Alkem Labs Q1FY22 Earning Call Highlights
ANALYST -
MR. TUSHAR MANUDHANE – MOTILAL OSWAL FINANCIAL SECURITIES LIMITED
MANAGEMENT -
MR. SANDEEP SINGH –MANAGING DIRECTOR - ALKEM LABORATORIES
MR. RAJESH DUBEY – CHIEF FINANCIAL OFFICER - ALKEM LABORATORIES
MR. AMIT GHARE – PRESIDENT (INTERNATIONAL BUSINESS) - ALKEM LABORATORIES
MR. YOGESH KAUSHAL - PRESIDENT CHRONIC DIVISION - ALKEM LABORATORIES
MR. GAGAN BORANA –INVESTOR RELATIONS - ALKEM LABORATORIES
Key Q1FY22 Business Updates -
* Revenue is growing by 37.1% (y-o-y)
* EBITDA margins are at 21.7% (y-o-y)
* PAT is growing by 11% (y-o-y)
* Indian business is growing by 65.3% (y-o-y)
* US business is degrowth by 9.3% (y-o-y)
* Other Internation business is growing by 56.4% (y-o-y)
* During the quarter, we filled 2 ANDA with US FDA and received 5 approvals
Some Important Question-Answer -
Q1 - Just on the sales growth outlook especially for India business given that it is a very high growth how do you see the rest of the year panning out for you?
Ans - Yogesh Kaushal: Two months certainly were supported by COVID and all that stuff so it was a very healthy growth, but now so with now industry settling to around 11% to 12% we expect that balance nine months and by end of the year we should be in high teens. That is what is our projection by March.
Q2 - You mentioned COVID led so I mean apart from vitamins which is indirect COVID use do you have done you have any other COVID products?
Ans - Yogesh Kaushal : No. We do not have any antiviral or anything to do with the COVID except for multivitamins, A-Z
Q3 - The gross margins it seemed a little low despite a strong growth. Are there any one-offs if you can explain?
Ans - Rajesh Dubey: Yes gross margin in this quarter it is having one off and that one off is we have extended our provision related to near expiry rate. If you recollect in Q4 of last year, we revised our policy for taking provision for near expiry from 6 months to 12 months and that was one quarter where we took sizable near expiry provision. When we are taking provision we conclude or we estimate we will not be able to sell this product at a normal price but possibilities are there, it may get realized also but right now we expect we are not going to do. Some of the inventories, if all due as per our policy within 12 months shelf-life period and that also is considered so I think definitely, we see this as a oneoff because going forward then again it will come in our normal cycle of 12 months. So, this time actually NRV provision and the near expiry if we put both this together, so definitely it is impacting our margin by 1.5%. I think that is a major reason behind it.
Q4 - US I think a couple of calls earlier you had guided for about 15% to 16% growth for the next two three years driven largely by new launches, but we are seeing the growth kind of cooling off a little bit though QOQ still looks healthy. Do you still stick to that guidance? Any color on why the Y-O-Y growth was not as we would have expected?
Ans - Sandeep Singh: I agree with you the broad guidance still remains broadly what we had given and year-on-year quarter growth of course there has been degrowth. A couple of reasons obviously affected one was obviously we had a lot of a strong quarter last year mainly because some of forward buying done by our customers a bit of you knows stock piling and panic buying as well affected that. So that is one of the reasons. The other reason has been some loss of market share and obviously price deflation, which has sort of depressed at this particular quarter compared to 12 months ago but our broad guidance remains similar and we are looking to grow at those numbers.
Q5 - What is your view on EBITDA margins?
Ans - Sandeep Singh: EBITDA margin, our guideline it was from 20% to 21% for this year because our endeavor was to improve by a 100 basis points after a year. So we remain with our guidelines. Looking to better Q1 we believe 50 to 100 basis point will try to improve on that.
Q6 - the trade generic business how has this business momentum been over the last few quarters, we did see some pickup giving the pandemic as such, has the growth rate for the business grown, and related question we are seeing more players enter the trade generic segment. Does that make it difficult for us to continue to grow this business at double digits that we have been seeing over the last few years?
Ans - Sandeep Singh: I will take this question. To answer you trade generics continues to grow at very healthy pace and the growth is not slowing down and this question specifically of large-player entering trade generics I think it is it was expected because this is kind of growing very, very handsomely for the last few quarters but you know you said will this double digit growth continue? The answer is emphatically yes, because keep in mind we do not only grow in double digits, we grow in very high double digits. So achieving double digits and maintaining that over the next few years we do not see it as a challenge at all.
Q7 - What would drive this strong double digit growth that we are guiding to despite the competition that you will see in our generics?
Ans - Sandeep Singh: So I think a lot of people underestimate trade generics business and that is also a franchisee and a brand business actually. It might seem like an oxymoron but it is not so the relationship which we enjoy with trade generic trade channels is something which cannot be replicated overnight. It takes many, many years. We have reached where we have reached in 20 years, it did not happen overnight so all the rest would have come in but they will also take the time Madam and we got to kind of appreciate that this is a tough business actually.
Q8 - How the API prices are behaving now whether it is going up or stabilized now and how is it impacting our gross margin?
Ans - Rajesh Dubey: API prices it has started going up from March end and till mid of May actually we witnessed a major spurt in selected API prices, but after that it started softening and it has not come back to normalcy, but I think major it has come within range and slowly we expect it is going to be normalized. So now trend is not upwards either it is softening or stable.
Q9 - What would be the Tax rate for this year?
Ans - Around 13-15% for this year
Q10 - What would be the Working Capital & Capex for this year?
Ans - Around 450 crores
Key Updates -
* Duexis & Ibuprofen was launched in the quater.
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