Morepen Laboratories Limited — Q4 FY25 earnings call

Morepen Laboratories reported a muted but positive financial performance for FY25, with total revenue reaching INR1,830 crores, a 7.4% increase year-over-year. Q4 FY25 revenue stood at INR470 crores, growing 10.1% YoY. Despite geopolitical disturbances and tariff impact^🌐s, the company achieved an 11.5% increase in EBITDA, with the EBITDA margin improving by 40 basis points from 10.1% to 10.5%. Net profit (PAT) saw a significant 22% increase. Management noted that while growth was lower than the expected 10-15%, strategic shifts towards profitability and exports were maintained.

The API business constitutes 53% of Morepen's total revenue, with 72.1% derived from exports, reflecting a 26% increase in export value over the last three years to INR700 crores. While API sales quantity surged by 57% in two years to 476 tons, the average selling price declined by 24% from INR26,000/kg to INR20,300/kg due to Chinese inventory liquidation. The company is a market leader in 6 APIs, including loratadine, desloratadine, montelukast, atorvastatin, rosuvastatin, and fexofenadine. New products, particularly in diabetic and cardiac ranges (e.g., sitagliptin, apixaban), contributed INR114 crores in FY25, a 65% increase in four years, and are expected to drive future growth as patents expire.

Morepen is strategically increasing its focus on the finished dosage (Rx and OTC) business, which currently accounts for 20% of total revenue. This segment grew 21% in the last two years to INR344 crores, with Q4 FY25 showing a 29% increase. The company plans a significant expansion of its medical representative strength from 200 to 1,200 over the next three years to enhance market reach and drive formulation sales. Additionally, Morepen is developing first-in-class drugs like Resmetirom for non-alcoholic fatty liver disease, with bioequivalence studies pending CDSCO approval, and is exploring partnerships for maximum market mileage.

The medical devices segment, comprising 27% of the business, demonstrated robust growth, with annual revenue increasing 12% to INR496 crores in FY25 and Q4 revenue up 15% to INR103 crores. Morepen is a market leader in glucometers and BP monitors, with 14.2 million glucometer installations (up 21%) and 1.17 million BP monitor sales (up 12%). The company is undertaking significant capacity expansions, aiming to increase glucometer capacity from 25 lakh to 36 lakh meters, test strips from 42 crore to 60 crore per annum, and BP monitors from 9 lakh to 18 lakh units. These expansions, coupled with backward integration and digital initiatives like the Sync app, are expected to sustain market leadership.

Morepen's export strategy focuses on high-value markets, with 72.1% of its API business coming from exports to over 80 countries. The company's US export constitutes only 16% of API turnover (7-8% of total revenue), minimizing exposure to potential US tariff wars on patented drugs. Europe accounts for 22% of exports, Asia 28%, MENA 2.9%, India 27%, and South America 3.4%, indicating a well-diversified geographical presence. Management emphasized that this diversification reduces risk from any single country or currency fluctuation, allowing the company to navigate global uncertainties effectively.

The company experienced margin pressures, particularly in the API business, due to a 24% drop in average selling prices over the last two years, primarily attributed to Chinese manufacturers liquidating excess inventory. While raw material prices have started to normalize, the Indian market has been slow to accept corresponding price increases. Management believes API prices are now at the bottom, and with ongoing capacity expansions (API capacity to 600 KL by FY26) and a strategic shift towards higher-margin finished dosages and medical devices, they anticipate an improvement in EBITDA margins in the long term.