Jubilant Pharmova Limited — Q3 FY23 earnings call

Call held 3 Feb 2023

Management summary

Jubilant Pharmova's Q3 FY23 results were characterized by strong top-line growth offset by significant margin pressure and regulatory headwinds. While the Specialty Pharma segment saw revenue gains, profitability was hampered by the absence of high-margin COVID-19 deals in the CDMO business and a temporary isotope shortage affecting Radiopharmacies. Management is aggressively pursuing a cost-optimization strategy in the Generics segment to mitigate ongoing losses and regulatory challenges at the Roorkee and Nanjangud facilities.

Highlights

  • Revenue reported at ₹1,553 crore, up 18.5% YoY, driven by Radiopharmacies and Allergy business growth.

  • Reported EBITDA stood at ₹155 crore, a decline of 22.5% YoY due to lower COVID-related deals and supply chain disruptions.

  • The company reported a Net Loss (PAT) of ₹16 crore compared to a profit of ₹51 crore in Q3 FY22.

  • Radiopharmacies business was hit by a 3-week industry-wide shortage of Technetium generators in November.

  • Generics business is undergoing a transformation with ₹150 crore in identified annual cost savings.

  • Finance costs increased to ₹51 crore (up 38% YoY) due to rising global interest rate benchmarks (SOFR).

  • Net Debt stood at ₹2,407 crore on a constant currency basis as of December 31, 2022.

  • Management maintains a target for Radiopharmacies to break even by Q4 FY24.

Concerns

  • US FDA Regulatory Status (Roorkee)

  • US FDA Observations (Nanjangud)

Key financials

  1. Revenue ₹1,553 Cr +18.5%YoY
  2. Reported EBITDA ₹155 Cr -22.5%YoY
  3. PAT ₹-16 Cr -131.4%YoY
  4. Finance Cost ₹51 Cr +37.8%YoY
  5. Net Debt ₹2,407 Cr +9.2%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
₹1,546 Cr Total
  • Specialty Pharma ₹760 Cr 49.2%
  • CRDMO ₹291 Cr 18.8%
  • CDMO Sterile Injectables ₹272 Cr 17.6%
  • Generics ₹223 Cr 14.4%

Guidance & targets

Profitability

  • Radiopharmacies Break-even Profitability · Q4 FY24 · High confidence Break-even
    Turnaround plan in Radiopharmacies business is on track to achieve break-even in Q4’FY24E.

    — Pramod Yadav, CEO Specialty Pharma

Other

  • Annual Operating Cost Savings Other · March 2023 · High confidence ₹100 crore
    The implementation of these cost optimisations is on track and expected to be completed by March 2023.

    — Arun Sharma, CFO

  • Additional Cost Optimization Other · H1 FY24 · Medium confidence ₹50 crore
    We have further identified additional cost optimisation opportunities of Rs 50 Crore. Implementation of which is expected to be completed in H1FY24.

    — Arun Sharma, CFO

Margin

  • Generics EBITDA Margin Margin · FY24 end · Medium confidence negative mid-single digits

    From (34%) today

    The expectation in Generics profitability is that from this 9 months, which is close to approximately (34%), by FY'24 year end we should significantly improve, and should be close to negative mid-single digits.

    — Jaidev Rajpal, CEO Generics

Market context

  • Drug Discovery Services Growth Revenue · end of FY23 · Medium confidence double-digit
    for Drug Discovery business we see double-digit growth starting from end of this year

    — Giuliano Perfetti, CEO CRDMO

Risks & concerns

  • US FDA Regulatory Status (Roorkee)

    high

    Roorkee facility remains under Import Alert and OAI status; only one product has an exemption for the US market.

    Both acknowledged

  • US FDA Observations (Nanjangud)

    high

    The Nanjangud facility received 8 observations during a December 2022 audit; the site is currently in OAI status.

    Management acknowledged

  • Supply Chain Vulnerability (Isotopes)

    medium

    Dependence on a small number of global nuclear reactors for Moly/Technetium leads to significant revenue volatility when reactors go offline.

    Management acknowledged

  • Rising Interest Rates

    medium

    1-month SOFR increased from 0.3% in March to 4.36% in December, significantly impacting finance costs.

    Management acknowledged

Areas of evasion (3)

  • Quantifying the legal settlement in Generics
  • Specific timeline for Nanjangud regulatory resolution
  • Detailed breakdown of the ₹1,000 crore cumulative losses in Radiopharmacies

Q&A highlights

1 direct, 1 evasive
Radiopharmacies Persistent Losses Direct
There was a one-time event in the industry where industry went through the shortage of Technetium generator... we had all the costs in the system, but not enough revenue to cover it for those 3 weeks.

Explains why the Radiopharmacy segment losses spiked back to ₹45-50 crore levels despite stable revenue.

Asked by Vinay Jain, Karma Capital

Generics One-time Legal Settlement Evasive
The gain was due to settlement of a long pending customer dispute. However, we generally do not comment on individual customer-related contract due to the confidential nature.

Analysts were trying to strip out one-time gains to understand the core operational loss trajectory in the Generics business.

Asked by Vinay Jain, Karma Capital

API Plant Upgradation Delay Partial
The last upgradation, which was supposed to be completed in Q2 was prolonged even in Q3, and this created some lower volumes.

Highlights a management execution miss where a previously promised 'revenue bump' was delayed due to prolonged facility upgrades.

Asked by Vinay Jain, Karma Capital

2 min read 5 chapters

Detailed narrative

Radiopharmacies: Isotope Shortage Masks Turnaround Progress

The Radiopharmacies segment reported a revenue of ₹400 crore, but losses widened to approximately ₹45-50 crore during the quarter. Management attributed this to a three-week industry-wide shortage of Technetium generators in November, caused by simultaneous maintenance and breakdowns at global nuclear reactors. Despite this setback, management remains 'extremely confident' in their turnaround plan, targeting a break-even by Q4 FY24 through organic growth and operational efficiencies.

Generics: Aggressive Cost-Cutting Amid Regulatory Hurdles

The Generics business is undergoing a large-scale transformation to pivot away from the troubled US market toward India and other international regions. The company has identified ₹150 crore in total annual cost savings, with ₹100 crore expected to be realized by March 2023 and an additional ₹50 crore by H1 FY24. While EBITDA improved sequentially to -₹36 crore, this was aided by a one-time legal settlement, the value of which management declined to disclose.

CDMO Sterile Injectables: Normalizing Post-COVID

Revenue in the CDMO Sterile Injectables business stood at ₹272 crore, showing stable performance in core products but a significant drop in EBITDA from ₹116 crore to ₹56 crore YoY. This decline is primarily due to the high base of COVID-related deals in the previous year, which have now dropped to nil. Management noted that plant shutdowns, which occur twice a year, also impacted margins during the quarter.

Regulatory Overhang: Roorkee and Nanjangud Facilities

Regulatory challenges continue to weigh on the company, with the Roorkee plant remaining under an Import Alert and OAI status following a follow-on audit in July 2022. Furthermore, the Nanjangud API facility received 8 observations from the US FDA in December 2022. While Jubilant has submitted responses to these observations, the pending outcome prevents management from providing clear revenue or margin guidance for the API business in the near term.

Financial Headwinds: Debt and Interest Costs

Finance costs surged to ₹51 crore in Q3 FY23, driven by the sharp rise in global interest benchmarks, specifically the 1-month SOFR which climbed to 4.36%. Net debt increased to ₹2,407 crore, up from ₹2,204 crore in the previous quarter. The company continues to invest in growth, with quarterly capital expenditure of ₹218 crore, focusing on facility upgrades and capacity expansion in the CRDMO segment.

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