Hester Bios — Q3 FY25 earnings call

Call held 30 Jan 2025

Management summary

Hester Biosciences reported a mixed Q3 FY25, with consolidated divisional product sales declining by 6% but 9-month profit growing significantly by 85%. Strong performance in Poultry and Petcare divisions was offset by a 24% decline in Animal Health sales due to external factors and a regulatory ban. International subsidiaries showed improved profitability, with Hester Africa substantially reducing losses, and management anticipates a significant turnaround from this region in the coming quarters.

Highlights

  • Consolidated profit grew by 85% for 9 months compared to the previous year.

  • Poultry division sales increased by 12% in Q3 and 20% in 9 months.

  • Poultry vaccine sales grew by 20% in Q3 and 27% in 9 months.

  • Petcare division achieved 105% growth in Q3 and 38% in 9 months.

  • Hester Nepal reported a net profit of Rs. 1.87 crores in nine months.

  • Hester Africa significantly reduced losses to Rs. 0.57 crores in nine months, compared to Rs. 13.5 crores in 9M FY24.

  • Consolidated EBITDA grew by 12% in Q3 and 15% in 9 months.

Concerns

  • Consolidated divisional product sales declined by 6% in Q3.

  • Animal Health System experienced a 24% decline in sales in Q3.

  • Standalone PAT declined by 31% in Q3.

  • Regulatory ban on Nimesulide product resulted in a financial impact of 5-6 crores in Q3.

  • International market (Africa) faced political and financial issues, leading to operational challenges.

Key financials

2 periods

Q3

  • Consolidated Divisional Product Sales
    —
    YoY -6%
  • Consolidated EBITDA
    —
    YoY +12%
  • Standalone EBITDA
    —
    YoY -18%
  • Standalone PAT
    —
    YoY -31%

9M

  • Consolidated Divisional Product Sales
    —
    YoY +2%
  • Consolidated Profit
    —
    YoY +85%
  • Consolidated EBITDA
    —
    YoY +15%
  • Standalone Gross Margins
    —
    YoY +4%
  • Standalone EBITDA
    —
    YoY +8%
  • Hester Nepal Net Profit
    ₹1.87 Cr
  • Hester Africa Losses
    ₹0.57 Cr

What they filed

Q1 FY27: revenue down 8.3%, net profit up 470.6% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue84 63 82 84 71 −15%77 +22%100 +22%77 −8%
EBITDA19 5 19 23 12 −37%18 +260%34 +79%23 +0%
Net profit8 11 2 17 14 +75%9 −18%17 +750%97 +471%
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

SegmentSales Growth (Q3)Sales Growth (9M)
Animal Health System-0.24 decimal_fraction0.04 decimal_fraction
Poultry Healthcare0.12 decimal_fraction0.2 decimal_fraction
Petcare——

Capital allocation

medium confidence
  • Debt Debt disclosed
    Hester Nepal: 'This subsidiary continues to remain debt-free'; Hester Africa: 'The Tanzanian shilling appreciation against the US dollar has resulted in an unrealized exchange gain on borrowing for the nine months of FY25.'

Guidance & targets

Other

  • Avian Influenza Vaccine Launch Other · coming financial year · High confidence Launch
    With global demand for poultry products rising and our continued market penetration efforts were expecting to maintain momentum, we are also working towards launching the vaccine against the Avian Influenza in the coming financial year which will also significantly boost our Poultry Healthcare division.

    — Priya Gandhi

Revenue

  • African Business Growth Revenue · next two quarters · Medium confidence very big leap
    But we are looking ahead to a much, much bigger scale, especially from the African continent. And not just African continent, even in Ethiopia, we are very confident that we will be pushing things forward. If you really go to see the second and the third quarters, even on the animal side, there are always dips in the second and the third quarter in terms of size. We are going through this and we rest assured at least the African business will give a very big leap in the next two quarters, which will change the complete complexion of our consolidated balance sheet further.

    — Rajiv Gandhi

What to watch in Q4 FY25

African Business Performance

Q4 FY25 and Q1 FY26
Current Losses reduced to Rs. 0.57 crores in 9M FY25; Q3 sales impacted by international issues.
Target Significant improvement in sales and profitability, contribution to consolidated balance sheet.

Why it matters

Crucial for consolidated performance recovery and long-term international growth strategy, as management expects a 'very big leap'.

at least the African business will give a very big leap in the next two quarters, which will change the complete complexion of our consolidated balance sheet further.

Risks & concerns

  • International market volatility and political/financial issues in Africa

    high

    African continent riddled with political and financial issues, impacting sales and leading to Q3 consolidated performance challenges.

    Management acknowledged

  • Overall Q3 financial performance decline

    high

    Standalone PAT declined by 31% and consolidated EBITDA was lowest in a decade, attributed to external and international factors.

    Management acknowledged

  • Regulatory ban on Nimesulide-containing product

    medium

    Financial impact of 5-6 crores in Q3; replacement product planned for launch.

    Management acknowledged

  • External market factors affecting Animal Health sales

    medium

    Earlier monsoon end and lower milk prices impacted farmer spending on animal healthcare in Q3.

    Management acknowledged

Q&A highlights

5 direct, 1 evasive
Consolidated EBITDA and Sales Performance in Q3 Partial
Yes, the financial results, the figures say it all. There is nothing different that we have been trying to say as what we have published and what you have read. The international market, especially Africa, it has been riddled with each of the countries with some political issue with some financial situation in each country etc. We have tackled and withered to all of these in the last two years. We see the brighter side now.

Analyst challenged the significant decline in consolidated EBITDA and sales, prompting management to explain the external and international market challenges, particularly in Africa, and express confidence in a future turnaround.

Asked by Keshav Garg

Impact of Nimesulide Regulatory Ban Direct
Yes, so the new product we will be launching we're still working on the formulation and I will, unfortunately I don't have the exact details to give you at this point in time and in terms of a financial impact, I think 5 crores to 6 crores is the financial impact which we are going to be registering in Q3.

Management quantified the direct financial impact of a regulatory ban on a key product in the Animal Healthcare division for Q3 and confirmed plans for a replacement product.

Asked by Himanshu Upadhyay

Capacity Utilization Across Geographies Direct
For the 9 months period it would be approximately 70% utilization. ... In Nepal, it will be around 20%. In Africa, it is only 10% utilization. We have enough capacity.

Provided clarity on current operational capacity across different regions, indicating significant headroom for growth without immediate capex needs.

Asked by Samir Desai

Guidance for FY26 and FY27 Evasive
We would want to refrain from this guidance to be honest. Yes, we have our budgets. We have our internal forecast. We have every single thing ready. But I would say that the as Priya did mention that there has been a little bit dip in Q3. We are sure to recover and in fact our targets are much better even whatever performances we have done in the last 2-3 years and that's the way we are taking forward and it's our clear determination to improve the bottom line substantially.

Management declined to provide specific financial guidance for future fiscal years, indicating a cautious outlook or preference not to commit to numbers after a challenging Q3.

Asked by Samir Desai

Rationale for Africa Expansion Direct
Okay, why we chose Africa? This is something which is now a five-year-old issue. Africa is a growing continent in terms of economics and that's something and health care, the sister, the opportunities are immense. And in fact to tell you Hester Biosciences is the biggest pharma investor in the country in Tanzania as on today.

Management articulated the strategic long-term vision and rationale behind its significant investment and focus on the African continent, highlighting its growth potential and the company's leading position there.

Asked by Rushabh Shah

Avian Influenza Vaccine Market and Competition Direct
The market for Avian influenza in India is approximately 100 crores. Right now we are focusing on the domestic only. We are still working on the development and release of the vaccine which will happen in the coming financial year and right now our focus continues to be the domestic market and there are also some inquiries for us to export it in certain countries mainly Middle East and Africa and that's going to be our focus. In terms of competition, yes, there are some multinational companies.

Provided insights into the market size for a key upcoming product, its target geographies, and the competitive landscape, indicating a clear strategy for its launch.

Asked by Utsav Adani

Government Tendering Process for Vaccines Direct
I would say that the government tendering process is very straightforward, clear and transparent. And the main (Inaudible) 0:36:57 and the government checks every batch that is supplied under their purchases and supplies are made all across the country. It's a well-defined good process.

Management offered a positive assessment of the government's tendering process for national immunization programs, suggesting a stable and reliable channel for vaccine sales.

Asked by Utsav Adani

3 min read 6 chapters

Detailed narrative

Q3 FY25 Consolidated Performance Overview

Hester Biosciences reported a mixed Q3 FY25, with consolidated divisional product sales declining by 6% for the quarter. However, for the nine-month period, consolidated divisional product sales increased by 2%, and consolidated profit grew significantly by 85% compared to the previous year. This profit growth was primarily driven by improved operational efficiencies and unrealized foreign exchange gains in the African subsidiary. Standalone PAT, however, saw a decline of 31% in Q3, while consolidated EBITDA grew by 12% in Q3 and 15% for the nine months.

Animal Healthcare Division Faces Headwinds

The Animal Health System division experienced a significant 24% decline in sales during Q3, although it maintained a 4% growth for the nine-month period. This downturn was attributed to several external factors, including an earlier-than-expected end to the monsoon season in some regions and lower milk prices, which reduced farmers' spending on essential animal healthcare. Additionally, a regulatory ban on Nimesulide, an active ingredient in one of the company's products, led to a recall from the market, with an estimated financial impact of 5-6 crores in Q3. A new replacement product is in development and expected to mitigate this impact in coming quarters.

Poultry Healthcare Division Sustains Strong Growth

In contrast to Animal Healthcare, the Poultry Healthcare division delivered robust performance, with sales increasing by 12% in Q3 and 20% over the nine-month period. This growth was primarily driven by strong vaccine sales, which grew by 20% in Q3 and 27% in the nine months. The company highlighted rising awareness of Newcastle Disease and Marek's Disease prevention as key contributors. Hester Biosciences also announced plans to launch a vaccine against Avian Influenza in the coming financial year, which is expected to further boost this division's performance.

Petcare Division's Rapid Expansion

The Petcare division, though still nascent, continued its strong growth trajectory, achieving an impressive 105% growth in Q3 and 38% for the nine months of FY25. This growth was attributed to a strategic focus on key brands, seasonal product demands, and the successful launch of a new Pet food range in Q2. Management emphasized the significant growth potential of this division and its commitment to expanding its presence in the Petcare market.

International Subsidiaries Show Improved Performance

Hester Nepal reported a net profit of Rs. 1.87 crores for the nine months and remains debt-free. Hester Africa significantly reduced its losses to Rs. 0.57 crores in nine months, a substantial improvement from Rs. 13.5 crores in the same period of FY24. This improvement was partly due to an unrealized foreign exchange gain resulting from the Tanzanian shilling's appreciation against the US dollar. Management expressed strong confidence in the African business, anticipating a 'very big leap' in the next two quarters through increased participation in international tenders and trade sales, including a confirmed vaccine supply to the Tanzanian Ministry.

Capacity Utilization and Future Strategy

The company reported approximately 70% capacity utilization in India for the nine-month period, with Nepal at around 20% and Africa at 10%, indicating sufficient capacity for future growth. While management refrained from providing specific financial guidance for FY26 and FY27, they reiterated their focus on improving the bottom line, enhancing operational efficiencies, and expanding their product mix, particularly in the Poultry Healthcare segment. The company aims to substantially increase its health products turnover, potentially exceeding vaccine sales in the coming years, and leverage its comprehensive range of animal vaccines as a key differentiator.

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

More Healthcare earnings calls