IOL Chem and Pharma Q4 FY24 earnings call

Where management's figures differ from the filing

• Q4 FY24 EBITDA: said EBITDA Rs. 58 cr; margin 11.3% (includes other income); filed EBITDA excl. other income Rs. 49.52 cr; margin 9.8%. Management's stated EBITDA of Rs. 58 cr appears to include other income of Rs. 7.52 cr; the filed figure is the standard EBITDA excluding other income.

What moved the numbers, as management explained it

• Q4 EBITDA margin compressed 620 bps YoY to 11.3% on lower realisations and higher freight/insurance from Red Sea crisis impacting both exports and imports.
• Pricing pressure in APIs: Paracetamol prices down 35-40% and Metformin down 20-22% during the year, though partly offset by lower raw material costs.
• Specialty Chemicals EBIT margin slipped to 0.48% in Q4 from a mismatch between input and output prices of Ethyl Acetate, driven by Chinese player volatility in alcohol and Acetic Acid.
• Capacity utilisation gains supported volumes: Paracetamol 80-81% to ~95%, Fenofibrate 20-25% to 45-50%; non-ibuprofen volume up 10-15% across most products.
• FY24 full-year EBITDA margin improved 90 bps to 12.1% on easier input costs YoY; management called FY24 an exceptional year of input-output price mismatch.
• Exports grew 7% to Rs. 679 cr in FY24, with non-ibuprofen exports expected to rise materially post European/other market approvals gained since April 2023 (Metformin exports +60%, Paracetamol +10%).

The numbers management led with

• Ibuprofen capacity utilization: 85-90% in Q4 FY24 (up from 75% in FY23)
• FY24 capex: Rs. 246 crore (vs Rs. 239 crore in FY23)
• FY24 exports: Rs. 679 crore (+7% YoY vs Rs. 634 crore in FY23)
• FY28 revenue aspiration: Rs. 3,000 crore from existing products (12-13% CAGR)
• FY25 capex guidance: Rs. 150-200 crore from internal accruals

Guidance on this call

Filed figures are summed from the company's own quarterly results for the whole period (EBITDA excludes other income); where one sits against what was guided is arithmetic, not a judgement.

By business

Balance sheet, capex and funding

• FY24 CAPEX was Rs. 246 cr vs Rs. 239 cr in FY23; FY25 CAPEX guided at Rs. 150-200 cr, all from internal accruals.
• Operating cash flow pre-working capital around Rs. 250 cr in FY24; expected to grow materially over next 2-3 years.
• Land being acquired around 30 km from existing Barnala complex for future plant expansion.
• Growth CAPEX share guided at 40-45% of total outlay, with balance for automation, infrastructure and environmental systems.
• No debt-related concerns flagged; balance sheet capacity and internal accruals seen sufficient for stated CAPEX and dividend policy.

The industry, as management sees it

Management is constructive on Indian API players over the longer horizon on improving realizations; expects Indian Pharma to remain fastest-growing major economy at 6.8%/6.5% growth in 2024/2025; Specialty Chemicals seeing prolonged inventory overhang with expected sequential and gradual recovery by end of FY25.

Risks management named

• Specialty Chemicals slowdown prolonged; expected sequential and gradual recovery only by end of FY25
• Pricing pressure in Q4 from excess market capacity and elevated freight/insurance costs from Red Sea crisis
• Raw material volatility from Chinese players in Ethyl Acetate and Acetic Acid impacting Specialty Chemicals
• Sitagliptin launch timing deferred; not planned in current fiscal year

Not answered directly

• Paracetamol capacity expansion sizing (described only as 'in five digits')
• Specialty Chemicals recovery timing (only 'sequential and gradual recovery by end of year')
• Sitagliptin exact launch date

Asked for a number, answered without one

• Sitagliptin launch timeline: Developed, validated and Indian Patent approved, but exact launch date not planned; 'It may not be in the current financial year.'
• Paracetamol capacity expansion quantum: Management declined a number and replied only: 'It will be in five digits.'
• Margin impact of Red Sea logistics costs: Management gave only a qualitative comment that 'export in the regulated market will give us some hedge on the profitability also.'
• R&D expense guidance quantum: Management said R&D is 7-8% of API segment currently, expected to rise by 1-2% and headcount is 125; no absolute ₹ figure given.

Every question, with its answer

1. 1. Ibuprofen prices and capacity

   Divya Agarwal, Five Com Family Office

   Question. Trends in ibuprofen prices, demand-supply and capacity in international as well as domestic markets?

   Answer, Rakesh Mahajan, Advisor, Finance and Strategy. Ibuprofen prices remained stable in last quarter and the quarter before. Demand is at optimum level and we are running at 85% to 90% capacity. Global demand is also optimum. Pardeep Khanna added that ibuprofen prices have ranged between $10 to $11.

   Follow-up. Maybe in terms of the prices of ibuprofen, can you help me with that?

   Answer. Pardeep Khanna: The prices has ranged between $10 to $11.

2. 2. Non-ibuprofen volume and exports; Specialty Chemical margin decline

   Aman Jain, Arihant Capital

   Question. What is the volume growth in the non-ibuprofen segment for the full year, the export mix vs FY23, and the reason for the major YoY decline in Specialty and API EBIT margin?

   Answer, Rakesh Mahajan, Advisor, Finance and Strategy. Non-ibuprofen volumes increased 10-15% in capacity terms for Paracetamol, Metformin and Clopidogrel. Metformin exports rose ~60% YoY; Paracetamol exports up ~10%, aided by European and other regulatory approvals since April 2023. On margins: there was a mismatch between input and final chemical prices, especially Ethyl Acetate, due to volatility by Chinese players in raw material. Prices have been stable for the last 1.5 quarters; expects this sector to remain healthy in the next 2-3 quarters.

   Partly answered.

3. 3. Gabapentin plant strategy

   Chirag Salot, Unknown

   Question. On the new Gabapentin product, what will the rate be in future?

   Answer, Rakesh Mahajan, Advisor, Finance and Strategy. Management has already informed exchanges that the Gabapentin project is being changed into a multi-product plant. Gabapentin will be produced on a campaign-based basis only, with no dedicated plant.

4. 4. Other expenses; volume and price walk for APIs

   Jainam Ghelani, Svan Investments

   Question. Other expenses increased QoQ and YoY — what drove this? Also, what was the volume and value growth for APIs YoY?

   Answer, Rakesh Mahajan, Advisor, Finance and Strategy. Other expenses include selling/distribution and insurance costs. Red Sea crisis caused substantial increase in freight prices and insurance costs on both exports and imports. On volumes: ibuprofen capacity rose from 75% to 85%; Paracetamol from 80-81% to ~95%; Metformin at 95%; Fenofibrate from 20-25% to 45-50%. On prices: Paracetamol down 35-40%, Metformin down 20-22%, Ethyl Acetate down ~10%, all corresponding with lower raw material prices.

5. 5. Long-term topline and margin outlook

   Rohan, Turtle Capital

   Question. With the balance sheet expanding due to PP&E investment, what is the 3-year scenario for topline and margins? What could FY28/FY29 topline look like?

   Answer, Rakesh Mahajan, Advisor, Finance and Strategy. Average capex has been around Rs. 200 crore for the last two years. Growth capex will remain around 40-45% and is expected to translate into topline growth via automation, infrastructure and environmental upgrades; bottomline impact expected in 2-3 years. For existing products, topline may grow 12-13% annually to reach Rs. 3,000 crore. Target EBITDA margin around 14-15%.

   Follow-up. And what could be the margins?

   Answer. Rakesh Mahajan: Our target is around 14% to 15% for EBITDA and we hope to achieve it.

6. 6. FY25 guidance (EBITDA, gross margin, capex, R&D)

   Tara Kaur, Fund Star Capital

   Question. Guidance for FY25: EBITDA, sustainable gross margin, capex, and R&D?

   Answer, Rakesh Mahajan, Advisor, Finance and Strategy. EBITDA margin target of 14-15% (FY24 was 12% but was exceptional due to input-output mismatch). Pardeep added that given current market, slight decrease in top and bottom line is expected but EBITDA should improve and be in 12-15% range in FY25. Sustainable gross margin around 20-25%. Capex around Rs. 150-200 crore, all from internal accruals. R&D currently 7-8% of API segments; may increase to incremental 1-2% as the company has hired many skilled professionals; current R&D headcount is 125.

7. 7. Sitagliptin launch timing; non-ibuprofen exports; Specialty Chemicals guidance

   Mandira, Investo Investor

   Question. By when do you plan to launch Sitagliptin? How much increase in exports from non-ibuprofen products is expected in FY25? Revenue and margin guidance for Specialty Chemicals this year?

   Answer, Rakesh Mahajan, Advisor, Finance and Strategy. Sitagliptin is developed in R&D, validated and approved by Indian Patent but exact launch date not planned; unlikely in current FY. Exports currently 17-18% of non-ibuprofen segment; expected to rise to 25-30% on the back of recent approvals and client plant visits. Specialty Chemical segment revenue and margins will remain in single digits, not double digits.

   Partly answered.

8. 8. ANVISA approval impact; FY25 guidance; non-ibuprofen contribution

   Manish Maheshwari, Work Family Office

   Question. What revenue is envisaged for the 10 approved Barnala units and when will revenue start showing in books? Also, FY25 guidance for revenue, profitability and EBITDA, and PAT guidance? Contribution of non-ibuprofen and outlook on ibuprofen?

   Answer, Abhay Raj Singh, Sr. VP & Company Secretary. All 10 manufacturing facilities are located in a single complex at Barnala. The recent ANVISA approval from Brazil covers all 10 plants, allowing entry into the Brazilian market for non-ibuprofen products. Revenue from these products is already in the books; ANVISA simply opens new geography. FY25: revenue upside of 10-12%; EBITDA margin 12-15%; PAT margin target 7-8% (vs ~6% in FY24). Non-ibuprofen currently ~40% of API portfolio. Ibuprofen demand stable with 3-4% global growth; company running at 85% utilization.

9. 9. FY25 revenue mix; Paracetamol capacity expansion

   Deep Chitalia, 9 Rays EquiResearch

   Question. Within the 10-12% FY25 revenue growth guidance, what is the contribution from ibuprofen vs non-ibuprofen? Since Paracetamol is at 95% utilization, will this hinder FY25 volume growth? What is the planned capacity increase for Paracetamol?

   Answer, Rakesh Mahajan, Advisor, Finance and Strategy. Revenue growth is for the company as a whole. Approximate mix: 10-12% growth in ibuprofen, 40-45% in non-ibuprofen, balance from chemicals. Acetic Anhydride added last year will also contribute. Paracetamol expansion is being planned in the current FY to address the 95% utilization. Capacity increase for Paracetamol will be in five digits (likely 1,000-9,999 MT — exact figure not specified).

   Follow-up. What will be the capacity increase in Paracetamol segment in terms of percentage?

   Answer. Rakesh Mahajan: It will be in five digits.

   Partly answered.

10. 10. Export-domestic mix; Red Sea margin impact; Q1 FY25 trends

    Tara Kaur, Fund Star Capital

    Question. Current export and domestic mix for non-ibuprofen this quarter? Effect on margin from Red Sea logistics cost increase? Halfway through Q1 FY25, any improvement in API and Specialty Chemicals?

    Answer, Rakesh Mahajan, Advisor, Finance and Strategy. Non-ibuprofen mix currently ~80% domestic and 20% exports, expected to rise to 30-40% exports this FY. Exports to regulated markets provide some hedge on profitability. Chemicals are a stable business currently with good query flow from domestic and export markets for non-ibuprofen products.

    Partly answered.

11. 11. Cash deployment; capex plan; Rs. 3,000 crore aspiration

    Amit Mehendale, RoboCapital

    Question. Operating cash flow looks healthy — Rs. 250 crore this year and possibly Rs. 700-800 crore over the next 2-3 years. How will this be deployed? Does the capex plan tie in with the Rs. 3,000 crore revenue aspiration?

    Answer, Rakesh Mahajan, Advisor, Finance and Strategy. Cash from operations has been partly deployed into capex including land for future expansion at a new location ~30 km from the existing site in Punjab. Acquisition of additional land is in process; new plants at this site will be funded from this cash. The Rs. 3,000 crore FY28 aspiration is from existing products at the existing facilities; any new CAPEX and new plants will be over and above this target. Abhay Raj Singh confirmed: 'This Rs. 3,000 crore is what we are looking from the existing facilities at different location for the existing products.'

    Follow-up. New CAPEX and new plants, that will essentially be over and above the Rs. 3,000 crore?

    Answer. Abhay Raj Singh: Absolutely. This Rs. 3,000 crore is what we are looking from the existing facilities at different location for the existing products.

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