Supriya Lifescience Limited — Q1 FY25 earnings call

Call held 12 Aug 2024

Management summary

Supriya Lifescience delivered a robust Q1 FY25 performance, achieving 22% YoY revenue growth and significant margin expansion despite geopolitical uncertainties. The company's strategic shift towards regulated markets, broadened product portfolio, and backward integration initiatives are driving this growth. Capacity doubling and upcoming CDMO/CMO contributions are expected to fuel future expansion.

Highlights

  • Revenue from operations grew 22% YoY to ₹161 crores in Q1 FY25.

  • EBITDA increased to ₹62.5 crores, with EBITDA margin expanding to 39% in Q1 FY25 from 34% in Q1 FY24.

  • Profit Before Tax (PBT) rose approximately 40% to ₹60 crores.

  • PAT stood at ₹45 crores, up from ₹28.5 crores in Q1 FY24, with PAT margin at 28%.

  • Working capital days significantly optimized from 215 days in Q1 FY24 to 168 days in Q1 FY25.

  • European market contribution to revenue surged to 51% in Q1 FY25 from 43% in Q4 FY24.

  • Total manufacturing capacity is set to double to 1,020 kiloliters by the end of September 2024.

  • CDMO/CMO operations are expected to contribute about 20% of total revenue in the next 3-4 years.

Key financials

  1. Revenue ₹161 Cr +22%YoY
  2. EBITDA ₹62.5 Cr +40.4%YoY
  3. EBITDA Margin 39%
  4. PAT ₹45 Cr +57.9%YoY
  5. PAT Margin 28%
  6. Working Capital Days 168 days

What they filed

Q1 FY27: revenue up 31.0%, net profit down 31.4% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue166 186 184 145 200 +20%206 +11%277 +51%190 +31%
EBITDA65 66 68 52 73 +12%72 +9%98 +44%47 −10%
Net profit46 47 50 35 50 +9%50 +6%74 +48%24 −31%
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

Capacity

  • Total manufacturing capacity Capacity · by end of September this year · High confidence 1,020 kiloliters
    We are set to double our total capacity to 1,020 kiloliters by the end of September this year.

    — Satish Wagh

  • Ambernath facility production start Capacity · within the next 60 days · High confidence Start production
    It will take at least a minimum of 2 months to start production. But hopefully, within the next 60 days, it will go on stream. Not fully, partially keep on going.

    — Satish Wagh

Revenue

  • CDMO/CMO revenue contribution to total revenue Revenue · next 3 to 4 years · Medium confidence About 20%
    We anticipate moving forward, let's say in the next 3 to 4 years, CMO should contribute about 20% of the total revenue.

    — Saloni Wagh

  • Revenue growth Revenue · Medium term (this financial year and next year) · High confidence Better than 20%

    Previously 20% → Better than 20%

    Correct. So, the 20% revenue guidance definitely is more on the conservative side. With all these newer contracts and newer launches kicking in, there is definitely a scope for us to do much better.

    — Saloni Wagh

Margin

  • EBITDA margin Margin · current financial year · Medium confidence 30% plus
    However, looking at the current financial year, 30% plus is something what we see we will be able to maintain.

    — Saloni Wagh

Product

  • Number of new product launches Product · end of this year · High confidence Two
    Two product launches we are expecting end of this year.

    — Saloni Wagh

  • Patent grant for oral cancer kit Product · next 1 to 1.5 years · Medium confidence Granted
    We expect that in the next 1 to 1.5 years, we should be granted the patents in these particular markets where the potential is much higher.

    — Saloni Wagh

  • Complete commercial production process for oral cancer kit Product · at least 2 years · Medium confidence Complete
    It will take a few years, at least 2 years is what we are anticipating.

    — Saloni Wagh

Capex

  • Total outlay in Ambernath Capex · Medium confidence Around ₹130 crores
    So, with all these things, I think it should be somewhere in the range of Rs. 130 crores would be the total outlay in Ambernath.

    — Krishna Raghunathan

  • CapEx allocated for Ambernath Capex · FY25 · High confidence Around ₹75-78 crores

    Previously ₹100 crores → Around ₹75-78 crores

    See, as of now, the CapEx allocated for Ambernath would be somewhere around Rs. 75 crores. If you add up all their last 3 quarters Board resolution numbers, it'll add up somewhere to Rs. 75 crores to Rs. 78 crores.

    — Krishna Raghunathan

Regulatory

  • USFDA audit for Lote Parshuram facility Regulatory · end of this year · Medium confidence Expected
    So, for the Lote side, we are expecting USFDA audit end of this year.

    — Saloni Wagh

  • USFDA or EU inspection for Ambernath facility Regulatory · Beginning of next financial year · Medium confidence Trigger
    Next year, the beginning is sometime when we will trigger USFDA or EU inspection for this particular facility.

    — Saloni Wagh

Market Share

  • Brazil government ultimatum for GMP certificate Market Share · by December 2024 · High confidence Compliance
    the government has already given a last ultimatum to every formulation manufacturer in Brazil that every product which comes to their country, there should be a GMP certificate. If not, then the source has to be changed. Otherwise, that product will be stopped... if you don't do it by December 2024, the things will not come from the non-GMP plants from China.

    — Satish Wagh

Risks & concerns

  • Geopolitical uncertainties, supply chain disruption, and macroeconomic volatility

    medium

    Management stated that the business demonstrated resilient performance despite these challenges in Q1 FY25.

    Management acknowledged

  • Initial margin compression for new APIs in non-regulated markets

    medium

    Management acknowledged that new API launches in non-regulated markets might lead to slight margin compression initially, but the long-term goal is to move them to regulated markets for better returns, maintaining 30%+ EBITDA for FY25.

    Analyst acknowledged

Areas of evasion (1)

  • Specific product-level or therapy-level revenue details

Q&A highlights

2 direct
EBITDA margin profile for new APIs and potential compression Direct
So, let me tell you that Supriya Lifescience is working in the regulated market. Now regulated market, we all know that we will get the maximum returns. Whenever you go for a new API launch, it becomes a little difficult. You can't go in a regulated market. That time, you have to go to a non-regulated market, but it's a short term. Soon, again, it will achieve the same expected, whatever returns are there will be delivered to by us to the shareholders.

Addresses concerns about potential margin dilution from new product launches, clarifying the strategy to eventually move new APIs to regulated markets for better returns, despite initial lower margins in non-regulated markets.

Asked by Parth Agrawal

Sustainability of gross margin expansion and new steady state Partial
No. So, like our Chairman said before also, see, a lot of the new launches of the new products that we are launching, they are coming in later half of the financial year... so there will be some margin normalization which will happen. The current margins are there because like he said, mature products are doing really well in a regulated market. So, naturally there, the pricing for these products is much higher. So, once these new products come in, we will again have a normalized margin profile. We have always guided about 28% to 30% in terms of margin. However, looking at the current financial year, 30% plus is something what we see we will be able to maintain.

Clarifies that the current high gross margins (70%) are due to mature products in regulated markets, and new product launches in semi-regulated markets might lead to some margin normalization, but the company still expects 30%+ EBITDA margin for the current FY.

Asked by Aditya

Ambernath facility operational status, activities, and CapEx Direct
Sir, Ambernath facility is under, currently, validation. Some of the equipments which have come, they are getting under validation. It will take at least a minimum of 2 months to start production. But hopefully, within the next 60 days, it will go on stream. Not fully, partially keep on going... See, as of now, the CapEx allocated for Ambernath would be somewhere around Rs. 75 crores. If you add up all their last 3 quarters Board resolution numbers, it'll add up somewhere to Rs. 75 crores to Rs. 78 crores.

Provides crucial updates on the new Ambernath facility, including its operational timeline (within 60 days for partial production), its focus on CMO/CDMO and R&D for new APIs, and a revised CapEx allocation for FY25 (₹75-78 crores vs. previous ₹100 crores).

Asked by Rehman Khan

3 min read 7 chapters

Detailed narrative

Robust Q1 FY25 Financial Performance

Supriya Lifescience reported a strong Q1 FY25, with revenue from operations growing 22% year-on-year to ₹161 crores. EBITDA increased to ₹62.5 crores, leading to an EBITDA margin of 39%, a significant expansion from 34% in Q1 FY24. Profit Before Tax (PBT) saw a 40% increase to ₹60 crores, while Profit After Tax (PAT) reached ₹45 crores, up from ₹28.5 crores in the prior year, with a PAT margin of 28%.

Strategic Shift Towards Regulated Markets

The company's strategy to focus on regulated markets is yielding results, with the European market's revenue contribution surging to an impressive 51% in Q1 FY25, up from 43% in Q4 FY24. This shift, coupled with a customer base of 1,700 across 128 countries, is enhancing overall profitability. Management emphasized its commitment to delivering high-quality products and operational excellence, positioning the company as a strong alternative to China for API supply.

Significant Capacity Expansion and CDMO/CMO Growth

Supriya Lifescience is on track to double its total manufacturing capacity to 1,020 kiloliters by the end of September 2024 with the addition of Module E. The new Ambernath facility, focusing on finished formulations, contract manufacturing (CMO), and contract development (CDMO), is expected to begin partial production within the next 60 days. CDMO/CMO operations are projected to contribute about 20% of total revenue in the next 3-4 years, with initial revenues expected from Q3 FY25.

Broadened Product Portfolio and Pipeline

The company is expanding its product basket beyond anti-stimulants to include anesthetics, anti-anxiety, and anti-diabetic therapeutic areas. Two new product launches are anticipated by the end of FY25, targeting large global markets currently single-sourced from China. These new products, along with existing ones under validation, are expected to significantly contribute to revenue and margin in the next financial year, with full impact seen in the next financial year.

Operational Efficiency and Working Capital Optimization

Supriya Lifescience has significantly improved its working capital management, reducing working capital days from 215 in Q1 FY24 to 168 in Q1 FY25. This improvement is primarily driven by a substantial reduction in the inventory holding period from 223 to 167 days. The annualized asset turnover ratio also strengthened to 0.68 this quarter, up from 0.63 last year, demonstrating enhanced operational efficiency and a strong financial position with a debt-to-equity ratio of 0.01.

Regulatory Compliance and Future Audits

The company successfully cleared a Health Canada joint audit with EDQM online in early 2024. While no further notifications have been received, USFDA and NMPA China audits are expected in the latter half of the year for the Lote facility. The Ambernath facility is slated for USFDA or EU inspection beginning of the next financial year, following its commercial production start and local authority certifications like WHO GMP.

Brazil Market Opportunity

Management highlighted a significant opportunity in the Brazil and Mexico markets, driven by a government ultimatum requiring GMP certificates for all imported products by December 2024. As a USFDA, GMP, CGMP, and WHO-compliant plant, Supriya Lifescience is well-positioned to become a preferred supplier. The company has been present in Brazil for 18 years and is actively discussing new product opportunities with customers following recent audits.

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