Orchid Pharma Limited — Q3 FY25 earnings call

Call held 12 Feb 2025

Management summary

Orchid Pharma reported a robust 15% YoY growth in total income for the first nine months of FY25, reaching INR710 crores, with PAT increasing by 26% to INR78 crores. Despite price corrections in key products, the company maintained healthy margins by prioritizing profitability over volume at reduced prices. Strategic projects like the 7ACA initiative are advancing, and the AMS division is in an investment phase, expected to become EBITDA accretive after another year.

Highlights

  • Q3 FY25 Total Income: INR227 crores

  • Q3 FY25 EBITDA: INR37 crores

  • 9 Months FY25 Total Income: INR710 crores, reflecting 15% growth YoY

  • 9 Months FY25 EBITDA: INR115 crores (up from INR99 crores YoY)

  • 9 Months FY25 PAT: INR78 crores (up from INR62 crores YoY), a 26% increase

  • Overall volumes increased by over 20% (9 months cumulative)

  • EU GMP audit certificate received in October '24.

  • 7ACA project budgeted spend: INR600 crores, with INR80 crores already spent. Water trials expected by April '26.

Key financials

2 periods

Headline

  • Total Income
    ₹227 Cr
  • EBITDA
    ₹37 Cr

9M FY25

  • Total Income
    ₹710 Cr
    YoY +15%
  • EBITDA
    ₹115 Cr
    YoY +16.2%
  • PAT
    ₹78 Cr
    YoY +25.8%

What they filed

Q1 FY27: revenue up 15.6%, net profit up 156.6% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue223 217 237 263 194 −13%207 −5%368 +55%304 +16%
EBITDA30 26 28 -6 -1 −105%2 −94%30 +8%14 +348%
Net profit27 21 22 -6 -6 −121%-13 −161%26 +16%3 +157%
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.

Guidance & targets

Profitability

  • Gross Margin Profitability · near term · Medium confidence 40% plus, minus 2%
    The guidance we have only given is on the gross margin remaining stable 40% plus, minus 2% for the near term.

    — Mridul Dhanuka

  • EBITDA Margin Expansion Profitability · every year · Medium confidence 100 basis points or so
    And the other thing I've talked about is due to our volumes increasing and productivity enhancement, we should see an EBITDA margin expansion of 100 basis points or so every year.

    — Mridul Dhanuka

  • Tax Possibility Profitability · next 4, 5 years · High confidence no possibility of tax
    So, I don't think for next 4, 5 years, there will be any possibility of tax.

    — Sunil Kumar Gupta

  • 7ACA Project Investment Return Profitability · High confidence within 3 years
    So, in terms of -- I have not look at the business like that, but within 3 years, it must come by, the investment.

    — Mridul Dhanuka

  • AMS Division Breakeven Profitability · another year or so more after this financial year · Medium confidence EBITDA accretive
    So, we expect a negative EBITDA run rate for another year or so more after this financial year. And then it will become EBITDA accretive to us.

    — Mridul Dhanuka

Project Timeline

  • 7ACA Water Trials Project Timeline · Q1 FY26 · High confidence April of '26
    So, we have talked about the water trials happening in April of '26. Currently, it looks that we should be able to be in those deadlines.

    — Mridul Dhanuka

  • Cefiderocol Project Commissioning Project Timeline · FY27 · High confidence November, December of '26
    Yes. So Cefiderocol project, we are under construction phase. The current launch imagine is November, December of '26, subject to the approval of the drug in India.

    — Mridul Dhanuka

Capex

  • 7ACA Budgeted Spend Capex · High confidence INR600 crores
    Yes. The budgeted spend was INR600 crores, out of which Mr. Gupta, can you just say how much have we spent till now?

    — Mridul Dhanuka

Capacity

  • Sterile Business Capacity Expansion Capacity · couple of years · High confidence no capacity expansion planned
    So sterile, we expanded some capacity last year, we commissioned. So right now, there is no capacity expansion planned in the sterile business. So, whatever we commissioned last year, that is going to serve us well for going forward for a couple of years.

    — Mridul Dhanuka

Market Opportunity

  • Zavicefta (generic) ex-US Market Size Market Opportunity · Medium confidence $500 million
    Okay. And any sense on how large the market is. So, the ex-U.S. is about $500 million around and how much of that would be Europe?

    — Vishal Manchanda

  • Zavicefta (generic) Europe Market Size Market Opportunity · Medium confidence one third of the ex-US market
    I'm just making a very wild guess here. I think ex Europe, one third of the market should be Europe.

    — Mridul Dhanuka

Growth

  • Overall CAGR Growth · 3 years from today backwards · Medium confidence 20%
    Yes. So, we still believe that if you look Orchid as a long-term business and even 3 years from today, if you're looking backwards, you would still see that 20% CAGR, which I've always promised.

    — Mridul Dhanuka

Market context

  • Enmetazobactam Global Lifetime Sales (imagined) Market Opportunity · lifetime · Low confidence $2 million
    Yes. So, I have imagined that when I came out with the first guidance note of this product 3 years ago, my imagination was a $2 million lifetime sale across the world.

    — Mridul Dhanuka

Risks & concerns

  • Delay in Enmetazobactam US launch due to partner (Allecra) not finalizing distribution

    high

    USFDA approval is clear, but Allecra has not yet finalized a partner for launch, causing significant delays and loss of time, which management states is a 'cause for concern' and outside their control.

    Analyst acknowledged

  • Dependence on China for starting materials and their pricing strategy

    high

    China's tendency to lower final API prices without reducing key starting material prices, impacting gross margins; 7ACA investment is specifically to become free from this control.

    Analyst acknowledged

  • Price volatility and correction in top 3 products

    medium

    Price corrections in top three products due to market realignment, influenced by Pen-G pricing and China, leading to muted sales despite 20% volume growth.

    Management acknowledged

  • Uncertainty regarding PLI scheme extension for 7ACA project

    medium

    Despite project delays, government communication provides assurances, but a formal extension of the PLI scheme has not been granted, creating a risk.

    Analyst acknowledged

  • Potential dumping from China for 7ACA once Orchid's line comes online

    medium

    Historical precedent of dumping by China when Indian companies backward integrate; management expects pricing pressure but believes PLI, GST, and custom duty will cushion the impact.

    Analyst acknowledged

Areas of evasion (4)

  • Specific royalty numbers
  • Short-term revenue guidance
  • Precise breakeven revenue for AMS division
  • Specific timelines for Allecra partnership

Q&A highlights

2 direct
Delay in Enmetazobactam US launch and partner finalization Partial
Yes, Neeraj. That's really a cause for concern. I agree with you. Unfortunately, we don't have any control over Allecra, and the communication is also poor. So, when we spoke to them last time, they talked about that they are aware of this challenge, and they are actively working on several discussions. That's what they said. I don't have any further information.

Highlights a significant delay in a key product's entry into the crucial US market, dependent on a third party, with management expressing frustration over lack of control and communication.

Asked by Neeraj from DAMAC

Price correction in top three products and its impact on top-line growth Direct
Yes. So, the price correction is in the top three products. And as I explained, we are focused on retaining margins, as you would have seen, the margin profile is similar to what we expect. So, we have maintained the margins largely due to what has happened since the Aurobindo started making Pen-G. Some of the prices from China have dropped.

Explains the muted sales growth despite volume increase and links it to external market dynamics (Pen-G pricing, Aurobindo production, China prices) affecting core products, indicating a strategic choice to protect margins.

Asked by Viraj Parekh from Carnelian Asset Management

Clarity on PLI scheme for the 7ACA project given project delays Direct
Yes. And as I've explained on a few previous calls, so the government's letter has not changed, but the communication that we are receiving from the government is full of assurances. They are saying all the other projects are late, you don't worry, you go and execute the project. We are behind you. So, all of that support and communication is there. We expect the letter, they have not given as an expansion to anybody... So, we don't have any letter from them saying this is extended, but only assurance. So that risk is there, like I've talked about in previous call.

Reveals that while government assurances are given, a formal extension of the PLI scheme for delayed projects is not yet in writing, posing a potential risk to the project's economics.

Asked by Rupesh

3 min read 6 chapters

Detailed narrative

Q3 FY25 Financial Performance Overview

Orchid Pharma reported a total income of INR227 crores and an EBITDA of INR37 crores for Q3 FY25. For the first nine months of FY25, total income grew by 15% year-on-year to INR710 crores, while EBITDA improved significantly from INR99 crores to INR115 crores. Net profit (PAT) for the nine-month period saw a 26% increase, reaching INR78 crores compared to INR62 crores in the previous year. Despite overall volumes increasing by over 20%, price corrections in a few major products muted the total sales number, as the company prioritized maintaining healthy margins.

Strategic Projects: 7ACA and Cefiderocol Updates

The 7ACA project, crucial for API self-reliance, is advancing with water trials expected by April '26 and commissioning by Q1 FY26. The budgeted spend for this project is INR600 crores, with INR80 crores already invested. Management anticipates a return on this investment within three years. The Cefiderocol project is also under construction, with commissioning targeted for November-December '26, pending drug approval in India.

Exblifep (Enmetazobactam) and AMS Division Traction

Domestically, Exblifep (Cefepime and Enmetazobactam) is performing as per initial expectations, leveraging a partnership with Cipla for market penetration. The Orchid AMS division, a new B2C business segment, is currently an investment phase, incurring an EBITDA drag of approximately INR6 crores over nine months. Management expects this division to become EBITDA accretive after another year or so, as it builds relationships with doctors and hospitals and expands its portfolio of 25-30 injectable products.

Regulatory Milestones and US Market Challenges

Orchid Pharma successfully received the EU GMP audit certificate in October '24, incurring a one-time expense of INR3 crores for compliance readiness. Regarding the US market, the company is awaiting progress on a possible partnership for Enmetazobactam by Allecra, noting that the delay is a 'cause for concern' due to poor communication and lack of control. For its Ceftazidime filing in the US, the company is on track to refile in the next quarter after addressing RTR observations.

Pricing Environment and Margin Strategy

The company experienced price corrections in its top three products, influenced by Pen-G pricing and competition from China. Orchid Pharma's strategy is to maintain healthy gross margins, targeting 40% plus or minus 2% in the near term, even if it means not opting for higher volumes at reduced prices. Management aims for an EBITDA margin expansion of approximately 100 basis points every year, driven by increasing volumes and productivity enhancements. The company also noted that it holds INR194 crores in cash, earning around 7% interest, and expects no tax liability for the next 4-5 years due to INR790 crores in carry-forward losses.

Market Opportunities and Future Outlook

Orchid Pharma sees significant long-term potential, aiming for a 20% CAGR looking back three years from today. The company is preparing to file for generic Zavicefta in European markets, with an estimated ex-US market size of $500 million, of which Europe could constitute one-third. While acknowledging the risk of dumping from China in the 7ACA market, management believes the PLI scheme, GST benefits, and custom duties will provide a significant cushion. The company remains committed to operational excellence and innovation for future growth.

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