Jubilant Pharmova Limited — Q2 FY23 earnings call

Call held 21 Oct 2022

Management summary

Jubilant Pharmova reported a mixed Q2 FY23, characterized by a strong recovery in Specialty Pharmaceuticals and CRDMO, offset by a severe downturn in the Generics segment. The company successfully refinanced $350 million in debt at a significantly lower interest rate (<2%), incurring one-time foreclosure charges that suppressed quarterly PAT. Management is pivoting toward a 'large-scale business transformation' in Generics to combat US pricing pressures and regulatory hurdles at the Roorkee plant.

Highlights

  • Revenue stood at ₹1,600 crore, down 3.4% YoY but up 10.2% QoQ.

  • Reported EBITDA was ₹232 crore with a margin of 14.5%, compared to 20.8% in Q2 FY22.

  • PAT fell sharply to ₹5 crore from ₹143 crore YoY, primarily due to ₹57 crore in exceptional refinancing costs.

  • Specialty Pharmaceuticals revenue grew to ₹814 crore, up from ₹651 crore in Q2 FY22.

  • Generics segment faced significant headwinds, with revenue dropping to ₹161 crore from ₹333 crore YoY due to pricing pressure and the Roorkee Import Alert.

  • Radiopharma business saw volumes recover to 95%+ of pre-COVID levels for most molecules.

  • Management identified ₹100 crore in annualized cost-saving opportunities in the Generics business to be implemented by Q4 FY23.

Concerns

  • US FDA Regulatory Actions

  • US Generic Pricing Pressure

Key financials

  1. Revenue ₹1,600 Cr -3.4%YoY
  2. EBITDA ₹232 Cr -32.6%YoY
  3. EBITDA Margin 14.5%
  4. PAT ₹5 Cr -96.5%YoY
  5. Normalized PAT ₹62 Cr -56.6%YoY
  6. Net Debt ₹2,204 Cr +13%QoQ

What they filed

Q1 FY27: revenue up 12.8%, net profit up 25.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue61 56 61 60 66 +8%67 +20%70 +16%67 +13%
EBITDA10 10 11 10 12 +18%12 +22%15 +33%12 +17%
Net profit11 5 14 6 -6 −161%7 +25%57 +321%7 +26%
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
₹1,594 Cr Total
  • Specialty Pharmaceuticals ₹814 Cr 51.1%
  • CRDMO ₹320 Cr 20.1%
  • CDMO Sterile Injectables ₹299 Cr 18.8%
  • Generics ₹161 Cr 10.1%

Guidance & targets

Capex

  • Capital Expenditure Capex · FY23 · High confidence ₹700-750 crore
    We expect to incur capex of around Rs 700-750 Crore in FY23 primarily towards expansion in CMO business and enhancement of Drug Discovery Services capabilities and capacities.

    — Arun Sharma, CFO

Other

  • Product Development Expenditure Other · FY23 · High confidence ₹250-300 crore
    In addition, we expect product development expenditure of Rs 250-300 Crore.

    — Arun Sharma, CFO

  • Generics Cost Savings Other · by Q4 FY23 · High confidence ₹100 crore
    We have identified and are in the process of executing annualized cost opportunities worth around Rs. 100 crore across direct and indirect spend. These will be implemented by Q4 FY'23.

    — Pramod Yadav, CEO

Profitability

  • Radiopharmacies Breakeven Profitability · by end of FY24 · Medium confidence Breakeven
    So Amitji, we had guided that by end of FY'24 we will be breaking even in this business. Let’s stay with this guidance, please.

    — Pramod Yadav, CEO

Volume

  • MIBG Market Potential Volume · Annualized · Medium confidence >$200 million
    Yes, it will be in excess of USD200 million on annualized basis with a 100% potential.

    — Pramod Yadav, CEO

Risks & concerns

  • US FDA Regulatory Actions

    high

    Roorkee plant has 6 observations; Nanjangud plant remains under Import Alert, preventing new product launches in the US.

    Both acknowledged

  • US Generic Pricing Pressure

    high

    Pricing headwinds in the US generic market are significantly impacting revenues and profitability.

    Management acknowledged

  • Tapering of COVID-related Revenue

    medium

    CDMO Sterile Injectables saw COVID deals drop from ₹162 crore to ₹22 crore YoY.

    Management acknowledged

  • Input Cost Inflation

    medium

    Higher employee and component costs in the US are impacting margins, though management claims some ability to pass these on.

    Analyst acknowledged

Areas of evasion (2)

  • Specific timeline for Nanjangud re-inspection
  • Detailed breakdown of the ₹100 crore cost savings

Q&A highlights

2 direct
Radiopharma Utilization Levels Direct
We are touching more than 95% in all the molecules, except DTPA. DTPA has not yet come up and we are waiting, but rest of the products have come up to the pre-COVID level.

Confirms that the core Radiopharma business has largely recovered from pandemic-induced volume declines.

Asked by Rahul Veera

MIBG Theragnostic Timeline Direct
The Phase II approval, we expect in FY'25. And Phase III approval, we expect in FY'26... We are trying to launch in FY'25.

Provides a clear commercialization timeline for a high-potential product in the specialty pipeline.

Asked by Aditya Khemka

CDMO API Margin Recovery Partial
The target for this is really to come back in the next future to the same level we were used to have in the past years.

Highlights that API margins (currently 8.5%) are still below historical levels due to plant upgradation and capacity unlock programs.

Asked by Mitesh Shah

2 min read 5 chapters

Detailed narrative

Specialty Pharma Leads Recovery

The Specialty Pharmaceuticals segment was the primary growth driver, with revenue reaching ₹814 crore, up from ₹651 crore YoY. Radiopharma volumes have normalized to over 95% of pre-COVID levels for most molecules, excluding DTPA. The Radiopharmacies business is showing operational improvement, with EBITDA losses narrowing to 5%, and management maintains its target for breakeven by the end of FY24.

Generics Business Under Siege

The Generics segment faced a perfect storm of pricing headwinds in the US and regulatory restrictions. Revenue plummeted to ₹161 crore from ₹333 crore in the previous year. In response, management has appointed a new head for the business, Jaidev Rajpal, and initiated a transformation plan targeting ₹100 crore in annualized cost savings by Q4 FY23, alongside a rebalancing of the R&D portfolio.

Strategic Debt Refinancing

Jubilant successfully refinanced $350 million of debt, replacing 6% coupon bonds and term loans with a new 5-year facility at a coupon rate of less than 2%. While this resulted in a one-time exceptional charge of ₹57 crore (foreclosure and write-offs), it is expected to yield 'phenomenal cost savings' over the next two years by significantly reducing interest outgo.

CDMO Normalization Post-COVID

CDMO Sterile Injectable revenues normalized to ₹299 crore as high-margin COVID-related deals tapered off to ₹22 crore from ₹162 crore in Q2 FY22. Sequential revenue growth was seen due to higher volumes, though margins were impacted by scheduled plant shutdowns in Spokane and Montreal. Management expects margins to return to healthy pre-COVID levels on an annualized basis.

Regulatory and Pipeline Outlook

The company is awaiting FDA feedback on its Roorkee plant CAPA plan following 6 observations in July. For Nanjangud, which is under an Import Alert, the company has hired external consultants and claims readiness for inspection, though no timeline is set. On the pipeline front, the MIBG theragnostic molecule is progressing through Phase II/III trials with a targeted US launch in FY25 and a potential market size exceeding $200 million.

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