Concord Biotech Limited — Q2 FY25 earnings call

Call held 12 Nov 2024

Management summary

Concord Biotech delivered a robust Q2 FY25, characterized by strong top-line and bottom-line growth of 18%. The quarter was marked by a significant shift in revenue mix, with the formulation business scaling rapidly to 26% of sales. While this shift caused some gross margin compression due to the lower-margin nature of formulations compared to niche APIs, management remains confident in achieving double-digit API growth for the full year and sustaining its 25% long-term growth trajectory.

Highlights

  • Revenue for Q2 FY25 stood at ₹310 crores, representing an 18% YoY growth.

  • Profit After Tax (PAT) reached ₹99 crores, growing 18% YoY with a steady 32% margin.

  • Formulation segment witnessed explosive growth of 125% YoY, contributing 26% of total revenue.

  • EBITDA increased by 15% YoY to ₹137 crores, with margins at 44%.

  • API business reported revenue of ₹230 crores, showing muted external growth due to higher captive consumption for formulations.

  • Company remains debt-free with cash and bank balances of ₹284 crores as of September 30, 2024.

  • Management maintained long-term CAGR guidance of 25% despite shift in product mix.

Key financials

  1. Revenue ₹310 Cr +18%YoY
  2. EBITDA ₹137 Cr +15%YoY
  3. EBITDA Margin 44%
  4. PAT ₹99 Cr +18%YoY
  5. PAT Margin 32% 0%YoY

What they filed

Q1 FY27: revenue up 27.9%, net profit up 41.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue310 244 430 204 247 −20%278 +14%326 −24%261 +28%
EBITDA137 98 190 61 91 −34%102 +4%122 −36%87 +43%
Net profit99 74 142 43 63 −36%68 −8%90 −37%61 +42%
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

Share of Revenue
₹310 Cr Total
  • API ₹230 Cr 74.2%
  • Formulations ₹80 Cr 25.8%

Guidance & targets

Revenue

  • Long-term CAGR Revenue · Long-term · High confidence 25%
    we remain in line with our long-term CAGR guidance of the 25% CAGR growth and grow higher than the historical growth that we have done.

    — Ankur Vaid, JMD & CEO

Capacity

  • Injectable Facility Commercialization Capacity · Q4 FY25 · Medium confidence February 2025

    Previously September/October 2024 → February 2025

    initially, the injectable facility was expected to be commercial by September or October. However, we have now taken it to February.

    — Ankur Vaid, JMD & CEO

Other

  • API to Formulation Revenue Mix Other · Long-term · High confidence 80:20
    our long-term guidance still stands at 80-20, given the capacities and the asset turnover that we expect from all the 3 sites or all the 4 sites once they are optimally getting utilized.

    — Ankur Vaid, JMD & CEO

  • New Product Launches Other · Every year · High confidence 2-3 products
    But every year, we expect maybe around 2 to 3 products to launch every year.

    — Ankur Vaid, JMD & CEO

Market context

  • API Business Growth Revenue · FY25 · Medium confidence Double-digit
    for the full year base, we expect to grow in double digits without considering the interunit sales.

    — Ankur Vaid, JMD & CEO

Risks & concerns

  • Gross Margin Compression

    medium

    The shift in revenue mix toward formulations (26% vs 15% YoY) is diluting gross margins as formulations have lower profitability than niche APIs.

    Both acknowledged

  • Regulatory Inspection Uncertainty

    medium

    Unit 1 is still awaiting a US FDA inspection; while the track record is good, the timing remains unscheduled.

    Analyst acknowledged

  • Working Capital in Institutional Sales

    low

    Government institutional orders for formulations have longer receivable cycles compared to corporate hospitals and trade business.

    Management

Areas of evasion (1)

  • Specific margin profiles for API vs. Formulations were described as 'varied' without giving exact percentage points.

Q&A highlights

3 direct
Muted API Growth vs. Strong Formulations Direct
intercompany sales from API to formulations at the end gets recorded in formulations only. And hence, API had shown that muted growth... if we include this API sales made to formulation... the API growth would be around 9% to 10%.

Explains the optical slowdown in the core API business as being driven by internal consumption for the high-growth formulation segment.

Asked by Alankar Garude, Kotak Institutional Equities

Pricing Pressure in API Segment Direct
most of the competition that we have on our commercial products is mainly from Europe and Southeast Asia. We do not see significant competition from China... we have not seen any significant impact on the API prices.

Confirms the company's niche positioning in fermentation-based APIs, shielding it from the generic pricing erosion typically seen in China-dominated synthetic API markets.

Asked by Vivek Agrawal, Citigroup

Delay in Injectable Facility Direct
these 3 to 4 months of delay have been primarily due to the team is taking a little bit more caution in terms of doing these studies and qualifying the water systems and other equipments.

Provides transparency on the timeline shift for a key growth driver, attributing it to regulatory caution rather than fundamental facility issues.

Asked by Husain Bharuchwala, Carnelian Capital

2 min read 5 chapters

Detailed narrative

Formulation Segment Drives Growth Amidst API Mix Shift

The formulation business was the standout performer in Q2 FY25, growing 125% YoY to reach ₹80 crores. This segment now accounts for 26% of total revenue, up from 15% in the previous year. Management clarified that the seemingly muted 3% growth in external API sales for H1 is due to higher captive consumption; if interunit sales were included, API growth would be approximately 9-10%. The company expects the API segment to return to double-digit growth for the full fiscal year as new orders from LATAM and other regions materialize.

Strategic Moat in Fermentation-Based APIs

Concord Biotech continues to leverage its position as a global leader in fermentation-based APIs, particularly in immunosuppressants. With a total fermentation capacity of 1,250 cubic meters, the company faces limited competition, primarily from European and Southeast Asian players rather than Chinese manufacturers. This niche positioning has protected the company from the pricing volatility seen in the broader API sector, with management reporting stable pricing across its core portfolio.

Injectable Facility Timeline and Future Pipeline

The commercialization of the new injectable facility has been rescheduled to February 2025 from the initial September/October 2024 target. This delay is attributed to extra caution during media fill studies and water system qualifications. Despite the delay, the R&D pipeline remains robust with 8-10 new products targeting a $1 billion API market size. The company plans to launch 2-3 products annually, focusing on high-value segments like oncology and anti-infectives.

Capacity Utilization and Operational Efficiency

Operational data revealed varying utilization levels across sites: Unit 1 is at 79%, Unit 2 at 50%, and the newer Unit 3 (Limbasi) at 38%. The lower utilization at Limbasi is expected to improve as anti-infective and antifungal products transition from qualification samples to commercial supply. Management noted that as these facilities scale, operating leverage should help offset the margin pressure currently seen from the higher mix of formulation sales.

Financial Strength and Capital Allocation

Concord remains a zero-debt company with a strong liquidity position of ₹284 crores in cash and investments. While current capex is focused on maintenance, management indicated an openness to inorganic growth opportunities, specifically targeting 'adjacencies to fermentation.' The company's 32% PAT margin and 44% EBITDA margin remain among the highest in the sector, supported by backward integration into critical starting materials.

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