Q1 2027 ZIM Laboratories Ltd Earnings Call
Speaker #1: Ladies and gentlemen, I'm Akash, moderator for the conference call. Welcome to Zoom Laboratories Limited, Q1 FY27 earnings conference call, hosted by GoIndia Advisors. As a reminder, all participants will be in listen-only mode.
Speaker #1: And there'll be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then 0 on the conference is being recorded.
Speaker #1: I would now like to hand over the floor to Ms. Priya Sen from GoIndia Advisors. Thank you, and over to you, ma'am.
Speaker #2: Thank you, Akash. Good afternoon, everyone, and welcome to the Q1 FY27 earnings call, all Zoom Laboratories Limited. We have on the call Mr. Zulfikar Qamar, Director of Finance.
Speaker #2: Mr. Shyam Mohan Patros, Chief Financial Officer. Mr. Zain Daoud, Investor Relations. And Mr. Piyush Nihade, Company Secretary. We must remind you that the discussion on today's call may include certain forward-looking statements, and must be therefore viewed in conjunction with the risks that the company faces.
Speaker #2: May I now request the management to take us through the financials and the business outlook subsequent to which we will open the floor for questions and answers?
Speaker #2: Thank you, and over to you, sir.
Speaker #3: Thank you, Priya. Good afternoon, everyone. This is Zulfikar Qamar, speaking on behalf of the management team. I would like to warmly welcome you all to Zoom Laboratories Limited earnings conference call for the first quarter of FY27.
Speaker #3: I trust you have the opportunity to review our financial results and the investor presentation. Both of which have been made available on the stock exchanges.
Speaker #3: Before I discuss our business performance for the quarter, let me begin with an update on QGMP remediation process, which continues to remain one of our highest strategic priorities.
Speaker #3: As you are aware, our manufacturing facilities underwent EUGMP reinspection conducted by German and Portuguese regulatory authorities during May 26. The inspection has now been completed.
Speaker #3: And we are currently awaiting the final inspection report from the authorities. Based on the draft observations, shared during the inspection process, we have already prepared a comprehensive corrective and prevention action CAPA plan, and are ready to submit it immediately upon receipt of the final report.
Speaker #3: Over the past year, we have made significant investments to strengthen our quality systems, manufacturing processes, and compliance framework. While the regulatory process is now in the hands of the authorities, we remain confident that the extensive work undertaken over the past several months has been positioned us well for a successful outcome.
Speaker #3: With the inspection now completed, we believe the company has entered the final stage of its EUGMP remediation journey. Subject to the regulatory review process and the timelines, the successful completion of this exercise is expected to significantly strengthen our position in regulated markets.
Speaker #3: An unlocked meaningful growth opportunity for our innovation-led portfolio. Turning to our business performance, the first quarter reflected healthy revenue growth, supported by continued strength in our core pharmaceutical business.
Speaker #3: Our export business remained resilient, despite ongoing geopolitical uncertainty in certain regions. With export contributing, approximately 84% of our total operating income during the quarter.
Speaker #3: Our EBITDA margins for the quarter were impacted by planned investments in the business. These included higher employee costs following the strengthening of our senior leadership team increased utility fuel and power expenses, consulting costs associated with final phase of our EUGMP remediation program.
Speaker #3: I am also pleased to share that our new innovative product portfolio and oral insulins business returned to a normalized level of contribution during the quarter.
Speaker #3: Accounting for approximately 18% of our revenue. We remain confident that this platform represents our most significant long-term growth opportunity. And our aspiration remains to increase the contribution of NIP and OTF product portfolio revenue over the coming years.
Speaker #3: Looking ahead, our priorities remain clear: we are focused on successful completing of our EUGMP regulatory processes, expanding our innovation-led portfolio, strengthening our global customer base, and delivering substantial profitable growth.
Speaker #3: FY27 represents an important transition year of Zoom Laboratories. With our compliance investment substantially behind us, strengthening leadership team in place and our innovation pipeline ready for commercialization, we believe the company is well positioned to enter the next phase phase of substantial growth.
Speaker #3: With that, I would now like to hand over the call to our Chief Financial Officer, Mr. Shyam Patros, who will take you through the financial performance for the quarter in greater detail.
Speaker #3: Over to Shyam. Thank you.
Speaker #2: Thank you, Mr. Qamar. Good afternoon, everyone. Let me now take you to the financial. The first quarter ended 30 June with earnings presentation has been uploaded from the stock exchanges, and I would like to request investors to refer to it alongside my remarks.
Speaker #2: For the first quarter of FY27, the company reported total operating income of approximately 942 million rupees, representing 31.2% year-on-year growth, EBITDA for the period for the quarter stood at rupees 34 million, translating into an EBITDA margin of 3.7%.
Speaker #2: Profit after tax for the quarter stood at minus rupees 40 million compared to rupees minus 19 million in the corresponding quarter of the previous year.
Speaker #2: Exports continued to account for approximately 84% of our total income, the NIP, that is Nobel Innovative Products, and OTF, oral thin film portfolio, contributed approximately 18% of the total operating income.
Speaker #2: The total debt stood at approximately rupees 145.2 million crore rupees, as of 30 June 2026. We remain focused on improving operating cash flow optimizing working capital, and managing leverage the company invested rupees 82 million rupees towards R&D during the quarter, overall the first quarter reflects an organization investing for long-term growth while maintaining healthy business momentum with that I would like to open the floor for questions.
Speaker #2: Thank you.
Speaker #1: Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star and one on your telephone keypad.
Speaker #1: And wait for your turn to ask the question. If you would like to withdraw your request, you may do so by pressing star and one again.
Speaker #1: Ladies and gentlemen, if you have any questions, please press star and one on your telephone keypad. The first question comes from the line of Mr. Mahesh Thalani from GoQuarter.
Speaker #1: Please go ahead. Mr. Mahesh Thalani, you can go ahead with your question. As there is no response from Mr. Mahesh, we are taking the next question.
Speaker #1: From Mr. Rohit Balakrishnan from I Thought PMS, please go ahead.
Speaker #3: Hello, good afternoon, and thank you for the chance. So just a few questions so I think this quarter when I compared this quarter versus, let's say, many of the last Q1s let's say from FY21, 22, this is probably one of the highest.
Speaker #3: So in terms of the business momentum, how do you see, sir, for the coming quarters? For this financial year, and second question was in terms of expenses, I see like the other expenses now settling in at about 34, 33 crores.
Speaker #3: And we also saw like expansion in employee expenses. So is this the normal base now, or was there some any one-offs in this quarter?
Speaker #3: This was a couple of questions, and then I have just one two more, so yeah.
Speaker #2: Yeah, I think on the first question, yes, you're right. This was a good quarter for us. One of the better Q1s over the past few years.
Speaker #2: This is just a result of the increased business that we have gotten from the formulations business piece also now. As we have said, we have the team in place, and now we are reaching out to more relationships and further filings that are happening.
Speaker #2: We were also quite happy with the performance of the innovative product portfolio. Which contributed a lot compared to previous quarters in this thing. So I think with both, I feel like going forward, it will depend on the EU situation of how the quarters go.
Speaker #2: But we do expect that the base business and other business the innovation innovative product business keep on continuing to grow. So over the quarters, I believe the base business should also grow with the innovative product portfolio also growing.
Speaker #2: But on a total level, it will depend a lot on whether the EU GMP comes and when it comes. It's just about timing now.
Speaker #2: So hopefully that will come soon enough, and then we can start getting revenues from EU. On the expense side, I'll let Mr. Qamar take the call.
Speaker #3: Yeah, on the expenses side, what you have rightly mentioned, it has more or less settled. Except for there is some one-time expenditure of the Q1, and in Q1 also, I think I'll let Mr. Patros give the details of the Q1 expenses which are only one time.
Speaker #3: Over to Mr. Patros.
Speaker #2: Yes. Specifically, a one-time expenses are in the form of EG audit that is Australian audit of around rupees 30 lakhs. Uncertain engaged for this European audit.
Speaker #2: Then some repair and maintenance has been taken out. So for a smooth EU GMP audit, and some MIDC charges that comes to near about 190 1.9 crores.
Speaker #2: So that has given more like run rate increase. But this is the overall business one-time expenses. This will not be repeated in the next quarter.
Speaker #2: So we can have a better result in next quarter.
Speaker #3: Yeah. So to answer your question, the quarter expenses or another expenses are now really are fixed in the same nature, and it will not be increased going further.
Speaker #2: Right, sir. And sir, from
Speaker #4: the perspective of the EU GMP, I think we were expecting somewhere in July or first week of August, I think. I mean, we have we are pretty much on that timeline now.
Speaker #4: So anything that you can share, like anything any communication that you've got, from the regulator?
Speaker #2: Yeah, Rohit. So we've received the draft inspection report from the regulator, which gives us a insight into what the final report will be like.
Speaker #2: But the final report is yet to come. We are in communication with the authorities constantly, and have been informed that the report should come anytime now.
Speaker #2: So we are hoping that this this should come in a week or two weeks the final report should be in our hands.
Speaker #4: Got it. And so the last question was, sir, if you see the gross margin, I think this was pretty high, 58.1. We've done maybe this once in a quarter types in the last four, five years.
Speaker #4: So is there some one-off here, or is it now more a trend? Because we've been around 55, 56 percent on a regular regular basis.
Speaker #4: But 58 seems seemed to be on the higher side. It is is it driven by the formulation push, or more product mix, or anything you would like to call out?
Speaker #4: And is it like the more normalized gross margin now, as we push towards EU and more NIP?
Speaker #3: Yeah. So you are right. It will be around around 55 to 58 percent because of the product mix. In the first quarter. But going forward, attractive going forward.
Speaker #4: All right. Thank you. If I I'll ll join back in a few.
Speaker #1: Thank you, sir. The next question comes from the line of Mr. Deepesh from Mania Finance. Please go ahead.
Speaker #2: Hi, am I audible?
Speaker #1: Yeah. Yes, sir.
Speaker #2: Yeah. Yeah. My first question was, can you comment on the company's debt levels and plans of deliberation? So if I talk about some loan, some loan we have taken we have taken for capex, CC limit has also been utilized.
Speaker #2: The total borrowing is stood at 145 crore at the moment, as of 30th July. 30 June. Okay. And what is the cost of capital?
Speaker #2: It's like that is like where it's similar to earlier quarters. Below 10. Below 10. Yeah. Okay. Okay. So how do you plan to improve your operating cash flow and working capital?
Speaker #3: Yeah. So our going forward, our we are mostly dependent on the next year's revenue projections and going quarterly revenue projections which are going to come.
Speaker #3: In the current year, that will give us gross margin
Speaker #1: Kamal, sir, I'm sorry to interrupt you. Your voice was not audible, sir.
Speaker #3: Yeah. So what we expect is once the revenue starts growing, we'll be able to generate enough cash flows which will be required for the coming quarters.
Speaker #3: Number one. And if you have observed from the current year, in the current quarter, the debtors and inventory limits were a little bit higher side.
Speaker #3: So we are now improving our cash flows by increasing our collection in debtors. This is from around more than it's around 100 days. We are targeting to reduce it to around 80 days.
Speaker #3: So some collection will come from the debtors and also we'll be having enough control on our inventory level. So this will give us a sufficient cash flow going forward.
Speaker #3: And these are the two measures which we are taking for the improving our cash flows and working capital.
Speaker #2: Okay. So what and as seen previously in the previous quarters, what do you think are the key risks that investors should monitor over the coming quarters?
Speaker #3: As of now, the as a key risk only remains the EGMP. Which is going which we are expecting in this quarter to come. Rest everything is in place.
Speaker #3: As we have already mentioned earlier in the call, our product portfolio are nearing completion. MAs are we have receiving all our MAs queries to market authorization from Europe are also there.
Speaker #3: Our marketing team is also being placed. So as such, except for this EGMP, nothing remains which will be anything to worry about.
Speaker #2: Yeah. We we see a lot of I mean, changes in the operating margins. What should be the operating margins you know, going forward, the which investors should expect from the company?
Speaker #3: So it will be more on the similar line going on the positive side. With the increase of the NIP and the OT OT oral thin film products.
Speaker #2: So because this quarter the the margins were around 2.6 percent, whereas last year it was about 6 and even last quarter we saw around 6 and 7 percent.
Speaker #1: Yeah. So see, this is I think you're talking about EBITDA margins.
Speaker #3: Yes.
Speaker #2: This basically is an impact of the top line. Like we have shown the expenses that increase. So there are some expenses we have increased our expenditure and this is something that will be settled now.
Speaker #2: So as we cross a higher revenue margins will improve.
Speaker #3: Because point what what happens is, you know, when when the margins actually lower down, even if you find a sales growth also because right now we're not finding a sales growth, but if we find a sales growth also, the some of the ROE is just too low.
Speaker #3: I mean, for a 2 percent ROE, you know, even historically we've always been below I mean, below 5 percent. It's you know, it's very concerning for the investors.
Speaker #3: So how do you plan to improve that on the ROE level especially? Because we are we're taking a debt of around from see, our cost of capital is around 10 percent.
Speaker #3: And if we are not able to do even 5 percent as ROE, I mean, then I would rather keep my money in the fixed deposit.
Speaker #3: I mean, just. No, I understand your point. Because we are under a level where we are expecting our EGMP and the growth coming from the EGMP market.
Speaker #3: Generating the revenue, the margin will be.
Speaker #1: Sorry to interrupt, sir. Kamal, sir, sorry to interrupt you. Your voice is not so clear, sir.
Speaker #3: Yeah. So what I'm trying to say, this is the baseline growth as of today of the revenue. Once we get the EGMP certification our revenue of and contribution of oral thin film and NIP to the regulated market will grow, this will increase our top line thereby increasing our EBITDA margin.
Speaker #3: We have already said earlier the EBITDA margin what we are projecting will be in upper teens in the previous call if you have earlier we have mentioned.
Speaker #3: So the main point is only we are waiting that the revenue should grow post receipt of our EGMP certificate.
Speaker #2: So that will be the inflection point, right? For the company? So just one want to understand. Once that comes in, how in how much time would we actually see the sales growth coming?
Speaker #2: I mean, after the certificate also coming, will immediately our sales will start or there will be a lag effect of about a month or maybe a quarter?
Speaker #3: So I think it's it's about two quarters that will be the lag. We expect if it comes in August, we expect some supplies to start going in the last quarter.
Speaker #3: Q4. And then so on, there will be a continuous supply.
Speaker #2: So assuming that, you know, we we get everything falls in place. By by the grace of God, if everything falls in place, what will be your FY 28 expectations?
Speaker #3: I think we we would grow at 30 to 40 percent if if we get EGMP and if supplies start. That will be the full year for FY 28 would be about 30 to 35 percent growth easily.
Speaker #2: 30 to 35 percent growth, that will be a top line. So that will be what? Approximately 500 crores?
Speaker #3: Yeah, you could say that, but it will be more conducive to give this once we have the EGMP. It's a intricate kind of process that happens once the supplies start.
Speaker #3: So we'll keep you updated as the quarters go by.
Speaker #2: Perfect. So if I get things right, if we get the EGMP and everything falls in place, we should see 30 percent growth and mid teens EBITDA margin.
Speaker #2: Am I getting that right?
Speaker #3: Yeah.
Speaker #2: Great. Great. All the very best, guys. And we've been long-term investors, so we're hoping that, you know, things fall in place. All the very best.
Speaker #3: Thank you. Thank you so much.
Speaker #1: Thank you, sir. The next question comes from the line of Mr. Vishal and individual investor. Please go ahead, sir.
Speaker #3: Good afternoon, sir. Thank you for the opportunity. Am I audible?
Speaker #2: Yeah, you're audible.
Speaker #3: Sir, first question would be on the EU GMP approval only. So whether any remediation or CAPA needs to be further submitted by us against the observation what we have received or we have already submit and now we are waiting for the final approvals.
Speaker #3: My first question is that.
Speaker #2: So yes, we'll have to submit a CAPA based on the final inspection report. Like we said, we have received the draft report on based on that we are ready with the CAPA.
Speaker #2: So as soon as the final inspection report comes, we'll submit the CAPA.
Speaker #3: Okay. So any major or any adverse observation in the draft reports?
Speaker #2: No, there are no adverse observations. There is no critical observations. Which is what is important. There are only some major observations which will be handled and they should not be.
Speaker #3: Major or minor? Major or minor observations, sir?
Speaker #2: There are both. Some major and some minor observations. Yeah, but no critical.
Speaker #3: But since since we had engaged third party agencies and, you know, we had taken a lot of due diligence and still if major observations are being reflected so I mean, what would be the take of the management in that regard?
Speaker #2: Yeah, I think major observations is a common thing in reports. This very rarely that you get only minor observations or zero observations. At the important part is you not get any critical observations because that is what can hamper your EGMP certification.
Speaker #2: So even every time we have been recertified, we had major observations but it was some not something that cannot be rectified and does not affect product quality.
Speaker #3: So the I mean, whatever compliance we submit, that will not entail a further audit from the authority, right, sir?
Speaker #2: No, it will not.
Speaker #3: Okay. So it's just a matter of.
Speaker #2: Normally normally they combine four or five minor observation to major. So the effectively if you drill down the major, it is minor ones. So one is the minor one.
Speaker #3: Okay. Okay. So I mean, our remediation is CAPA submission would suffice to get the approvals rather than a re-inspection by the auditors, right?
Speaker #2: Yeah, correct. The CAPA will be enough once accepted that we should get the recertification.
Speaker #3: Okay. Thanks. My second question was on the NIP and OTP pipeline. So which has been given in I think slide number 15 and 16.
Speaker #3: The product sir, there had been I mean, almost cement stagnant for last three to four quarters in terms of, you know, new filings for NIP and OTF.
Speaker #3: So any outlook or color you can give on that? I mean, how that will progress over a period of next say 12 to 18 months?
Speaker #2: So see, we have filed most of the products in Europe. When the EU GMP went under remediation, they stopped giving us the MAs. But the procedure was ongoing for some of these products.
Speaker #2: And we are near the end for most products that have been filed. Once we get the EU GMP, we'll start getting the MAs.
Speaker #3: Okay. But sir, I mean, do you have categorized the products under, you know, various phases like like market review, formulation development, validation, B studies, so I mean, this I think these are all these things have to be done at in-house.
Speaker #3: So whether not any development in any of the new products because these have not been updated for last many quarters what I have seen.
Speaker #3: I mean, the same product, you know, 12 products NIP.
Speaker #2: So yeah, so the major development time which is needed for the products is for these three filing stages only, which is basically the validation batches, the stability studies, etc.
Speaker #2: So that took about one and a half to two years and we got those done. There's a filing process itself takes about 210 days if there are no questions from the authorities.
Speaker #2: But usually there are some clarifications that are needed by the authorities and they ask for clarifications and the clock stops. So that process also becomes a bit lengthier.
Speaker #2: So this has you're right, this has not been updated for the past year or so because we are in that regulatory filing stage. But now we what we're saying is we are towards the end of the regulatory filing stage.
Speaker #2: And we have submitted most of the queries that the auditors had and the we are now expecting MAs to come through once the EU GMP comes.
Speaker #2: So we will have the registrations as soon as EU GMP comes through.
Speaker #3: Okay. So how do we see this product pipeline, sir? I mean, the next 12 to 18 months. I mean, from 12 products related significantly, how much we can expect?
Speaker #3: And new products maybe.
Speaker #2: We need to test products. We will have MAs for about 8 to 10 products once EU GMP comes. And these we'll try to hello, can you hear us?
Speaker #3: Yes, yes.
Speaker #2: Hello.
Speaker #3: Hello. Yes, you are audible.
Speaker #2: So we we'll have approvals for 8 to 10 products once EU GMP comes through. And we'll try to commercialize as much of these as we can.
Speaker #3: Okay. Any anticipatory I mean, inventory we are building up, sir, in anticipation of the this approval coming in. We have have we already started building up the inventory or we would like to have the approval first and then?
Speaker #2: Yeah, we see, we are building up inventory on API for some of the key products where we estimate that timelines would be longer. It's product to product mainly.
Speaker #2: It's not a general inventory buildup. It is more on which products APIs are scarce and it takes time for them to be available. For those we are building up inventory.
Speaker #2: For others we are going to be basically just in time and when the orders come. We are going to build inventory according to that.
Speaker #3: Okay. Thank you, sir. That's what that was all from my side. And thank you for all the communication you are maintaining with the investors and the transparency that is being maintained by the company.
Speaker #3: Thank you very much, sir. And we expect that this will continue in future also. Thank you very much.
Speaker #2: Thank you very much. Yeah.
Speaker #1: Thank you, sir. In the interest of time and for the patience of all the participants, we request everyone to ask restrict your questions to three questions in the initial round and get back to the queue for more questions.
Speaker #1: The next question comes from the line of Mr. Nikhil Gupta from Vayu Capital. Please go ahead, sir.
Speaker #2: Thank you for the opportunity. My first question is on our Australia market. I think we have received an MA for a particular benzoate. When we can expect the revenues start flowing from that product?
Speaker #2: Yeah, so as you saw in the presentation, we also end up underwent a TGA audit. Some Australia in the month of April. So I'll I'll just give an update to investors on that.
Speaker #2: We have received the report, final report, and we submitted the CAPA. Now the assessors are reviewing the CAPA. So we expect the TGA certification also to come through in the coming months.
Speaker #2: We have received an order for one of the products from Australia and we are going to start supplies I think in the next two two to three months.
Speaker #2: Sorry, I'm not very clear. Sorry. So with slide, I think I'm not able to see any CAPA on the Australia side in the presentation.
Speaker #2: So yeah, in the slide which is basically telling you about the EU GMP remediation at the bottom, there is a note where we have said that we did undergo a TGA audit.
Speaker #3: And fix.
Speaker #2: A slide number six of the presentation. So the TGA is like like for EU, there is EMA, the European Medicine Agencies. For Australia, it is the TGA Therapeutic Goods Administration.
Speaker #2: They came to the plant in April, audited us, and have given a inspection report. We have responded to the inspection report with our CAPA.
Speaker #2: And now we are awaiting the assessors' response and giving us the certificate. They were positive on the outcome and they they communicated to us that.
Speaker #2: CAPA is in line. We will be getting the Australian certificate. So based on that, you will find the details in the slide number six.
Speaker #3: Right. It's clear. So how much big is the market for that particular product in Australia?
Speaker #2: I think we have we are starting slowly with one product, but we expect more products to come through. Market size for that product in Australia is about 20 million dollars.
Speaker #2: But there are only a few players there. So we expect to get a good chunk of the market.
Speaker #3: Right. My last question is on a general business understanding. Maybe I'm not clear. So as my as per my current understanding, I believe for the OTF segment, very few players in India have the current technology to to make those products.
Speaker #3: One is, I believe, is Avishkar, which is in the unlisted space. And I believe second, we have developed that technology and have the patent for global markets as well.
Speaker #3: So is that a fair understanding or there is need some correction to the understanding?
Speaker #2: So you are right. There are there are few players only in the oral tension space and fewer when it comes to an European GMP certified facility.
Speaker #2: So we are one of the few people who have filings and approvals in Europe. So that we believe will give us an edge at least when it comes to Europe because we we will be one of the few players to have approvals like for Senderafil.
Speaker #2: These are Lipton. Having approvals in Europe.
Speaker #3: Right. So is it a fair understanding to say that in India there are no more than two, three players along with us and can you quantify just an estimate number for Europe as well, the people who can do it?
Speaker #2: I think as far as I am aware, there are two, two, three players in India in the pharmaceutical space. In Europe, I am not aware of many players who are doing oral tensions.
Speaker #2: So that would be something that you'll have to check. US has players but US has the innovator basically who is doing Suboxone. That is Buprenorphine Naloxone.
Speaker #2: That is a European and US player. So that is the biggest player in oral tensions. And there are some in Neutra space also in the US.
Speaker #3: Right. Thank you. And thank you so much for for answering the questions.
Speaker #2: Yeah.
Speaker #1: Thank you, sir. The next question comes from the line of Pujit Agarwal and Individual Minister. Please go ahead, sir.
Speaker #3: Hello. Am I audible?
Speaker #2: Yes. Yes, please.
Speaker #3: Yeah. Hi. Hi. So I just wanted to understand. Like, I mean, in terms of R&D expenditure, we've actually expensed a lot of money in terms of R&D.
Speaker #3: I just wanted to understand whether we as Zim Labs can make a 15 to 20 percent ROIC like and by when can we expect to make that 15 to 20 percent ROIC as a company?
Speaker #3: So see, I think R&D is the DNA of this company and all investments are being done for a long term. We do believe we can get the returns and most of this will be unlocked once EU is available with us because these investments that you see are being done keeping in mind the developed markets from where the major revenue is going to come.
Speaker #3: So I I do believe we can get the returns. This is a long term play for us.
Speaker #2: Got it. So like, I mean, last year we had quite a few key hires. So can you just give us a brief about how the key hires are performing and how capable do you think we as a company are to scale our revenues up 30 to 40 percent?
Speaker #2: Do you think we have that capability in terms of scaling up the revenues from the targeted market that we are anticipating? Do you think we as a company have an infrastructure ready to?
Speaker #3: Yeah. So I think Pujit, this is an exercise by large to professionalize the company to bring in seasoned talent. And like you've seen, we've hired technical on the technical side and also on the administrative side.
Speaker #3: But the biggest hire has been the business development president that has come in. He brings with him a lot of experience into newer markets where we were not present.
Speaker #3: So yes, we do expect that along with Europe, the R&D business will also give us good growth. There are a few leadership positions that we are looking to hire more and even send in the organization even more so you will see more developments as we go along in terms of organizational restructure.
Speaker #3: This is an attempt to make the organizational systematic and professional.
Speaker #2: Got it. So in terms of employee cost, what kind of run rate I'm sorry, I missed that part in the concall. Like, what is 19 crores the new normal in terms of quarterly run rate or what should I assume the new normal to be?
Speaker #3: Yeah. It will be on the same line except for yeah. Can you hear me? Hello? Yeah. So as you said, the run rate will be on the similar side except for the few around what Mr. Patero suggested that some of the expenditure of amounting to around 1.25 crore in this quarter was one time.
Speaker #3: Rest all expenses have been now completed except for few hirings which Zain mentioned. Other than that, we have been now normalized our run rate as far as the expenses are concerned.
Speaker #2: Got it. Got it.
Speaker #3: Sir, receipts if I repeat, 101.82 crore is the one time expenses incurred in Q1. Specifically to UGMP and high value human assets placement charges.
Speaker #3: Dripping maintenance done for UGMP facilitation.
Speaker #2: Got it. Got it. Thank you so much. I wish you guys the best of luck for the future.
Speaker #3: Thank you. Thank you, Pujit.
Speaker #1: Thank you, sir. The next question comes from the line of Nishita Sharklesha from Sapphire Capital. Please go ahead.
Speaker #4: Yes. Hello. Am I audible?
Speaker #3: Yes, you are audible.
Speaker #4: Yes, sir. Yeah. So I just wanted to understand. You mentioned that we can do around 30 to 40 percent growth in FY28. So how much of that growth can we attribute to us getting EU GMP?
Speaker #3: See, I think at least 60 percent of that growth is attributed to EU GMP. 60 to 70 percent because that is where the value unlock will happen.
Speaker #3: ROW business and base business will continue to grow at steady levels. But the major jump that we're looking for is going to come from EU.
Speaker #4: Right. So like so then because you mentioned that we we are expecting the EU GMP to come and then it will take around two quarters for us to start the supplies and everything.
Speaker #4: So then is it safe to assume that FY27 is going to be very flattish compared to FY26? What sort of growth can we see in FY27?
Speaker #3: See, if we if we don't let's say if EU doesn't come or if you assume EU comes from FY28, we will still have a 10 to 15 percent growth in the FY27 year compared to the previous year.
Speaker #3: Because as we said, the base business is growing, the new hires are you know, coming into motion. So we do expect there will be 10 to 15 percent growth.
Speaker #3: I don't believe it will be a flattish year. For us compared to FY26.
Speaker #4: Right. Right. Okay. So like 10, 15 percent growth and then the EBITDA margins because if EU GMP doesn't come, then like or comes from FY28, then EBITDA margin for FY27 can be assumed to be in single digits like because we are employee cost is now 19 crores quarterly run rate.
Speaker #4: So like can we assume it to be in mid single digit?
Speaker #3: I think we would assume it to be similar to the last year. Around that range. Because like the first quarter margins improved. We assume that it would be in similar range to last.
Speaker #1: Sorry to interrupt.
Speaker #4: I'm sorry.
Speaker #1: Kamal sir, your voice is not yet, sir.
Speaker #3: I said Kamal sir, I'm
Speaker #1: sorry to interrupt you one second, sir. We are unable to hear you properly.
Speaker #3: Yeah. I was saying can you hear me now?
Speaker #1: Yes, sir.
Speaker #3: Yeah. So I'm saying that if EU GMP starts from FY28, we assume then the margins EBITDA margins would be similar to the last year around that around that percentage.
Speaker #4: Hello. Am I audible?
Speaker #3: Yeah. Yeah. You're audible.
Speaker #4: Yeah. Yeah. Understood. So my last question would be on what is the total capex spend we are going to do this year in FY27?
Speaker #3: So capex is mostly completed now. We have been able to close all all our capex in the projects are going to start somewhere in the second quarter.
Speaker #3: So as such only normal upgradation expenses may be there of capex will be there. And the amount what we have assumed from the press that will be the only requirement which is there.
Speaker #3: Which can which has to be completed which is around 15 to 20 crores to upgrade the enzyme plan and the neutral plant.
Speaker #4: Okay. Understood. Yes. Thank you so much.
Speaker #1: Thank you, ma'am. The next question comes from the line of Mr. Rupesh Tatia from Long Equity Partners. Please go ahead, sir.
Speaker #3: Hello, sir. Thank you for the opportunity. I have two three questions. So first first question, sir, is on this star product one which I assumed to be you know, enzymatic product.
Speaker #3: So is is EU GMP the only thing pending to get MA approval to to our partner in UK?
Speaker #2: Thank you.
Speaker #3: Yeah. That's correct. Here we are awaiting the MA for that will come after the EU GMP. But I mean all the clarifications any any questions everything has been answered.
Speaker #3: Is that a fair understanding?
Speaker #2: Yeah. That has been answered.
Speaker #3: And we are at the end of procedure. All the request for information have been replied to.
Speaker #2: Okay. Okay.
Speaker #3: And and second question, sir, is I joined the call a bit late. Did did you say we will get formal letter for EU GMP in another two weeks?
Speaker #2: So it was supposed to come in the month of August. We do expect it to still be on timeline and come within the next two two weeks.
Speaker #3: And then how much time after that for CAPA and then final approval?
Speaker #2: I think it will take about two to three months. So by the end of the year we should be ready to be in a position to supply to Europe.
Speaker #2: So maybe quarter four we can see some revenue starting to come in.
Speaker #3: And and and you still expect that because I think the branded brand products capacity I think is going to come online in 2027. So you still feel we will be able to capture decent market share in at least UK?
Speaker #2: Yes. We will. We will be.
Speaker #3: Because we do have contracts with the companies and based on what our clients are saying we still believe that there is potential big potential for these products.
Speaker #3: And then the third question, sir, is this Nurax farm approval for Buprenoxine so can you give some updates about that? How how I mean what is happening there?
Speaker #3: That also I mean will we get orders once we get EU GMP? And just small clarification there. Will we launch this product in UK also?
Speaker #2: So yes. Nurax farm has their agreement states that they'll be launching in UK also. Their business plans were put on hold because of the fact that we were under EU GMP remediation.
Speaker #2: They have given us a positive outlook on the product once the EU GMP comes back. So I believe it will be fair to assume that once we have the GMP back there will be orders.
Speaker #3: But this is still a discussion stage. You you would say.
Speaker #2: So it's not a discussion stage. It's it's their MA basically. They are the ones who are the MA holders. So they'll decide when to launch.
Speaker #2: The the development has been done by them. They have given us a license fee for it. The MA is under their name. They will be deciding when to launch it.
Speaker #2: But they're waiting primarily for our EU GMP.
Speaker #3: Okay. Okay. Thank you. Thank you for answering my question.
Speaker #2: Yeah.
Speaker #1: Thank you so much, sir. The next question comes from the line of Mr. Madhur Rathi from Countercyclical Investments. Please go ahead, sir.
Speaker #2: Sir, thank you for the opportunity. Sir, you mentioned that this year's EBITDA margin should be closer to what we did in the past year.
Speaker #2: But I think in the previous quarter you were expecting some mid teens kind of margin. So why is this even without the EU so where are we struggling I think revenue growth is coming but the margins are not flowing in.
Speaker #2: So if you could help us understand.
Speaker #3: So see we we are projecting last year's EBITDA margins on a higher revenue this year because of the cost that have come. So we believe that if without EU if we look at 410 420 number we would have EBITDA margin similar to last year because of the increased cost.
Speaker #2: Sir, but these costs were so on a similar level. I think if I look at our Q1 Q2 numbers most of the costs are similar.
Speaker #2: So even then we were expect so only the two two crore incremental costs related to you employee expenses has come in. But that is proportionately offset by our gross margin improvement.
Speaker #2: So is that that whatever gross margin gross and EBITDA margin improvement we are expecting will be only driven by these regulated market products going forward?
Speaker #2: Is that understanding correct?
Speaker #3: That is a part of it. But higher revenues will also trigger the better a better margin profile. With the operating leverage will kick in beyond a certain point.
Speaker #3: And once we have revenues above 100 crores we'll have the better margins because the cost will be absorbed.
Speaker #2: Right. And sir these 8 to 10 MAs that we have sir so these are MAs that we already have. So whenever the EU GMP accepts our CAPA and gives us the final certification we can start it within like two quarters we can start supplying these products right?
Speaker #3: So we we don't have the MAs yet but what happens is if you don't have a valid EU GMP certificate the authorities don't issue an MA to you.
Speaker #3: We are near the end of the procedure of the 210 day clock that is the prerequisite to get an MA. So we are towards the end of that.
Speaker #3: So it's an assumption fair assumption to say that once we get the EU GMP they'll grant us the MA. That is the only thing holding the MAs right now.
Speaker #3: Our questions and queries have been answered. The queries raised by the assessors have been answered.
Speaker #2: So these MAs have already been filed.
Speaker #3: The filings have been done correct. And the responses have been given. We are near the end of the 210 day clock.
Speaker #2: Okay. So in a scenario where the EU GMP is delayed by maybe one or two months does it does the whole process needs to be redone for these MAs to get so either in our partner's name or in ZIM's name.
Speaker #2: So will the whole process need to be done again?
Speaker #3: I don't think so because they they give you time to get the EU GMP. Obviously if it goes beyond three to four months it will have to be redone.
Speaker #3: But right now with the timeline that we have in front of us it don't it won't need a refiling.
Speaker #2: Got it. Sir that was from mine. Thank you so much and all of it.
Speaker #3: Yeah. Thank you.
Speaker #1: Thank you sir. The next question is a follow up question from Mr. Rohit Balakrishnan from I thought PMS. Please go ahead sir.
Speaker #4: Yeah. So most of the questions have been answered one clarification was that I mean sir like I usually Q1 is a slowest quarter for us.
Speaker #4: And then typically if I see that Q1 to the next full year is around four four and a half times historically so by that logic we should be close to that 430 450 crore kind of revenue.
Speaker #4: Full year. Without assuming SETRIS planning there is no change in EU etc. So I mean with that scale also I mean I understand there will be some kind of cost increases in the last three quarters.
Speaker #4: But I mean will because earlier we used to do 12 13 percent margins without the without factoring in the regulated markets business. I understand that we have hired a lot of people and we are pushing even in the non-reg reg markets for newer markets.
Speaker #4: So given all this I mean forget this year. Let's say if you were to look at your business for one minute without EU for one minute just to understand how you are thinking.
Speaker #4: The the current business will that be able to double digit margins? Let's say if you do four let's say close to 500 crores of sales maybe not this year.
Speaker #4: But let's say next year I'm only talking about consciously only talking about the EU business non-EU business the non-regulated business at this point of time.
Speaker #4: Just to understand that economics.
Speaker #2: Yeah.
Speaker #3: So see if if we do 420 410 to 420 what we are projecting then we are looking at margin similar to last year. But if we do 450 or 460 then obviously the leverage kicks in and we are looking at higher EBITDA margins.
Speaker #3: Then we would be around mid teens or near near 13 14 percent is what we should be getting at. So it's at 450 you look at that definitely higher margins.
Speaker #3: But what we are projecting without EU let's say 10 15 percent growth then we are looking at last year's margins.
Speaker #4: Okay. And this is despite you having a very good Q1 right? Because sir I'm I'm just cognizant of the fact that last five years this is the best Q1 that we've seen.
Speaker #4: So I mean just to sort of put that in context or probably even six years.
Speaker #3: Yeah that's correct. Revenue wise.
Speaker #4: Yeah yeah. I'm only talking revenue right now because for a simple fact that we've incurred cost and those cost and Q1 is the smallest quarter for us.
Speaker #4: So you still think that it's only 420 odd crores that you could do without EU or?
Speaker #3: See. That is that is the projection and outlook right now. Obviously things become more clearer around the second quarter ending. So when we have the second quarter call I think that is the time when we would be able to tell you that whether we are overshooting the 420 number.
Speaker #4: Sure. Sure. Sure.
Speaker #3: And given this overall middle east disruption which keeps coming back every few days so I mean how are you seeing any kind of impact.
Speaker #3: Sorry. What did what was the question? Can you repeat it?
Speaker #4: Yeah. So I'm saying that the the disruption in the middle east because of the ongoing conflict are we seeing any impact because of that in our business or is it or yeah that's the question.
Speaker #3: We did see some impact in the first quarter but right now it seems to be regularizing it it is not playing that bigger role and we feel like it it might regularize further if this is how the situation is.
Speaker #3: But you can never know if if it worsens then definitely it it will happen have an impact.
Speaker #4: Sure. Sure. All the very best. Thank you.
Speaker #3: Thank you. Thank you sir.
Speaker #1: Thank you sir. We have a follow up question from Mr. Nikhil Gupta from Vayu Capital. Please go ahead sir.
Speaker #2: Yeah. My my only question
Speaker #3: is related to our partners. I think last in the last call we mentioned our strategy that while we are simultaneously working with the EU GMP we we are looking and we have partners in place where we can use their facility and use our products to manufacture and supply.
Speaker #3: So what's what's happening on that front?
Speaker #2: So I think what you're talking about is a CDMO model where we develop for so we we are not into pure contract manufacturing. We have our own products and we develop our own products and we manufacture for others.
Speaker #2: So that is a pure B2B model that's going on and that's what is the base business about in formulation especially. So that's that's going on.
Speaker #3: So my understanding was that we we are using other facilities which already have the EU GMP we are exploring that particular option so that whatever M&As M&As are in place we can we can deliver the deliver the supplies.
Speaker #3: So so that understanding is not correct what you're saying.
Speaker #2: No that is correct. We we do have an alternate site where we have transferred basically we are manufacturing a couple of products as a as a risk measure and a good risk practice.
Speaker #2: That's going on. We have completed the batches that batches are under stability right now. Once the stability completes we'll be in a position to supply from those plants as well.
Speaker #3: Yeah. So so let's say if we go deep in that relationship and explore other other sites as well. So in that in that sense are impact of EU GMP gets the impact gets minimized right?
Speaker #3: So what's your take on that if we simultaneously start exploring that particular segment?
Speaker #2: See. There is a lot of regulatory processes that are also there when you transfer to another site. You have to file with the authorities again your current filings have your manufacturing site in the dossier and if you transfer it to another plant then you have to again file a variation.
Speaker #2: So that is not a primary strategy we still are looking to manufacture most of the products in house because we have the equipment we spent on it.
Speaker #2: So I believe that strategy will be limited to a few products and a few key markets. But not as a whole strategy to kind of look at the entire EU GMP remediation.
Speaker #2: We are still our primary strategy is to manufacture in house.
Speaker #3: Makes sense. Thank you so much.
Speaker #2: Yeah.
Speaker #1: Thank you sir. Ladies and gentlemen if you have any questions please press star and one on your telephone keypad. I repeat if you have any questions please press star and one on your telephone keypad.
Speaker #1: There are no further questions. Now I hand over the floor to the management for closing comments.
Speaker #4: So thank you very much for giving us the time and attending the call. Again I thank thank the team GoIndia team for the very well organized for this call.
Speaker #4: Thank you very much.
Speaker #1: Thank you sir. Ladies and gentlemen this concludes your conference for today on behalf of GoIndia Advisors we thank you for your participation and for using Dhruv Sabha's conference call service.
