Eris Lifesciences Limited — Q2 FY25 earnings call

Call held 25 Oct 2024

Management summary

ERIS delivered a strong Q2 FY25 with significant revenue and EBITDA growth driven by the integration of Biocon's business and robust manufacturing execution. While the organic base business saw a temporary slowdown in Q2 (4% growth), management reaffirmed full-year guidance, banking on a 'new-launch heavy' second half. The company is successfully deleveraging its balance sheet and expanding margins through in-house manufacturing shifts in Derma and Insulin segments.

Highlights

  • Consolidated revenue grew 47% YoY to ₹741 crores; H1 revenue reached ₹1,461 crores (+50% YoY).

  • Consolidated EBITDA stood at ₹265 crores with a 35.7% margin, representing 46% YoY growth.

  • Domestic Branded Formulations (DBF) revenue was ₹644 crores, with the base business contributing ₹510 crores.

  • Net debt reduced to ₹2,500 crores, ahead of the year-end target of ₹2,600 crores.

  • Consolidated ROCE increased by 600 bps to 17%; adjusted ROCE (excluding M&A amortization) stands at 23%.

  • Strategic investment of ₹54 crores for a 30% stake in Levim Lifetech to enable vertical integration in biologics.

  • Swiss Parenterals reported Q2 revenue of ₹82 crores and EBITDA of ₹27 crores (33% margin).

Concerns

  • Insulin Supply Constraints

Key financials

  1. Revenue ₹741 Cr +47%YoY
  2. EBITDA ₹265 Cr +46%YoY
  3. EBITDA Margin 35.7%
  4. Net Debt ₹2,500 Cr
  5. ROCE 17%
  6. Cash EPS ₹20 0%YoY

What they filed

Q1 FY27: revenue down 23.3%, net profit down 52.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue437 400 405 579 650 +49%315 −21%277 −32%444 −23%
EBITDA143 100 121 216 297 +108%77 −23%22 −82%120 −44%
Net profit28 2 30 100 150 +436%3 +50%-9 −130%48 −52%
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
₹726 Cr Total
  • Domestic Branded Formulations (DBF) ₹644 Cr 88.7%
  • Swiss Parenterals ₹82 Cr 11.3%

Guidance & targets

Revenue

  • Domestic Branded Formulations Revenue Revenue · FY25 · High confidence ₹2,600 crores
    Overall, we are on track to deliver our FY ‘25 guidance, Domestic Branded Formulations (“DBF”) revenue of Rs 2,600 crores with an EBITDA margin of 36%.

    — V. Krishnakumar, COO

  • Swiss Parenterals Revenue Revenue · FY25 · High confidence ₹330 crores
    Swiss Parenterals’ revenue of Rs. 330 crores with a 35% margin.

    — V. Krishnakumar, COO

Margin

  • Consolidated EBITDA Margin Margin · FY25 · High confidence 35%
    At a consolidated level, revenue of Rs.3,000 crores with a 35% margin.

    — V. Krishnakumar, COO

Debt

  • Net Debt Debt · FY25 · High confidence ₹2,600 crores
    Net debt at the end of Q2 stood at Rs 2,500 crores vis-a-vis our year-end stated target of Rs. 2,600 crores.

    — V. Krishnakumar, COO

Capex

  • Capital Expenditure Capex · FY25 · Medium confidence ₹100 to 120 crores
    CAPEX of Rs.100 to 120 crores and a Rs. 54 crores investment in Levim.

    — V. Krishnakumar, COO

Risks & concerns

  • Insulin Supply Constraints

    high

    Supply shortages from MJ and global form-and-fill issues are impacting the Biocon segment growth.

    Both acknowledged

  • Regulatory Inspection Delays

    medium

    Oral solid exports from Ahmedabad depend on EU-GMP/ANVISA inspections targeted for Q4 FY25/Q1 FY26.

    Management acknowledged

  • Base Business Slowdown

    medium

    Base business growth dropped to 4% in Q2; recovery depends on successful execution of a heavy H2 launch pipeline.

    Analyst downplayed

Areas of evasion (1)

  • Specific details on the global insulin supply chain disruption plant location.

Q&A highlights

2 direct
Base Business Growth Trajectory Direct
The H1 growth of the base business is 7% in H1, which is like 10% in Q1 and 4% in Q2... we expect to do 50-50 plus some new products in H2.

Clarifies that the organic growth slowed significantly in Q2, making the 9-10% full-year target highly dependent on a flurry of H2 launches.

Asked by Amlan Jyoti Das, Nomura

Insulin Supply Shortages Partial
Globally insulin is going through a certain challenge, I think, because of the form and fill plant. But this is a transient and I think it will be overcome.

Identifies a key operational risk in the high-growth Biocon segment, though management was evasive about the specific plant causing the issue.

Asked by Gautam Rajesh, Leo Capital

GLP-1 Impact and Cannibalization Direct
We don’t feel as of now that Orals or Insulins will recede. The only thing is more people will attain their HbA1c targets.

Management argues that GLP-1s will expand the market rather than cannibalize existing diabetes therapies in India.

Asked by Tushar Manudhane, Motilal Oswal

2 min read 5 chapters

Detailed narrative

Manufacturing Synergies Drive Margin Expansion

Eris is realizing significant gross margin benefits from shifting production in-house. The Ahmedabad facility now produces 30% of the Derma business, contributing to a base business gross margin expansion from 83% in Q4 FY24 to 86% in Q2 FY25. Additionally, the Bhopal facility is set to commence insulin vial production next month, which is expected to deliver further margin accruals starting Q4 FY25.

Biologics Strategy and Levim Investment

The company is aggressively pursuing vertical integration in the ₹15,000 crore Indian biologics market. A strategic ₹54 crore investment for a 30% stake in Levim Lifetech provides Eris with access to a bulk active manufacturing facility and a pipeline including Liraglutide, Streptokinase, and Pegaspargase. This move aims to mitigate supply chain risks and improve economics in the injectable anti-diabetes and oncology segments.

Biocon Integration and Diabetes Scale

Post-Biocon integration, Eris has scaled its diabetes business to over ₹1,000 crores per annum with 1,200 Medical Representatives (MRs). The Yield Per Man (YPM) has improved from ₹5.5 lakhs to over ₹7 lakhs. This scale has allowed for better absorption of fixed costs, reducing fixed costs as a percentage of revenue by 509 bps YoY in Q2.

Swiss Parenterals and CDMO Outlook

Swiss Parenterals is on track to meet its ₹330 crore revenue guidance for FY25, having achieved ₹155 crore in H1. The business is H2 heavy and maintains a high ROCE exceeding 50%. Management has launched a new EU-focused injectable CDMO business and expects contributions from this and the Oral Solid Dose (OSD) export business to start in FY26.

Deleveraging and Balance Sheet Strength

Eris is ahead of its debt repayment schedule, with net debt standing at ₹2,500 crores at the end of Q2 against a year-end target of ₹2,600 crores. Strong operating cash flow, which was 119% of EBITDA in Q2, is supporting this rapid deleveraging while the company continues to invest in R&D and strategic partnerships like Levim.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Healthcare earnings calls