Hikal Limited — Q2 FY25 earnings call

Call held 12 Nov 2024

Management summary

Hikal reported a strong Q2 FY25, driven by improved volume offtake in the Pharmaceutical business and stable raw material prices, leading to significant revenue and EBITDA growth. While the Crop Protection sector showed signs of stabilization, it continues to face pricing pressure. The company is cautiously optimistic about sustained recovery and is focused on new customer acquisition, project pipeline, and operational efficiencies across its divisions.

Highlights

  • Q2 FY25 Revenue stood at INR 453 crores, representing a 29% growth YoY and QoQ.

  • Q2 FY25 EBITDA was INR 75 crores, growing 30% YoY and QoQ.

  • EBITDA margin improved to 16.5% in Q2 FY25 from 13.2% last year.

  • H1 FY25 Revenue reached INR 860 crores, with EBITDA of INR 133 crores.

  • Pharmaceutical business revenue for Q2 FY25 was INR 294 crores, with EBIT of INR 40 crores.

  • Crop Protection business revenue for Q2 FY25 was INR 159 crores, with EBIT of INR 8 crores and an EBIT margin of 5%.

  • Working capital reduced by INR 50 crores during the first half of the year.

  • Six Animal Health products successfully validated, with regulatory filings initiated.

Key financials

2 periods

Headline

  • Revenue
    ₹453 Cr
    YoY +29% QoQ +29%
  • EBITDA
    ₹75 Cr
    YoY +30% QoQ +30%
  • EBITDA Margin
    16.5%

H1

  • Revenue
    ₹860 Cr
    YoY +23% QoQ +4%
  • EBITDA
    ₹133 Cr

What they filed

Q1 FY27: revenue up 5.9%, net profit up 67.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue453 448 552 380 319 −30%494 +10%519 −6%403 +6%
EBITDA75 72 123 25 7 −90%83 +15%105 −15%37 +47%
Net profit18 17 50 -22 -35 −291%-6 −134%14 −71%-7 +67%
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
₹453 Cr Total
  • Pharmaceutical Business ₹294 Cr 64.9%
  • Crop Protection Division ₹159 Cr 35.1%

Guidance & targets

Debt

  • Debt for current year Debt · current year · High confidence INR 800 crores
    See, for the current year, we expect close to INR800 crores.

    — Kuldeep Jain, Chief Financial Officer

  • Debt repayment Debt · FY25-26 · High confidence INR 130 crores
    Next year, we have a repayment of INR130 crores. Next year, that is FY25-26, and we expect to maintain the same numbers.

    — Kuldeep Jain, Chief Financial Officer

  • Debt level Debt · FY25-26 · High confidence INR 800 crores
    Next year, that is FY25-26, and we expect to maintain the same numbers.

    — Kuldeep Jain, Chief Financial Officer

Capex

  • Capex funding Capex · next year · Medium confidence in the same range as debt
    So we'll borrow something for the capex. It will be in the same range.

    — Kuldeep Jain, Chief Financial Officer

Capacity

  • New Pharma capacity commercialization Capacity · next year onwards · Medium confidence 1 to 2 years
    No. It will come on stream next year. And it take 1 or 2 years to commercialize. It doesn't get immediately operational.

    — Sameer Hiremath, Managing Director

Pharma Business Outlook

  • H2 FY25 performance Pharma Business Outlook · H2 FY25 · High confidence stronger than H1
    And we feel that H2 will be stronger than H1. And that's historically the Hikal trend.

    — Sameer Hiremath, Managing Director

  • FY26 performance Pharma Business Outlook · FY26 · High confidence stronger than FY25
    And a stronger FY '26 over FY25.

    — Sameer Hiremath, Managing Director

  • Revenue and margins growth Pharma Business Outlook · FY26 · High confidence growth in both
    We expect growth in both revenue and margins in FY '26 compared to FY25.

    — Sameer Hiremath, Managing Director

Crop Protection Outlook

  • Positive momentum Crop Protection Outlook · next 2-3 quarters · Medium confidence 2 to 3 quarters away
    I think we're a few more quarters away from seeing a positive momentum of growth coming back. I think we're still 2 to 3 quarters away.

    — Sameer Hiremath, Managing Director

  • Improvements Crop Protection Outlook · H2 FY26 · Medium confidence will start seeing improvements
    And we will start seeing improvements from -- if not H1, maybe by H2, definitely of next year, next financial year.

    — Sameer Hiremath, Managing Director

Animal Health

  • Commercial supply of validated products Animal Health · next 12 months · Medium confidence start selling some commercial quantities
    So I do expect that over the next 12 months, we'll be able to start selling some of the commercial quantities of the validated products.

    — Anish Swadi, Senior President, Business Transformation and Animal Health

  • Validation of innovator customer product portfolio Animal Health · next quarter or 2 quarters · High confidence finish validation
    So I think over the next quarter or 2 quarters, we'll finish the validation of our innovator customer for the product portfolio that we have.

    — Anish Swadi, Senior President, Business Transformation and Animal Health

CDMO Pharma

  • Ramping up of NCE projects CDMO Pharma · 2026-2027 · High confidence initiated in 2026, 2027
    This is expected to contribute to our growth as ramping up will be initiated in 2026, 2027.

    — Management

  • Specialized ingredients projects peak revenue CDMO Pharma · upcoming 2 to 3 years · Medium confidence reach its peak revenue
    Our portfolio of specialized ingredients projects are progressing well and expected to reach its peak revenue in upcoming 2 to 3 years.

    — Management

CDMO Crop Protection

  • Pipeline project timelines CDMO Crop Protection · long-term · Medium confidence 3 to 6 years
    So this is -- this typically takes anything between 3 to 6 years, depending on what stage it is. So average, you can consider 3 to 5 years.

    — Vimal Kulshrestha, President, Crop Protection Division

  • Advanced stage projects CDMO Crop Protection · 3 to 4 years' time line · Medium confidence two or three
    So we see two or three. They are more closer to 3 to 4 years' time line and balance are beyond that.

    — Vimal Kulshrestha, President, Crop Protection Division

R&D Spend

  • R&D allocation R&D Spend · ongoing · High confidence 4% to 5% of revenue
    Furthermore, we continue to allocate close to about 4% to 5% of our revenue in our research and development unit.

    — Anish Swadi, Senior President, Business Transformation and Animal Health

Risks & concerns

  • Depressed prices and excess inventory in Crop Protection sector

    medium

    The crop protection sector is still facing challenges with depressed prices and excess inventory, impacting margins, though stabilization signs are emerging.

    Management acknowledged

  • China's long-term competitiveness in crop protection

    medium

    China remains a serious long-term competitor in generic older molecules, leading Hikal to focus on new chemical entities and niche products.

    Analyst acknowledged

  • Subdued Q3 performance due to customer year-end

    low

    Many customers' financial year ends in Q3, leading them to push shipments to January, making Q3 a typically lower quarter for Hikal.

    Management acknowledged

Q&A highlights

3 direct
Improved working capital and cash flow Direct
So as far as the working capital is concerned, what we have done, we have put a lot of control on the inventory... So we have a reduction of working capital to the extent of INR50 crores.

Reveals specific operational improvements leading to better cash management and a quantifiable reduction in working capital.

Asked by Ashish Rawat

Pharma business outlook for H2 FY25 Direct
The performance of pharma business this quarter has definitely been good. We expect the same momentum to continue in the second half of the year, although we'll see some kind of, I'll say, suppress growth in quarter 3, but we'll bounce back in quarter 4. So overall, I'll say that H2 will remain in the same line.

Provides a clear, albeit nuanced, outlook for the key Pharma segment, including a specific expectation for a subdued Q3 followed by a strong Q4.

Asked by Ashish Rawat

CDMO share, contract research, and BIOSECURE Act opportunity Direct
So our percentage of our CDMO business has increased by over 10% as a total revenue. It's over 40% of our Pharma division is CDMO... All the business has now moved towards CDMO. That's been the big change in the last 5-6 years as a company.

Clarifies the significant shift towards CDMO in the Pharma division, its growing contribution, and the company's positioning to capitalize on global trends like the BIOSECURE Act.

Asked by Dhaval Shah

2 min read 6 chapters

Detailed narrative

Strong Q2 FY25 Performance Driven by Pharma

Hikal reported a robust Q2 FY25 with revenue reaching INR 453 crores, marking a 29% growth both year-on-year and quarter-on-quarter. EBITDA for the quarter stood at INR 75 crores, a 30% increase, with the EBITDA margin improving to 16.5% from 13.2% in the prior year. This performance was primarily fueled by improved volume offtake in the Pharmaceutical business and stable raw material prices, contributing to cost improvements.

Pharmaceutical Business Momentum Continues

The Pharmaceutical business was a key growth driver, reporting Q2 FY25 revenue of INR 294 crores and EBIT of INR 40 crores. The EBIT saw a significant increase of 934 basis points year-on-year and 994 basis points quarter-on-quarter. Management expects this positive momentum to continue into H2 FY25, with Q3 anticipated to be subdued due to customer year-end effects, but a strong bounce back projected for Q4. The CDMO segment within Pharma now accounts for close to 40% of the division's total revenue, with a healthy pipeline of early-stage NCE products.

Crop Protection Sector Stabilizing Amidst Challenges

The Crop Protection division recorded INR 159 crores in revenue for Q2 FY25, with an EBIT of INR 8 crores and an EBIT margin of 5%. While volumes grew by 22% in Q2, value degrew by 4% due to pricing pressure. Management indicated that the sector is showing signs of stabilization, with excess inventory issues gradually resolving. However, a full positive momentum of growth is still 2 to 3 quarters away, with significant improvements expected by H2 FY26.

Animal Health and CDMO Pipeline Progress

Hikal's Animal Health facility has successfully validated six products, with regulatory filings underway, and commercial sales expected to commence within the next 12 months. In the CDMO segment, two advanced intermediate projects for new chemical entities are in Phase 3 clinical trials, with ramping up expected to begin in 2026-2027. The company is also evaluating GLP-1 inhibitors, indicating a focus on expanding its product portfolio in the diabetic segment.

Financial Health and Capital Allocation

The company successfully reduced its working capital by INR 50 crores in H1 FY25, improving cash flow. Current year debt is expected to be around INR 800 crores, with a repayment of INR 130 crores planned for FY25-26, maintaining debt levels in the same range. Capex for new capacity, primarily in Pharma, is expected to come on stream next year and commercialize over 1-2 years. Hikal continues to allocate 4-5% of its revenue to R&D, fostering innovation and maintaining a differentiated technology toolbox.

Strategic Focus on New Customer Acquisition and Operational Efficiency

Hikal's strategic focus includes onboarding new customers, acquiring new projects, and enhancing operational efficiencies. The company is expanding its global presence by onshoring people in North America, Europe, and Japan, and setting up an office in Latin America to get closer to customers. This proactive approach aims to capitalize on the 'China + 1' strategy and opportunities arising from initiatives like the BIOSECURE Act, particularly from US innovators.

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