Morepen Laboratories Limited — Q3 FY25 earnings call

Call held 6 Feb 2025

Management summary

Morepen Labs reported a quarter of modest revenue growth but strong profitability improvement over the nine-month period, driven by a focus on higher-margin products and export markets, particularly Europe. The medical devices segment continued its robust growth, while the API business faced temporary margin pressures from raw material price increases not yet passed on to customers. The company is actively expanding capacity and launching new products, with a long-term vision for sustained growth.

Highlights

  • Nine-month FY25 revenue grew 6.5% to ₹1,359 crores.

  • Nine-month FY25 EBITDA margin increased by 21%, and PAT grew 44% to ₹97.71 crores.

  • Q3 FY25 revenue was ₹458 crores, a 2% YoY growth and 3.45% QoQ growth.

  • Medical Devices business grew 15% in Q3 FY25 to ₹123 crores, and 11% for nine months to ₹394 crores.

  • Exports for nine months reached a landmark ₹500 crores, up 9.9% YoY.

  • European market revenue jumped 55% in nine months, while the US market was down 14%.

  • API capacity expansion: 510 KL out of 600 KL planned capacity is already complete and ready for production.

  • Trailing 12-month EPS stands at ₹2.39, with an expectation of ₹2.5 for the full year.

Concerns

  • Chinese Pricing Aggression & Raw Material Price Volatility

Key financials

3 periods

Q3 FY25

  • Revenue
    ₹458 Cr
    YoY +2% QoQ +3.5%
  • PAT
    ₹27 Cr
  • EBITDA Margin
    9.1%

9M FY25

  • Revenue
    ₹1,359 Cr
    YoY +6.5%
  • PAT
    ₹97.71 Cr
    YoY +44%
  • EBITDA Margin
    10.7%
    YoY +21%

TTM

  • EPS
    ₹2.39

What they filed

Q1 FY27: revenue up 34.1%, net profit up 409.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue438 453 466 425 412 −6%484 +7%485 +4%570 +34%
EBITDA44 36 42 24 31 −30%46 +28%24 −43%83 +246%
Net profit35 27 20 11 41 +17%28 +4%16 −20%56 +409%
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 (9M FY25)
₹1,860 Cr Total
  • Pharma ₹966 Cr 51.9%
  • Exports ₹500 Cr 26.9%
  • Medical Devices ₹394 Cr 21.2%

Guidance & targets

Profitability

  • EPS Profitability · FY25 · Medium confidence Rs. 2.5
    of course we are expecting EPS of Rs. 2.5 for the year as a whole.

    — Sushil Suri, Chairman & Managing Director

Revenue

  • Pharma Revenue Revenue · FY25 · Medium confidence Rs. 1,150 to Rs. 1,200 crores
    So, pharma will be, now we are expecting around Rs 1,150 to Rs. 1,200 crores for the pharma.

    — Sushil Suri, Chairman & Managing Director

  • Medical Devices Revenue Revenue · FY25 · Medium confidence Rs. 470-Rs. 475 crore
    So, Rs. 470-Rs. 475 crore is what we are expecting for the medical devices to close.

    — Sushil Suri, Chairman & Managing Director

  • Overall Revenue Growth Revenue · next 1-2 years · Medium confidence 10% to 15%
    So, the growth may be high, but otherwise 10% to 15% is what bare minimum we are expecting.

    — Sushil Suri, Chairman & Managing Director

  • Overall Revenue CAGR Revenue · long term · High confidence 20%
    So, CAGR would be 20% which we stand by.

    — Sushil Suri, Chairman & Managing Director

  • Formulation and OTC Business Growth Revenue · FY26 · Medium confidence at least 25%
    So, we are seeing at least a growth of 25% there.

    — Sushil Suri, Chairman & Managing Director

  • Total Revenue Revenue · FY25 · Medium confidence around Rs. 1,900 crores
    In fact we have grown around 7%. So, we should be touching around Rs. 1,900 this fiscal.

    — Ajay Kumar Sharma, Chief Financial Officer

Margin

  • EBITDA Margin Margin · FY26 · Medium confidence 11% to 12%
    EBITDA margin I would say is between 10 to 11 because now it is 10.72 for 9 months. So, I would say 11 to 12.

    — Sushil Suri, Chairman & Managing Director

Capacity

  • API Capacity Capacity · next six months · High confidence 600 KL
    So, we will have all the 600 KL ready for execution.

    — Sushil Suri, Chairman & Managing Director

Market Entry

  • Medical Devices Export Market Entry · 12 to 18 months · Medium confidence start
    So, medical devices export also may start in 12 months' time or 18 months' time.

    — Sushil Suri, Chairman & Managing Director

Risks & concerns

  • Chinese Pricing Aggression & Raw Material Price Volatility

    high

    Chinese prices were historically low, impacting profitability, and now raw material prices are increasing, but finished product prices have not yet responded, causing temporary margin compression in Q3 for API.

    Management acknowledged

  • US Market Slowdown

    medium

    US market was 14% down in nine months due to election year and instability, impacting orders.

    Management acknowledged

  • Domestic Market Competitiveness

    medium

    The domestic market for API is very competitive and demanding, leading the company to focus more on exports for better profitability.

    Management acknowledged

  • Customer Inventory Hesitation

    low

    Customers are hesitant to build high inventories due to past falling prices, though China prices are now starting to rise, which may reverse this trend.

    Management acknowledged

Areas of evasion (2)

  • Specific Q4 margin guidance
  • Specific Q4 sales guidance

Q&A highlights

3 direct
Reasons for depressed Q3 margins, specifically in API business Direct
The broader level is that the prices of the raw materials have started increasing and the prices of the finished product have not increased. So, the margin has temporarily been reduced because the market has not responded to an increase in the prices... Only in B2B business.

Reveals a key challenge impacting short-term profitability in the core API segment and clarifies that medical devices margins are healthy.

Asked by Dhaval Jain

Muted growth in medical devices and market penetration potential Direct
I don't think 15% growth is less. In Q3, we have grown 15% in terms of the new installation of meters and new strips sold... So, it's a WHO estimate that we have 100 million, 10 crores diabetic patients. So, out of 10 crores as I shared our number, we have only 1.35 crores... not more than 50% penetrated in the country. So, 30-40 would be a good guess.

Provides context on medical device growth, clarifies capacity issues are resolved, and highlights the significant untapped market potential in India for glucometers and BP monitors.

Asked by Subrata Sarkar

Strategy and opportunities in the CDMO (Contract Development and Manufacturing Organization) business Direct
we are seeing opportunities on the table where people want high end manufacturing from India because we have got FDA approved facilities. But ultimately, if we find that we can get good three customer and we need to put up a scientific lab so we can put up the lab also, we have already started working on those things also.

Outlines a strategic pivot towards higher-value contract manufacturing, leveraging existing infrastructure and the 'China plus one' trend, which could be a significant future growth driver.

Asked by Ayush Jain

3 min read 7 chapters

Detailed narrative

Q3 FY25 and Nine-Month Performance Highlights

Morepen Labs reported a 6.5% revenue increase for the nine months ended December 31, 2024, reaching ₹1,359 crores. Profitability saw significant improvement, with EBITDA margin up 21% and Profit After Tax (PAT) growing 44% to ₹97.71 crores for the nine-month period. For Q3 FY25, revenue stood at ₹458 crores, a modest 2% year-on-year growth and 3.45% quarter-on-quarter increase, with PAT at ₹27 crores and an EBITDA margin of 9.05%.

Medical Devices Segment: Robust Growth and Market Penetration

The Medical Devices segment demonstrated strong performance, growing 15% in Q3 FY25 to ₹123 crores, and 11% for the nine months to ₹394 crores. Glucometers and BP monitors constitute 90-95% of this business. The company has an installed base of 1.35 crore glucometers and sold 33 crore strips in nine months. BP monitor sales reached 9.5 lakh meters in nine months, up from 8.5 lakh last year, with the business now 100% indigenized, improving margins.

Pharma Business: Export-Driven Growth Amidst Pricing Pressures

The Pharma business recorded ₹966 crores in revenue for the nine months. Exports were a key driver, reaching a landmark ₹500 crores in nine months, a 9.9% increase from ₹455 crores last year. This growth was primarily fueled by a 55% jump in the European market. However, the API business faced margin pressure due to rising raw material costs and aggressive Chinese pricing, which has led to a strategic focus on higher-margin finished dosages and exports.

Capacity Expansion and New Product Initiatives

Morepen Labs is actively expanding its manufacturing capabilities. The civil work for the P8 API plant extension is complete, with 510 KL out of the planned 600 KL capacity already ready for production. Construction has also begun for the P9 block. In the OTC segment, the company launched 'LightLife' for weight management, featuring patented ingredients. Two new Rx products, Ticaspan (antiplatelet) and UdoFix (liver health), were also introduced, with UdoFix seeing demand in the government sector.

Geographical Performance and Market Outlook

Geographically, the US market experienced a 14% decline in nine months, attributed to political instability and election year effects. Conversely, the European market showed significant strength with a 55% revenue jump. The company strategically kept India market growth lower (down 5%) to prioritize profitability. Management anticipates overall revenue growth of 10-15% in the near term and a long-term CAGR of 20%, with a full-year FY25 revenue target of around ₹1,900 crores.

CDMO Business and Future Growth Drivers

The company is exploring opportunities in the Contract Development and Manufacturing Organization (CDMO) space. This strategy involves partnering with innovators who have R&D capabilities but lack large-scale manufacturing, leveraging Morepen's FDA-approved facilities and existing capacities. This move is aligned with the 'China plus one' model, aiming to capture high-end manufacturing from India and diversify beyond traditional B2B API sales into higher-value services.

Profitability Focus and Margin Outlook

Despite Q3 margin compression in the B2B API business due to raw material price increases not yet passed on, management reiterated its focus on improving overall profitability. The strategy involves increasing the share of higher-margin finished dosages and medical device exports. The company aims for an overall EBITDA margin of 11-12% in the coming year, driven by operational efficiencies and a favorable product mix.

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