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
Operator · Ladies and gentlemen, good day, and welcome to the Q4 and FY '21 earnings call for Granules India Limited hosted
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.
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, there was -- 1 minute, I'll give you the -- it's about INR 40 crores loss just on paracetamol.
Anil Sarin Centrum Wealth Management Limited - Executive Director & CIO-Centrum PMS 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 20% and growth also over the base of '21 will be 20%. * (please see note above) 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. 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.
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?
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 30% 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 It will be a combination of many things.
It will be a combination of raw material prices formula and also market pricing.
It will be a little complex the way we operate this.
Kunal Dhamesha Emkay Global Financial Services Ltd., Research Division - Senior Healthcare Analyst Okay.
So maybe a certain part would be raw material plus the margin and then there will be some caveat saying that the market sizes are above this and something like that?
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 '21, you're expecting 20% 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.
And definitely, considering that FY '22 is going to be 20%, and we are expecting between 20% and 25% in 3-year CAGR.
'23 and '24 are going to be close to 25%. * (please see note above) 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?
Granules India Limited
The next question is from the line of Praful Bohra from Systematix.
Praful Bohra Systematix Shares & Stocks (India) Ltd., Research Division - Research Analyst Sir, on one of the previous points that you mentioned about price increase is not possible in B2C segment.
I'm just trying to understand this a little better.
Because, see, typically, the PAP price increase would be true for the entire market.
And all the contracts would have some price escalation clauses there, right?
So I mean how does it exactly work that we still are not able to take any price increase there?
Krishna Prasad Chigurupati Granules India Limited - Chairman & MD Priyanka, you want to say that -- answer that?
Priyanka Chigurupati Granules India Limited - Executive Director of Granules Pharmaceuticals Inc. Sure.
Sure.
So the contract that you have with B2C customers are definitely different than the contracts that you have with your B2B partners.
And the flexibility of passing on any cost increases is highly unlikely.
It's not that there's a fixed cost, but if you need to be competitive in the market, you have to make sure that you don't increase prices.
Because if you do, like I said earlier, there is a chance that the product will go into an RFB, which essentially means that they put it out to bid, and you might lose the volume because you don't know what the other -- your competition will necessarily good at.
Granules India Limited
The next question is from the line of Darshit Shah from Nirvana Capital.
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 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 20%.
In that scenario, how can our PAT growth be 20% in FY '22?
Granules India Limited
Sorry to interrupt, sir, your voice is not audible.
Mohit Mandhana - Sorry.
The order mix changes, et cetera, all factored in this 20% EBITDA margin guidance?
Krishna Prasad Chigurupati Granules India Limited - Chairman & MD Yes.
You're right.
You're right.
There could be a little variation in what we are saying.
One of these things like the previous question, there could be a little mismatch, but we will give exact details.
That's not an issue.
That's a slight mismatch.* (please see note above) Mohit Mandhana - Okay.
But you are still sticking to sort of 20% kind of PAT growth in FY '22?
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.
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.
Krishna Prasad Chigurupati Granules India Limited - Chairman & MD But overall yearly revenue is about INR 500 crores.
And I think, we'll -- let's not talk about EBITDA.
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?
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.
Granules India Limited
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.
Please see note at the top for clarification in guidance)
Questions and answers
CIN
L24110TG1991PLC012471 Our R&D spend for the full year stood at INR 100 crores or 3% of the revenue compared to INR 79 crores the year before.
The entire amount has been written off for this year.
A lot of R&D activities in India had to be spilled over due to this fiscal due to COVID-related delays.
Otherwise, our spend as a percentage of revenue would have been higher than what it is today.
We also acquired 7 ANDAs, which we will be looking to launch over the next couple of quarters.
With this, we have a total of 58 filed ANDAs or dossiers across different markets, 18 pending approval and 7 pending tech transfer.
We also have over 35 ANDAs or dossiers at different stages of development.
Our gross debt reduced on account of reduction of our long-term loans by 83 Crs, while our short-term loans went up a bit due to an increase in inventory buildup for new launches.
Our net debt too reduced from INR 605 crores in the previous year to INR 575 crores in the current year, mainly on account of 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.
Granules India Limited
Operator · Ladies and gentlemen, good day, and welcome to the Q4 and FY '21 earnings call for Granules India Limited hosted
(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, et cetera.
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 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 decent capacity world over.
And in addition to PAP, it's another material called acetic anhydride, which is another key raw material, which is also made from acetic acid.
There's a global shortage of acetic acid, again, because of one of the major manufacturers in China shutting down and also due to one of the plants in south of the U.S. which got damaged during the snowstorm.
So they're about still to come back to normalcy.
So this also will take maybe a quarter to streamline.
So like you said, there will be a tough situation for at least a few months.
Granules India Limited