Alivus Life — Q2 FY25 earnings call

Call held 25 Oct 2024

Management summary

Glenmark Life Sciences faced a challenging Q2 FY25 due to a temporary production halt at its Ankleshwar facility and market softness in Argentina, leading to a 14.9% YoY revenue decline. However, the company demonstrated strong margin resilience, with gross margins reaching 55.6% driven by a favorable product mix. Management remains optimistic about a stronger H2 FY25, supported by new launches and a robust CDMO pipeline, despite revising full-year revenue guidance downward to high single digits.

Highlights

  • Revenue from operations at ₹507 crores, down 14.9% YoY and 13.9% QoQ

  • Gross margin expanded to 55.6%, up 150 bps YoY and 450 bps QoQ

  • EBITDA margin maintained at 28.2% despite top-line pressure

  • PAT for the quarter stood at ₹95 crores with an 18.8% margin

  • FY25 revenue growth guidance revised to high single digits from mid-teens

  • CDMO pipeline includes 21 products with a total addressable market of $43 billion

  • Ankleshwar facility production halt lifted on August 14, impacting Q2 volumes

  • Net debt-free status maintained with cash and equivalents of ₹446 crores

Concerns

  • Regulatory and Operational Disruption (Ankleshwar)

Key financials

  1. Revenue ₹507 Cr -14.9%YoY
  2. Gross Margin 55.6%
  3. EBITDA Margin 28.2%
  4. PAT ₹95 Cr
  5. R&D Spend ₹19 Cr
  6. Capex ₹43 Cr

What they filed

Q1 FY27: revenue up 6.3%, net profit up 31.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue507 642 650 602 588 +16%673 +5%689 +6%640 +6%
EBITDA134 190 198 172 179 +34%231 +22%215 +9%212 +23%
Net profit95 137 142 122 130 +37%150 +9%163 +15%160 +31%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Therapeutic Mix
    58% CVS and CNS Contribution19% Ex-GPL India Portfolio Growth

Guidance & targets

Revenue

  • Overall Revenue Growth Revenue · FY25 · Medium confidence high single digit

    Previously low teens/mid-teens → high single digit

    We expect overall revenue growth for this fiscal to be in the high single digit with steady margins.

    — Dr. Yasir Rawjee, MD and CEO

  • CDMO Peak Revenue Potential Revenue · FY26 · Medium confidence $12 million
    We should see between these 2 projects around $12 million of revenue... FY '26 -- I think second half FY '26, all the markets should get regulatory approvals.

    — Dr. Yasir Rawjee, MD and CEO

Margin

  • Gross Margin Band Margin · FY25 · High confidence 52-55%
    But yes, just to sort of put it in context, we've been guiding between 52% and 55% on the gross margin side. So that we'll maintain.

    — Dr. Yasir Rawjee, MD and CEO

Capex

  • Full Year Capital Expenditure Capex · FY25 · Medium confidence ₹300-350 crores

    Previously ₹350 crores → ₹300-350 crores

    then we'll be close to around INR300 -- between INR300 crores and INR350 crores. So yes, we are pretty confident that it will happen.

    — Dr. Yasir Rawjee, MD and CEO

Risks & concerns

  • Regulatory and Operational Disruption (Ankleshwar)

    high

    GPCB temporarily halted production at the Ankleshwar site (65% of capacity), causing significant production delays in Q2.

    Management acknowledged

  • Geopolitical and Macroeconomic Headwinds (Argentina)

    medium

    Currency controls and FX issues in Argentina led to customer destocking and softness in the LatAm market.

    Management acknowledged

  • Capacity Utilization Constraints

    medium

    Current capacity is operating at ~95% utilization, forcing the company to 'pick and choose' higher-margin business until new capacity comes online.

    Both acknowledged

Areas of evasion (1)

  • Specific percentage contribution of the Argentina business to total revenue.

Q&A highlights

2 direct
Revenue Guidance Revision Direct
basically, we are seeing a little bit of softness in LatAm, primarily driven by the Argentina business... Plus this production loss... we wanted to be on the safe side, we wanted to put that out.

Explains the downward revision in growth targets due to specific regional headwinds and temporary operational disruptions.

Asked by Charul Agrawal

CDMO Project Visibility Partial
So we put in the deck that 1 CDMO project is going to kick off from Q3 itself. And that's again to an innovator. And another one we expect will start commercial supplies in Q4.

Confirms the transition from 3 to 5 active CDMO projects, which is a key driver for future margin and growth.

Asked by Tushar Manudhane

Capacity Constraints and Solapur Timeline Direct
until Solapur comes in and kicks in, we will still be kind of going neck to neck on capacity. FY '26 we should come through because we are hopeful that even Solapur will kind of -- this first 200 KL of capacity will come online by the end of Q3 in FY '26.

Highlights the risk of being capacity-constrained until late FY26, potentially limiting top-line growth in the interim.

Asked by Alisha Mahawala

2 min read 5 chapters

Detailed narrative

Ankleshwar Facility Disruption and Recovery

The quarter was significantly impacted by a temporary production halt at the Ankleshwar site, which represents 65% of the company's total capacity. Although the halt was lifted on August 14, the hiatus was longer than expected, leading to production delays. Management successfully recovered a significant portion of these volumes within Q2, but the disruption was a primary driver of the 14.9% YoY revenue decline.

Margin Resilience Amidst Top-line Pressure

Despite the revenue contraction, Glenmark Life Sciences reported a robust gross margin of 55.6%, expanding 150 bps YoY. This was driven by a favorable product mix and tight cost controls. EBITDA margins remained steady at 28.2%, showcasing the company's ability to maintain profitability even when facing operational challenges and volume losses.

Strategic CDMO Pipeline Expansion

The CDMO business is transitioning from 3 to 5 active projects, with the 4th project starting in Q3 and the 5th expected in Q4 FY25. The high-potency API pipeline now includes 21 products with a total addressable market of $43 billion. Management expects two new CDMO projects to contribute approximately $12 million in peak revenue by the second half of FY26.

Geographical Performance and Latin American Headwinds

While North America and India showed strong growth, the Latin American market experienced softness, particularly in Argentina. New government-imposed currency controls and FX issues led to significant destocking by customers. This regional weakness, combined with the Ankleshwar production loss, prompted management to readjust its full-year revenue growth guidance to high single digits.

Capacity Debottlenecking and Solapur Roadmap

The company is currently operating at a high capacity utilization of 95%. To address this, additional capacities of 208 KL at Ankleshwar and 18 KL at Dahej commenced operations in Q2. Looking further ahead, the Solapur facility is expected to bring 200 KL of capacity online by Q3 FY26, which will be critical for sustaining double-digit growth in the long term.

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