full increase, like we said.
So that's why we see the margins going to be under pressure in this current quarter as raw material prices go up, and we are not able to pass on. ───────────────────────────────────────────────────────────────────────────────────── Mithun Soni Geecee Investments Limited - Research Head & Fund Manager So if I can interrupt here, so let's say, you say -- let's say for -- in Q4, let's say, your average raw material cost for PAP and all the other raw materials for paracetamol was 100 -- a base of 100, how much will that Granules India Limited
The next question is from the line of Deepan Sankara Narayanan from TrustLine PMS. ───────────────────────────────────────────────────────────────────────────────────── Deepan Sankara Narayanan - Congratulations for good set of numbers.
So firstly, I wanted to understand what is the contribution of GPI for full year in terms of revenue and EBITDA? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD GPI was -- go ahead Priyanka. ───────────────────────────────────────────────────────────────────────────────────── Priyanka Chigurupati Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. GPI was about 15% to 17% of the overall top line.
And EBITDA, I don't think we're getting into EBITDA specifics right now. ───────────────────────────────────────────────────────────────────────────────────── Granules India Limited
The next question is from the line of Rashmi Sancheti. ───────────────────────────────────────────────────────────────────────────────────── Rashmi Sancheti - Yes.
Just want to understand more on the R&D part, how much are we planning to spend in FY '22?
Because this year, the R&D, overall, the activity was very low.
So if you can guide for FY '22 and FY '23? ───────────────────────────────────────────────────────────────────────────────────── Priyanka Chigurupati Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. I don't think the R&D was necessarily very low in terms of spend.
We guided to a total R&D spend of about INR 150 crores for this year, out of which we've spent about INR 100 crores.
And we did about 6 to 9 filings depending on the region, and we also have another 37 products that are under development now.
But going forward, at the moment, we do -- we plan on spending about a minimum of INR 150 crores every year. ───────────────────────────────────────────────────────────────────────────────────── Rashmi Sancheti - Okay, ma'am.
So basically, this would be more towards GPI?
I mean if you can give some kind of breakup like how much it would be spent on GPI products and how much on the India? ───────────────────────────────────────────────────────────────────────────────────── Priyanka Chigurupati Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. I wouldn't necessarily say GPI and India products because R&D is pretty much the same for us.
I would talk maybe in terms of medium to high-volume integrated products versus the more, I think, I would say, Granules India Limited
Thank you.
Ladies and gentlemen, this was the last question for today.
I would now like to hand the conference over to the management for closing comments. ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD So ladies and gentlemen, once again, thank you very much for attending our call.
And again, in these stressful times, I wish all of you stay safe.
Thank you very much. ───────────────────────────────────────────────────────────────────────────────────── Priyanka Chigurupati Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. Thank you. ─────────────────────────────────────────────────────────────────────────────────────
Thank you.
On behalf of InCred Capital, that concludes this conference.
Thank you for joining us, and you may now disconnect your lines. ───────────────────────────────────────────────────────────────────────────────────── (This document has been edited for readability purposes.
Some errors in the numbers have also been corrected in this transcript)
Questions and answers
CIN
L24110TG1991PLC012471 better realizations of receivables and factoring some part of our receivables at competitive rates.
Our cash-to-cash cycle increased from 109 days to 117 days Y-o-Y, mainly on account of increase in inventories, which we are consciously building up on account of new launches and also to tide over any crisis due to the COVID second wave.
Our operational cash flow for the year at INR 432 crores versus INR 476 crores in the previous year, mainly on account of increase in working capital changes for the increased business and also an increase in inventory buildup for the new product launches.
Our free cash flow fell from INR 292 crores in the previous year to INR 162 crores in the current year for the higher CapEx spend to cater to future business needs.
With this, I hope -- I would like to open the floor for questions.
I hope all of you and your families remain safe. ───────────────────────────────────────────────────────────────────────────────────── QUESTIONS AND ANSWERS
Operator · Conference Operator
(Operator Instructions) The first question is from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund. ───────────────────────────────────────────────────────────────────────────────────── Sudarshan Padmanabhan Sundaram Asset Management Company Ltd. - Research Analyst My question is to understand a little bit more about the raw material issues that you talked about on PAP side.
You said that primarily from the second half of this year that you see things reverting back to normal.
I mean, I believe that there is also some capacities coming across with Sadhana Nitro Chem and Valiant, etc. I mean how do you see -- I mean, do you see that things getting a little tighter in the intermediate term before it actually gets little lighter.
And apart from PAP, do you see pressure in any other raw material? ───────────────────────────────────────────────────────────────────────────────────── Krishna Prasad Chigurupati Granules India Limited - Chairman & MD Okay, PAP, maybe it's good to -- for me to give a little background.
The largest manufacturer of PAP in the world in China has shut down due to pollution issues.
They're moving to a new site, and we expect this to start in the next 2 or 3 quarters.
So meanwhile, like you said, a lot of new capacity is coming up in India.
Sadhana Nitro Chem, you said -- I mean is one of them.
And there are a few others like Aarti and also another company called Kutch Chemicals, they are also coming up.
So they are in trial production.
So we expect that this situation will start easing in end of Q2 and Q3 a little bit.
But meanwhile, Q1 and early Q2, we see a terrible shortage that's going to come up.
And once the Chinese plant also starts up or all the capacity in India comes up, there will be a very Granules India Limited