Blue Jet Healthcare Limited — Q1 FY25 earnings call

Call held 7 Aug 2024

Management summary

Blue Jet Healthcare reported a revenue dip in Q1 FY25, primarily impacted by extended transit times due to the Red Sea situation, which delayed revenue recognition. Despite this, the company maintained strong profitability and continued its strategic capacity expansion, adding 120KL for cardiovascular intermediates and planning further additions for contrast media. Management expressed confidence in its pipeline and future growth, aiming to sustain current margin levels.

Highlights

  • Revenue of INR 163 crores, a drop of 11% compared to Q4 FY24, primarily due to Red Sea related transit delays.

  • EBITDA margin stood at 27.2% for Q1 FY25, compared to 29% in Q4 FY24.

  • PAT margin was 23%, marginally higher than Q4 FY24.

  • ROCE (annualized basis) was 22%, and fixed asset turnover exceeded 3x.

  • The company remains debt-free with cash treasury investments over INR 380 crores.

  • Q1 FY25 capex capitalized was INR 90 crores.

  • New 120KL capacity for cardiovascular drug intermediates added in Unit II Ambernath, currently in validation phase.

  • Inventory days increased to 204 days from 136 days in Q4 FY24, mainly due to goods in transit.

Concerns

  • Red Sea situation impacting logistics costs and transit times

Key financials

  1. Revenue ₹163 Cr -11%QoQ
  2. EBITDA Margin 27.2%
  3. PAT Margin 23%
  4. ROCE 22%
  5. Cash Treasury Investments ₹380 Cr
  6. Inventory Days 204 days
  7. Capex Q1 FY25 ₹90 Cr

What they filed

Q1 FY27: revenue down 17.5%, net profit down 14.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue208 318 340 355 165 −21%192 −40%235 −31%293 −17%
EBITDA69 124 140 121 55 −20%47 −62%71 −49%98 −19%
Net profit58 99 110 91 52 −10%40 −60%64 −42%78 −14%
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

  • Contrast Media
    -42% Revenue Growth
  • Pharmaceutical Intermediate (PI)
    60% Revenue Growth

Guidance & targets

Capacity

  • Cardiovascular drug intermediates capacity (Unit II Ambernath) Capacity · June 2024 · High confidence 120KL
    During June 2024, we added 120KL capacity dedicated for intermediates for the cardiovascular drug for our innovator customer in Unit II Ambernath. Currently, we are in the validation phase.

    — MR. SHIVEN ARORA – MANAGING DIRECTOR

  • Additional Contrast Media Intermediate capacity (Unit II Ambernath) Capacity · Q3 FY25 · High confidence 70-80 KL
    In the same production block, we will be adding additional capacity, which is expected to go commercial by Q3 for Contrast Media Intermediate for the innovator in the MRI space.

    — MR. SHIVEN ARORA – MANAGING DIRECTOR

  • Small volume plant (Unit II) Capacity · Q1 FY26 · High confidence Ready for commissioning
    In Unit II, we have recommenced work on a small volume plant which we envisage will be ready for commissioning in Quarter 1 of FY '26.

    — MR. V K SINGH – CHIEF OPERATING OFFICER

  • Backward integration capacity (Unit III Mahad) Capacity · Q1 FY26 · High confidence Commissioned
    We believe this new capacity will get commissioned as we had indicated in the past in quarter 1, FY '26.

    — MR. V K SINGH – CHIEF OPERATING OFFICER

  • Overall capacity addition Capacity · next 12 to 18 months · High confidence 40-50%
    As you have seen that in the next 12 to 18 months, we are adding about 40% to 50% more capacity.

    — MR. V K SINGH – CHIEF OPERATING OFFICER

Volume

  • Offtake for cardiovascular product Volume · Quarter 3 onward · Medium confidence Increase
    The validation batches for this product from the new capacity were successfully executed last month and we expect an increase in offtake from Quarter 3 onward.

    — MR. V K SINGH – CHIEF OPERATING OFFICER

Sales

  • Dispatches for largest Contrast Media customer Sales · next three quarters (till December) · High confidence Similar levels
    So starting Q2, Q3, there will not be any, what do you call, the offtake from the customer would be at similar levels. Today, whatever we are dispatching, that will continue till December.

    — MR. GANESH KARUPPANNAN – CHIEF FINANCIAL OFFICER

  • Next year forecast for largest Contrast Media customer Sales · from next January · Medium confidence Higher (single digit number)
    We do expect the next year forecast, which will be higher than what the current year forecast is. That is our expectation. It could be a single digit number, but we do expect from next January, there would be a higher offtake as far as this particular product is concerned.

    — MR. GANESH KARUPPANNAN – CHIEF FINANCIAL OFFICER

Margin

  • EBITDA and PAT margins Margin · Ongoing · High confidence Sustain existing level
    In fact, one of our targets is to sustain the existing level of EBITDA and PAT.

    — MR. GANESH KARUPPANNAN – CHIEF FINANCIAL OFFICER

Capex

  • Asset turn on incremental investment Capex · Ongoing · High confidence 3-4 times
    So, today, for all our incremental investment, we would be looking at anywhere between three to four times.

    — MR. GANESH KARUPPANNAN – CHIEF FINANCIAL OFFICER

  • Committed capex Capex · between 12 to 18 months · High confidence INR 200 crores
    And we do expect another INR200 crores which are committed, which would be spent between 12 to 18 months.

    — MR. GANESH KARUPPANNAN – CHIEF FINANCIAL OFFICER

  • Annual capex Capex · next two, three years · Medium confidence INR 100 crores
    So, because I think somewhere you mentioned that every year we would be doing a INR100 crores kind of capex for the next two, three years.

    — MR. GANESH KARUPPANNAN – CHIEF FINANCIAL OFFICER

Operations

  • Capacity utilization Operations · as of now · High confidence 70-75%
    It's about between 70%, 75%.

    — MR. V K SINGH – CHIEF OPERATING OFFICER

Logistics

  • Red Sea issue resolution Logistics · maybe in a quarter or so · Low confidence Resolved
    So, we expect things to get resolved maybe in a quarter or so.

    — MR. GANESH KARUPPANNAN – CHIEF FINANCIAL OFFICER

Risks & concerns

  • Red Sea situation impacting logistics costs and transit times

    high

    Increased transit times from 35-40 days to 65-70 days, impacting Q1 revenue recognition and increasing ocean freight costs. Expected to resolve in a quarter or so.

    Management acknowledged

  • Geopolitical situation impacting input material prices or revenue stream

    medium

    Management is closely monitoring the geopolitical situation for potential impacts on input material prices or revenue.

    Management acknowledged

  • Underutilization of CDMO capacity if business does not materialize

    medium

    Analyst raised concern about balancing capacity addition with the risk of underutilization. Management stated confidence due to contractual businesses and customer visibility.

    Analyst acknowledged

  • Uncertainty of success rates for new molecules in pipeline (Phase 2/3)

    low

    Analyst questioned the success rate of NCEs. Management stated they are selective in product/customer choice and use small volume plants for initial supplies to mitigate risk.

    Analyst acknowledged

Areas of evasion (3)

  • Specific market share data
  • Exact capex for a specific small plant
  • Exact value of goods in transit (gave a range instead)

Q&A highlights

3 direct
Contrast Media sales dip and future growth outlook Direct
Today, whatever we are dispatching, that will continue till December. We do expect the next year forecast, which will be higher than what the current year forecast is. That is our expectation. It could be a single digit number, but we do expect from next January, there would be a higher offtake as far as this particular product is concerned.

Addresses the significant QoQ decline in the largest segment and provides a clear outlook for recovery and future growth, including specific timelines.

Asked by Sanjesh Jain

Drivers for gross profit margin improvement despite product mix shift Direct
Sanjesh there are four reasons. One the key raw material used in the contrast media for the largest customer, there is a slight reduction in the price. That is number one. There is another contrast media where we were able to actually increase the volume. So that has actually contributed a higher margin and this product mix, this particular building block also has contributed positively to our margins.

Clarifies the specific operational and market factors contributing to margin expansion, which might otherwise appear counter-intuitive given the segment performance.

Asked by Sanjesh Jain

Revenue recognition from new Ambernath facility and commercialization status of new contrast media drug Direct
(Ganesh Karuppannan) "We are yet to do any commercial invoice from this facility." (Shiven Arora) "There's no specific delay, actually. I think this is a complex molecule and has gone through series of use test trials and validations and stability studies.

Provides crucial clarity on the timeline for revenue generation from recently commissioned capacities and the progress of new product commercialization, which are key future growth drivers.

Asked by Sanjesh Jain, Ritika

3 min read 6 chapters

Detailed narrative

Q1 FY25 Performance Overview and Red Sea Impact

Blue Jet Healthcare reported Q1 FY25 revenue of INR 163 crores, marking an 11% decline from Q4 FY24. This dip was primarily attributed to the Red Sea situation, which extended transit times from 35-40 days to 65-70 days, delaying revenue recognition despite production and dispatches exceeding previous quarter levels. The company's profitability remained strong with an annualized ROCE of 22%, EBITDA margin at 27.2%, and PAT margin at 23%, marginally higher than Q4 FY24. Inventory days increased to 204 days from 136 days in Q4 FY24 due to goods in transit, with approximately INR 80 crores of sales not recognized.

Strategic Capacity Expansion and Commercialization

The company is aggressively expanding its manufacturing capabilities. In June 2024, 120KL capacity for cardiovascular drug intermediates was added in Unit II Ambernath, currently in validation. An additional 70-80 KL capacity for Contrast Media Intermediate (MRI space) is expected to go commercial by Q3 FY25. Furthermore, a small volume plant in Unit II is planned for commissioning in Q1 FY26, and backward integration capacity for contrast media in Unit III Mahad is also on track for Q1 FY26. Overall, Blue Jet Healthcare aims to add 40-50% more capacity over the next 12-18 months.

Product Pipeline and Segment Focus

Blue Jet Healthcare maintains a robust product pipeline across its Contrast Media, High-Intensity Sweeteners, and CRAMS segments. In Contrast Media, the company is forward integrating into advanced iodinated intermediates. A new salt, calcium saccharine, has been commercialized in the sweetener segment. For the CRAMS business, 7-8 opportunities with innovators for oncology and CNS are in advanced discussions, with a focus on amino acid-based derivatives. Management expressed high confidence in securing new products to sustain growth in the medium to long term.

Financial Health and Capital Management

The company continues to demonstrate strong financial health, remaining debt-free with cash treasury investments exceeding INR 380 crores. Capital expenditure in Q1 FY25 amounted to INR 90 crores. Blue Jet Healthcare has committed another INR 200 crores for capex over the next 12-18 months, with an anticipated annual capex of INR 100 crores for the next 2-3 years. Management targets sustaining existing EBITDA and PAT margin levels and expects a 3-4 times asset turn on incremental investments.

Gross Margin Drivers and Accounting Policy Change

Despite a 42% QoQ decline in Contrast Media revenue, the gross profit margin improved by 140 basis points. This was attributed to a slight reduction in key raw material prices, increased volume and higher margins for another contrast media product, operational efficiencies, and a technical impact from higher goods in transit. The company also changed its depreciation accounting policy from WDB to straight-line method, resulting in a lower depreciation charge of INR 3.5 crores in Q1 FY25 compared to INR 7.7 crores in Q4 FY24.

Sustainability Initiatives

Blue Jet Healthcare is committed to reducing its carbon footprint and GHG emissions. The company's solar plant, commissioned last year, combined with windmills, now generates approximately 70% of its energy from renewable sources. They also prioritize atom efficiency in chemistries and environmentally friendly plant designs, reflecting a strong focus on sustainable operations.

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